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the fight out into the open and the matter will undoubtedly be brought-by the cooperatives directly to the attention of Congress, with a request that corrective measures be incorporated into law."


Chicago, Ill., April 14, 1932. The principal defense of Mr. Carey, president of the Chicago Board of Trade, to the charge that the board has discriminated against farmers' grain cooperatives, is that he doubts whether Farmers National Grain Corporation is a cooperative, C. E. Huff, president of the grain corporation, said yesterday.

Mr. Carey has ample opportunity, if he wishes to make use of it, to learn that Farmers National Grain Corporation is a cooperative, complying in every respect with the provisions of the Capper-Volstead Act. This act not only places limitations on the volume of nonmember business that may be handled, but also provides that a cooperative must be composed of producers, and must operate for the mutual benefit of its members. The act further limits the dividends which may be paid on capital stock to a maximum of 8 per cent. Farmers National Grain Corporation conforms to all of these provisions of the national cooperative statute, and is wholly owned by 28 large organizations of grain producers, which comprise in their membership upward of a quarter million actual farmers.

It is pointed out by Mr. Carey that rule 313 of the board of trade, barring corporations from becoming members in the clearing corporation after April 2, 1929, was passed for the protection of the public and on the theory that in event of a failure the liability of officers and stockholders of the member corporation would be limited, whereas in a partnership all partners would be equally liable. There are two significant things to be noted in connection with this statement. The first is that the board of trade's interest in thus protecting the public in its dealings with members of the clearing corporation never became apparent until after the Congress of the United States, called in special session early in 1929, had gotten definitely under way legislation designed to support the development of cooperative marketing and to place grain cooperatives in such position as to make then a very important, if not dominant factor in the market.

It was as clearly evident to these board of trade officials then as it must be evident to the public now that such rule would exclude the cooperatives effectively and would in no way operate against any other individual or group. In the nature of things a cooperative can not become a partnership.

The second weakness in the argument is that a partnership is not necessarily financially sound, regardless of the liability which its members may severally have. The rule does not hinge upon the financial soundness of the member organization. It blindly provides that a corporation, regardless of its financial strength, can not be a member and offers the weak excuse that the stockholders of such corporation are not individually liable and that, therefore, the public has less protection. Farmers National Grain Corporation is certainly as responsible financially as most partnerships; is a member in good standing on the Chicago Board of Trade, and has been able at all times to meet every financial obligation or requirement. With its application for membership in the clearing corporation it submitted a copy of its current balance sheet, showing the net worth of the corporation to be approximately two and one-half million dollars. Mr. Carey implies that the national cooperative has not dealt openly and cites the fact that its purchase of the Updike Grain Co. was not revealed until brought to light by officials of the Chicago Board of Trade. For the purpose of the record it may be pointed out that on June 14, 1930, nearly two years ago, Farmers National Grain Corporation made formal application for membership in the clearing corporation. Rule 313, adopted by the board of trade a few months in advance of the formation of the national cooperative; was cited and the corporation's application was returned. The grain corporation realized fully that every effort would be made to prevent its becoming a member of the clearing corporation and to restrict its operations as a member of the Chicago Board of Trade. Not wishing to make the matter one of open contest, it was entirely natural that the cooperative should have purchased the stock of a corporation already enjoying member privileges, and to have carried on its business by that means. The cooperative has no apology to make for its failure to notify the board of trade of its purchase of the Updike Grain Co. Neither does that purchase nor the use of the Updike Grain Co. by Farmers National Grain Corporation have any bearing upon the corporation's right in its own name, as a cooperative, to the privileges of the clearing house.

Mr. Carey finds the grain markets somewhat improved as to price levels and is fearful that the action of the Farmers National Grain Corporation, in demanding its rights under the law, may result in an unfavorable turn in the grain markets and no end of injury to business in general. He should be reminded that Farmers National Grain Corporation and its affiliated cooperatives are the only agencies consistently attempting to maintain grain price levels against the frequent efforts of speculative bear raiders in the private grain trade to hammer down the level of grain prices. Many believe that these raids upon the market have for a motive the desire to cause grain producers to lose confidence in the agricultural marketing act, the Federal Farm Board, and the cooperatives. It might be stated also that the Chicago Board of Trade takes itself far too seriously if it believes that the business structure of this country is apt to suffer very seriously as the result of any action taken on the part of the Federal Government to protect the rights of producer organizations under the law against the rulings of the officials of the Chicago Board of Trade. If any ill results should follow, responsibility for such results will rest not upon those who insist upon their rights under the law but upon those who stubbornly refuse to comply with the provisions of Federal statutes for wholly selfish reasons.

Farmers National Grain Corporation engages in no speculative operations, Mr. Carey to the contrary notwithstanding. It is acting in behalf of American grain producers and with their interests in mind, and its devolpment over å period of only two years has had the effect of diverting such large volumes of grain from old line to cooperative channels, that every possible effort, it is apparent, is to be made by a certain element in the private grain trade to prevent further growth of the cooperative movement.

Mr. NORBECK. Mr. Chairman, I desire to bring before this committee for serious consideration, one more plan for restoring the purchasing power of agriculture. This plan has been prepared by Mr. Jay Williams and Mr. John Schoof of Gettysburg, S. Dak., and I ask that it may be printed as a part of these hearings. The CHAIRMAN. There being no objection, it is so ordered.


Gettysburg, 8. Dak., June 17, 1931. Hon. PETER NORBECK,

Redfield, s. Dak. MY DEAR SENATOR : In regard to the plan which John Schoof and I have worked out for relieving the present economic handicap (just partially) which is now placed on the agricultural industry:

First let me say that we do not pose as experts on economics or constitutional law. Our plan may have some very material defect. If so, we have not discovered it in two years of talking it over with persons who are generally well informed--but we want to know it if there is one.

In formulating this plan we have proceeded on the theory that the country is ready to admit that the farmers' purchasing power must be increased to a point which will restore to our manufacturers the normal domestic market for their products before we can ever return to a state of our ordinary American prosperity; but that this must not be by means of some temporary expedient, economically unsound, which will merely work for a time and then result in further economic chaos.

We have also kept the point of view of the consumer, as well as the producer, in mind; but, also, that the volume of production of farm products can not be controlled like that of factory products, and the consumer is best protected, in the long run, by having some surplus on hand constantly as insurance against the “gouge” prices that gross underproduction would bring. In other words, farming is entitled to just a little more encouragement than is an industry which can control its output absolutely-for the protection of consumer as well as producer.

We think that it is neither practical nor desirable to have any governmental guaranty of a minimum price—with the certain increase of overproduction


which that would cause. Neither do we like the idea of costly governmental machinery for handling surpluses, assessing of equalization fees, the curbing of production, or the issuing of debenture certificates. All of these methods mean additional Federal boards, additional expenditures, and cumbersome, expensive processes.

We do not think that the putting out of business of legitimate commission merchants by governmental competition or encouragement will cure the present agricultural illness. Again, the organization of the millions of agricultural units into effective cooperative marketing agencies is a task of such magnitude that it can not possibly bring any tangible results for many years—if ever.

With these premises in mind, therefore, we suggest the following plan which, we believe, will answer every material objection made to the McNary-Haugen and the debenture plans by Presidents Coolidge and Hoover, respectively, in that it will

1. Bring sufficient revenue from its operation to pay all administrative costs, thus constituting no drain on the Federal Treasury.”

2. Require few, if any, additional employees.
3. Indirectly compel orderly marketing of crops.

4. Encourage the farmers themselves to decrease present overproduction of some crops.

5. Encourage diversification of crops.

6. Immediately give producers of all crops one-half of the additional price that present tariff schedules contemplate they should have to put them on a par with other industries; and

7. Penalize, in the form of a tax, the very individuals who are responsible for the overproduction which now penalizes all persons in the industry. This tax will be fixed at an amount sufficient to pay all costs of operation of the plan.

The plan (in attempting this explanation wheat will be used as an example; but it should be kept in mind that it will apply equally well to any crop of which an exportable surplus is now produced):

The Department of Agriculture now has statistics available showing the number of persons engaged in raising wheat, the approximate amount raised, and the amount needed for domestic use.

To use easy figures, let us say that there are 1,000,000 persons raising wheat, that there is an average production of 800 bushels per person in the industry, and that an average of only 600 bushels per wheat farmer is needed for domestic use.

We would have the Secretary of Agriculture empowered to say, in effect, “ In 1932 each person engaged in wheat raising may market 600 bushels of wheat tax free; but on any excess marketed over 600 bushels in 1932, a tax of 8 cents per bushel shall be paid." (Note “8 cents” is used by way of illustration only. The tax would be set at a figure sufficient to meet the expert bounty payments hereinafter mentioned.)

With the sum so raised an export bounty of half the tariff rate, or 21 cents per bushel, would be paid on all wheat exported. Obviously this bounty would enable the purchaser for export to bid 21 cents over the normal price in our market, and it would thus raise the price of all wheat by approximately that amount in our market.

We would have every producer of farm products make a return each year showing all crops produced and how disposed of or where stored—thus furnishing accurate data upon which the Department of Agriculture could base its subsequent decrees.

The tax would be payable at the same time and place as the income tax. Since a separate farm return is now required from a farmer, not even an additional return would be required on this plan. No new tax-collection agency is needed.

Certain questions at once present themselves, which, when answered, will clarify and further explain some of the features of this plan :

Question. What will be the natural reaction of the individual farmer to this plan?

Answer. Farmer Brown has 160 acres which he had expected to plant to wheat. He finds that he can only market 600 bushels next year tax free. He hopes to get around 20 bushels per acre, so he sets aside only 30 acres for wheat-because he is human and therefore doesen't want to pay a tax if he can get out of it. Perhaps the decree as to barley will permit him to set aside 40 acres for barley to market—in addition, of course, to the amount that he


wants for feed for his stock, which is not taxed. He finds that there is only about one-third of the needed supply of flax produced here, and that he can therefore raise all the flax he wants and market it without tax. He naturally increases his contemplated flax acreage.

Perhaps he is even driven to the point of requesting information from the Agricultural Department as to what crops may be raised successfully on his soil in his climate—which is something that the average farmer has never done in the past. In other words, diversification of crops will be almost enforced by the human desire to avoid a tax, and curtailment of overproduction of surplus crops will be brought about in the same manner. An indirect result, of far-reaching benefit, will be to show the average farmer (who has merely been planting the crops his father raised before him) that he is really but a cog in a great producing machine, and that he should consider the industry as a whole in his individual practices.

Question. Will not the farmer resent this tax? Answer. Should he resent paying 6 or 8 cents per bushel on a small part of his crop when it brings him back 21 cents per bushel on the whole crop? And, too, he need pay no tax at all unless he markets too much. He can save his individual surplus, if any, and market it next year tax free. Thus we shall have enforced “orderly marketing,” about which we have heard so much and done so little.

Question. How about the Tom Campbells of the industry-isn't this a direct slam at them?

Answer. It our suggestion that big-scale farmers be given a credit of 600 bushels for each man employed in that industry for, let us say, 6 months of the year at least.

Of course, the large-scale farmer would be foolish if he kicked at a small tax which brought him 21 cents per bushel more for all his wheat. Another angle of looking at it is this: A few large-scale producers can easily penalize every man in the industry at present by raising a surplus. Why should not the men directly responsible for this condition be made to pay the penalty?

Question. Will there not be a lot of tax evasion under this plan?

Answer. Returns will be made under oath--just as an income tax return. Similar penalties for evasion should be provided. It is hard to conceal a field of wheat. Public elevators and warehouses have to keep records of every load purchased. It would be a much harder tax to beat than the income tax, obviously. It should be remembered that the farmer may feed all the wheat that he desires-or he may keep it for seed, or for any other purpose. It is only when it is stored in or sold to a public warehouse that the tax applies.

Question. Would you have the bounty continued if a world shortage of wheat, or some other condition, raised the price abnormally high?

Answer. No. The commodity price index shows what the normal price of wheat should be. After this fair price level is reached by the market, we would have the bounty reduced 1 cent for each cent that the market advances beyond the fair price level until no bounty is paid. Assume that the price index on wheat stands at $1. Then 21 cents bounty is paid. It is advanced 10 cents, 10 cents is taken off the bounty, and so on. This would operate, in other words, only when the price—the exchange value of wheat is too low.

Question. Why do you say that the tax would only need to be a few cents, when you contemplate a bounty of 21 cents? Shouldn't the tax equal the bounty?

Answer. As an illustration, say that 600 bushels may be disposed of tax free. A million farmers plan on raising 600 bushels each (still assuming that it is human to want to avoid payment of a tax). Due to varying climatic conditions, say that half of this number fall short of the desired production and only raise an average of 500 bushels each, but the other half raise an average of 700 bushels each. In that case, assuming that the producers of 700 bushels each all marketed their crop that year, a of $8 eac would be

from 500,000 farmers—a total of $4,000,000. Still there would be no surplus for export, hence no bounty payments.

Another case: Half raise only 500 bushels, while the other half far exceed their expectations and raise one-third more than they anticipated, or 800 bushels for an average. If, again, all of them decided to market all of the crop instead of storing the extra taxable 200 bushels each, it would take a tax of 1012 cents per bushel to meet the bounty. payments in that case.

Of course, this must be considered: If a farmer plans on raising 600 bushels of wheat, and, because of unusually favorable climatic conditions, he is given a crop which far exceeds his natural expectations, the natural, human reaction would be for him to say to himself, “ This excessive yield was not expected and it is not needed for farm expenses. I shall market the 600 bushelg which requires no tax payment, and the balance I'll keep in my granary until next year. Next year, as a result of this carry-over, I shall, of course, plant less wheat." In this way, we believe, the farmer himself will bring about a system of orderly production and orderly marketing which all economists seem to agree is to be ardently hoped for but most difficult to attain.

This, too, should be remembered: If the farmer so adjusts himself to this plan that only enough of each crop is marketed for domestic needs, then the full tariff on a crop so curtailed will automatically become effective-assuming, of course, that the “milling in bond” and the “ drawback jokers are removed from the tariff laws. In that case the farmer would receive 42 cents more than the world market for his wheat, and there would be no bounty, hence no tax.

To summarize briefly :

Secretary of Agriculture empowered to decree, when commodity index shows that a crop is below the fair price level, that an export bounty be paid on such crop in an amount equal to one-half tariff rate, with such bounty decreasing in proportion as market raises above that fair price level.

The Secretary, once each year, decrees how much of each crop can be disposed of tax free by a producer in the following year, and how much tax to be levied on the excess. This tax shall be estimated at an amount sufficient to meet all bounty payments and administrative costs.

Tax is payable each year at same time and to same agency as income tax. Every producer of farm products must make yearly return showing what he has raised and what has been done with it, thus furnishing authentic data for next year's decree.

The result should be:
1. No cost to Government.
2. No interference with private business.

3. An immediate return to the farmer of one-half the additional price which he should have in order to enable him to pay the equivalent of tariff rates plus on the things he must buy.

4. A consequent return to the manufacturers of the normal farm market for their products which they have lost through agricultural depression.

5. Increased diversification of crops to avoid taxation.
6. Decreased overproduction of crops to avoid taxation,
7. Orderly production and marketing of crops to avoid taxation.

8. A net profit, above the tax, even to those who overproduce; and no tax at all on those who do not overproduce-a penalty, in other words, on those directly responsible for the overproduction which now penalizes the entire industry.

9. Better business methods for the farmer, who must, under this plan, consider himself as merely one unit in the whole American agricultural program, instead of a comparatively uninformed free lance, as he is at present in this highly organized era.

10. The removal of the largest single cause of the present business depression.

It is hard to cover every point in a letter of this kind. Perhaps I have overlooked some material point. If so, please ask me about it if you see one. We shall be most interested in getting your reaction to this. It sounds involved and somewhat intricate when we try to explain it, but it looks most simple and workable to us after about two years of talking it over. Sincerely,

JAY H. WILLIAMS. Senator FRAZIER. The hearing will stand adjourned until the call of the chairman.

(Whereupon, at 5.15 o'clock p. m., the committee adjourned, subject to the call of the chairman.)

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