Farm Credit Act (1933)

President Roosevelt signed the Farm Credit Act on June 16, 1933 [1]. The purpose of the act was to improve federal lending to farmers.

Credit had long been a problem for American farmers. Commercial credit from banks was normally “scarce, short term, and at high interest rates” [2]. Farmers were, therefore, in favor of easy lending (less regulation of local banks) and against the Gold Standard (“free silver”) in the 19th century. Unfortunately, boom times regularly brought excessive borrowing by farmers to buy land and equipment, and to get through crop cycles, which put them in a bind when prices fell sharply in major recessions in the 1840s, 1870s and 1890s. These credit problems led to widespread rural support for the Grangers movement and the Populist Party.

The first direct federal intervention in agricultural credit markets was the Federal Farm Loan Act of 1916. This act, based upon a long-running program in Germany, created a system of Federal Land Banks to provide long-term credit to farmers. Addressing short-term credit problems, Congress added the Agricultural Credits Act of 1923 to facilitate farm lending by commercial banks, but the latter showed little interest in the program [3].

After peaking during World War I, prices for American farm goods dropped steadily through the 1920s, despite prosperity in the overall US economy. Many farms were already teetering on the edge before the Stock Market Crash of 1929 sent the nation’s economy on a downward spiral. The Great Depression—and, in some areas, severe drought—saw millions of farmers unable to make loan payments. Many abandoned their farms in hope of a better life elsewhere.

New Deal policymakers wasted little time responding to the crisis facing America’s farmers. On March 27, 1933, with Executive Order No. 6084, President Roosevelt created the Farm Credit Administration (FCA) to consolidate and streamline farm credit services [4]. On May 12, Roosevelt signed the Emergency Farm Mortgage Act, which allowed farmers to take advantage of “lower interest rates and more liberal terms of payment” [5]. And, on June 16, with the signing of the Farm Credit Act, the FCA “could now provide credit for all types of agricultural activities” – short, intermediate, and long-term [6]. Within Federal Land Banks new units called “Production Credit Corporations” and “Banks for Cooperatives” were created [7].

By the end of the 1930s, it was “estimated that altogether about two million farmers [were] utilizing directly or indirectly the financing services of institutions operating under the Farm Credit Administration,” which had issued over $3,000,000,000 in credit, “representing from one-fourth to one-third of the total credit outstanding to agriculture from all sources” [8]. The FCA and the Farm Credit Act proved to be integral parts of the overall New Deal effort to save, stabilize and improve America’s farms – efforts which also included price controls, soil conservation, and rural electrification. And, as farming revived during and after World War II, most federal loans were repaid [9].

The FCA still operates today, as “an independent Federal agency that regulates and examines the banks, associations, and related entities of the Farm Credit System…a nationwide network of lending institutions that are owned by their borrowers. It serves all 50 States and Puerto Rico” [10].

Sources: (1) “Today in History: June 16,” American Memory, Library of Congress, http://memory.loc.gov/ammem/today/jun16.html, accessed August 17, 2015. The full text of the law can be found on the site of the Federal Reserve Archive, at http://fraser.stlouisfed.org/docs/historical/congressional/19330616hr_farmcred.pdf (accessed August 17, 2015). (2) “History of FCA and the FCS,” Farm Credit Administration, http://www.fca.gov/about/history/historyFCA_FCS.html, accessed August 17, 2015. (3) Ibid. (4) “Executive Order 6084 Consolidating Federal Farm Credit Agencies,” American Presidency Project, University of California – Santa Barbara, http://www.presidency.ucsb.edu/ws/?pid=14599, accessed August 17, 2015. (5) “Statement on Signing the Farm Relief Bill,” American Presidency Project, University of California – Santa Barbara, http://www.presidency.ucsb.edu/ws/index.php?pid=14641, accessed August 17, 2015. (6) See note 2. (7) See note 1 (full text of the Farm Credit Act) and note 2. (8) “Seventh Annual Report of the Farm Credit Administration, 1939,” Washington, DC: U.S. Government Printing Office, 1940, p. 1 (available to view at http://www.hathitrust.org/). (9) “Historical Highlights of FCA and the FCS,” Farm Credit Administration, http://www.fca.gov/about/history/highlights.html, accessed August 17, 2015 (see entries 1947, 1953, and 1968). (10) “FCA in Brief,” Farm Credit Administration, http://www.fca.gov/about/fca_in_brief.html, accessed August 17, 2015.