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Mr. KING. And to sell it?
Mr. STRONG. And to sell it.

The CHAIRMAN. We have with us Alice L. Daley, of Mitchell, S. Dak., a woman who is very much interested in farm credits, a member of the Nonpartisan League, and a candidate for governor of South Dakota. She has honored us by her presence here this morning. I do not know that I can recollect that since I have presided as chairman of this committee that we have had a woman appear before us. I think the committee will be interested to hear her, and I am sure she will have something to say of benefit to us.

Mr. STRONG. I certainly want to hear the lady, but I want an understanding that some time I can discuss this with Mr. Anderson.

Mr. ANDERSON. I shall be glad to give way to Miss Daley and place myself at the disposal of the committee.

The CHAIRMAN. I am going to suggest, Mr. Anderson, that the committee will adjourn to-day until 10.30 o'clock Monday morning, and if Mr. Strong and some of the other members of the committee would like to ask some questions we can call on you at that time to come back.

Mr. STRONG. I want to discuss some phases of the bill that have been troubling me.

STATEMENT OF MISS ALICE L. DALEY, MITCHELL, S. DAK.

Miss DALEY. I think there is no question that the farmers are more intensely interested in at this time than the question of getting credit for a long-time period at low rates of interest. I come directly from a farming community, and our farmers there are suffering intensely, as all the gentlemen from the Middle West know. They are suffering, I think, for three reasons: First, because of the depreciation in the price of farm products; second, because of the contraction of credit; and, third, because of the high freight rates imposed by the Esch-Cummins bill.

Those three factors have reduced the farmers of the Middle West to a state of economic depression that I believe is the most intense in the history of agriculture in the United States.

Gentlemen, you are considering the question of credit for longer periods of time at low rates of interest. I came in this morning to learn, because I am intensely interested in these facts that are receiving your consideration. But the one thing that impresses me is this, nothing has been said, practically, about the rate at which the farmers will get this money.

I noticed the other day when the committee was considering the ship subsidy bill that the bill specifically stated that the purchasers of the ships would have to pay interest on their debt to the Government of not less than

per cent. Now, I wish that you would include such a definite statement in regard to rates of interest in this bill, because it seems to me that the farmers who are working so hard lately to feed us ought to be protected to just as great a degree as the shipowners, the great merchant marine companies of the United States. That is one thing that I wish might be fixed definitely in this bill, so the farmers will know what rate of interest they will have to pay for these loans.

The CHAIRMAN. What rate of interest would you suggest?

Miss DALEY. Well, first, I think that it might have to be somewhat flexible, but, say, not more than 5 per cent.

Mr. Strong. Where would you get the money, Miss Daley?

The CHAIRMAN. You understand, under the farm loan act the farmer is now charged not to exceed 1 per cent more than the price obtained for the last bonds sold in the Federal farm loan system. It is supposed, of course, that this is an amendment to that law and the same ing would apply here. So there is a reasonable assurance of a favorable rate of interest.

Miss DALEY. I see; I remember that now.

The CHAIRMAN. That is to say, if their debentures would sell at 41 per cent, the farmer would not be charged in excess of 54 per cent. Some of these farmloan banks, I am told, are operating at a cost of less than 1 per cent, and that the borrowers are getting that advantage.

Mr. LUCE. That the local bank would not be charged more?
The CHAIRMAN. Yes; the bank.

Mr. LUCE. But there is no restriction on what the bank would charge the customer?

The CHAIRMAX. The local bank can rediscount, but that bank would rediscount it so that the farmer who is borrowing would have the advantage of knowing what the debentures were selling for and would have that as a lever to force his bank not to charge excessive rates. The rates which the local banks charge are largely governed by the laws of the several States.

Vliss DALEY. That is one point that I wanted to make—that you provide so that our farmers can have the money at the lowest rate of interest, because that is very important.

Then, another question, gentlemen, that I should like to suggest is this, that while credit at low rates will help our farmers wonderfully, in order to make a complete and well-rounded program that will substantially aid the farmer you have to pass a measure that will provide for stabilization of the price of farm products. The two things will have to go hand in hand, because if you just pass a bill that will allow him to have money over long periods of time at certain specified rates of interest and do not stabilize the price of what he prociuces, then you see, gentlemeir, that the farmer becomes practically an interest-paying slave.

Mr. STRONG. What suggestion have you as to how we can stabilize the products?

Miss DALEY. I like the bill introduced by Mr. Sinclair in the House.
Mr. STRONG. What is that?

Miss DALEY. The bill provides for the stabilization of farm products for the period of five years; that is, the price is not fixed for a period of five years. I believe as the bill stands the price is fixed for one year only, and the remaining four years it is to be fixed hy a board, to be made up, if I remember, of the Secretary of Agriculture and, I believe, the Secretary of Labor and a member of the Federal Trade Commission, and this board is to fix the price. However, I do not mean to take up a great deal of your time on that this morning, because that has no direct relationship to your bill, but I do want to make that point, that the two movements—the movement to give the farmer more money at long periods at low rates of interest and the stabilization of his products--must go hand in hand if he is ever to become anything besides an interest-paying slave.

Mr. MACGREGOR. Have you ever read the history of price fixing?

Miss DALEY. I do not know which one you refer to. I have read a great deal on price fixing.

Mr. MACGREGOR. I just read a monograph issued by the Bureau of Crops and Markets of the Department of Agriculture, covering about 14 pages.

Miss DALEY. Yes; Mr. Wallace gave me a copy of that, and I have gone over it.

Mr. KING. Where do the consumers come in under this plan?
Miss DALEY. I do not see that the consumer-

Mr. KING (interposing). If you farmers continue to sell to speculators, who borrow money from the Federal Reserve Board and hold it up for high prices, no consumer in the country will get anything. Are you interested in that feature of it? You know the vast difference in the prices the consumer pays and the prices the farmers get?

Miss DALEY Yes, indeed ; I am very familiar with that.
Mr. King. I presume you understand the reason for it?
Miss DaLEY. I think I do.

Mr. KING. How can the consumer get any benefit under this stabilization of prices the farmers get?

Miss DALEY. The consumer, as I understand it, is not getting any advantage under the present system, is he? Is he not paying just as high prices? It is the middleman who is making the profits under the present system-not the farmer, who produces, nor does the consumer get any benefit.

Mr. STRONG. The farmer's prices are all right now, so far as the consumer is concerned.

The CHAIRMAN. Is it your idea that stabilization of the prices to the farmer would also stabilize and make uniform the price to the consumer?

Miss DALEY. Yes, sir; it could be made to. It does not under our present system, but it could be made to.

Mr. KING. You would have to regulate the fellow who stores it up?
Miss DALEY. Yes; I agree with you.

(Thereupon, at 1.15 o'clock p. m., the committee adjourned to meet Monday, May 22, 1922, at 10.30 o'clock a. m.)

COMMITTEE ON BANKING AND CURRENCY,

HOUSE OF REPRESENTATIVES,

Monday, May 22, 1922. The committee met at 10.30. o'clock a. m., Hon. Clarence MacGregor (acting chairman) presiding.

STATEMENT OF HON. SYDNEY ANDERSON, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MINNESOTA-Resumed.

Mr. MACGREGOR. Mr. Anderson, have you any further direct statement to make?

Mr. ANDERSON. I should like to make one statement in regard to one thing which I think I did not discuss in my prior statement.

Section 201 of the proposed bill, in addition to providing for the discount of agricultural paper through a bank, national or State, also provides that the farm credits department of the land bank may make direct loans to any cooperative association organized under the laws of any State and composed of persons engaged in producing staple agricultural products, the notes or other such obligations representing such loans are secured by warehouse receipts covering such products.

That is, of course, a departure from the strict conception that a bank of discount should deal only with banks. There has been, however, a considerable development along the line of cooperative marketing associations, particularly in the West and Southwest, in recent years, and the resources of local banks ordinarily are insufficient to take care of the volume of transactions which these cooperative associations have. In order to provide an agency with larger resources to handle these loans, we made this provision on the theory that the warehouse receipts or other control documents, properly supervised, would be equivalent to a bank indorsement in the added security which it afforded. I think that is the only additional statement which I desire to make.

Mr. MACGREGOR. Mr. Anderson, I think Mr. Strong wants to ask you some questions.

Mr. STRONG. Mr. Anderson, as it representative of an agricultural district and an agricultural State, I have been trying to secure all the legislation possible in the interest of any relief that might be extended to agricultural conditions in the West and, as you know, for some time I have been studying the l'ural-credits proposition because I have felt that the farmer was entitleil to credit for the length of time of his turnover period, as you have expresse? it in your statement; and you will recall that on July 13 last I appeared before your committee at the request of Charles Barrett, chairman of the Board of Farm Organizations, ima idrocated the use of the farm-loan banks because at that time I thought, as you have stated, that the faum-loan banks now mking loans to the farmer for his long-time (redit would be logically the proper place to have handled his short-time credits; and this bill of yours is drawn, as I understand it, to bindle the matter through the farmloan banks. As I have studied the question further, there have been some thoughts that have come to be in comection with it which I want to discuss and get your opinion upon, because you have had an opportunity, as chairman of the Committee on Agricultural Inquiry. to get a worki of information upon this subject. Farm loans, as made by the farm-loan banks, running for a period of 34 years, are, of course, investments, while the personal loans that we are now planning to make possible for the farmers are bank loans, and the question comes up naturally that the farm-loan banks have called into their organization men experienced only in investment prepositions, and if they engage in banking or making short-time loans they will have to add to their organization a banking department.

Mr. ANDERSON. Yes.
Mr. STRONG. That is your thought, is it not?

Mr. ANDERSON. I would assume they would have to have men of some what different experience.

Mr. STRONG. Then that will have the effect of building up in their organizations, in each of the 12 banks, a banking department and that will require considerable administrative machinery.

Mr. ANDERSON. Seme.

Mr. STRONG. Now, of course, in orinary: normal times when money is seeking a borrower, the thought has come me that the farmer would

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naturally go to his local bank and borrow, as they will be in position to offer him money on six months' time, with the thought of renewing it, as they would be glad to do, if possible, to meet the period of his turnover, which would be a year, or with the cattlemen from one to three years. Now, if that course is followed in normal times, which I believe would be done, would not the banking institutions built up in the farm-loan banks fail to be used, and do you not think they might fail to function?

The thought has come to me that if that is true, then when the stress came and the local banker said to the farmer, “ We will have to ask you to pay,” the farmer would say, “I want you to get me a loan through the farm-loan bank under the provisions of this bill," and the system not having been in operation and not having functioned properly and money being scarce, and the opportunity to issue bonds perhaps limited, might not the machinery of the farm-loan bank be unable to function and relieve the crisis or the money stringency.

Mr. ANDERSON. I think that might very possibly be true if your original premise is correct, that the farmer will continue to make six-months loans at the bank. Of course, so long as there are nothing but six-months loans made, this system will not function, and if that is the only character of paper which the farmer requires, there is no need for the system at all.

Mr. STRONG. That thought comes to me in this connection: When the corn crop is maturing in Kansas and it goes along into July and August, which is the critical time of the year in our State when the corn is either made or ruined, good rains come and it looks like they are going to have a good corn crop, the farmer gathers his boys around him and says, “ Boys, we are going to have a big crop of corn and I believe we had better buy some cattle. The pastures are good now, as a result of these rains, and I think we had better buy some cattle and put them in the pastures and feed them this fall.” He will then want that money immediately, because he will want to go and buy at once, knowing that his neighbors will be buying cattle and he will want them before the demand advances the price, and he will naturally go to the local bank and say to the banker, “I want to borrow $2,000 or $5,000 immediately." Will he have time to go to the farm-loan bank or have the banker do that. If money is plentiful, will he not do business with his local bank?

Mr. ANDERSON. I think you have in mind the method of making a farmmortgage loan through the farm-loan system, which I do not think is applicable here and which I do not think would be used here. I have no idea that the practice under a system of this kind would contemplate an application made by the borrower through the bank to the farm-credit department of the Federal land bank, and then after a large number of those applications have accumulated, that debentures issued in anticipation of making those loans. I do not think that would be the practice at all. It would work substantially the same way as the Federal reserve system works. In the course of experience on the proposition, in which, of course, the original capital of the farm-credit department would be used, it would be possible to arrive at an approximation of what the requirements of the farmers will be for a certain period, and the debentures would be issued in anticipation of those requirements, and farm paper would be discounted from time to time and from day to day just as the Federal reserve system now discounts paper of less maturity than six months.

I recognize the fact that if you were going to administer this as the mortgage-loan system of the Federal land banks is operated, then the situation to which you refer might' arise, but that is not my conception of it at all. My conception of it is rather along the lines of the Federal reserve system except it covers paper having longer maturities than six months instead of shorter maturities than six months.

Mr. STRONG. Well, of course, we can not anticipate what the demand will be for feering cattle in my country until the crop is made, and the thought that (ame to me was whether or not we should build up for the farmer, banks or a credit system outside of the regular credit system of the country; whether we ought not to try to provide for his credit needs in the same general financial system of the country as the merchant and the manufacturer gets his loan, letting the farmer go to his local bank to get that credit need which his business demands.

Mr. ANDERSON. I agree with you so far as the farm-credit requirements are the same as the credit requirements of the merchant or the manufacturer ; but here you are dealing with a class of credit which in the period of maturity at least, which is an essential element of it in this case, is longer than the period of credit ordinarily required for a commercial transaction, and it does

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seem to me that in handling that credit you have a larger element of investment than you have in ordinary commercial credits; and it is the element of investment, which necessitates basing the system upon the debenture idea rather than upon the reserve idea, which is the idea of the Federal reserve system.

Mr. STRONG. My only thought was that in times of stress, when the demand was pressing, it would be hard to sell the debentures or harder to sell them, and the system might be caught and clogged at the very time the farmer needed relief,

Mr. ANDERSON. That would be just as true, of course, in the Federal reserve system, because in time of credit strain, of course, the Federal reserve system is under the same sort of pressure that this system would be.

Mr. STRONG. It might not work out, but I finally arrived at the conclusion that the Federal reserve system ought to establish a separate fund through which the local bankers could discount the long-time paper that they had bought of the farmers when the stress came, the fund lying dormant during normal times because the bankers would not rediscount out of the fund; but when the stress came they would know that they could rediscount through this fund and consequently they woull not hesitate to make loans to the farmers for the longer-time period, and I had rather thought that that might be better because it would use the present financial system of the country.

Mr. ANDERSON. I would not give the impression at all that I think this is the only method by which this situation can be dealt with, because I do not think

We came to the conclusion that this was the most feasible method, considering the time which it will take to put it into operation and considering the investment element involved in it. Now, it might very well be that this committee might come to a very different conclusion.

Mr. STRONG. Before I came to the objections that I liave suggested I had thought the farm-loan banks were the proper place for it, and I introduced a bill to that effect last November, but I found decided objection from the Farm Loan Board here in Washington, and they stated that they hesitated to add to their banks a banking feature for fear it would interfere with the functioning of their farm-loan banks in making farm loans and in selling farm loans. I have been very insistent on getting legislation to make that farm-loan system function; and, of course, you know the other day they sold their last issue, being the fourth issue of bonds, consisting of $75,000,000 worth of bonds. They were very largely oversubscribed and were sold at 41 per cent instead of 5 per cent, as heretofore, which will reduce the rate of interest to the borrower one-half of 1 per cent; and I hesitated to mix up a banking proposition with their investment proposition for fear it would interfere with it, and they seemed to be decidedly opposed to it.

Mr. ANDERSON. Of course, the original conception of this proposition involved no separation of the assets liable for debentures issued against loans such as are provided in this bill and farm-mortgage loans and was clearly subject to the objection which they made, that it might impair the salability and possibly increase the rate of interest at which the farm-mortgage bonds could be sold; but where the assets are entirely separated and no liability attaches to the assets pledged on farm-mortgage loans I do not see where that particular objection has any weight.

Mr. STRONG. Now, in regard to the matter of the bonds or the debentures that would be issued by the banking department of the Federal land bank, under your bill would those bonds be tax-free bonds?

Mr. ANDERSON. I think they would, and I think they should be unless there are no tax-free bonds.

Mr. STRONG. They would have to be if a reasonable interest was secured the farmer.

Mr. ANDERSON. Under present circumstances.
Mr. STRONG. And that was the intention?
Mr. ANDERSON. Yes; that is correct.

Mr. STRONG. I believe that is all I have to ask, unless Mr. Anderson cares to add something.

Mr. ANDERSON. I think I have nothing further to offer.

Mr. Wingo. Unfortunately, I have not been present here during the state ment of Mr. Anderson, and maybe he has covered this, but, anyway, I would like to ask him a few questions. As I understand your plan, it will contemplate

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