source of authority in the Government. So, somebody must have the authority from Congress, and authority to pass it on. If you give it to your Federal land bank or Farm Loan Board, or whatever board you call it, with permission to pass it on, that is all right.

But the whole burden of my thought is that your penalties on the loan must not be confined to accepting or declining storage tickets, because his conscience will tell him that stuff is not good, that it is doubtful, and he is then to turn it down. So you defeat the purpose of the act to extend the credit to the farmer simply because he has no way of patching it up.

Mr. WINGO. May I ask you more in detail about the practice out there? Do you say that it is the custom out there when one of these farmer elevator people gives a warehouse receipt to go ahead and sell that commodity?

Mr. CLAWSON. Yes, sir.

Mr. WINGO. What does that warehouse receipt represent? Does it represent title to the property under your law, or not?

Mr. CLAWSON. Yes, sir.

Mr. WINGO. How do they escape prosecution?

Mr. CLAWSON. You can search me; they just go ahead and do it, and it has always been done.

Mr. WINGO. I am one of these men who do not subscribe that no good can not come out of Nazareth. Do they permit the bailees to absolutely sell the trust property?

Mr. CLAWSON. Yes, sir.

Mr. WINGO. And never pay any attention to it in the courts?

Mr. CLAWSON. Yes, sir; it is done every day and all the time.

Mr. WINGO. You may not revive the doctrine of secession, but you may invite a very decided propaganda for the doctrine of exclusion of some States if that continues to be the practice under those courts.

The CHAIRMAN. There is not an enforcement of the law, I suppose. Mr. CLAWSON. It is a practice that is probably founded upon necessity. You have got to get the grain out of the warehouse before you can put any more in. Mr. WINGO. The farmers are in control of the courts of North Dakota, and why is it that those farmers, having those courts absolutely under control, have permitted themselves thus to be robbed? What on earth are they doing with those courts that they are supposed to control? What is the matter?

Mr. CLAWSON. If you could tell me some way whereby you could get action in those courts and prosecute the men who do that, I will be very much obliged. Mr. WINGO. The only way to do it is to elect an honest judge and prosecute, one who will ask the grand jury to carry out the plain letter of the law. I do not think you would have to have a statute in your State; I think you could indict under the common law, though, I presume, you have a statute.

They have violated the law as much as if a banker took bonds which hadR been put up with him as collateral and went off and sold them and spent the proceeds?

Mr. CLAWSON. Yes, sir.

Mr. STEVENSON. You said something about paying storage. The farmer hauls wheat to the elevator and puts it in storage to-day and gets a certificate, and the elevator man sells it to-morrow. When the time of settlement comes six months hence the man to whom this certificate was given calls for his wheat and gets his money. Do they charge him storage?

Mr. CLAWSON. Oh, yes.

Mr. STEVENSON. We charge him storage, although the wheat has gone to Liverpool?

Mr. CLAWSON. The elevator man has sold the grain and had the use of the money without interest, and then charges the farmer storage.

Mr. STEVENSON. I think the State of Minnesota or Wisconsin or wherever you come from needs to get busy before it makes much fuss to Congress.

Mr. CLAWSON. It is not Minnesota alone; that is the practice all over the Wheat Belt.

Mr. STEVENSON. I will give you an instance of what happened in the county adjoining mine. The son of a United States Senator was a warehouseman and he misappropriated and shipped out 80 bales of cotton that belonged to a man who had stored it there. The cotton was sold and the whole thing went broke, and he is in the penitentiary to-day. That is the way that is handled down with us.

Mr. CLAWSON. They all ought to be handled that way when they do that. But, then, they would have to provide some facilities for grain storage or do

something. The fact is they do not prosecute. Everybody shuts their eyes to the thing and it is done. Presumably the man who ships the grain out hedges, so as to be able to produce the grain if the farmer comes in for it.

Mr. STEVENSON. In other words, he goes on the Chicago market and he sells this spot grain and goes on the Chicago market and buys contract grain at the time when he guesses the farmer will call for it?

Mr. CLAWSON. Yes, sir.

Mr. STEVENSON. In other words, it is purely a gambling proposition?

Mr. CLAWSON. Yes, sir.

Mr. STEVENSON. You are not a banker?

Mr. CLAWSON. No, sir.

Mr. STEVENSON. What is your business?

Mr. CLAWSON. I am with the legal department of the National Security Co. Mr. STEVENSON. Where is your office?

Mr. CLAWSON. In Minneapolis.

The CHAIRMAN. Is that the practice of those grain elevators in Minneapolis generally?

Mr. CLAWSON. The line houses aim to have the grain on hand, either in their terminals or in their houses over the country, probably not in the particular house but some other house, or in their terminals.

66

The CHAIRMAN. You say 'aim." I infer from that that sometimes they

do not.

Mr. CLAWSON. Sometimes they do not. But the independent houses simply do as I have said. If they held the grain their warehouses would be full of grain in a couple of weeks and they would have to be closed up.

Mr. WINGO. Would they not be charging storage?

Mr. CLAWSON. Yes, sir.

Mr. WINGO. And they would be paid for storage?

Mr. CLAWSON. The primary purpose is to buy grain and sell it.

Mr. WINGO. In other words, to speculate on returning it before the farmer calls for it; and then it is to the interest of the elevator man to beat the price down before it is called for?

Mr. CLAWSON. Understand, I am not advocating that, Congressman. I am just telling you about it.

Mr. WINGO. I will say this much in the light of your statements, that I am now surprised at the patience of those farmers, and I now understand the strength of that organization referred to as the Nonpartisan League. I think they are very modest, in view of the facts you have disclosed.

Mr. CLAWSON. I do not understand why they do it, but they do; and I guess the Nonpartisan League would do the same thing. [Laughter.]

Mr. WINGO. That may be the explanation. The explanation seems to be that everybody is doing it. [Laughter.]

Mr. CLAWSON. Those fellows have grown up that way.

The CHAIRMAN. Mr. Clawson, we appreciate very much your statement. There is a rather exalted opinion among the members as to the stability of warehouse receipts on wheat in storage. You have rather opened up a situation here that indicates that perhaps there is not the stability to warehouse receipts some of us thought; and it is evidently due to the fact that the laws of your section are not enforced.

If warehousemen are permitted to go ahead and sell trusts to speculate in the market, it brings about a very uncertain condition as regards the credits which are proposed to be accepted by a credit agency which the Government may create. I am surprised myself that the farmers there acquiesce in that

situation.

Mr. CLAWSON. I am glad if what I have been able to tell you has thrown any light on the situation, because I really feel there is an element of danger in that sort of thing that ought to be safeguarded against in some way. The CHAIRMAN. The committee will give careful consideration to your suggestions of this morning.

STATEMENT OF MR. GEORGE JEWETT, REPRESENTING NORTHWEST WHEAT GROWERS' ASSOCIATED, SPOKANE, WASH.`

Mr. JEWETT. My name is George C. Jewett. I represent the Northwest Wheat Growers Associated, with head office at Spokane, Wash., and also having offices at Seattle, Wash.; Portland, Oreg.; Minneapolis and Duluth, Minn.

I desire to say a few words along the line of the testimony which has been given.

The CHAIRMAN. What is your personal address?

Mr. JEWETT. My personal address is Spokane, Wash., when I am at home. I also have an office at Portland and Minneapolis.

The Northwest Wheat Growers Associated is the central agency for five State associations on the cooperative plan-the so-called California plan. Those States are Oregon, Washington, Idaho, Montana, and North Dakota.

It is our third year of operation. We are handling about 20,000,000 bushels of wheat each year. Our plan provides for pooling, and it is a simple, nonprofit, nonstock, and strictly a farmers' organization, controlled by them.

I also am authorized to represent on this question of rural credits the State associations of Nebraska, Colorado, and Kansas wheat growers' associationsthere are two there-and Texas.

My purpose is to testify in behalf of the Lenroot-Anderson bill. I have listened to the gentleman who has just testified, and I feel that there has been an erroneous impression given this committee that might be detrimental to farm interests and the grain interests as a whole. I do not know the gentleman, but I am obliged to say he is not familiar with the law.

Mr. WINGO. What about the facts? We will agree with you about the law. Mr. JEWETT. About the facts or the loaning of money? I would like to say for the benefit of the committee that I spent 18 years in the banking business, 3 years with the Federal farm loan system as secretary and director of the bank at Spokane, and 3 years in my present occupation as general manager of this large wheat movement.

We have about 50,000 farmer members in our movement.

The objectionable laws which have been referred to exist in the States of Montana and North Dakota only. The statutes of those States do provide the gentleman failed to make this clear; he left the impression that they are violating the statute, and that is not true. I know those statutes frontward and backward-it is my business to know them-they do provide that an elevator may sell storage wheat and ship it away to the amount of its surety bond or its personal bond as lodged with the agricultural department of the State; and heretofore it has been the practice of many elevators to do that to quite a high degree. They have hurt themselves by the practice, as they have had to buy back the grain and redeem their pledges under different conditions than existed at the time of sale, and at the present time they are not following the practice to any great extent.

At the present moment there are in the Legislature of Montana and the Legislature of North Dakota pending measures that I am told by wire report received last night have received the approval of the committee to stop the practice, making it a felony to dispose of wheat held by an elevator as bailee. Mr. WINGO. As I understand you, one reason why there has not been any prosecutions is that you have a statute that permits them to make these sales under certain restrictions?

Mr. JEWETT. To the extent of their bonds. There has not been any wholesale violation of the statute in either State.

Mr. WINGO. Let me ask you about that statute: What provision does it make with reference to the funds that are derived from the sale?

Mr. JEWETT. It permits use of the funds. The statute is on the assump

tion

Mr. WINGO (interposing). I am not surprised that those farmers are raising Cain and joining the Nonpartisan League.

Mr. JEWETT. I am going, if I can, to be quite frank. I am going to try to get this testimony and the discussion that you gentlemen have raised before the Legislatures of Montana and North Dakota, because we are interested in the passage of acts in those two States specifically providing for the condition you have pointed out as an improper one.

Mr. STEVENSON. What about Wisconsin?

Mr. JEWETT. It is not my understanding that the Wisconsin law permits the sale of storage wheat. We do not have an organization in Minnesota; we are just organizing now. But I am satisfied that the Minnesota law is entirely adequate.

Mr. MACGREGOR. He does not say it is not adequate; he says they do observe the law.

Mr. JEWETT. That is a far-fetched argument in these good old United States at the present day. I do not think it applies; I can not feel that it applies. I do not know of it applying, and I have been right in the game for three years. Those storage tickets issued by elevators are good security. At the present

time the War Finance Corporation has about a million dollars loaned to our associations on those tickets. At the present time the banks have about $4,000,000 loaned to our association on such tickets.

The CHAIRMAN. Does your association know that the elevators where you have this property stored have not disposed of your property?

Mr. JEWETT. No; they may have disposed of it in those two States to the extent of their bond. But we do know that they have not gone beyond their bonds; we know if they have they are subject to prosecution and would be prosecuted and have been prosecuted in the past.

The CHAIRMAN. Does your association take steps to ascertain whether the grain remains in the house all the time?

Mr. JEWETT. Yes, sir; we have traveling superintendents.

The CHAIRMAN. And the War Finance Corporation takes your word, or do they have their own investigators?

Mr. JEWETT. They have their own investigators in the field. They have three men in Montana and two men in North Dakota at the present moment, I believe.

The CHAIRMAN. Then, as a matter of fact, you do not take the warehouse receipt for what it says on its face, but you keep constantly in touch to see that the warehouses are honestly managed?

Mr. JEWETT. That is necessary; yes. I do not know how you are going to get away from that. If you put goods in a man's warehouse, you have got the surety bond, and you have got the responsibility. But it is a matter of good business and the operation of sound judgment to go around and see that everything is going in good shape. We do not make that inspection in a minute way; the War Finance Corporation does not make inspection in a more minute way, and with the legislation which is now pending the necessity for specific superintendency so far as goodness of the warehouse receipt is concerned will be obviated.

It is true-let me state it again—that they do sell stored wheat, and the law says they can do it, but the law says they can not do it beyond the surety bond which they have placed with the agricultural department of the State. We do not think that is a good law, but it is not so bad as the gentleman tries to paint it.

The CHAIRMAN. Mr. Clawson, who has just spoken, advocated the surety bond as additional security to banks or Government agencies that might be making loans on commodities stored in these storehouses as represented by warehouse receipts. You say that those warehouses have the right under the law to sell these goods; Mr. Clawson says they have a right to sell them.

It appears to me that if I was storing goods in warehouses of that type I would want a surety bond; that I would want some guaranty from some outside interest.

Mr. JEWETT. They do not have any right to sell beyond the amount of their surety bond.

The CHAIRMAN. What is the surety bond?

Mr. JEWETT. In Montana it is $10,000, in North Dakota it varies from $5,000 up.

The CHAIRMAN. Where does that lodge?

Mr. JEWETT. With the department of agriculture of the State of Montana; in North Dakota with the railroad commission.

The CHAIRMAN. That is insurance to a certain amount?

Mr. JEWETT. Yes, sir.

The CHAIRMAN. From $5,000 to $10,000. Is it ever in excess of that?

Mr. JEWETT. It may be; yes. If a man wants to sell stored wheat in excess of the bond, he has to lodge a further bond; he goes to work and buys a further bond; he may buy a bond for $25,000 or more.

The CHAIRMAN. How does the State know he is selling beyond or that he is not exceeding his bond?

Mr. JEWETT. There is an opportunity for the warehouseman to violate the law But he is hedged with the law, and there is no wholesale violation. The best we can do in any matter is to set up the law and require certain things to be done. If he violates the law he is subject to prosecution, and in the States of Montana or North Dakota I can assure anyone if it was the wheat growers' wheat he would be prosecuted. We have handled these tickets three years there, and we have not experienced any difficulty. But we do think that the right to sell at all is objectionable, not so much because it impairs the stability

of the storage tickets but because it destroys the program which we wish to put into effect.

Mr. WINGO. So that this committee can get the right viewpoint: I may be in rerror about my information about the way it works in the Cotton Belt. I have the Cooperative Rice Association and the Cotton Growers' Association in my State. Mr. Shapiro is your attorney?

Mr. JEWETT. He was our attorney.

Mr. WINGO. Take cotton, for example. You and I are farmers and we go up to the cooperative warehouse or we turn it over to our association, and we are members. We will take a warehouse receipt and at the time they will pay us a certain percentage; that is, make us an advance on it. That warehouse receipt will show the number of bales of cotton and the grade of cotton?

Mr. JEWETT. Yes, sir.

Mr. WINGO. At any given day, just as the market goes up or down, the books of that association will show it has so many bales of cotton of a certain grade on hand. They do have authority under the agreement and under the law to go into the market and sell that cotton. That is turned over; it is a cooperative marketing association.

Mr. JEWETT. The association has the authority.

Mr. WINGO. The association has the authority to go into the market. Say it sells a thousand bales of cotton to-day of a certain grade. It turns to the books and it prorates among all of the members of the association that have deposited that grade of cotton, and it prorates the proceeds of that thousand bales to those different farmers. So that a farmer who has put up a hundred bales would get just twice as much as the farmer who deposited 50 bales. Under that method they, of course, are permitted to deduct estimated and prorated insurance and warehouse charges and incidental expenses. But anyway the funds are handled purely as trust funds, and if any officer of that association were to misappropriate those funds he would be prosecuted and he would be liable for the amount, the same as the cashier of a national bank if he took a Liberty bond attached as collateral to my note and sold it and converted the proceeds to his own needs. The same law would apply the same penalty and the same danger at all times. In other words, the warehouse man is just as liable to be dishonest as the cashier of a bank who has the custody of the collateral held only for the purpose for which it is put up. Mr. JEWETT. You set forth the situation correctly, exactly as it operates with us.

Mr. WINGO. That is safe and that is bound to be satisfactory, is it not? Mr. JEWETT. Yes, sir. It is absolutely good collateral, and it is so recognized by all authorities; it is recognized by the Federal reserve bank system and by the banker. This question of the use of warehouse receipts is one which has been very thoroughly worked out and provides one of our highest types of collateral securities that we have in the West.

I wanted to testify in behalf of the Lenroot-Anderson bill and would be glad to do so at some future time.

The CHAIRMAN. At some future time, of course; we are now considering the Capper bill.

(Thereupon, at 12.50 o'clock p. m., the committee took a recess until 2.30 o'clock this afternoon.)

AFTER RECESS.

The committee met, pursuant to taking of recess, at 2.30 o'clock p. m. The CHAIRMAN. Mr. Gray Silver, of the Farm Bureau Federation, desires to be heard.

Mr. STRONG. Mr. Chairman, before Mr. Silver goes on, I would like to offer a suggestion or make a motion that the Chairman get the permission of the House that the committee be allowed to sit on these two bills during the sessions of the House. There is a great deal of insistence on the part of those in favor of the bills that they be reported and we should work all day. The CHAIRMAN. Which bills?

Mr. STRONG. The Capper bill and the Lenroot-Anderson bill.

The CHAIRMAN. Mr. Strong moves that the committee get permission of the House to sit during the sessions of the House.

Mr. NELSON. I second that motion, Mr. Chairman.

The CHAIRMAN. The motion is carried.