to-day. The question now in our minds is, Where shall we go with that paper? Is the Federal reserve system going to continue such a ruling against us? Mr. STEVENSON. If we make it eligible by statute, the Federal reserve is not likely to do that.

Mr. CUNNINGHAM. I presume the experience that we have had will teach you something about that. A bank in Iowa has taken a bunch of that paper off our hands. Our people are scrambling for help in this situation. Can they get money? In some instances, yes; in some instances, no. Now, what does the banker say when approached for a loan that would have to be rediscounted? He says, I was on a lot of that paper a year and a half ago. Thank God, I am not on it now. I will not be on it again." That is what he says. The CHAIRMAN. Who says that?

Mr. CUNNINGHAM. The banker says that. He was on the paper, but he is glad he has been relieved of it.

Mr. STEVENSON. What reason was assigned by the War Finance Corporation for not taking the paper after you had complied with their requirements? Mr. CUNNINGHAM. I really do not know. You see I do not personally give any attention to the details of the corporation.

Mr. STEVENSON, You do not know what the reason was?
Mr. CUNNINGHAM. I really could not answer that.

Mr. STEVENSON. Mr. Meyer has been quite liberal.

Mr. CUNNINGHAM. Yes; that is the general impression, that he is quite generous. But we feel that a different system of credit is necessary; that it is vital to the welfare of a State like ours.

The CHAIRMAN. I was not here, unfortunately, when you began your statement, so that I do not know just what you have said. What security did your corporation desire?

Mr. CUNNINGHAM. Just a note from the farmer, accompanied by his personal statement.

The CHAIRMAN. Were there no agricultural products back of it?

Mr. CUNNINGHAM. There might have been. I do not know.

The CHAIRMAN. Your marketing association took a note and advanced the money?

Mr. CUNNINGHAM. Yes;our credit corporation.

The CHAIRMAN. Your credit corporation.

Mr. CUNNINGHAM. Our credit corporation; yes.

The CHAIRMAN. Controlled by the marketing corporation?

Mr. CUNNINGHAM. It is a stock corporation with a million and a quarter dollars paid-up capital. It is owned by the farmers and bankers in the State of Iowa. This paper that we took up was farm paper. It was paying interest. It was all, however, for agricultural purposes. That was the only kind of paper we could take. This corporation has a paid-up capital.

The CHAIRMAN. Did that company indorse the note?

Mr. CUNNINGHAM. The farmer comes direct, in some instances, through the bank. Sometimes a country bank will say, "We just got away from that paper and we are not going to get into that again." That would drive the farmer straight to us.

Iowa has about 1.800 banks and a lot of them have but small capital.
The CHAIRMAN. You were in the habit of taking some papers from the banks?
Mr. CUNNINGHAM. Yes.

The CHAIRMAN. In case the bank indorsed that paper?

Mr. CUNNINGHAM. Yes.

The CHAIRMAN. Then, in turn, you took that paper and put it up?

Mr. CUNNINGHAM. Yes.

The CHAIRMAN. So you had the farmer's notes, based on his financial statement, and the indorsement of his bank, and then the indorsement of your corporation?

Mr. CUNNINGHAM. Yes.

Mr. STEVENSON. And a chattel mortgage was given on the stock of the farm?

Mr. CUNNINGHAM. Well, that was troublesome. The farmers have not been in the habit of giving chattel mortgages. They have not been in the habit of doing that.

Now, there is need for this financing. I just want to leave this thought with you. Mr. Silver covered this subject so thoroughly that there is not much need to go into it further. I want, by the way, to indorse every word that he said. There is a feeling in the West that this class of legislation is

going to prevail. Do not make any mistake about that. I know that we are all chafing. Perhaps you think that we are all unsteady on our feet in connection with this proposition. We do not even like the propositions that have come up during the last year. There is a feeling in the Middle West, and there is a feeling in the country, a sentiment that absolutely demands of the farmer that he produce, and produce to the utmost. Any one who would not do that would be classed as a poor kind of citizen. We must have, however, an incentive for the farmer to produce everything he can every year. It is a dangerous thing to tamper with. Now, he is going to meet that obligation, and he has all along the line, but there is a feeling that there is too big a toll on his product. If he does produce, why shouldn't he have the right to set up sound marketing machinery and go as directly as possible from his farm to your table with his product? And who should say that he shall not do it? They say that the individual farmer can not market his product; that he is not a marketing man; that he is a good producer. Gentlemen, we understand that fully, but he is just as capable of hiring a good man to market his product as any other man, and he should have the privilege of exercising that right and making use of the opportunities. Unless something of this kind is done the Middle West will never be satisfied, and you will eventually create a condition, if the sentiment keeps on growing, that we will all regret. I want to say to you gentlemen that you can be very thankful that there are such States as Iowa and Minnesota. I say this notwithstanding the North Dakota blowup. We do not want a repetition of that in other States.

I have looked into these matters and I hope you will do everything you can to facilitate the passing of these bills.

The CHAIRMAN. Do you want both the Lenroot and the Capper bills passed? Mr. CUNNINGHAM. It would be indiscreet on my part to say anything about the Capper bill. I think that it fits the condition in some parts of our country very nicely. I think it fits the cattle man nicely, but that is not the bill for our section of the country.

The CHAIRMAN. It has been suggested that if that bill were enacted and the cattle men were financed, it would result in the release of a large volume of credit which would be made available to the farmer; and it has also been pointed out that the Federal loan system, functioning as it does and giving to banks which have been carrying farmer's notes the opportunity to finance them for a long time and make assets liquid, would be relieved. Have you had that thought in mind?

Mr. CUNNINGHAM. I think it would furnish sufficient relief if we were sure of getting the relief.

The CHAIRMAN. Do you feel that the local bankers would not give you the relief?

Mr. CUNNINGHAM. The local bankers would if they had the money, but we have got to have more adequate financing, and we have got to have cheaper financing for the farmer; that is to say, we have to have a cheaper rate of interest. We can not load that overhead interest on to any item.

The CHAIRMAN. What do you mean by a lower rate?

Mr. CUNNINGHAM. Less than 8 per cent for agriculture.

The CHAIRMAN. Well, the Federal loan system is less than that.

Mr. CUNNINGHAM. Yes. There is enough paper in the banks in special cases and they are lending money at 6 or 7 per cent.

The CHAIRMAN, What you need is a restriction on the rate of interest. That is governed by State laws, by the usury laws.

Mr. CUNNINGHAM. I understand that. We are not putting anybody out of business. The banks claim they can not make cheaper loans and exist. That must be fully understood by all the people of the country. We have no desire to put anybody out of business, but we mean to create the most practical and economical system possible.

Mr. APPLEBY. Your idea is that these men who have gone into competition will make the rate of interest low?

Mr. CUNNINGHAM. Absolutely. There is our organization with a million and a quarter dollars paid up capital. There are hundreds of others over the Middle West. This avenue of approach is open. They can come to this institution and get money for 5 per cent. They can do it at a reasonable charge.

Gentlemen, these are my convictions: If you can so arrange it that the cheapest rate of interest in this country will be on farm loans, and fix a reasonable rate and a good rate on farming operations, you will have gone a long way toward creating the right kind of a situation in this country. You will have accom

plished a great deal when you have assured the farmer that he can pay his interest and taxes and be assured of a reasonable income. You then settle that man in every community and make of him a good citizen. He will stay there when he is prosperous, and you will be prosperous, too.

The CHAIRMAN. We will adjourn at this time until Monday morning at 10.30 o'clock.

(Thereupon, at 5.30 o'clock p. m., the committee adjourned until Monday, February 19, 1923, at 10.30 o'clock a. m.)

COMMITTEE ON BANKING AND CURRENCY,
HOUSE OF REPRESENTATIVES,
Monday, February 19, 1923.

The committee met at 10.30 o'clock a. m., Hon. Louis T. McFadden presiding. The CHAIRMAN. The committee will be in order. The first to be heard this morning is Mr. Aaron Sapiro. Mr. Sapiro, we are considering Senate bill 4280 and, collateral to that, the general subject of rural credit legislation.

STATEMENT OF MR. AARON SAPIRO, REPRESENTING COOPERATIVE MARKETING ASSOCIATIONS, SAN FRANCISCO, CALIF.

Mr. SAPIRO. First, I should identify myself. My name is Aaron Sapiro; residence, San Francisco.

In making these points I appear as counsel for the executive committee of the National Council of Farmers' Cooperative Marketing Associations, which met here in December and is now arranging its own permanent organization. That includes approximately 870,000 farmers in various cooperative activities.

Then I am here is direct counsel for the American Cotton Growers' Exchange, which is comprised of cotton associations in the States of Texas, Arkansas, Oklahoma, Mississippi, Louisiana, Georgia, Alabama, North Carolina, and South Carolina, with a total membership of approximately 190,000 farmers.

Likewise, as counsel for the rice growers' associations in Arkansas and Louisiana, with a total membership of approximately 6,000.

Likewise, the wheat associations in Oklahoma, Texas, and Colorado, with a membership of approximately 8,000.

And tobacco associations: The Burley Association in Kentucky, Tennessee, Ohio, Virginia, and West Virginia; the Bright Tobacco Association of Virginia, North Carolina, and South Carolina; and the Dark Cooperative Tobacco Associations of Kentucky, Tennessee, and Indiana; the Connecticut Valley Tobacco Association in Connecticut and Massachusetts; the Northern Wisconsin Cooperative Tobacco Pool in Wisconsin, which have a membership of approximately 23,000 members.

Likewise, for potato organizations in Texas and some of the other Southern States; and we are now organizing in Maine.

Likewise, dried-vegetable and fruit associations, stretching from California and including New York, with a total membership of approximately 100,000. For the Poultry Producers' Association in California and on the Pacific coast. chiefly the associations in central California; and the Pacific Egg Producers, including approximately 22,000 members; for dairy groups stretching from California to Texas and Illinois, including approximately 20,000 in those groups.

The wool association in Texas.

And then, as organizing counsel for a group of other wheat and other types of associations throughout the United States.

I wanted to make clear the viewpoint to which I spoke.

These associations are practically all engaged in the marketing of products for their members, under different types of contracts, some of the contracts being what we call the long-term contracts, under which the growers agree in writing to turn over their products for a term of years to the cooperatives, and the cooperatives grade it, pool it, and sell it by the graded pools, and return all the proceeds, less the cost of doing business, to those growers.

Others of them are operated on a short-term agency basis, and a few of them are operated on what we call the "profit-sharing plan," like the Rochdale system. They handled in this last year an aggregate of about $1,200,000,000

worth of products, and they covered the different types which come into the need for what we call marketing credits.

That is simply an introductory statement and explanation of my own appearance here in connection with this legislation.

In speaking, I represent the viewpoints of these cooperatives, and in practically all cases we have had either letter correspondence or direct conference with the directors of these different groups, or with what we call federation directors representing the entire groups, as with the Cotton Growers' Exchange. We divide the farmers' needs for money into three general classes: First, the farmer must acquire a farm, for which he needs acquisition credits to enable him to purchase the farm.

Next he needs to produce something on the farm; so he needs production credits. Production credits are of two types: First, equipment credits, covering tools, stock, and seed; next, maintenance credits, to enable him and his family to survive during the period of production.

The third type of credit that he needs is marketing credit, after the product is in existence, to enable him to carry out orderly marketing of that product and not need to dump it immediately after harvest.

Mr. WINGO. In which class do you put the Capper bill?

Mr. SAPIRO. I think the Capper bill covers the marketing credits.

The problem of live stock is somewhat distinct from the problem of other commodities, because with live stock you have the period of production coincident with your period of marketing. With the other commodities, at the time you start in to do the marketing the period of production is over. With live stock it is coincident, and therefore your problem is made a little more difficult in that case.

What does the farmer need in the way of acquisition credits? Primarily that credit must depend on his local bank, because the local banks know the land and they know the man, and it is the custom for them to lend money on deeds of trust on mortgages to enable their men to acquire properties.

This was not sufficient, and therefore the Government set up the Federal farm-land banks and permitted the setting up of joint-stock land banks. These two are operating along the line of what we call acquisition credits. We give no opinions on any phase of that, except to suggest that the maximum loan be raised so as to enable more of the western groups of farmers to take advantage of the privileges offered in the Federal farm-land banks. On product credits the cooperatives have the opinion

Mr. STRONG (interposing). Will you permit me to ask you a question right there?

Mr. SAPIRO. Sure.

Mr. STRONG. We have just had bills before the House to amend the farm loan act, because of the condition that we found among the farm loan associations, where we discovered there were many places where there were no associations or where the association was not functioning properly to conserve the farmers' needs, and we included in the bill an agency proposition permitting farm loan banks to appoint agents where those conditions existed; and then to safeguard the farm loan associations, we provided that if an agent was appointed where an association was not functioning, and it decided to resume its activities that it might, by resolution, inform the Farm Loan Board and they would quit making loans through agents. But we thought as a committee that it was very necessary to have agents appointed where the farmers were not being served; and it is still in controversy in the House. I wondered if you had any information upon that proposition you would like to give the committee?

Mr. SAPIRO. No; I have not. I am not acquainted with it sufficiently to be able to give an intelligent judgment on any phase of it.

On the problem of production credits, the problems I mentioned before divide themselves into two parts-equipment and maintenance. For the equipment, it is possible for the farmer to give a chattel mortgage or some kind of security to the banker or the other person who may advance him money. For maintenance there is no type of security at all except the hope of a growing crop. It is the opinion of the cooperative groups as a whole that production credits are essentially personal and local in character. It can not be intelligently handled from any national standpoint. The reasons for that are that, first, production credits depend more on the person than anything else; they depend on the personality of the borrower, whether he is a man of

good habits, whether he is a good farmer, whether he is farming in the right place and on the right type of unit and trying to raise the right products in that place.

Then it differs in different sections of the country. In a crop-lien country, like South and North Carolina, where more than 75 per cent of the crops are raised on the crop lien, the production problem is wholly different from what it is in States like California, where less than 3 per cent of the crops are raised under crop liens.

You likewise have a difference, depending on the color problem. In the South generally the relationship is that of a cropper and in the West it tends to be that of a tenant or some other written lease arrangement; and these men work it over that basis into other forms of farming, in which they need credits.

You have a difference in personality and training, depending on the different sections of the country and the groups with which they were settled. You likewise have a difference depending on the commodity. In certain sections, Georgia, for instance, this last year the cotton was planted and the boll weevil ate up more than 80 per cent of the expected crop. That is a much larger destruction than would take place in most any other crop in the country through any known pest. But, nevertheless, take things like wheat. You can plant wheat in Kansas and figure out your low crop and it is still far higher than the low line of a wheat crop planted in certain sections of Montana. In short, in figuring production credits you have to study the locale-the man, his habits, his own background, the crop he is planting, the type of tenantry, the location of that group-all elements which can not be handled from a national standpoint and which can be handled only in an intelligent way, from a localized standpoint.

Therefore it is the opinion of the cooperative groups as a whole that the problem of production credits which does need help and does need solution can best be met by the operation of local banks; second, local credit unions; third, State activities and coordination of those State activities.

On marketing problems: The first thing that the groups engaged in this orderly marketing or cooperative selling have been concerned with is the length of maturity of farm paper.

If I may be permitted to go back one minute-

I think we all ought to keep in mind how maturities of paper arrive. Maturities of paper in modern banking systems have arisen through turnover; and our maturities in this country were taken first from the British system, which was perfect in its own land for its own day. England is primarily a manufacturing country and a shipping country; and the first developments there in short-time paper were 60-day paper for factories, because that was the period in which they figured it took to convert raw material into the manufactured product and would thus enable the manufacturer to get rid of his credit problem, then to turn the manufactured product over to factors and shippers who would use another type of credit. So 60-day paper became the common manufacturing turnover and the common manufacturing maturity in England.

Ninety-day paper came into being because that began to be the unit in which a commodity could be shipped from Liverpool to India and unloaded, take on a load, and get back again to England with a new type of commodity. Ninety days was your great limit on that; other shipments took shorter periods. So the British paper began to be 60 and 90 day paper to conform to British manufacturing and shipping needs. British paper to-day is still primarily 30, 60, and 90 day paper, although the turnover in manufacturing in England is to-day an average of 26 days; and the turnover on a shipping trip is an average of less than 20 days, considering the different points to which English shipping

moves.

When the American banks adopted their maturity they first copied the British paper. Then they did that very successfully, but they ignored one factor in which the United States shipped from Great Britain. We are particularly a producing country, a country producing raw materials. Our agricultural interests are the chief in this regard.

Agricultural credits are of three kinds in this respect: There are some that are of constant production, such as eggs, live-stock products. Other credits are of seasonal production, such as alfalfa, which may have anywhere from four to eight crops a year, depending on the location of the crop.