THE COTTON SYSTEM AT THE TURN OF THE QUARTER CENTURY cotton is characterized in extensive agricultural production in America by four interrelated factors : Cotton is produced with a large percentage of expensive credit ; it is often produced in connection with a small percentage of other crops ; it is marketed in a system over which growers have developed little control; and it calls for a great amount of manual labor, much of which is furnished by women and children. It is necessary to consider these four elements in the system by which cotton is produced.
In so far as the production of cotton may be regarded as organized, it is organized around the system by which it is financed. In this connection are included the planta tion organization and the crop lien which have already been discussed. The sources of credit for cotton produc tion, the number of farmers needing such credit, the na ture, the amount, and the charges for the credit must be considered.
In the Delta areas 1 the plantation owners secure the means for growing the crop from at least four principal sources: banks, wholesale merchants, cotton factors, and local merchants. The factorage business has recently suf fered heavy losses, but in 1922 from 5 to 10 per cent of planters' advances were received from factors. From 40 to 80 per cent of these advances come from local banks. From wholesale merchants may be secured from about 10 to 20 per cent of the credit needed. Wholesale grocery companies operating in the Delta regions estimate that about 50 to 90 per cent of their business is with planta tion commissaries. For croppers and share tenants the one source of credit is the landlord. Usually the planter gives the tenant a line of credit at the plantation sup ply store. The credit is based on the tenant's acreage planted to cotton and is secured by a crop lien. Each month the renter is allowed to draw part of this line of credit. The time price is usually 10 to 25 per cent higher than the cash price. In 1920 and 1921 the average amount of credit furnished to 1,330 2 families of Negro cotton. growers on plantations was $289 to croppers and $555 to tenants. These advances are used by all the planta tion labor regardless of the returns made from cotton. "Cash money is for Christmas ; furnishing is for livin'," is the way one cropper phrased his attitude. The inabil ity of the cropper to finance himself, in or out of the plantation system, is shown by his lack of capital. An the per capita net worth of persons engaged in farming in the United States of January 1, 1920, as signed the following values : owner farmers, $13,476; part owners, $12,829 ; tenants, $4,315 ; and croppers, $354.
The problem of financing the cotton grower outside the plantation area is larger and more complicated.' The upland areas produce almost nine times as much cotton, and a greater variety of credit institutions exist than in the Delta. Small owners secure credit from banks or supply stores, while the landlords make a larger use of banks. The prevailing rate of interest charged by banks on personal and collateral loans to farmers in the leading cotton states in the spring of 1921 was found to range from 6.23 per cent in North Carolina to 9.70 in Arkansas' The forms of security most used are, first, per sonal notes with one or more endorsements, second, mort gages on live stock and, third, crop liens. The cash and share tenants secure credit either from their landlords or from fertilizer dealers, supply merchants, or banks, usually with the landlord's aid. The croppers, the most helpless of the group, are usually forced to depend on landlords and local supply merchants. The survey of 1923 found that only 12 per cent of the cotton pro ducers were able to finance the entire growing process themselves. From 50 to 90 per cent, depending upon the locality, "borrow in the spring and continue until the cotton is marketed."' Except for bank credit, which ranges around 8.5 per cent, the interest charges to farmers during the cotton growing season are almost impossible to estimate. The difficulty lies in the fact that much of the bank credit comes to the growers at second-hand through fertilizer dealers, landlords, and supply stores. In North Carolina,
South Carolina, southern Mississippi, and west Tennessee the growers secure a little more than half their credit from supply stores, while Arkansas and northern Mis sissippi report that about 75 per cent of the stores sales are for fall payment.' Although the amount of credit ex tended by the supply merchants to the tenant varies from year to year, it is a very small part of their total credit needs. Croppers lack sufficient chattels for security for either the banks or supply stores to furnish them, and are often supplied entirely by the landlord. "It is safe to assume that the landlord furnishes more than half the credit needs of the tenants."' Various studies of the cost of furnishing by supply stores have shown high interest rates. Clarence H. Poe in a study of the credit system of ten cotton states esti mated that time prices averaged 23.33 per cent above cash prices. If time prices on an average carry over four months he says "it is equivalent to paying interest at the rate of 70 per cent per annum." 9 Studies in North Carolina farm credit have shown lower interest rates. One survey of 800 farms in three North Carolina counties 10 showed that 54.2 per cent of the farmers used merchant credit for which they paid 26.6 per cent interest. It was found that 40 per cent of these advances were fully se cured by crop liens. R. B. Eutsler found that out of 588 Negro farmers 52 per cent used merchant credit for which they paid an average interest rate of approxi mately 26 per cent.'" Fertilizer credit is likely to come at a higher rate. It may be secured through planters, merchants, or fertilizer dealers. In his study Eutsler found that 88 per cent of the Negro farmers from whom he secured records bought fertilizer on time. Their average fertilizer bill was $254, and the excess of time prices over cash prices was found to equal from 35 to 39 per cent interest, depending on the sources of the credit.' There are two ways of looking at interest charges as high as 25 per cent on advances to cotton growers. They may be regarded as a species of merciless extortion by which the merchant may soon become wealthy. One writer 13 has called the credit and crop lien system "legal ized robbery" and says that the borrowers, "cheated in the making of their contracts and in purchasing neces sities . . . have been but the prey of sharks and harpies, bent upon keeping them in a state scarcely better than that of slavery." On the other hand, such high interest rates may be regarded as inherent in the speculative na ture of cotton growing. It has been observed that many credit merchants fail while but few grow rich. R. B. Eutsler has offered an explanation of high interest rates in terms of the speculative risk involved: Merchants ordinarily furnish fertilizer, equipment, seeds, and cash in addition to merchandise for consumption. Under such a system the merchant has assumed practically all of the risk for the success of the crops of the farmer to whom credit is extended. The only security available is a lien on the crop to be planted and grown during the same period in which the credit is granted. The risks which the merchant assumes, then, include risk of production hazards of the crop, and market risks for the sale price of the crop when they are ready for marketing. In a one or two crop system of agri culture, the assumption of these risks is pure speculation. It is believed that this factor of risk is a major cause of the high cost of credit extended by time merchants." That the need of the grower of cotton and his lack of alternatives enable the supply merchant to charge higher credit prices must be admitted. On the other hand, if such business enterprises were uniformly successful, com petition to secure high returns on investment would lead to a lowering of interest rates.
The Federal Farm Loan Act and the Joint Stock Land banks furnish only long-time credit. This form of credit on land enables an owner to improve his farm, or an industrious farmer to purchase land. It, however, makes no provisions for short-time credit needs of groups such as cotton growers.