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ing the war, and in an emergency such as we have now it could be adapted to the present situation and remove all these complications that arise in the administration of the measure as it is now before us. Is there any good reason why that sort of program, is your judgment, could not be worked out?
Secretary WALLACE. I think there is one thing we must keep clearly in mind when we compare the present situation with the war situation. You could make good on a fixed price then because of the fact that there was an extraordinary demand abroad at a price higher than-during part of the period—at a price higher than the price which was fixed. At the present time the situation is almost completely reversed. The European nationals are doing almost everything they can to keep our surplus out. Even if we gave it to them, I fear that in some cases they would not accept it. They have developed an aggressive national agrarianism over there, so the State Department tells me, that runs very deep and it is doubtful if we can break it down at any time in the near future. So when it comes to absolute price-fixing, I do not think that you can do today the things that were successfully done during the war. I think you have to be realistic about the matter. It would be possible, if it were permitted under the Constitution, to do something in the nature of the Clair plan to meet the objections which Senator Norris has been speaking about.
Senator WHEELER. Just what is the Clair plan?
Senator McNARY. I have a booklet somewhere describing the Clair plan. It is an allotment plan, is it not?
Secretary WALLACE. Using the word in the broad sense, I would say it is an allotment plan.
Senator McNARY. Will you describe it briefly, so we will know what you mean when you speak of the “ Clair” plan?
Secretary WALLACE. I saw Mr. Clair here. He could probably describe it better than I. It contemplates working through the post office, or through the post offices, using the broad ramifications of the post office to issue to each of the producers blue tags and red tags.
The CHAIRMAN. I recall that plan. There are three tags, are there not?
Secretary WALLACE. Maybe there are three tags. I would not be sure. Anyhow, we will say the blue tag is issued for the domestic part of the particular product. This tag, in effect, or part of the tag, would accompany the product as it went through all the domestic processing channels, and would be essential at every step; and the red tag-really, this would essentially be a system of bookkeeping at each post office. Suppose a man had 800 total bushels of wheat. He would have a right to send 600 bushels into domestic consumption and get a fixed price under the Clair plan for the 600 bushels of wheat. The other 200 bushels for which he had the red tag, he could hold back on the farm or he could send it into export, and in order for the wheat to move anywhere it would have to be accompanied by one tag or the other.
That is, roughly, the idea that I get of the Clair plan. Mr. Clair can tell you much more exactly about it.
Senator McNARY. Very well. Do you think you have power under the subdivision to which I referred to employ this sort of plan?
Secretary WALLACE. It essentially involves the idea of compulsory control of marketing and I am not sure, frankly, myself–1 question whether it is constitutional. I can see some very great advantages to the Clair plan, but Mr. Clair thinks that competent lawyers have sufficiently assured him that it is constitutional. I feel that competent lawyers have assured me that it is not constitutional.
The CHAIRMAN. Let us not get into the lawyer business. Mr. Secretary, as I understood Mr. Simpson and the law of 1919 in reference to the fixed plan, as the Senator from Nebraska, Mr. Norris, pointed out, under the terms of that the price for a given commodity is fixed, a minimum price; now when he comes to market and a minimum price for the amount to be consumed in America is fixed, all over that either you or the purchaser has the restriction that that is to be disposed of when he sees fit and where he sees fit and how he sees fit; and the suggestion was made that the amount consumed domestically could be estimated, the amount for export could be estimated, approximately, then the percentage domestically consumed and the percentage exported being averaged, a price could be made combining those two, so that in one transaction he would get what he ultimately would get, in that one transaction.
To illustrate, about 50 percent of the cotton raised is exported and about 50 percent consumed domestically. The average between the export, the average price of export and domestic consumption would be what a cotton grower would get. If it was 8 cents a pound for export, and 12 cents a pound for domestic consumption, adding the two together and dividing them would give what he would get for his cotton.
Now, on the basis of the proposition made by Mr. Simpson, it would not be a parity; it would be the cost of production plus whatever additions you saw fit to make. Take that cost of production without reference to parity and add the two together, the export price and the domestic price, he could then sell—you could then fix à price at which both export and domestically consumed cotton would be figured, in one transaction.
Secretary WALLACE. I did not hear Mr. Simpson's full testimony. I do not know the exact nature of his proposition. Is it my understanding that the average of the two would be high enough to cover cost of production?
The CHAIRMAN. No; but he would then understand just what percentage of his stuff is for export, how much is used domestically, and it involves something of the same principle in that parity proposition, only differing to this extent: That here you take in the consumer, you consider him, you consider the cost of the things that he has to buy; whereas, under this proposition, you have no regard to them, but only as they incidentally come in to affect the cost of production. You figure out the cost of production plus what he denominates a reasonable rate on the investment.
Secretary WALLACE. If I may be permitted, I would like to offer some observations about the cost of production as a means of determining a fair price. There are many kinds of cost of production. If you use the so-called “ cost accountant" methood of determining cost of production, the result would be extraordinarily unfair to the farmer at the present time. I mean to say that in figuring the cost of producing an acre of cotton you have, we will say, 16 hours of
man labor and 40 hours of horse labor, and so much land charge, and so much machinery charge, and the horse labor as computed by the typical farm management cost-accountant method is to take horse labor on the basis of the cheap corn and oats and hay of the year preceding, which was written into all the forces of deflation, and it is most unjust to look on that thing as the cost of production.
In like manner the man labor reflects the deflation of the period immediately preceding, and you have men actually working on the farms we had them this last summer-in some cases for subsistence, in other cases as low as 10 cents an hour, right in the State of Iowa, which is one of the high labor States; that is, high farm labor States. So, if you figure the cost of producing an acre of corn on the basis of man labor at 10 cents an hour and horse labor on the basis of the cheap prices for corn, oats, and hay—and that is the way these cost accountants figure the cost of an hour of horse laboryou arrive at a cost of production that is totally unfair. So you have to define what cost of production is. I know Mr. Simpson's conception of cost of production, which is philosophically and fundamentally sound. I do not know, when it comes to arriving at the exact figure, I do not know whether he has carried it out in exactly the right way; but his philosophy, as I get it, is that the price for a farm product should be high enough to pay farm labor the same kind of wage as the same kind of labor gets in town, and to return on the farm investment the same kind of a return that the investment in city property brings. That is his conception to find cut what price for the different farm products will give farmers that kind of justice. That is a philosophical conception which I think all fair-minded men will agree is sound; but, as a practical proposition, when it comes to attaining—you can see one conception would give you a price lower than the fair exchange value of pre-war parity as set in this bill, the one method will give you a lower price than that; the other method should give you essentially the same result, or possibly a higher result, depending on the technique of how it is carried out. But in any event you are concerned by this: The problem is how to get farm products up to that price; we will say, how to get wheat up to 90 cents. You may have to go through the intervening steps; you may first have to get it up to 50 cents, and then 55 and then to 60. That is the practical proposal, whether you take John Simpson's cost of production or whether you take fair exchange value as set forth in this bill. It is how you are going to get that.
Senator NORRIS. Mr. Wallace, I do not believe it is contemplated by anybody that you can get a result that is mathematically correct in perhaps any individual case, because the cost of production in one case is different from the cost of production in another, and it very greatly depends upon how many acres a man has got. It might be a dollar an acre this year, and the next year the cost of production might be twice that or half that. It will necessarily have to be an estimate.
Secretary WALLACE. I would like, if I might, for the purpose of keeping the record of the Department of Agriculture clear-it may be urged that their cost of production studies have caused damage to the farmers' cause, and I would say that insofar as they have determined the hours of man labor and the number of hours of horse labor required in the different sections of the country to take care
of an acre of wheat or corn or cotton, that has been fundamentally worth while and essential. Insofar as they have found it necessary, perhaps, to set the cost per hour of labor, whether horse or man, the whole thing should, in my opinion, be considered with the idea that when that price for horse labor or man labor was arrived at there was written into it the effect of the preceding deflation, and therefore the thing may not be fundamentally the cost of production except from a narrow cost-accounting point of view.
I think the Department of Agriculture's work has been very helpful in determining the physical constants that go into it, but when it gets to the monetary constants I think it may be more open to question.
Senator McNARY. Mr. Secretary, I think one of the reasons why you were called here was to express an opinion on the allotment plan on page 12.
The CHAIRMAN. Let me emphasize what the Senator from Oregon has said. That question is very vital now, because if the bill under either provision, the acreage provision, or particularly the allotment plan, is to be put into operation, what commodities, in your opinion, ought to be included? You have already a stated number.
Secretary WALLACE. From an administrative point of view, I would hope that the pressure to bring commodities under the bill would be not excessive. I would hope that we could hold the number down, so far as possible, during the first few months, and necessarily the commodities that would come in first would be those which are suffering most, the price of which is lowered relative to the pre-war situation; and you will find also that those same commodities are those most affected by the export situation, and that they are wheat, which is, roughly, 35 to 40 percent of the pre-war parity; cotton, which is, roughly, the same, 35 to 40 percent; and corn and hogs, 35 to 40 percent; whereas, in the case of cattle you will find cattle up around, as I remember it, roughly around 60 percent; sheep somewhere about the same-on the export market we have something of a deficiency of sheep and wool. They are not quite on the export market.
Tobacco: We are on the export market. Some grades are decidedly below pre-war parity and some fairly up to it. I would hope that we would confine our attention to those that are in the worst situation.
Rice has been on the export market. This year I understand that it may not be. I do not know whether it would be necessary to operate in rice or not. It is rather a small product.
The dairy products: It might be that action on that would be pushed by the dairy groups under the marketing-agreement provision, but the hope would be during the early stages to hold the number of commodities on which we were operating down so far as we possibly could, merely for the sake of administrative possibilities.
Senator McNary. This committee in reporting out the allotment bill that passed the House showed itself favorable to the two major nonperishable crops. Is it your judgment that this bill would operate with the least difficulty
Secretary WALLACE. I suspect that it is a little easier-well, I think it could be made to work almost as easily on the corn and hog situation as on the wheat and cotton situation. I do know that
a Norris. Suppdpoint of the deal the bill
those are the three great spots to hit—wheat, cotton, and the cornhogs situation. Those are the three great spots to hit.
Senator NORRIS. Suppose Congress struck out all except wheat and cotton. From the standpoint of the Agricultural Department and the administration, would that hinder the bill very materially? Would you dislike very much to see those stricken out?
Secretary WALLACE. Yes; I would hate to see corn and hogs stricken out.
Senator NORRIS. I do not know what your information is; probably much greater than mine or that of any other member of the committee; but, so far as I know, almost all of the cattle men, hog men, and sheep men are anxious to get out of the bill. Is there any reason to put in any agricultural products if the producers of that product do not want to be in?
Secretary WALLACE. Well, I will say if the producers and the packers in a meeting called together, if they fully agreed that they did not want operation, it would be folly for the Government to impose operation on them.
Senator NORRIS. The point I wanted to get your idea on is: If we did strike them out, would it interfere in any way with the plan that you have in mind for enforcing it on those that are left in, or the general idea?
Secretary WALLACE. I would like to make a little statement on the corn-hog situation, with which I am familiar. At the present time there is no tremendous surplus of our hogs. We have exported this past year only about a quarter of our lard. We normally export about half. This past year we have exported only a fourth, I understand. Hog production has been somewhat below normal for the past three or four years, partly because of the fact that we had an extraordinarily short corn crop in 1930, the shortest since 1901; a moderately short crop in 1931; last year was slightly above normal, very much above normal in Iowa. The packers say that at the present time their stocks are a little below normal; that the spring pig crop is somewhat below normal; that all they need is a slight upturn in business confidence, and the hog situation is all right. I have told the packers, and I would like to tell you gentlemen with the greatest possible emphasis, that the overproduction in the corn-hogs region in prospect is more serious, in my opinion, than one person in a thousand appreciates. This large corn crop of the past year and a normal corn crop this next year can get us into such a surplus of hogs that the packers essentially will be unable to buy them. That is possible. "If you will consider hog supplies in relation to the corn crop-mind you, the hogs utilize corn much more efficiently than they did 10 years ago; with the use of supplemental things and clean sanitation, they make a bushel of corn go much further in producing pork. If we have normal corn crops for the next three years, you will either have such an overproduction of hogs that there will be no market for them or you will have such a surplus of corn backing up on the farms that there will be no market for corn.
I estimate that it will be apparent within the next two or three years that we have 20,000,000, at least 20,000,000 surplus acres of corn, either in the form of corn or in the form of livestock made out of that corn, one or the other. You can have the sore spot in one