The relation of the governments in furnishing agricultural credit has varied greatly. In France the rural banks have been established for the most part on funds advanced by the government without interest. This policy was begun in 1894 and in 1910 the working capital at the disposal of the rural banks which had state aid amounted to 71 million francs (between 14 and 15 million dollars), of which 40 million francs had been advanced by the government. In Austria the provincial governments have actively assisted in the establishment of rural banks to furnish credit for farmers and have advanced loans without interest to them. In Germany the government has indirectly aided the rural banks by establishing central banks founded on capital advanced by the government, in most cases at 3 per cent, interest. The central banks in turn furnish credit to the rural banks and the rural banks to the farmer. The Prussian Central Bank at Berlin now has a capital of 75,000,000 marks from the Prussian government. However, its business is not confined to agricultural banks, but is open to all kinds of industrial cooperative associations. It receives deposits and makes loans to the cooperative banks throughout the kingdom of Prussia, and serves as a compensating medium between the different cooperative institutions. For example, if a rural bank has large deposits and a surplus of funds, it deposits them in a central bank to be loaned to some other bank in need of funds.
The desirability of government subvention is a disputed point, and in Germany which has the best developed system of agricultural credit in the world, many are opposed to it as being entirely unnecessary and think that a better system can be developed without it.
The second source of capital, savings and deposits of the farmers and rural population, is the most important. It has the advantage of developing the habit of saving among all classes in the country and it keeps the money in the rural districts in which it is earned. In Germany alone there are over 16,000 rural savings and loan banks with one and one half million members and deposits of over $250,000,000. Instead of being deposited in savings banks to be loaned out in the cities, as is the case in America, or deposited in post-office savings banks to be loaned to city banks, the money is kept in the rural districts and loaned out at a rate of interest that the farmer can use it to advantage.
The third source of capital, obtained by the sale of bonds secured by mortgages on farm lands, was the first form of cooperative agricultural credit established in Europe and was begun in Germany in 1770. Its most rapid development, however, has been within the last thirty years, and at the present time the German farmers have over $1,000,000,000 borrowed in this way, none of it costing them more than 4 per cent, interest and in some cases it is as low as 3 per cent.
