Mr. MARSH. Every member of this committee and every Member of Congress, certainly from the agricultural States, looking over or. comparing the actual cost of production for cotton and wheat, corn, and oats with the price which the farmers got for those products, will know that farmers took an awful loss last year, which was unnecessary. I attempted to secure the price which the middleman handling these farmer's products got-compare this with what the farmers got, and the cost of production of the farmer—but I was unable to get those figures, which is a very difficult thing to do.

Mr. King. In your wide investigation, Mr. Marsh, which you have made amongst the farmers, did you find that the Anderson committee did not in. vestigate specific instances, showing the detailed manner in which the Federal Reserve Board deflated the farmer's products by calling their loans and requiring them to up about the time when they were seeking to hold some of their stuff in 1920?

Mr. MARSH. I had a few specific instances given to me by farmers, but I have not made a record of them. I know that they felt that that was the reasons for their loans being called.

Mr. King. You have not that information available so that you could insert it as a part of your remarks, could you?

Mr. MARSH. I have not, but I would be glad to state that that complaint was made to me by farmers in Washington State, in Oregon, in Montana, and one or two other States, but I have not the statistical data.

But I would like to call the committee's attention to this fact: When the farmers are told that they should be grateful that prices have gone up-well, as near as I can ascertain, it is not accurate statistically-but three-fourths to four-fifths of the farmers' wheat had gone out of their hands before the price of wheat went up. It had gone into the hands of the middlemen who had the credit.

Mr. King. As a matter of fact, the calling of the loans by the banks required the farmers to sell their stuff, did it not; and naturally lowered the price, and this was seized upon by those who speculate in farmers' products to hold them for higher price as against the consumers; is that right?

Mr. MARSH. That is just what happened; and that is one difficulty of the Anderson bill, or one of the shortcomings. But that does not meet the situation. The middlemen who speculate in the farmers' products are going to have access to this fictitious credit, and they will get a low rate of interest, and they do not have to have practically any security, because they can have access to the credit which is created by fiat, while the farmer has got to put up his warehouse receipts, and the irony of it is that the farmers' wealth is taken away from him by these middlemen; then the wealth which he creates is made the basis for credit given to the interests which speculate in his products.

He is “stung if I may use the slang expression-he is exploited both going and coming, all down the line. I refer to the necessity for creating a Government corporation to finance the purchase and sale of farm products, both abroad and for domestic use, because while a few farmers' cooperative organizations have been successful in handling crops on the commodity basis, particularly the fruit growers on the Pacific coast, the most ambitious scheme yet launched for commodity marketing in this country was the United States Grain Growers' Corporation, of which Mr. C. H. Gustapherson is president. Their balance sheet made public in April, if I recall, shows as of date of February 28 that they had expended $589,456.33. Their president, Mr. Gustapherson, wrote me over his signature that they had not directly sold 1 bushel of wheat.

I am not impugning the integrity of a lot of the men who backed that proposal and who were on the committee of 17 which organized and projected this United States Grain Growers' Corporation (Inc.) at the instance of the American Farm Bureau Federation, but I call attention to the fact that there has been some very bad mismanagement, and that sum of nearly $600,000 does not seem to be accounted for in a way that would be satisfactory to me if I were a farmer and had put up the money. And I point out that with the present prices, with the unstable economic and financial conditions abroad, the Government of this country, in my judgment, acting through Congress, has got to afford the farmers the facilities of the Government for marketing their products.

I do not think that is going to be a permanent policy, but we are not out of the war until we get over the results of the war, and we are just beginning to get into the results of the war now.

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Mr. KING. You mean in the same way it is proposed to assist the shipping interests and other various interests?

Mr. MARSH. I would not have the audacity to suggest that the producer of wealth, the farmer, would hope to get the same degree of treatment that is contemplated in the ship subsidy bill, and I do not want to ask any privilege for farmers in the way of Government assistance to the extent of credit in the mar. keting of their farm products, but merely that, recognizing the existing conditions, the Government should extend this help to farmers immediately, because the farmers are not asking any extravagant profit; they are merely asking for cost of production, plus a very reasonable profit; and I would also like to state that the representatives of the American Federation of Labor, of the transportation group of the railway employees, and practically all of the large labor organizations not affiliated with the American Federation of Labor have, by letter or in appearance before the Senate and House Committees on Agriculture, indorsed this plan to have the Government stabilize the prices of staple farm products along the lines I have outlined.

So that we are not seeking class legislation. The labor organizations and labor as a whole in the Nation appreciates thoroughly that the cost of pro. duction of farm products should be reduced so far as possible, but that it is to labor's own advantage to have the farmer, which is labor's great purchaser for the products which labor manufactures and produces, secure a fair price for farm products, which means, of course, cost of production, with the present costs as they exist plus a reasonable profit.

I think with this conclusion, Mr. Chairman, I have finished my statement, and I want to express my appreciation to the committee, the members of which I know are very busy and are taking time to let me explain our position on these measures.

Mr. LAWRENCE (presiding). That is all you have, then?

Mr. MARSH. That is all I have to present at this time, and I thank you. If there are any questions, of course, I will be glad to answer them.

Mr. LAWRENCE. The committee will stand adjourned, subject to call.

(Thereupon, at 1.08 o'clock p. m., the committee adjourned to meet at the call of the chairman.)



Tuesday, February 9, 1923. The committee met at 10.30 o'clock a. m., Hon. Adolphus P. Nelson presiding.

Mr. NELSON. Mr. Dale had expected to be here, but in his absence I have been requested to preside. I understand that we have with to-day and desiring to be heard the president of the Country Bankers' Association, Mr. J. S. Peters, of Manchester, Ga., and if Mr. Peters is ready to proceed we will be glad to have him make his statement at this time. We understand that he will address himself to the Lenroot-Anderson bill, S. 4287.



Mr. PETERS. Mr. Chairman and gentlemen, in discussing this rural-credit problem, of course, we naturally divide the country into two separate classes; that is, the city or urban population and the country populatipn. Of course, the city population and business includes commerce and industry and all of the subjects that go with it; the country population and business refers to agriculture and the financing of agriculture, and also the village population; that is, the people living in the villages and the small cities throughout the country.

We have, as I understand, about four separate and distinct classes of credits; that is, long-term credits and short-term credits for the city and long and short term credits for the country.

Mr. STEVEN SON. You ought to add that we ought to have anyother system of long-time credits for Congressmen.

Mr. PETERS. Possibly that might be a good idea.
Mr. STEVENSON. That would make a very good subdivision of your subject.

Mr. PETERS. Now, the long-term credits for the city has been very amply provided for by private capital, the insurance companies, the largest reservoir of private investment of capital in the country, the mortgage-bond companies, the savings banks, and then also the investment bankers have very adequately provided credit for the cities. As I understand, there is no trouble now about securing funds for the construction of buildings and the development of parks and other municipal enterprises.

Some few years ago Congress passed the Federal reserve act. There has been a good deal said about it as to whether or not it has cured all the ills of the country. Unquestionably it has provided for short-term credits for commerce and industry and to a certain extent has provided funds for the agri. cultural interests of the country and, we might say, primary credits for agriculture.

At present we have no adequate credit facilities for rural credits; that is, for the secondary rural credits. I want to divide rural credits into two classes in talking to you to-day-what we term primary rural credits and secondary rural credits. Included in the primary rural credits is production, live stock, etc., and the secondary credits, all of the forms of creditscretlits for orderly marketing, credits for equipment, machinery, and for the purchase of live stock.

As we have just mentioned, the first three forms of credit have been amply provided for—long and short term credits for the city and long-term credits for the country—through the Federal land bank; and that brings us down to the fourth division, short-time credits for the farmer and the small business interests throughout the country.

The first thing my mind is directed to is whether or not either of the present systems we have are sufficient to supply to the short-term credits. Of course, we very readily recognize that the insurance companies are not going to make short-time rural loans, neither will any of the other forms of long-time investment companies who are now engaged in financing the city enterprises.

The Federal land bank can not make short-time farm loans; the Federal reserve banks and their member banks are not and I do not think that they can wisely take care of the short-term rural credits. That being true, of course, it is necessary for us to have a new organization, a new administrative body, and either tap the present sources of credit supply in the country or establish a new supply entirely.

Before speaking with reference to this new source of credit I want to refer to the credit that has been furnished the farmers heretofore. As you well know, all of the credit that the farmer has received—that is, short-term rural credits has been supplied by the country banks. We have possibly in this country 20,000 country banks, the majority of which are State banks, organized and operated under the various State systems. There are about 10,000 of these banks which are not members of the Federal reserve system banks that are eligible for membership, and approximately the same number that are not eligible for membership. The resources of the banks are approximately $15,000,000,000, compared with the resources of the member banks, which I think are approximately $30,000,000,000. These banks have heretofore supplied the credit facilities for the farmers. We have loaned them money to buy fertilizer and to buy seed and to make the crops, and preceding the upheaval that came as a result of the war we were able to take care of the farmers' requirements; that is, we were able to take care of the production needs of the farmer and the small business interests in the country. But there have been a good many changes that have come about as a result of the war. Now, as I understand it, Europe is not buying like they once did; they buy their supplies by the month. You take the cotton exportation. Preceding 1918 the majority of our cotton was exported very early in the spring ; now Europe buys each month the cotton supplies for that month. When the farmer produces his corn or his cotton or his wheat and gets it ready for the market somebody must supply credit to take care of those commodities from the time they are produced until the consumer needs them.

Why not let the farmer have the credit with which to carry those products himself if he wants to? Why are you going to continue to provide money to the cotton factor and the wholesale grain dealers with which they may carry 'those farm products? And if it is safe to finance their holdings of cotton, corn, and wheat, why is it not safe to finance the holding of cotton and wheat by the original producer?

That does not seem sound as at present arranged, and evidently some provi. sion should be made. But I was going to say that the country banks--and I will answer that question then-have been able to supply the needs for produc

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tion, the primary needs of the farmer, but when we go ahead and loan our funds to the farmer with which to buy fertilizer and seed or feed to feed stock and to purchase supplies with which to make the crops each year, our lending capacity is about reached by the time the crop is produced. When the farmer's crop is produced his cotton is in merchantable form, and his wheat or corn is in merchantable form, and then it is necessary for the farmers to pay up in order that the banks who have borrowed money from their correspondents may pay up, and also that he may be able to finance the farmer in the production of a new crop, and it seems that the urgent need for the farmer now is some reservoir of credit that he can tap-some place that he can go and borrow funds with which to carry his cotton and other crops.

Mr. WINGO. May I interrupt you right there?
Mr. PETERS. Yes.

Mr, WINGO. You say it is necessary when that crop is made and ready for the market for the farmer to pay up so that you may be in condition to finance him in making the next crop?

Mr. PETERS. That is true.

Mr. W'INGO. If the farmer is the man who ought to be able to feed his products into the market in in orderly way from month to month, will not that automatically put funds into the bank with which to finance the next year's crop? And what difference is there in the point of liability for the banks to take the funds that the farmer pays in and using those funds to finance the cotton factor in carrying the cotton—what difference is there in letting the farmer keep the funds to finance liim in carrying that cotton?

Mr. PETERS, We might answer that by saying that the resources of the country banks have been taxed each year to furnish funds to finance the production of crops. Now, when the crops are produced we have to demand payment of the notes.

Mr. WINGO. Why?

Mr. PETERS. Because we owe the city banks, our correspondents, and we have them to pay up.

Mr. W'INGO. Why do you not go to the Federal reserve banks?

Mr. PETERS. We are not members of the Federal reserve system to the extent of about 20,000 of our banks.

Mr. WINGO, All right. I know what your answer is going to be. Now, you are going to turn around and take that money and you are going to finance the man who holds the cotton; and if it is safe and sound to provide a scheme for part of the Federal reserve system or part of any governmentally controlled system to finance the cotton factor and the elevator man, why is it not possible to: so administer the laws that the original producer of that stuff shall be the one who will hold it? That will be cheaper from an' economic standpoint and it will be better for society to have the law so that the original producer shall be the one that will feed it into the market as it is needed, because that will be less expensive than to set up a special group in between that you will have to finance to do that holding and take toll both ways. In other words, if you are going to make the farmer pay the money in so you can let the other fellow have it, how are you going to pay your correspondents?

Mr. PETERS. I agree with you that it would be better if we were in position

Mr. WINGO (interposing). Why not put you in position to do it? If you were put in position to finance the cotton factor, why not put you in position also to finance the producer?

Mr. PETERS. We would very much like to finance the producer, but I was going to say it is a well-defined policy on the part of all of the banks throughout the country to require their country correspondents to pay up once a year.

Mr, Wixgo. Is not that the reason we established the Federal reserve system, to try to get you out from under the whip of your correspondents at seasonal times, when he can without notice pounce down on you and say, Pay up "?

Mr. PETERS. Possibly that was one of the objects of the Federal reserve system.

Mr. WINGO. And if the Federal reserve system was administered so that the original purpose should be carried out, do you not think it possible that the banks down there which are eligible for membership would go in and that they would get out from under this demand that comes right at the time when you need your funds most?

Mr. PETERS. Possibly there might be some that would join. But the Federal reserve system and the Federal reserve bank are just as insistent, if anything more so, that we pay up once a year. I do not think that our position would be bettered by joining the Federal reserve system, because they also demand that we pay up once a year.

Mr. Wingo. Right on that point: I can understand why a bank should want and demand payment every time on maturity. But just what reasons has the Federal reserve bank given to you that, regardless of necessity that is based upon security, that they should say once a year, We are going to require everybody to pay up”? Does that grow out of any inherent characteristics handed down from Jewish ancestors or is it just a selfish reason they have?

Mr. PETERS. No; I think that is real good business.

Mr. Wingo. All right. You say it is good business, and I want to know why you think it is good business to require, regardless of security and bus ness necessity, to have an annual settlement peroid when, as a matter of fact, your business is a continuous one? All your notes are not made at the same time; each day you are making new notes with 60 or 90 days' maturity. Why is it that at a given time you are going to say everybody has got to pay up? That is a Chinese custom, is it not, and that was the old Jewish law, was it not?

Mr. PETERS. Yes.
Mr. WINGO. Why should it be applied in these modern times?

Mr. PETERS. It is necessary in banking that you should constantly collect a certain amount of your funds if you are going subsequently to make new loans.

Mr. STEAGALL. Do the Federal reserve banks require that?

Mr. PETERS. They tell you that they want you to pay up once a year; they want you to clean the slate once a year.

Mr. BLACK. I think it might be said that there are plenty of banks who do not do it. My experience is that the Federal reserve system in the district in which I live has been very liberal.

Mr. STEAGALL. The Federal reserve system, so far as Alabama is concerned, so far as I know, has been very lenient and they have not required yearly settlements.

Mr. BLACK. Good business does require some debts to be paid. Banks can not always be lenient and moderate with their customers. I know, as a business man, that one thing that has got us into such miserably frozen condition is the custom of renewing notes.

Mr. WINGO. That may be true, but that is not the issue here. I agree that good banking and good business of all times requires men in all industriesmanufacturers, farmers, and everybody else—to meet their paper at maturity. But I also know that it is good business for the business of all classes in this country to flow in even channels throughout the whole year and not to have a day of judgment, where you are going to unsettle everything by saying, “We have got to stop until we straighten up everything and start over again.” I can understand how, under the crudeness of the Chinese system, they grew into that habit, but the object of the Federal reserve act was to stop that very thing; that the business of this counry should flow evenly; and that banking and credits should expand and contract with the ebb and flow of the tide of commerce and of business without annual tightening up that nobody could defend and that everybody then condemned.

Mr. PETERS. That is a custom that I do not think we can get away from. There must be a day of reckoning; there must be a season of liquidation in every section of the country. In the Corn Belt it comes when the corn is har. vested; in the Wheat Belt it comes when the wheat is harvested; and in the Cotton Belt it comes when we pick the cotton.

Mr. WINGO. My dear sir, if you will permit me rigth there: Then all these efforts that Congress is making to get rid of the economic waste and the distress that comes to the producers by that vicious system through which all our efforts are wasted. Do I understand that you are opposed to us trying to do that?

Mr. PETERS. Oh, no.

Mr. Wingo. If you say it is sound business, if it is economic law, then you are asking us to fly in the face of the economic law; you mean our task is insuperable. Is it impossible for us to devise a system by which business of this country can flow along on its even tenor, and that the day of reckoning shall not be seasonal, but that the day of reckoning shall be in each instance the day of maturity?

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