Farmers need credit – that is, loans – in order to start up, expand and survive in the agricultural economy. In the late 1940s, a complex system of credit institutions fueled good times on the farm.
Farmers need two types of credit. First, they need long-term loans to buy land and machines. Second, they need short-term loans to buy the “inputs” they need to farm each year. They need money to buy seed, fertilizer, herbicides, pesticides and other production items.
In the 1940s, there were four major sources of credit.
- Banks are the most obvious sources of credit for farmers. During the 40s, most rural banks were locally owned and operated.
- Life insurance companies have been significant ag lenders during the 20th Century. With large sums from premiums and the need to find stable, long-term investments, farming was a good investment for the insurance companies.
- Individuals and local businesses have been a huge source of credit for farmers. Relatives or local wealthy people will often loan money to farmers starting up or expanding. Implement and grocery stores will carry farmers on their books until the crops come in. In fact, in 1930, almost 60 percent of farm debt was owed to individuals and local businesses.
- The federal government has loaned farmers more and more money since the government got into the business when it established the cooperative Federal Land Bank system in the 1916.
A pie chart tracking the percentage of farm debt through the 20th Century shows that local banks, individuals and businesses extended over 80 percent of the loans to farmers in the late 1940s.
Holly Miller (left) says rural banking in the 1940s was a remarkably trusting financial system. “I walked into the bank and told Mr. Sack at the York State Bank I’d like to get into the seed business,” Holly remembers. “He threw a notebook on the desk and said, ‘How much money do you need to start?’ So I told him, about $20,000, which was a lot of money back in those days. And so anyhow, he took and loaned me that money. So I started.”
Winton Wright (right) also had a banker who knew him and his family and loaned Winton money when he started farming. “They just probably knew me,” he says. “Knew my dad and so forth… [Now] you put down what you want to do, what your costs for different fertilizer, seed and so forth, irrigation. You go through that every year with the bank … and try to see what the bottom line is going to look like at the end of the year. So, they play a part in the role of most farmers.”
Banker Kelly Holthus (left) remembers, “Early on, when I was banking in my home town, you made a loan based a lot on the father and the grandfather, which was probably wrong.” He is now President and CEO of the Cornerstone Bank in York.
Holthus has been active in both the state and national banking associations. He says, while a lot has changed in banking since the 1940s, bankers are important to rural communities. “If you are in a town that’s dying, you’ll probably find a banker that won’t get behind projects, won’t take risks, won’t do some things for the community.”
Written by Bill Ganzel, the Ganzel Group. A partial bibliography of sources is here.