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The CHAIRMAN. Is it not a fact in contrasting the farmers' demands and their actual operations in the matter of borrowing money with those of industry and commerce, that industry and commerce have been able to treat the subject with a little more finesse than the farmers ?

Mr. ALLEN. Certainly they have; yes.

The CHAIRMAN. As I said a moment ago, this question of liquidating once a year by the merchants and dealers in the city is largely done by borrowing froin other banks.

Mr. ALLEN. Yes.

The CHAIRMAN. And then they are also safeguarded in their operation and they have been able to be a little more fortunate perhaps than the farmer has been in that respect, because of their large commercial-paper houses. Some of these commercial organizations will float their paper through those agencies and only call on their banks in times of stress.

Mr. ALLEN. And the big bank aims to have a director who is familiar with the principal lines that they deal in.

The CHAIRMAN. And this suggestion that is growing up here this morning practically will mean to the farmer what the great commercial-paper houses mean to the industrial concerns and business men.

Mr. ALLEN. That is it exactly; and the people will buy that paper.

The CHAIRMAN. In other words, it introduces the farmer to the investing public.

Mr. ALLEN. Yes; to the investing public. That is where you get your money. The CHAIRMAN. And that is the great handicap that the farmer has had.

Mr. ALLEN. And I want to say a word on the part of those fellows. The great line of investors first want security. These farm-loan bonds have not yet been advertised well enough, and there is not enough confidence in them. That is not their fault. It is simply the laziness of the investors that they do not familiarize themselves. They do not sell any better than Atchison firsts.. And there is another thing that the investor will not tolerate. He will not tolerate a bond that is callable at par. If he gives a call, he wants a put. What I am getting at is that when those bonds are called it should be at least 1 per cent premium, because they would not be called unless it was profitable to call them. Now, give the investor a share of that profit and not a jug-handle contract. That injures the sale of those bonds in the millions.

Mr. STRONG. They are not callable now for 10 years.

Mr. ALLEN. No; but call them at a premium. If I make a bargain with you and you have the right to back out and I don't I don't like it. If a situation occurs so that you want to pay and you are making money by paying, I want a part of that. There is not a railroad or any other industrial corporation that would presume to put out a bond without calling it at a premium. That hurts the sale of these bonds.

Mr. STRONG. I think you are right about that.
Mr. ALLEN. Not only in dollars and cents but in sentiment.
The CHAIRMAN. Mr. Allen, have you concluded?
Mr. ALLEN. Yes.
The CHAIRMAN. Mr. Silver, do you want to say anything on this subject?

Mr. SILVER. I do not think I want to make a statement to-day. However, I want to subscribe in general to the purposes and objectives of the testimony of the witnesses this morning.

Mr. STRONG. Mr. Malott comes from the best district in the land, and I would like to hear him.

STATEMENT OF MR. W. H. MALOTT, PRESIDENT OF THE CITI

ZENS' BANK, ABILENE, KANS.

Mr. MALOTT. I do not believe I can give you any different slant on this ques. tion. The matter that Congressman Strong mentioned about taking money from the agricultural districts through the issuance of Government securities is very noticeable in our section of the country. Last month, for instance, in our little bank, with a capital of $50,000, we bought $30,000 certificates of indebtedliess. That drained the deposits of that institution. We have never failed in any subscription offered by the Government to get the full quota to which we subscribed. You can figure that out as you please, because the last issue, I think, was more than four times subscribed, and we got our $30,000 just the same in full. The tax-exempt features are causing the taxes in our country to fall very heavily upon the visible property, which is largely the farm. A 90acre farm right close to our town paid taxes last year of $328, or approximately $4 an acre. That farmer needs some relief. He needs some way of financing himself whereby he is not forced to sell his crop at any given moment, and it is through this third or intermediary credit, which has been discussed this morning, that we are hopeful of getting relief for the farmer.

The easy-money proposition that the Congressman spoke of does not apply to our locality, because we have nothing particular to sell. The Kansas people are a hopeful crowd, and the wheat just now is waving beautifully in the wind, but it is not any collateral and it will not buy anything until it is in the bins.

Mr. MacGREGOR. They boosted the price of land in Kansas very high, did they not?

Mr. MALOTT. Not to the extent they did in Iowa, and the Iowa farm and the Illinois farm that is four or five hundred dollars an acre, I say, was boosted beyond what the returns from production will show. In our locality land in Kansas would probably be $100 to $150 an acre for the best land.

Mr. STRONG. And that is the best land on earth.

Mr. MALOTT. And as far as easy money is concerned, I will give you a concrete illustration in our own town. Deposits are off half a million dollars in a town of 5,000 in the last year. If you tell me that makes easy money, I do not know how you get at it.

However, I do believe that you gentlemen are on the right track, and I am very hopeful that in the wisdom of your numbers you will work out some concrete plan that will benefit the agricultural interests of this country. The State banks represent practically the agricultural sections of the United States, because the 20,000 are located in those sections, and the small bank functioning in its small locality is doing just as much service tor that community as the larger banks in the larger towns, and it does get loaded up with these frozen credits.

Now, with reference to your merchant and your manufacturer liquidating his debts, let me say that he does not. He borrows through the bond houses, or from some other source, and pays the other fellow, and he thinks he is paying off. The farmer is not borrowing fixed capital when he is buying cattle. His fixed capital is his farm, and he borrows money to buy cattle through which to get the returns on his farm products. If a farmer had sufficient capital to buy all the cattle he needs to run his farm he would not have to borrow any money and he would have idle money a good part of the time the same as a merchant.

I do not think I can add anything further, but I hope you will give the consideration, as I know you will, to this intermediate credit proposition that it deserves.

Mr. ALLEN. There is one thing more, Mr. Chairman. There seems to be the idea that this will create additional expense. The operation of a separate corporation would not cost any more than would be necessary to add to the Federal farm loan system. It is an entirely different piece of machinery, and besides the fact that it would confuse the classes of agricultural investors, there is no saving by giving this to them. I will admit they know much more about various finances, but I happen to know something about organizing banks, and I know that they would not save a single clerk. They would not save anything possible except some rent, and they are not equipped so as to do that. If you will ask anybody who is familiar with the organization of departments of a commercial bank I think 100 out of 100 will say that there is no expense in putting this over under this system.

Mr. MOEHLENPAH. May I add just a word, because this subject seems new. It has been opened to us during the past year because of certain conditions. I want to remind every one of you gentlemen that the men of commerce evidently saw this stressful time coming, and there were shot upon the market millions upon millions of all kinds of bonds, utility and industrial bonds, and names appeared upon our lists and investment markets that never appeared there before. What was the result? The bond houses shot their agents out all through this country, and they went into the agricultural districts whenever there was a surplus dollar on deposit there and sold those debentures and bonds. They lifted deposits from the country districts into the cities. The point I want to make is that they were organized and could do it. I am not critical of that. They did what they ought to have done. But the farmer, on the other hand, I say, was not organized.

The CHAIRMAN. And did not have the machinery.
Mr. MOEHLENPAH. And did not have the machinery.

The CHAIRMAN. And this suggestion which-is made here this morning creates the machinery for the farmer to anticipate his needs.

Mr. MOEHLENPAH. That is the idea.

The CHAIRMAN. There is no question but that the business men did anticipate this situation and financed themselves. The evidence you cite, I think, is known practically to all of us. These big corporations put out great bond issues in the millions.

Mr. LUCE. May I ask Mr. Moehlenpah one or two more questions? I am greatly interested in what I have been able to hear this morning, because it has opened up some lines of thought that were new ; but I am still uncertain whether it is within the contemplation of such a remedy as you have suggested this morning to furnish the farmer with a continuous supply of working capital.

Mr. ALLEN. No.

Mr. LUCE. If this does not contemplate that, should something of the sort be sought? We have had a great many investigations of and reports about the credit-union idea of Europe, and it seems to have been dropped from sight. I am personally very familiar with the workings in my own State of what is known as the cooperative bank system, which is very much like the building and loan association elsewhere. Now, in a cooperative bank—and I have been using those banks for many years—two classes of loans are possible, on what is known as a real estate loan and the other a personal loan. The principle of amortization is applied, and a man may borrow $300 and pay back so much a month. Is there no hope of accomplishing something of that sort for the farmers?

Mr. ALLEN. What are called the Morris banks do that. They operate largely in the cities among clerks and workers in factories and mills, and so on. That is successful as far as it goes, but the local bank ought to take care of that sort of thing.

Mr. LUCE. But your local bank can not make any loan on an amortization basis running over 5 or 10 years.

Mr. ALLEN. No; they can not do that.
Mr. MOEHLENPAH. The farm loan provides for that.
Mr. LUCE. But that is only on real-estate security.

Mr. MOEHLENPAH. You used the word “capital,” and that is what made me say that I think the fixed investment of the farmer should probably be cared for under the amortization plan.

Mr. LUCE. Is there any opportunity for that now apart from the real-estate mortgage furnished by the farm-loan system?

Mr. MOEHLENPAH. In the cities we have many institutions like those you refer to. I do not know anything about your State; but, for instance, take the Morris-plan banks-and we have other institutions of that nature that are cooperative, but the farmer does not know anything about that. The country banker is not organized financially to do those things.

Mr. LUCE. Then you contemplate in your suggestion this morning simply some institution that shall furnish something corresponding to commercial credit?

Mr. MOEHLENPAH. Yes.

Mr. ALLEN. Something to do for the farmer and his turnover what the commercial banks do for the merchants and the manufacturers.

Mr. LUCE. And you still agree with me that the farmers should clear up once in a while ?

Mr. ALLEN. I am presuming that this bank will have ordinary banking sense and not give anybody what, in the words of the banker, he is not entitled to. It simply puts a limit on what he can do and not on what he will do. It would be the worst kind of financing to give everybody three years credit.

Mr. REED. May I interject here that very little of this three-year credit is granted anyways. That is only done in case of long-time feeding operations, and that is only a small part of a man's investment, anyway.

Mr. ALLEN. If I were in charge of the bank I would not give a single threeyear credit to anybody but a live-stock grower and possibly two years for the sheepman, and never but one year to a real, dirt farmer.

Mr. MOEHLENPAH. If you could see the mechanics of this thing, you would see a flock of sheep or flock of yearlings coming from the pasture on the range say to the feeding lots of Kansas, Nebraska, Iowa, or Illinois. The farmer out on the range has got to be carried for a year or a year and half. Then when he gets them into the feed lots, that many has to be carried for another year

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or year and a half, but he must not be pushed. If you have watched during the last two years the stockyards reports on the sale of veal, I have no doubt you have been startled at the sale of young stuff that ought to have been preserved. Look where sheep were in December.

Mr. ALLEN. You heard Mr. Moehlenpah speak of how he got stuck. The operations of some of these boards of trade ought to have landed them in jail, the way they deliberately beared the market.

Mr. MOEHLENPAH. Look where sheep were in December. If I had had that sheep proposition under my own hands I would have raised the money to have handled it, but I could not do it because I was associated with a bunch of fellows and they were all in the soup and they had to sell.

Mr. ALLEN. And the market was not as high in Chicago as it ought to have been because the follows out there were bears on the market, and you got $2 and they got $10.

The CHAIRMAN. Gentlemen, we are very glad to have heard you this morning. and if there is nothing further we will adjourn.

(The committee thereupon adjourned.)

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COMMITTEE ON BANKING AND CURRENCY,

HOUSE OF REPRESENTATIVES,

Thursday, April 20, 1922. The committee met at 2.30 o'clock p. m., Hon. Louis T. McFadden presiding.

The CHAIRMAN. The committee will please come to order. Mr. Cole, the chairman and the committee are very glad to have you before us to-day and to have the benefit of your experience in the handling of the Farmers' Fund. If you will proceed in your own way, after you have finished your initial statement we may wish to ask some questions.

STATEMENT OF MR. M. W. COLE, FARMERS' FUND (INC.),

ROCHESTER, N. Y.

Mr. COLE. Mr. Chairman and gentlemen of the committee, I feel that this is a rather embarrassing situation and a good deal of honor thrust upon me, because I understand this is “the most powerful committee in the world,” and if I trip over myself in my story please blame it to my embarrassment.

The experience that we have had in New York State has been unique in a way. Long before the question of agricultural credit had gotten to be a national issue, if you will call it that now, a few public-spirited men during the war wanted to do something in New York State to increase food production. I happened to be in Washington the night war was declared and met two of New York City's philanthropic rich men, and being a pract: cal farmer they asked me what was to be done to increase food production. I was a little bit peeved, as I had had the red, white, and blue waved at me pretty consistently and I had had a lot of bulletins and preachments about what the farmers ought to do, and my short answer to the gentlemen was that if they would stop preaching at us and get us some money to buy potatoes at $3 a bushel and beans at $10 a bushel we might grow more beans and more potatoes; that we had had two hard years and, to my personal knowledge, the credit machinery was pretty well stretched.

They wanted me to figure out some plan of action. Naturally, as my experience with the banks had been on the far side of the counter, as borrower. I ould not conceive the financial end of it, but I made the plan sufficiently clear to men who were familiar with banking that they agreed to put up a sum of not less than $500,000 if I could build the machinery. That was the night of the 8th of April, 1917. On the 28th day of April the machine was running. The machine roughly, was built as follows: I went to the executive committee of the State Grange, all of whom I was acquainted with, and told them my plan. They indorsed the plan, and allowed me to circularize with their approval the master of every Grange in New York State, numbering about 900. I had their authority to ask the master to appoint three men in each county to act as a local credit committee, two grangers and one banker as a member of that committee. Such committee was to have authority to approve any loan up to $300 for crop purposes on the sole strength of the borrower's character and his ability as a producer to use the money wisely.

The borrower, when he secured the approval of that committee, was to go to an agent bank. The agent banks were picked out of the bank directory one night, and chose preferably the banks which had the word “farmer" in their title, much to my disappointment in some cases. But I chose the banks geographically so that no farmer in our State would possibly be over seven or e'ght miles from some banking institution.

The blanks were all sent from the main office to these committees, and when the majority of that committee approved the loan-two out of three—the farmer took his note and his application to an agent bank. The agent cas ed the note and held it for collection, drawing upon either the Chase or the Hanover bank in New York for the face amount. When the note matured and was paid, they simply remitted to those two banks in New York,

Mr. APPLEBY. What was the length of the notes given ?
Mr. COLE. The notes were for one year.
Mr. NELSON. Did the notes have a renewal privilege?
Mr. COLE. They did not.
Mr. BROOKS (presiding). Did those notes bear interest?
Mr. COLE. They bore interest.
Mr. BROOKS. Legal 6 per cent interest?

Mr. COLE. The first loan bore 5 per cent to the borrower. Money was cheap then, but the banks were allowed one-half of 1 per cent for their trouble and service.

Mr. NELSON. The agent bank in each locality?

Mr. COLE. Yes. I had been a borrower all my life; in my 46 years I always felt I was in debt to somebody, and I thought in would be a good idea to leave a good taste in those fellows' mouths who took the money, so, the minute his note was discounted, I wrote to him and thanked him for borrowing the money. I put in it a little red, white and blue stuff, but outside of that it was a letter of thanks to the men for borrowing the money; and that practice still continues with the Farmers Fund (Inc.).

Mr. APPLEBY. This one-half of 1 per cent did not go to the big national banks in New York, but went to the local banks.

Mr. COLE. It went to the local banks. Mr. STEVENSON. Could those notes be paid prior to maturity? Mr. COLE. Yes, sir. Mr. BROOKS. The local banks acted as agents? Mr. COLE. For our office. Mr. BROOKS. They were paid one-half of 1 per cent for their services? Mr. COLE. Yes, sir. Picture in your mind starting this thing on the 7th of April and making the first loan on the 28th of April. You will see we had a machine creaking in every joint. We had to build up our credit structure as we went along, and that was one of the fundamental jobs we had to do-review, revise, and change the personnel of our credit committee in many instances; we had 2,200 local loan committeemen in New York State. In other words, we tied the credit strongly to the locality-strongly to the moral or character risk, strongly to the man's ability as a producer, on his own responsibility, and not upon any group credit, after the European fashion. It was simply an unindorsed single-name note.

Mr. NELSON. How much money did you loan that way?

Mr. COLE. The first year we loaned $447,000. All the notes were paid, and in July following, in 1918, 100 cents on the dollar had been returned to the contributors. There was the expense of organization, which was taken care of, and no more, by this 41 per cent net to the contributors.

Mr. NELSON. Did you have more applications than you allowed?

Mr. Cole. There never was a moment when, in my four years' experience in New York State, there has not been a demand for long-term credit of at least 100 per cent over the total credit available. The demand is constant, and it is now a 12 months' demand; that is a later development.

Mr. WINGO. What was your maximum loan?

Mr. COLE. $300; and the surprising thing about it is that after establishing a maximum loan of $300 our average loan in the whole two years of our operation as a patriotic organization never exceeded $110. We made literally thousands of loans around $50. After the war we had our money back and we were a going concern. When we started 217 banks joined this work. After the war the bankers whom I had met, a good many of them personally, and through my representatives, were surprised at the result. They

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