rulings upon the acceptability of paper, and they have been followed by repeated statements similar to this one which I am going to read to you now. I am going to read the pet phrase of the Federal Reserve Board :

“ There is a distinction, however, between carrying agricultural products for such periods as are reasonably necessary to affect orderly marketing and mere speculative withholding from the market in the hope ultimately of obtaining a higher price. Such withholding is not an agricultural purpose within the meaning of section 13; and if a marketing association should engage in such speculative holding of a crop instead of marketing it in an orderly manner, drafts drawn to finance the growers of such a crop during the holding of it for speculation should not be considered to be drawn for an agricultural purpose."

In other words, the farmer had said, “I know that the market price to-day of cotton, or wheat, or wool, is not the bona fide market price. I do not reap the real value of my product; I do not get the cost of its production. Therefore, exercising my judgment just as the millman exercises his when he withholds his product from the market, I will withhold mine until I can get a fairly remunerative price for my toil.”

Then the Federal Reserve Board said that if that was the object of it that paper should not come within the provisions of section 13, notwithstanding the fight that was made with reference to that particular feature and notwithstanding Congress's decision in regard to the matter.

The board has somewhat liberalized the question of acceptability of paper, under section 13, that was made up of agricultural paper secured by warehouse receipts or evidence of title when it was in process of flowing through the channels of marketing. In the Lenroot-Anderson bill they attempted to correct a situation or a decision that upset the practices of cotton banks in the cotton States that were predicated upon the experience of 50 years. They have now proved to be true what a few years ago they said was outlandish. Now, what else do you do by these bills? Do you undertake to give the farmer the same privileges that section 13 intended to give him? No; that is not the philosophy of it. The question is, How can we create a new class of paper ?

The only way for the farmer to get the benefit is for him to become a member of a group or of an organization. They say to them as a group, “ You may do that which, as an individual, you can not do." Why? Because they know the purpose of the group is to market it and to shove it on; that the necessities of the association will require throwing it onto the market. Why should it be necessary to give him an agency which, as an individual, he can not have, and why do you say that he may do a thing collectively which individually he can not do? It is not a question of putting the farmer on the footing that he was put on the day the Federal reserve act became a law. But how can you make their rulings the law? How can you approve the decisions of this board and say that the farmer is a speculator because he withholds his crop from the market for the laudable purpose of getting a fair price? Don't you see that there is danger in this cooperative movement? You know what the danger is. You are afraid the profits from the marketing end and the control of the marketing end may work to the detriment of the farmer. Isn't that the theory? Aren't you afraid of that proposition ? And if you are afraid, then, hadn't you better give the farmer the only weapon he has so that he can protect himself?

Mr. SILVER. You have asked me a number of questions and I shall endeavor to answer them to the best of my ability.

To start with, we must not compel the bank of deposit to make long-time loans of the depositor's money, for then we defeat the very purpose we have in mind. If the depositor can not get his money when he wants it, certainly he will not put it there. Consequently, so long as the bank of deposit is limited in the handling of its transactions, the farmer can not get the benefits which we seek to give him. This is an alternative measure, a sort of bridge across to the Federal reserve system, which does not have such limitations and restrictions as the banks of deposit, for what difference would the length of time make to the Federal reserve system. It is not like the banks of deposit. It has the authority and the right to create money and the length of time means nothing. So that as a starting point the farmer must have access to that. That is what the Federal reserve system was put here for in the first place. That is what it was created for. That was the Government's way of exercising this right under the Constitution. That is its purpose.

Now, the only way the farmer can have access to that is by having some means by which he can go to his local bank, which has these restrictions, and if it can not serve him, go on to the Federal reserve system. Let us go a step

further. Let me give you an illustration. If we were passing a place that served meals about mealtime and we should go in and have a meal, we would pay the price right then and there, without any argument about it at all. If, however, the caterer attempted to sell us a second meal right at that time, we would be very poor buyers. As long as the financial system compels the farmer to dump his crop instead of merchandising it he is in a similar predicament. We fill up the customer's bin, so to speak, or we fill up the warehouse and then we try to sell him still more. We break the market at harvest time, and by reason of the remainder which is yet to come to the market we keep it broken throughout the consumptive year. What we want are credits that will enable us to reverse that situation. At harvest time we will sell one-twelth of that crop, less a normal carry over to protect us against a dry season or a wet crop. We want to feed out just as much as there is a consumptive demand for—not a market demand, because that is speculative. In other words, when a person says, “I want to buy foodstuff or raw materials for clothing,” we will have something to say about the basis on which it goes out. It is just the same as the case of the man who makes shoes or pianos or clothing, and everything else that we have to buy.

Mr. Wingo. I agree with you as to that, but if it is right from a collective standpoint, why isn't it right from the standpoint of the individual?

Mr. SILVER. It is just as right, Mr. Wingo, but if you do not have the machinery by which you can check up the process and put on the market only one twelfth in one month-you understand, of course, that I am using round fig. ures-you break down the whole machinery. Without the machinery and without the organization and without cooperation, the individual simply destroys himself by continuing to break the market. Consequently this is based on the cooperative theory.

Mr. Wingo. Then, as I understand your position, you think it is best that these benefits should come to the farmer through a cooperative association ?

Mr. SILVER. They can only come that way, I think.

Mr. WINGO. Your opinion and the opinion of those who framed the bill is that the only practical way for the farmer to get the benefit and put himself in the position which you and I want to put him in is to have him work through a cooperative association?

Mr. SILVER. That is right.

Mr. WINGO. You do not think he can do better as an individual save as he works in cooperation with his fellows?

Mr. SILVER. No. He has all the individual's rights to get money to-day that can be granted him.

Mr. WINGO. As a matter of fact, the Federal reserve system does just what I have said. To-day the farmer can not get his paper rediscounted at the Federal reserve banks, the statute to the contrary notwithstanding.

Mr. SILVER. I am afraid you did not catch the intent of my words. that he has all the rights as an individual that can be granted to him but that he can not avail himself of those rights.

Mr. LUCE. Does the farmer's situation in that particular differ at all from that of other producers?

Mr. WINGO. Yes.
Mr. LUCE. Can the manufacturer get 9 or 12 months' paper ?

Mr. WINGO. In other words, the manufacturer can get credits which experience show are sufficiently long in time to cover his needs, but the farmer does not get a sufficient amount of credit to cover his needs. Their needs, by the way, are different in point of fact.

Mr. LUCE. That is just what I wanted to find out. We will eliminate for the moment the question of production credits. We are now addressing ourselves to the question or marketing credits. Do you see any reason why in the matter of marketing credits the cotton grower in Texas should be put upon a different plane from the cotton manufacturer in my home town?

Mr. SILVER. Your manufacturer in your home town will take, probably, 60 days. He will have need for a credit for 60 days, or perhaps but 30 days.

Mr. LUCE. He is marketing?

Mr. SILVER. Yes; but the farmer who has grown his crop has at harvest time a 12-months supply, and he must have a 12-months credit in order to market properly.

Mr. LUCE. A 12-months marketing credit?
Mr. SILVER. Yes.

I say

Mr. LUCE. Does your observation of human nature and the different capacities with which men are endowed lead you to believe that in the majority of instances, the great majority of instances, it is a desirable thing to encourage the producer also to attempt to do his marketing?

Mr. SILVER. The producer must be his marketer.

Mr. LUCE. I mean marketing from the point of speculation. My observation is that there are few men who would be able to do that My observation is that there are few men who are skilled in toil who are also skilled in the sale of their product. Do you think it is a desirable thing for the Government to encourage a combination of two functions which society has found it wise to differentiate?

Mr. SILVER. Mr. Luce, the farmer, by the very nature of things over which he has no control—the seasons and the time of planting and producing the crop produces at one harvest time a year a 12-months supply. Your manufacturer produces day by day and week by week.

Mr. LUCE. Yes; I understand that.

Mr. SILVER. Now, just a moment, please. As that 12-months income is based on a 12-months expenditure, he must, in order to get an average throughout that year, have a chance during all those 12 different months, or 12 seasonal selling times, to get what the market fairly represents. Again, it is the only protection the consumer and the producer have from the speculator. It helps us to avoid this thing that we call speculation by those men who are not responsible at all in the matter, except that they buy when times are favorable and sell when they are favorable, to the distress of both the consumer and the producer. The only thing that prevents that is that the crop shall remain in the producer's hands until consumption absorbs it.

Now, just a step further. When we do that, any time that we have more than a normal carry over, it is on the farmers' hands, and that is a safety valve in the whole marketing system that keeps from breaking down the notes and other obligations. He is protected thereby, and at the same time the consumer is guaranteed an absolute and full allowance in food and raw material and clothing for that year. If it should happen that we should not have a foreign market, and we produce only a sufficient amount for ourselves, a dry year might prove disastrous, so that that is really essential if we are going to have the right kind of relation. When the farmer produces a 12-months supply there should be an orderly way of marketing that supply.

Mr. LUCE. I agree with you fully. I am heartily in favor of proper marketing. I injected myself into this controversy not because I took a view different from that, which you have expressed but because I was trying to find out whether a system which encourages cooperative marketing is to be preferred to one which encourages individual speculation.

Mr. WINGO. Either of you gentlemen will find it difficult to make a distinction between one speculator and another. Since I am somewhat familiar with the cotton situation, I will use cotton as illustrative, but I think it is understood that it applies equally to meat or coal. If it is considered speculation for the farmer to hold his cotton off the market and feed it in an orderly way as an individual holding it for a fairer price, and such speculation destroys the eligibility of his paper, why isn't it speculation if the paper is given by the cotton manufacturer and he buys beyond his current needs because he knows the market is going to be better later on and he feels it wise to store up? He is accumulating his supply with a hope of getting a better price later on. Why isn't that speculation ?

Mr. LUCE. It is.

Mr. WINGO. But the whole tendency of the rulings of the board in the past has been that if the farmer undertakes to hold his crop it is speculation. He must let the cotton factor do it. I know of one case where there were 214 bales of cotton secured by a warehouse receipt by a group of farmers, not a cooperative association but a group who went together through a merchant who was holding the cotton under a trust agreement. They were told that they could not hold this. But the next day after the cotton was sold the cotton factor borrowed the money from his member bank and his member bank got the note discounted at this very same bank.

Mr. LUCE. What kind of a note?

Mr. WINGO. It was the same kind of a note as the bank was holding for the farmer, a 90-day note. It was at the same time, the same bales of cotton, the same amount of cotton, and it stayed in the same warehouse. That was speculation, too, but it was financed in the case of the cotton factor when it

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was not financed in the case of the farmer. They said to the bank, “ This is a renewal of this firm's paper. If you will put it in the warehouse and turn it over to us, we will hold it until the market opens up. We will not charge you anything. You simply pay interest, warehouse charges, and insurance. We will let you do that. You can borrow money on that note. We can take care of our business so as not to force you to sell out.” The Federal Reserve Board said that if that note is for the same 214 bales you can not hold that cotton. Yet the factor who bought it got a warehouse receipt from the same warehouse, attached it as collateral to his note, rediscounted it at the same bank and at the same time. This was commercial paper that was liquid but the other was not.

Mr. LUCE. Was there any explanation ?

Mr. Wingo. No; there was not, and here is the tragedy of it: You have heard Governor Harding give his views on this subject. It is because of things of this sort that the country bank and the farmer are sore at Governor Harding. He was protesting from the housetops that he was trying to help, and yet his banks while forcing that distressed cotton upon the market in the one case took care of the factor in the other. These gentlemen from agricultural States will tell you that if you can get thoughts of that kind out of the minds of the bankers and the people, more of them will come into the Federal reserve system. They have been soured by that kind of experience. That, I am sorry to say, is not an exceptional case.

Mr. LUCE. I do not see why there should be different treatment for different classes.

Mr. WINGO. We do not ask for special treatment. We simply say, us the same privileges to the same extent that you give to commerce and industry.” We do not ask for special privileges. If it is the duty of the Government to furnish adequate credit facilities for other industries, it is equally the duty of the Government to furnish adequate credit facilities for agriculture. They simply ask that they be given equal treatment and not special treatment.

Mr. LUCE. Do you want to give the farmer à 90-day marketing credit? Mr. SILVER. He can not market in 90 days.

Mr. WINGO. His needs are so interwoven that you can not distinguish be. tween them always. We all know, and it is admitted, that 12 months is the farmer's cycle.

Mr. LUCE. You are getting away from my question. Mr. Silver, do you want to give the farmer more time than the manufacturer ?

Mr. SILVER. Your manufacturer will run through a season producing and selling as he produces and sells, from week to week or from month to month. It is a case of producing and marketing throughout the year. The farmer produces but once a year. His sundown comes but once a year; that is, his production; and then he must market through a like period.

Mr. LUCE. What about the marketing of the canner?

Mr. Silver. Possibly it has not occurred to a great many persons that if we are to have beefsteak four years from now the cattleman has to have his breeding stock to-day. That is a long period.

Mr. LUCE. Excuse me. Our minds are not together. I had reference to the canner, who is a seasonal operator.

Mr. SILVER. I beg your pardon. I understood you to refer to cattle. Of coure, it depends upon what the canner is engaged in doing. The canner must have a distributive time, because he puts up about a 12-months' supply.

Mr. LUCE. But you do not give him 12 months of credit.

Mr. SILVER. You give him whatever he needs. He does not give the same note. The canner cans all sorts of vegetables and all sorts of fruit. How does he get his credit? He gets a certain amount of money when the canning season is completed. Every 90 days he gives a new note for something less than the old one and is in shape during all that time. But the farmer is handled in this way: The farmer ordinarily gets credit for production. He has his planting to do, and the preparation of the soil must go on for our general good, whether the season is a good or a bad one. As soon as harvest time bas come, the farmer meets with pressure. The merchant in town comes to him and asks him to settle his account. He says, “ Pay me.” That compels the farmer, acting individually, to overstock the market. So all the farmers in the country start to market. Some are close to the markets; some are a little farther away, but they all get there within the 30-day period, and as a result the farmers are hurt.

Mr. LUCE. What I balk against is that everyone running a farm, not acquainted with general conditions and not in command of information regarding credits and finances, should hold a crop for from six to nine months.

Mr. STRONG. Let me say this: Out in my own country the most successful farmers, as a rule, try to hold the corn crop until they are assured of another (orn crop. In other words, if they did not do that and they failed the next year to have a crop, they would have to go out and purchase their corn and haul it back to the farm to feed the stock. So the successful farmer holds one crop until he is assured that he is going to have another one. He wants to be assured that he is going to have corn for his cattle.

Mr. SILVER. Let me give you an illustration. I grow apples down in West Virginia. We set up a community packing house. We have Government inspection of the packages that we put up. We put apples up in cartons of a dozen or two dozen; also in bushel boxes and in barrels. That is for the purpose of making it convenient to supply the difference in demand. An individual may buy a dozen; a family may buy more. When we have introduced our package, our brand, our label, our standard to the consumer and he is acquainted with it, then we begin to get repeat orders. That means that the cost of one introduction is the cost of the introduction of the selling of that grade of apples. We begin to get these apples in July and we sell them for several months, but we must have credit that will carry us through the season. We can take them to the packing house and then carry them into the warehouse and let them out at a rate of so many a month. That takes a longer period. That is the only way to do it economically. If we do it otherwise we break the market. .

I want to make it plain why the farmer needs longer credit. I want to get before you an illustration that will appeal to you with respect to the worthwhileness of the request for longer credit, not as a favor, but as an actual need in his business. You do not do the farmer a favor.

Mr. LUCE. Do you think that the majority of the farmers have the capacity to carry on this marketing proposition? We are told that in the long run the individual farmer gets lower prices.

Mr. SILVER. That is true. If, when harvest time comes, we sell and break our market by selling 80 per cent in the 90 days, you can see what the result is. Then there is remaining 20 per cent that keeps the market broken. It keeps the market down low, so that the fellow in the spring is no better off than the fellow in the fall.

Consequently, if they act as individuals, as Mr. Wingo indicated a while ago that they might do, they destroy their own chances of success, while if they act through an organization they are helped because they will remove this 80 per cent from the market.

Mr. LUCE. I agree with you on that point fully. Now, there is one more point that I have in mind. If you make it easy for the individual to carry over, don't you weaken and don't you impair the success of the cooperative association ?

Mr. SILVER. But he can not carry over.
Mr. LUCE. Then there is not much use in passing laws to let him.

Mr. SILVER. He has tried to and has failed. The farmer individually can not do this. Everywhere he deals, whether he buys or sells, he comes in contact with organized business. He sells wheat, hogs, grain, or whatever his product may be, to organized business. He meets organization in business wherever he turns.

The CHAIRMAN. My attention has been called to an article which I should like to read in part. would like to get your view on two points, Mr. Silver.

Mr. SILVER. Do not let me forget to call attention to the fact that the Federal reserve has in a more recent ruling than the one Mr. Wingo called attention to recognized this 12-months' turn-over proposition.

The CHAIRMAN. I think this article runs along the line suggested and discussed by Mr. Luce:

• The one evil result of inflation with which every country has been affected from time immemorial is the tendency to enact legislation which would make conditions worse. The period immediately following inflation seems wholly to unfit the public for thinking logically. Hence the proneness of the masses to

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