and tenant and to pay the cash expenses of production, taxes, interest, and living expenses for a family of 4 to 5 persons for a year, may al seem foreign. The movement of the cotton textile industry and of other industries to the low wage areas of the Cotton Belt, however, is a very close and vital matter to industry. Behind this movement is the low income of cotton farmers. To cotton farmers the low wage rates of southern industry are attractive. So long as the income from cotton production remains low, farm wage rates in the South must remain low, and low-paid farm laborers will continue to press for employment in southern industry. Unless cotton production can be made more profitable, it will be difficult to protect wage rates and manufacturing plants in other parts of the country.

U. S GOVERNMENT PRINTING OFFICE 9.0

Farmers and the Surplus Problem

dapted from extemporaneous remarks by Henry A. Wallace, Secretary of Agriculture, before the Conference of A. A. A. State Committeemen and others in Washington, D. C., August 11, 1938

Highlights.-Largely because of weather the agricultural problem in many espects is much more difficult today than it was last year. We are now finally aced with the situation that we would have been faced with several years ago f it had not been for the terrific droughts of 1934 and 1936.

The cotton situation is perhaps the most difficult one with which we are 'aced. There isn't any answer to it that doesn't have very great difficulties and

lisadvantages.

Wheat is trying to join cotton just as fast as possible. It's not quite there yet. I think we can vision the moment as soon as this corn crop has an effect on the supply of hogs, when hog prices can easily go far down unless we do have genuine and quite complete cooperation in our Ever-Normal Granary Program. Loans, whether on cotton or wheat or corn, are not designed to fix prices So much as they are to enable farmers to hold their stuff over on a very favorable basis until a time when they can sell on a more favorable market which may have to be created to some extent through their own efforts.

Give us 2 or 3 years of good corn crops and dairy products will be nearly as bad off as hogs, unless we have this Ever-Normal Granary Program in corn working properly. Dairy people are beginning to feel it now, though their situation is not as bad as that of the rest of the farmers on the export market whose prices are down to half of parity. Dairy prices are down to three-fourths.

I wish you would ask this about any extensive substitute program: Will it do any better in giving a fair share of the national income to farmers? Will it do any better in protecting consumers? Will it do any better in conserving the soil? Will it do any better in preserving long-time democracy in these United States? Ask that about any proposed substitute program.

Is it sound policy to attempt to greatly increase our production of export crops, to increase our exportation of soil fertility abroad and get nothing in return?

Will the Farmers Themselves Really Get In and Use This Program?

We are making our plans under much more favorable conditions in certain respects for the 1939 farm program than we did last year. It is good to have an extra month in which to get our rules and regulations out to the farmers. It is good to know that there is probably no major legislation coming which will change our rules and regu

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lations in any very fundamental manner. That is all to the good. We must recognize, however, that largely because of weather, partly because of business depression, partly because of world uncertainty, the agricultural problem in many respects is much more difficult today than it was last year or than it was 2 years ago, or perhaps even than it was 3 years ago. We are now finally faced with the situation that we would have expected to be faced with several years ago. We would have been faced with it if it had not been for the terrific droughts of 1934 and 1936.

Supply and demand situation.-Because of the very difficult problem flowing from normal weather, it is worth while, it seems to me, to carry your minds rather rapidly over the supply and demand situation as it exists for the great agricultural products of the United States in August of 1938.

First, let us examine that part of the agricultural problem which is found in the towns, the demand side of the equation which perhaps is just as important as is the supply side of the equation. The demand for agricultural products in the towns is not what it should be because the people are not employed. And there are certain definite reasons why they are not employed. The monopoly price practices, the price rigidities which are utilized, whether or not there are specific monop olies, have caused many great corporations to hold up the price of their products, even though it meant throwing hundreds of thousands of workers out into the streets. That is not impugning the good motives of corporation directors in any way-it is just part of the system as it has existed. And it has also been a part of the system as it has existed, that after a number of years of excess debt creation it becomes necessary to have a rest.

When I say excess debt creation, I am not referring to the Government debt creation. I am referring to the excess private debt creation of the twenties, which was enormously more significant than any Federal Government debt creation that has taken place since 1930. From 1923 to 1929 there was an increase in private debt of 40 billion dollars. That contrasts with an increase in Federal debt since 1930 of 21 billion dollars. There was an increase in debts of all kinds from 1923 to 1929 of 42 billion dollars. There has been an increase in debts of all kinds during the 6-year period (1932-38), just as the former period was a 6-year period, of only 6 billion dollars. In the 6 years of the late twenties the rate of debt increase was 7 billion dollars a year. During the past 6 years the rate of debt increase has been only a billion dollars a year, only one-seventh as great.

Private capital not active.-I am citing this situation because it has a very great bearing on the demand side of the equation. The excess debt creation from 1923 to 1929-the excess rate of debt creation and the quality of debt creation-was such that there had to be

long period of rest. It was inevitable that there be an explosion ind a long period of stagnation. It just couldn't be otherwise, because the purposes for which that money was spent were such that the owners of the factories could not sell the stuff at a price high enough o pay the interest on that increased debt. It couldn't be done. There had to be an explosion and a long period of stagnation. The result of the explosion was that private capital has been scared stiff ever since. It overplayed its hand for more than 7 years. It is rather natural that it would underplay its hand for a like period of time until it found its bearings again.

I am sure that all of us who believe in the capitalistic system as an integral part of the democratic system hope that private capital will eventually get its courage back, but it doesn't have its courage back today. It has been necessary steadily, beginning in 1930—a lot of these things didn't begin in 1933, mind you-it has been necessary steadily from 1930 to use certain amounts of Federal capital to take the place of the private capital. Otherwise there just wouldn't be any capitalistic system in the United States today, and there wouldn't be any democratic system. It just had to be done. From a purely economic point of view, the amounts of capital supplied from Federal sources as a substitute for what is necessary to give full employment in these United States are pitifully small. It wasn't enough to prevent unemployment. Taking into account the necessity of eventually getting private capital flowing, it was perhaps large enough, because none of us here wants to see Government capital completely taking the place of private capital. We merely want to see a tidingover situation so that there won't be a major upset that would destroy the democratic system. I think, beginning in 1930, that that policy has been followed.

Now, what is the right rate of flow of capital? It seems to me that it would take at least 3 billion dollars a year of new capital, not the 1 billion we have had during the past 6 years, not the 7 billion we had during the late twenties, but more than 2 billion, probably more than 3 billion, undoubtedly less than 7, probably less than 5. I wanted to get that general picture to you because it does very definitely enter into the demand side of the agricultural problem. We won't have the city half of the agricultural problem solved until capital is flowing and debts are being created in the cities, or in the country as a whole, at the rate of at least 3 billion dollars a year.

It would seem, in view of the long rest which private capital has had since 1930, that we are almost compensated for that over-activity of private capital in the twenties. It seems as though we are coming close to the turn of the tide, but the turn is not here yet. Many people thought the turn had come in the fall of 1937. Many people in

Government thought the turn had come at that time. Many people in Government felt it was wise to take the advice of big business and withdraw Federal capital very rapidly. Then we found that a very rapid and sudden withdrawal could plunge us again into depression. So we think and hope we have learned the lesson that it is desirable for us to encourage private capital again to carry the burden it shoul carry. We have learned the lesson that as we withdraw Governme capital we withdraw it sufficiently gradually that we don't get thrown into depression.

World situation unfavorable.-One point that has to do with giving courage to private capital is the general world situation. The general world situation also has to do with the demand for our farm products overseas. We all know the world situation is none too favor able. Nobody is to blame for that particularly. The situation is a governed by forces that have been flowing out of the World War and out of the Treaty of Versailles. They are facts and you can't blink them. I think farmers tend to disregard those facts because so many of the farmers are located in the interior of the country and most of the papers in the interior of the country don't carry much foreign news. Certain types of private capital won't flow until there is greater stability in the foreign situation. Certain types of foreign demand for our surplus farm products won't manifest themselves until there is greater certainty in this foreign situation. Until certain nations get through running their bluffs on each other, many people are going to feel that serious uncertainties enter into the farm problem. enter into the price you are going to get, and the number of bushels and bales you are going to market overseas.

At the present moment there is a trade agreement with Great Britain pending, by all odds the most important single trade agreement, perhaps as important as any half-dozen others put together. It has to do with foreign demand for our wheat, and our cotton, pork products. and our tobacco. We don't know how much luck we are going to have in this British agreement yet. We do know, however, that the State Department shows such great consideration for all domestic elements. whether in agriculture or in industry, that nothing very extreme will come out of it, that no very great damage will be done to any New England textile group and that it will bring no very great increase in the demand for our surplus agricultural products. I mean that is just simply the way that the trade agreements work because it is the way American people are. Nevertheless, I hope and believe that the British trade agreement will be very significant and quite helpful to agriculture.

Now, thus far, I have been dealing with that part of the farm prob lem that is found particularly in the cities, the demand side, and you will judge, I think from my rather sketchy analysis, that the demand