Mr. LUCE. I understand that that may have been the situation about the 1st of January, perhaps, but for about three months the reports contained in banking publications have indicated a different condition. Such letters as Mr. Lowry, who has been traveling throughout the country, has been sending in would indicate that the conditions are different. He has been reporting on financial conditions, and I have been somewhat carefully following the situation, and everything indicates that there has been a radical change in the situation since this War Finance Corporation was authorized to extend its functions. We are now confronted with the proposal that when conditions are easier, and when the farmer has decidedly gotten out of his bad scrape, we shall continue the Government in this private business. Now, in the last campaign I promised that I would try to get the Government out of private business, but, instead of that, we are going further and further into private business, and I am anxious to know how I will explain to the people to whom I made that promise the action of Congress plunging us further into private business.

Mr. PHILLIPS. I would like to know what would make conditions easier in a farming community since January 1?

Mr. LUCE. The newspaper reports—the reports from banks and bank correspondents—would indicate that fact. Certainly the higher price of farm products has enabled the farmers to get more money with which to liquidate their indebtedness.

Mr. STRONG. The farmers had sold their products before the rise in prices occurred. They were forced to give away their products practically, and then there was a rise in prices.

Mr. PHILLIPS. As a matter of fact, corn is selling for 45 cents per bushel.

Mr. LUCE. I happen to have thrown into my pocket this morning the April report of the National City Bank of New York. That is probably the best of the national-bank publications, and I call your attention to this statement:

The chief factor in the change of sentiment which has occurred since the first of the year has been the rise in prices of farm products. It came so easily and naturally as to demonstrate that the country had been suffering from excessive pessimism, and that in the natural order of things the economic situation, given reasonable time, would recover its equilibrium. Grain prices in March lost a part of their February gains, but the reasons were obvious and there was no serious loss of confidence. The breaking of the drought in the Southwest and improvement in the outlook for the winter wheat crop was the principal factor in the decline. For several months the country had been hearing that the condition of the Kansas wheat crop was critical and getting worse every day, and then came snow and rain, and the Kansas City Star now says that the prospect is good for as large a crop as Kansas ever has raised.”

It then goes on to say that the wheat crop will be harvested within the next three months. Now, at this time, when we are confronted with the biggest wheat crop that Kansas has ever known, and when we are told that the condition of agriculture has been very much improved, we are asked to continue the Government in this business.

Mr. STRONG. I want to say this, that while I do not think that Kansas is confronted with the largest wheat crop she ever raised, still the soil out there is so fertile that, notwithstanding the fact that we had a severe winter and a backward season, the few rains we had immediately improved the crop out there, and it is in a very good condition.

Mr. PHILLIPS. Let us go a little further into that: Of course, that is a beautiful picture to the stock-market people who want to gamble on the wheat crop or something else, but I want to tell you that the bankers of Kansas and Illinois will not get a dollar out of that wheat until it goes through the threshing machine.

Mr. WINGO. It is also true that larger crops will require great deal larger credit facilities to handle them. May I suggest to you, Mr. Luce, if I may have your attention, that you have been misled by getting your information from such a publication as you have read from and I say that with all due respect for the National City Bank? I do not believe that that bank knows anything about the matter of agricultural credits in the West and South. I know what the conditions are in my own State, and I know that the credit system there is such that the governor has just issued a proclamation extending the time for the payment of taxes, because the farmers are unable to pay them. For that reason the time for paying taxes has been extended. Now, when you speak of the banks that the record shows did not rediscount with the Federal reserve banks, I want to ask you why they did not rediscount with

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them? They say, “We got caught last year, and if we extend eredit to the farmers we know that they can not pay in 90 days or in 6 months, and therefore we will be obliged to renew their notes. If we rediscount those notes with the Federal reserve banks, and they do this year what they did last year, they will call the loans at a time when the farmers can not possibly meet them, and we will be compelled to go to private bankers.” They are afraid that they would be putting their heads into the lion's mouth again.

That is an unfortunate situation, and I hate to say that the system has been so administered as to bring it about. I know that feeling exists among coun. try bankers. Any country banker serving an agricultural district will tell you that it is all right for people in great industrial centers to say that there is an easing of the money market and that prices are rising, but those bankers have to depend upon the agricultural industry. For instance, in the case of tobacco they are dealing with a 13-month crop, and in the case of the cottongrowing people the banks know that they can not finance their agricultural operations on 30-day, 60-day, or 90-day paper; but the banker knows, when he furnishes that credit along in January, February, March, and April, that the probabilities are that he will not get repayment until next November or De mber. Most of their bills, even the doctor's bills and the merchandise bills, are payoble on November 15. Now, to say that that banker is in a better credit situation is a mistake. He has had some relief from the War Finance Corporation, that corporation taking up some paper that the Federal reserve banks said that they did not like to handle. That has eased the situation for those banks somewhat and it has enabled them, to a certain extent, to finance the credit needs of their communities, but you have been sadly misled if you believe that the farmers of the South and West are rolling in wealth at this time and are obtaining easy credit. I know that I can not borrow money from my own bank to pay taxes.

Mr. LUCE. But the War Finance Corporation will be here until June 30, or will function until June 30. It has already loaned $300,000,000 of public funds to the farmers, and it has three months more in which to function. It can lend $700,000,000 more in that time, if it wants to; but what I am asking is this: Why should fresh loans be made through the War Finance Corporation after June 30?

Mr. WINGO. You can go and consult, not some western farmer or southern farmer, but any economist in the East who has studied the agricultural catastrophe which befell the farmers of the country last year, and especially the cotton and wheat farmers, and he will tell you that we will do well if the bankers are able to carry those people over a period of from three to five years, in the hope that if they have good crops during the next three or five years they may be able to absorb their losses. They hope to absorb their losses. Otherwise, it would be an absolute loss. The banker is compelled to carry those people in order that they may absorb their losses of last year out of the earnings of the next three to five years. That is not simply and solely in the interest of the cotton farmer, the wheat farmer, or the local banker, but it is in the interest of the whole economic structure of the Nation. These country banks I have reference to want the opportunity to extend credit over the period of the next three or five years, in the hope that they can absorb their losses. That is all the American farmer asks. He is not a beggar, but he simply asks to be given a chance to work out.

The CHAIRMAN. These gentlemen have come here from long distances, and while I do not want to object to questions by the members of the committee, they have a message to give us, and I suggest to the committee that we get their statements now and discuss them afterwards.

Mr. PHILLIPS. If you will pardon me for being a little personal, I will say that these country bankers, of course, are delighted to see the bond market go up. I for one sold my last $15,000 worth the other day, and I got about par for them. Since I was leaving home, and wanted to leave a plenty in the cash reserve, I borrowed $20,000 more. I did that because I would feel better down at Washington if I knew that the boys would have good accounts at Peoria, Chicago, and other places. I did that because I knew they needed the aid, and there will be no relief from this situation until we market our wheat. Oats do not amount to anything much. In fact, they do not pay the taxes. It is only twice a year that we get money in the country districts of Illinois, and that is when we sell our corn crop, at harvest time, and our live stock. Of course, unless the farmers get more for their products than it is costing

them to produce them, we will be getting deeper in the hole all the time. I have a customer of the bank who is worth $300,000, if he is worth a penny. He has always kept a checking account of around $10,000, and he would be somewhat ashamed of his account if he did not have that much. Now, he is borrowing $10,000 from us on account of this bad situation. He is good as gold, and we must take care of him, no matter how much money we have to borrow. If he wants $5,000, or $10,000, we must do our best to take care of him.

Mr. BLACK. Mr. Luce was speaking of the looseness of the money market in the larger centers. Now, with reference to your correspondents, with whom you do business, if you should negotiate a loan with them, could you negotiate the loan for 12 months, or is that the custom?

Mr. PHILLIPS. We generally make them for six months; but we have mighty good proof that when a bank must borrow, they generally get assistance. The managing head of the bank will sometimes help them out.

Mr. BLACK. My experience has been that such farmers as you have mentioned require 12 months in which to raise a crop, and, as a matter of fact, in many cases they know that unless things take a better turn than is indicated now they will probably have to renew some of that paper. It seems to me that that fur hes the essential reason for such an agency as the War Finance Corporation, even though money may be very abundant, because, as I understand the system of the banks, they do not like to make 12-month loans, and they give no assurance, as I understand it, of any renewal privilege. That being true, regardless of how abundant money may be for short-term paper, or for investment paper, such as Liberty bonds, we have no market for investment in the paper of such farmers as you refer to.

Mr. PHILLIPS. I am glad to answer that question, because it is a very practical question. For illustration, take the case I spoke of a moment ago of the man asking us for a loan of $10,000. It does not make any difference whether we make out his note at 60 days, 90 days, or 6 months, or 1 year, we know when we lend him that money that he can not pay it in 60 days, 90 days, or 6 months. We know that he can not pay it in 6 months, and we know that he can not pay it in 3 years unless he gets something for the stuff that he must sell. He must get more than it has cost him to produce it, and the fact is that he is not getting the cost of production now.

Mr. STEAGALL. Is it not a fact that the banks in the agricultural sections of the country are loaded down now with paper of that sort?

Mr. PHILLIPS. Yes, sir; and if you know of any way by which they can get away from it, you can do it better than I can. I do not know of any way to get away from it except to give them the opportunity to work out and get something for their stuff.

The CHAIRMAN. The statement has been made many times before the committee that many bankers called the loans of farmers, and it has been stated that men who wanted to feed cattle on their loans were not permitted to have the loans. It has been stated that farmers who had grain on hand were forced to sell their grain in order to liquidate their loans with the banks. Would you mind telling the committee what your own experience, as a practical banker, was during that period? Did you have to call any farmers' loans?

Mr. PHILLIPS. Not a penny's worth. The farmers call on us for more money, and they will get it as long as we have the credit on which to get it for them.

The CHAIRMAN. Just how do you manage to take care of those demands in your locality?

Mr. PHILLIPS. I have gone to our city correspondents. I have not gone to the War Finance Corporation yet, and when our city correspondent will not lend any more to the bank they will lend it to J. O. Phillips individually.

The CHAIRMAN. So that you have met the demands of the farmers for credit as they were made upon you?

Mr. PHILLIPS. Yes, sir.
The CHAIRMAN. You do not turn anybody away?
Mr. PHILLIPS. No, sir.

The CHAIRMAX. In your judgment, in dealing with this situation, where the farmers have been restricted that way, has it been a matter of local application?

Mr. PHILLIPS. They have been restricted in what way?

The CHAIRMAN. The statement has been made to the committee that the farmers have been refused credit.

Mr. Phillips. It may be possible that where one was over-extended credit we have had to refuse.

Mr. King. There was a rumor about September, 1920, that went around through the banking institutions in various places, especially the country banks, to the effect that banks in cities of the size of Galesburg, where I live, called farmers' loans.

Mr. PHILLIPS. I did hear something of that kind.
Mr. KING. It was not in writing anywhere.
Mr. PHILLIPS. No, sir.
Mr. KING. A number of good bankers have told me that.

Mr. PHILLIPS. I did not see anything of that kind. I do not know what use there would be in calling them, unless they wanted to throw them into bank, ruptcy.

Mr. King. He could not hold his stuff for a higher price if he had to go to the bank and pay his loan.

Mr. PHILLIPS. I think they held their stuff until they got ready to sell.
Mr. King. You are speaking from your personal experience?
Mr. PHILLIPS. Yes, sir.

Mr. STRONG. You must be more fortunate in Illinois than we are in Kansas. In the fall of 1920 I attended a bankers' meeting at Belleville, Kans., at which the president of the Exchange Bank, of Atchison, which is a member of the Federal Reserve Board at Kansas City, of necessity, I believe, said to them: It is necessary for you to reduce your loans and increase your reserves. I have been spending years and a good many thousands of dollars in getting a majority of you bankers to carry accounts with the Atchison Exchange Bank, but I say to you that it is necessary to reduce your loans and to increase your reserves.

“ While I will be glad to help you all I can, when it comes to the question of a pinch as between the Atchison Exchange Bank and you people, you will get pinched, and I am coming up here now to say to you that you should get ready and make every farmer pay you a part of his indebtedness." He went on and suggested, “ You can ask them to pay you 10 per cent of what they owe. If a farmer owes you $5,000, let him pay you 10 per cent of it, or $500, or $1,000, and in that way you will reduce your loans by 10 per cent and relieve the situation.” That was the proposition that was put up to the country banks in Kansas in the fall of 1920.

Mr. PHILLIPS. I am satisfied that the country bankers agreed with him, but I do not know how they did it.

Mr. STRONG. It was done by forcing the products of the farmers upon the market. If you were a farmer and had wheat and did not want to sell at the prevailing low price, the banker would say to you, “ Mr. Phillips, I must ask you to pay 10 per cent of your loan," and you would have to sell it.

Mr. PHILLIPS. Here is what the bankers did in 1920, when the prices were entirely too low : The banker was in sympathy with the farmer, and he went the limit in borrowing money to help the farmer to carry his corn, for which

could have gotten 60 cents a bushel, until the next fall, when he got 35 or 40 cents per bushel for it. That was a bad mistake.

Mr. Wingo. The fact that a mistake was made does not remedy the present situation, because the losses must be absorbed. The loss is there and must be absorbed. I do not know what you had, but I have in my possession a document in which the borrowers at a country bank were told by their own banker that he could not extend their notes. He said, “I can not extend this note for you, because I have a letter from the branch bank at Little Rock saying that the Federal reserve bank at St. Louis has directed us to do this.” In order to be satisfied about it, I procured a carbon copy of the letter that the Federal reserve bank itself wrote. Now, of course, that same man who had been buying grain bought that cotton, and he is benefited by the rise in the price. The Federal reserve system has been carrying it for him, although it could not carry it for the producers. That was a class of agricultural loss in which the speculator got the benefit of the squeeze of the farmer, and the speculator's paper on which he carried the cotton was charged up to agricultural credits and, as I have said, was carried by the Federal reserve banks. STATEMENT OF MR. H. A. MOEHLENPAH, 707-709 NATIONAL

BANK OF COMMERCE BUILDING, MILWAUKEE, WIS. Mr. MOEHLENPAH. Mr. Chairman and gentlemen, I will take just a few moments of your time, and may I ask that I be permitted to make my statement without interruption? I have come here with a committee from the American

Bankers' Association, representing 20,000 small banks in this country. I am not a member of that committee, but they have done me the honor to invite me to come with them. I want to give a bill of health to you. I have been a country banker for 30 years, and I have been connected with joint-stock land banks and a mortgage company. I had the privilege of serving out Mr. Delano's term on the Federal Reserve Board for nearly two years.

As a country banker who has served on the Federal Reserve Board, I will say that my experience as a banker and as a member of the Federal Reserve Board convinced me, to my satisfaction, that the farmer is too far removed from the financial counter. I became satisfied of that, and when I went back I set up a corporation in my city consisting of 240 or 250 country bankers, the object being to do something for the farmers that nobody else would do for them.

We have assembled farmers' paper from little country banks, indorsed by the little country banks and State banks, and we have trusteed that paper. We have trusteed the paper and have issued against it what we call rural credit collateral trust notes. We have sold them at the rate of $250,000 per month to banks with commercial connections, or wherever there is surplus money. We have in that way organized something that brings the farmer closer to the financial counter: We have been able to sell over $1,000,000 worth of that paper, and I think that is a distinct contribution by my State. When the War Finance Corporation was set up again last fall I was put upon that committee of five men in my State. We have been meeting every week passing upon those loans, until we have showed between five and six million dollars for the State of Wisconsin. I think I am informed in regard to the needs of agriculture, and I think that the time has come when the farmer, the country banker, and the city banker should be protected from the hazard and menace of financing the agriculturalist through the commercial banks of the city. Now, may I illustrate that?

I have talked with no one and this is my own conviction. I represent myself, although I think I will represent the farmers of the western country when they understand the mechanics of what we are getting at. That is what you are after, Mr. Congressman, and I want to get right to it. We have 20,000 little banks in this country outside the Federal reserve system and we have 10,000 banks inside the system, in round numbers. These 20,000 little banks are potentially the best working unit we have for the American farmer. Now, you see what happens. When this little bank gets in distress—and everything the Congressman said here is true; what you say is true and what you say is true [indicating]-as it has in the last two years, the 20,000 little fellows must go to the city correspondent bank; if the city correspondent bank is in distress and has to care for the man who is manufacturing or merchandizing, his customer, it is obvious he must take care of him first and that is what he did and that is what he ought to have done. But he told the country banker “ We will give you half a loaf or you must get in line and wait," and the country banker had to go back through that deflation process. Now, when the city banker told him that-and he did tell it to him ; whether he had documentary proof of it or not I not so sure, but he was told that all down the line. In my State we have 850 little banks and the city banks said, “We have got to reduce our rediscounts at the Federal Reserve and you will have to pay off some of your debts; we can not carry you the way we have been carrying you." What did the little fellow do? He went back and sold his farm stuff; he could not carry his potatoes; he could not carry his tobacco; he could not carry on; he had to get out and sell his stuff; he did it and it raised hell in the western country, and you men know it.

Now, we do not learn very much until things break down and that may be a pretty good thing for you men, because I think you now have it in the back of your heads to give this first and prompt consideration before this Congress adjourns.

There are two bills before Congress. One is known as the Lenroot-Anderson bill, and it was my pleasure to attend those hearings at St. Paul. Then there is the Simmons bill. There are two bills. The Lenroot-Anderson bill provides for tying this intermediate line of credit to the Federal Land Bank, while the Simmons bill provides for a separate organization to be set up to follow the War Finance proposition. I am opposed-I should not use the word opposed, but I do not think it is sound to tie the short-time credit of the farmer to the long-time credit program as operating under the farm-loan system. It will bring utter confusion into the investment mind. That system

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