Mr. MARSI. You may be erroneous in your statement that that refunding was necessary. I call attention to the fact that it was not.

Mr. BLACK. I said that the loans were necessary to finance the war. Of course, as to the policy of whether the bonds should have been issued or should not have been issued, I do not propose to engage in that sort of controversy; but the bonds having been issued, it was necessary to have something to finance them, and most of the financing was done through the Federal reserve system. That is the statement I made, and that is a statement of fact.

Mr. MARSH. Yes; and I will add that it would have been a great relief to the farmers, more than any relief you are going to give them through a credit system, if when the Republicans came into office they had taxed big inheritances, as they were asked to do.

Mr. BLACK. I am not discussing taxation.

Mr. MARSH. I am discussing taxation, and that is why I say I think that was more vital than this, as important as this matter is; but I point out that you are tying this short or intermedate credit for farmers up with the Federal reserve system, whose profits are simply enormous through rediscounting, and you provide for the rediscounting, and I think you ought to have a separate system which will give this credit directly to the farmers.

Mr. BLACK. Do you know of any agency in this country that is rediscounting now any cheaper than the Federal reserve banks are rediscounting?

Mr. MARSH. Well, thanks to the fearful outcry on the part of the outraged farmers, they have commenced to amend their practices a little bit and discount a little bit cheaper.

Mr. BLACK. I think the discount rate does not exceed 51 per cent in any of the banks.

Mr. MARSH. Precisely; but they have the power when big interests tell them to do so, as they did before

Mr. BLACK (interposing). Is it your statement, Mr. Marsh, that the big interests of this country control the Federal reserve system?

Mr. MARSH. Absolutely-body, boots, and breeches.

Mr. BLACK. Will you please show us some facts upon which you base your statement?

Mr. MARSH. Yes.
Mr. KING. Do you want to continue on that line?

Mr. MARSH. I do not care to take up the time of the committee if you do not want me to.

Mr. KING. You can have all the time there is until a quorum is developed, but I was simply interested in your development of these three bills before the committee.

Mr. MARSH. I preferred to do that, and it was only the questions that were raised that stopped me from doing that.

Mr. BLACK. I do not want to interrupt his trend of thought.

Mr. LAWRENCE. I would like to ask Mr. Marsh a question. Mr. Marsh, you spoke about the enormous profits that the bankers have made, I believe, citing the Federal reserve banks. Does that profit belong to the bankers?

Mr. Marsh. Well, it does not belong to the bankers as such; but the point is that if you want to get credit cheap to the farmers you do not want to have the Government make money out of the necessities of the farmers and then say you are trying to help the farmers.

Mr. LAWRENCE. But the point is that Mr. Black referred to the fact that the banks in this country had lost money and failed to declare a dividend, and then you quoted that statement to show that the bankers had made money, when the fact is that no matter how much the Federal reserve banks make 6 per cent is all the stockholders can get and the balance of its goes to the Government.

Mr. MARSH. That may be true.
Mr. LAWRENCE. And the bankers did not make that money.

Mr. MARSH. But the bankers have made money, as I will show you if you will permit me to put in the record a list of the bankers and others who have made annual incomes of between $50,000 and $1,000,000 and up, taken from the report of the Commissioner of Internal Revenue. They have made money; and my further point is that if you want to give relief to the farmers do not 'tie them up with a system under which big profits are made, because the burden falls upon the farmer in the expense of his credit, whether that profit on his credit is made by the Government or made by the individual banker.

Mr. LAWRENCE. The point I am making is that the bank in the agricultural district, the one with whom the farmer comes in contact, has not made big money. Usually those banks are owned principally by farmers, or at least half the stock is owned by farmers in the agricultural districts.

Mr. MARSH. That is certainly a cinch for the rich farmer. The farmer who owns a lot of stock in those banks is not the one you want to help. I am more concerned with the 40 per cent of farmers of America who are tenant farmers, and who are in a desperate situation to-day, and I do not care a snap of my fingers about the multimillionaire farmer or the farmer worth half a million dollars and who owns a lot of stock in the banks, and I agree with you that that fellow has been robbing his own fellow farmers unmercifully in some instances.

Mr. LAWRENCE. Well, we have no farmers like that in my country. We have no farmers who are millionaires.

Mr. MARSH. Well, there are several of them.

Mr. LAWRENCE. And the point is that the tenant farmer can get money now if he has the collateral or the security, and you can devise no way, and no one else can, whereby the farmer or anybody else can get money and secure credit unless he has something back of that make his credit good.

Mr. MARSH. That raises a point about which I just do not agree with you, and I want to emphasize the fact that any bill which is to provide credit for farmers, especially for tenant farmers, such as this intermediate and shorttime credit-and, of course, they will not get much mortgage credit if they a re tenant farmers or probably they will not-and any system which is going to meet the intermediate and short-time credit needs of the farmer has got to recognize that character is just as good an asset as anything else, and you have got to create credit on the same principle that has been effective and successful in cooperative banks, and that is the principle of the three-name note for credit.

Mr. MACGREGOR. How are you going to cash in on character ?
Mr. MARSH. Do you cash in on anything else?

Mr. GOLDSBOROUGH. Do you know of any bankers who do not take into consideration the moral risk when they lend their money?

Mr. MARSH. Then, if it is a safe practice for the individual banker, it is certainly a safe practice for the Government.

Mr. MACGREGOR. It is not character alone, unless it is linked up with something else.

Mr. GOLDSBOROUGH. But they do take that into consideration.

Mr. STEAGALL. The assets that furnish the real basis for credit are not considered of good value except when they are backed up by good character, of course, and beyond that I do not see how character can enter into the security for a debt.

Mr. MARSH. All right, then.

Mr. STEAGALL. Of course, no man, no matter what his security, would want to lend money to a man who did not have any character, because he would take it and burn it up or run away with it.

Mr. MARSH. Evidently our friend, Mr. King, possibly has a rather hopeless or unsound confidence in the character of the farmers. If so, I still agree with him in that confidence, because in his bill, on page 6, it is provided that a lending agency shall be set up and that the National Farmers Finance Union may lend, and I quote exactly from page 6, line 3, “to any person engaged in the United States in producing, dealing in, or marketing any such products or to any association," etc.

I stress the fact that the loan can be made directly to any person and also

Mr. King (interposing). Of course, they would not lend it to a rogue.

Mr. MARSH, No; you would not lend money to a rogue, and this provision is not mandatory, but is permissive. Of course, I am not coming here and asking any Government agency to lend to a rogue, but I do think that you are in danger of doing that when you are talking about lending hundreds of millions of dollars, if not billions of dollars, in the pending ship subsidy bill at 2 per cent.

Mr. MACGREGOR. They do not propose to lend it under the ship subsidy bill.

Mr. MARSH. They are going to give a great deal in addition to that, but one of the little things that you are going to do with the rogues which robbed the Government of so many hundreds of millions of dollars under the United

33554-23-PT 2-6

States Shipping Board corporation is to give them this large amount at 2 per cent.

Mr. Scott. Now, Mr. Marsh, I am perfectly willing to listen to you on the matter of financing the farmers, but if you want to take up the subject of ship subsidy and discuss that feature of it, and if you consider it essential to your discussion of this matter before this committee, I will endeavor to discuss that with you, because I do not think you know what you are talking about.

Mr. MARSH. Well, I would appreciate any sacrifice you might make along that line.

Mr. King. I would suggest that you take up that discussion before the com. mittee which has that subject before them.

Mr. MARSH. I was there for four hours, and after I was through I think there was at least a little less chance of the bill passing, particularly as Doctor Atkeson, on behalf of the National Grange, has also opposed the ship subsidy bill.

Mr. STEAGALL. I want to ask you a question before you get back to your text. While we are wandering around here I want to ask a question in connection with the colloquy which occurred between you and the gentleman from Texas a moment ago, in which you said that the Federal reserve system is controlled, body, boots, and breeches, by big business interests or big money interests, or something like that. What I want to ask about is this: We have been trying lately to pass some legislation amending the Federal reserve act; and I am not speaking in an argumentative way, but I want you to tell the committee what you base your statement on, and then, when you have stated that, I want to ask what amendments to the Federal reserve law would you suggest to this committee that are consistent with the soundness of that system that will make it of greater service and more adaptable to the needs of the producing classes of our people? Now, if you can make any suggestion to us along that line that would be worth anything I would like to have it.

Mr. MARSH. Who is to be the judge of whether they are worth anything or not?

Mr. STEAGALL. If you have any suggestions to make along that line I would be glad to have them, and I am sure the entire committee would be glad to have them.

(At this point the committee proceeded to the consideration of executive matters, after which Mr. Marsh resumed his statement.)

Mr. Marsh. A rather long question was asked me just before I went out as the committee was going into executive session.

Mr. King. The question was by Mr. Steagall, for you to make good on what you say. But I would suggest that since the shorthand reporter is not here who took the question that you insert it at this point when you come to revise your remarks.

Mr. MARSH. My statement about the control of the Federal reserve system by the big financial exploiting interests is based upon the report of the Comptroller of the Currency for 1920. I do not want to take up the time of the committee to read it, and I think I should get the permission from this committee, as I was asked to substantiate my charge, to have this statement from the comptroller's report incorporated in the hearing, and I so request.

Mr. KING. If there is no objection, it will be so incorporated.

Mr. MARSH. That portion of the report I referred to is pages 79 to 107, inclusive.

Mr. MARSH. I was asked also what specific recommendations I would make to remedy this condition with reference to the Federal reserve system, and one recommendation is the enactment of legislation which will limit the spread between the rate at which member banks secure money through the Federal reserve system and the rate which they may charge to those who borrow by way of rediscount. That, I think, would have a very beneficial effect.

I would like to point out this fact, that the Federal reserve system has made big profits. It is true that the profit is limited to 6 per cent on capital, but the ; whole system of the Federal reserve is to build up an enormous pyramid of credit upon a limited deposit and relatively small capital, and I will quote figures to show why I think this farmers' intermediate credit should be tied up

1 with the Federal reserve system.

The report of the Comptroller of the Currency for 1919 showed the capital stock invested by the shareholders in the 31,618 banks of the country amounted to $2,568,500,000. At the same time the total amount of deposits in the banks

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and owned by the people amounted to $36,743,700,000. So that for every dollar invested by the stockholders there was $14 invested by the people.

The Federal reserve system builds up a pyramid of credit on which profit is made not by the folks who produce the wealth but by the folks who get control of it.

The report of the Comptroller of the Currency for 1921 states that on September 6, 1921, the relation of capital of national banks to deposits was as follows: Capital to individual deposits, $1 to $9.66 ; capital to loans-I call attention to this fact-$1 to $8.60; capital to credit resources, $1 to $14.90; capital and surplus and other profits to individual deposits, $1 to $4.34; cash on hand and balances with the Federal reserve bank to individual deposits, $1 to $7.28.

Somebody has made all of that enormous profit in the fictitious credit which is created on the small amount, relatively, of wealth upon which loans are made.

My point is this, Mr. Chairman and gentlemen of the committee, that this intermediate credit for farmers for marketing and production purposes must not be tied with that of the Federal reserve system. It has got to stand on its own feet, and the farmers have got to be able to get credit separately instead of floating into the hands of this great organization controlled by the banking interests. The proof of that fact is what happened in the past few years.

Mr. ECHOLS. How are you going to take it out of the hands of some organization? If not this organization, it will have to be some other organization, will it not?

Mr. MARSH. I think that this bill of Mr. King's is much better in that respect. Mr. ECHOLS. Does not that provide for another organization?

Mr. MARSH. It does; yes. But if I understand Mr. King's bill, it is not tied up with the Federal reserve system.


Mr. MARSH. It is independent, and that is what I think this short-time credit system for farmers should be, independent. Mr. King's bill provides that the capital stock of this National Farmer's Finance Union shall be $200.000,000, divided into 200,000,000 shares of $1 each, all of which shall be subscribed by the United States of America.

That is, it is a Government proposition.

Mr. ECHOLS. It simply provides for an additional organization to handle the credit of the farmer; that is what I understand.

Mr. King. It eliminates any contact with the Federal reserve system.
Mr. ECHOLS. Yes; it does.
Mr. MARSH. That is my understanding.
Mr. ECHOLS. After all, it has got to go through some financial system.

Mr. MARSH. I concede that. I was misunderstood if I gave the impression that I do not want to have an organization.

Mr. ECHOLS. You simply want to have it go through some financial system?

Mr. MARSH. I want it to go through some financial system and have it independent and, in my judgment, it ought to be out of the Federal land bank system.

Mr. ECHOLS. Can some other system handle it more cheaply and more advantageously to the farmer than the Federal reserve system? That organization is already in existence.

Mr. MARSH. I believe it can. Of course, no one can speak with absolute authority on that, as I can see; and it is a matter of expression of my opinion. But I do believe it could, and I believe that the farmers would get better consideration through a separate organization of that sort.

Referring, if I may, to the plan in this Anderson bill, to tie this up with the Federal farm land bank, I call your attention to the fact that that principle seems to have been very much opposed by the United States commission to investigate and study in European countries cooperative land-mortgage banks, cooperative rural credit unions, and similar organizations.

In two places in their report, it said-and I quote this from page 27 :

“But after a thorough study of the two problems, the commission decided to draft a bill dealing exclusively with mortgage credit, and that the requirements of personal credit could be more suitably met by a separate measure.”

I construe their judgment to be that this short-time or intermediate credit system farmers should be entirely separate from the mortgage credits.

Mr. KING. Was that a congressional commission or an outside commission?

Mr. MARSH. That was a congressional commission, Mr. Chairman. This was a report presented by Mr. Fletcher, Senate document 380, parts 1 and 2, Sixtythird session.

The Federal land bank system has its hands full to-day. With all due courtesy to the institution, it has not yet functioned up to its full opportunity or to meet the needs of the farmers yet.

Quoting the reports of the census, I point out that in 1920 the census shows the mortgage debt only of farms owned wholly by the borrowers reporting the amount of debt-I give round figures-was $4,004,000,000. That probably does not represent much over half of the total mortgage indebtedness; it is an estimate.

Now, what had the Feileral Land Board loaned up to October 31, 1921? Their report states that the total amount granted on mortgage loans was $407,702,571, and there have been applications for $464,100,000), nearly

Mr. BLACK. I suggest that you get a later statement. I have just recently got the last statement and it shows a little over $500,000,000.

Mr. MARSH. Is that loans actually placed ?
Mr. BLACK. You read from October ?
Mr. MARSH. I read from October, 1921.

Mr. BLACK. There is no trouble to get the correct figures, and in your remarks I would suggest that you bring them down to date.

Mr. MARSH. It has been increased. I will try to get time to do it. Let us take it for granted there is $500,000,000, for the sake of argument.

Mr. Echols. That showing was pretty shortly after having begun business and after having been inactive by order of the court for a considerable period?

Mr. MARSH, Surely. Then, take $600,000,000, if you please. The point is that they have just barely begun to touch the needs of mortgage credit for farmers.

Mr. ECHOLS. As a matter of fact, they have just barely begun to function.

Mr. MARSH. I know it, Mr. Congressman. But how are they going to catch up? The increase, according to the census figures, in the value of farm lands in the decade from 1910 to 1920 was in excess of $26,000,000,000).

Mr. STRONG. Mr. Meyer's statement the other day was to the effect that about half of the loans made have been repaid.

Mr. BLACK. He is talking about farm loans.
Mr. MARSH. I am talking about mortgage credits.

Mr. STRONG. May I say in that connection that I have been urging the Farm Loan Board—that is what you were talking about--to issue all the bonds possible, as everybody knows; and I think I have bothered them in that respect about as much as anybody. One of the members of the board is from my State, one of them stops at my hotel, and I have a good chance to bother them. I have persistently asked Mr. Lever, Judge Lobdell, and Captain Smith and urged the issuance of bonds; and they have all assured me, and I believe they were sincere, that they intended to feed the market and sell bonds just as fast as they could. But, to be frank about it, there are certain other considerations that interfered with them; for instance, the Governinent has been doing some financing from time to time, and they called upon this board to wait until they had taken advantage of the market, and the Treasury being the superior in the Government the board have felt it their obligation to

But they have issued the bonds just as fast as possible and the men versed in bond selling have informed them the market wouli absorb.

They first started off with $10,000,000, and then three months after that they issued $60,000,000; then they issued next $75,000,000—that is, this time they issued $75,000,000 more at a reduced rate of interest.

They tell me that since the third issue of bonds, being the issue of $75,000,000, that the banks have had all the money that they could handle, and that in the last $75,000,000, just issued, when they commenced their allotment to each bank of the amount it was entitled to, the Omaha bank came back and said. “We can not use that amount,” showing that they were catching up with their applications. They told me that in three months they will have all the money that the banks can handle. Of course, it takes some time to handle the applications and make the loans. I, myself, am making a farm loan through the Federal farm-loan system to get the experience that the farmer would have to go through in making a loan. I applied for a loan on my Washington County, Kans.. farm. Within two weeks after I had filed my application I was notified that it had been approved by the local farm-loan association and had gone to the Wichita bank and had been approved, and I had a letter yesterday saying that the money was ready for the loan as soon as the abstract reached them.

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