Mr. LEE. My only additional suggestion, and I may be in error, would be that the grant of power be broad enough from a legal standpoint, not from an administrative standpoint but from a legal standpoint, that if desired the Secretary require a license of any one person. I cannot contemplate that being done, and that may not be a good suggestion.

Senator WHEELER. It seems to me that would be an exceedingly unfortunate thing.

Mr. LEE. Of course, if it were done arbitrarily, without any justification for the particular classification made, that is, singling out that one person, I would assume that it would be looked on most unfavorably by the court if it came up for review.

Senator MCNARY. Mr. Secretary, on page 6, line 13, " for the purpose of carrying out any such agreement the parties thereto shall be eligible for loans from the Reconstruction Finance Corporation." What sort of agreements would you contemplate would require loans from the Reconstruction Finance Corporation? What would be the extent of those loans? Have you made an estimate?

Secretary WALLACE. I have not made an estimate of the extent of those loans. A typical situation would be when there was an abnormal quantity of lard, say, back of the seller, which might be disposed of in China, and they wanted to move that lard out at rather a cheap price to China in order to permit the domestic supply and demand situation to adjust itself; they could get loans from the Reconstruction Finance Corporation to get that excessive quantity of lard out to market.

Senator MCNARY. That transaction could only follow in case a license had been issued to a processor or association of producers. Secretary WALLACE. Personally, I do not see why a license would be necessary there. It might give him an additional safeguard, but it does not occur to me at the moment.

Senator NORRIS. Line 8, page 6, "to enter into marketing agreements with processors, associations of producers, and other agencies," and in line 13," for the purpose of carrying out any such agreement the parties thereto shall be eligible for loans from the Reconstruction Finance Corporation," would indicate to me that one would have to have a license through a marketing agreement before he could be eligible for a loan.

The CHAIRMAN. Would not the marketing agreement be the basis upon which he would get the loan, the written agreement, or whatever form you have it in? After he has entered into the market agreement, then for the purpose of carrying out such agreement he might get a loan.

Senator NORRIS. It seems to me that he would have to have a license in order to make that loan.

Senator MCNARY. That is not quite clear to me.

Senator MCGILL. It is not to me. Under section 2 no license would be required at all.

The CHAIRMAN. It is the agreement.

Senator MCGILL. The agreement is all that is necessary. He could enter into this marketing agrement as is provided for in section 2 and be permitted to obtain a loan. That would not require a license. The CHAIRMAN. Now, Mr. Secretary, you may proceed.

Secretary WALLACE. Mr. Chairman, I would like to offer for your consideration an amendment under these powers, which might be called 1 (b). I might offer it for your consideration.

The CHAIRMAN. Under what paragraph, 1?

Secretary WALLACE. Immediately following paragraph 1, on page 6, calling it 1-b, and it would read as follows, that is for your consideration:

The Secretary of Agriculture shall have the right to make such rules and regulations for planting or prevention of planting or harvesting of crops as may be necessary and helpful in the work of eradicating or preventing pests and other diseases which are harmful to plant and animal life.

That power might be of considerable value in preventing the spread of the pink bollworm in Texas. It would help also, incidentally, in the price of cotton.

The CHAIRMAN. If you have got copies of that, just leave it here with the Secretary and we will take it up when we come to consider the bill.

Senator MCNARY. Mr. Secretary, will you discuss this processingtax provision and the following section 9?

The CHAIRMAN. Now we come to section 9, Mr. Secretary.
Secretary WALLACE (reading):

To raise revenues for the payment of extraordinary expenditures incurred by reason of the national economic emergency there shall be levied, assessed, and collected, during any marketing period for any basic agricultural commodity with respect to the production of which for such period rental or benefit payments are made under this act, a tax to be paid by the processor on the first domestic processing of the commodity, whether of domestic production or imported.

This tax, I may say, is the source of revenue right here that you get the money from to do the business with.

Senator NORRIS. Now the question arises in my mind as to that section, whether that violates the provisions of the constitution providing that revenue bills must originate in the House of Representatives.

Secretary WALLACE. This bill is to originate in the House of Representatives.

Senator NORRIS. We will not take it up here until they get through with it?

Secretary WALLACE. That is right.

Such tax shall, except as hereinafter provided, equal the difference between the current average farm price for the commodity and the fair exchange value of the commodity. Such value for any commodity shall be the price therefor which will give the commodity the same purchasing power, with respect to articles farmers buy, as during the pre-war period, August 1909-July 1914. The current average farm price and the fair exchange value shall be ascertained by the Secretary of Agriculture from available statistics of the Department of Agriculture.

I think I had better go on and read the next paragraph as well, otherwise there will be some questions raised here that will be answered by the next one:

If the Secretary, after investigation and due notice and opportunity for hearing to interested parties, finds at any time that the imposition of the tax at the rate hereinbefore provided has resulted or is likely to result in a substantial reduction in the quantity of the commodity or products thereof domestically consumed, he shall fix such lower rate as is necessary to maintain or restore

such domestic consumption. Such rate may be revised from time to timepursuant to further findings under this subsection. In making any such findings the Secretary shall give due consideration to the following factors, among others.

These are factors which might influence the setting of a lower rate than fair exchange value:

(1) Reports as to wage scales, employment, and unemployment in urban regions.

(2) Changes in the consumption of the agricultural commodity and of other commodities.

(3) Evidence derived from statistical studies of supply and demand for previous periods, which indicate the change in consumption of the commodity which would normally occur in consequence of a particular change in the cost to processors or consumers.

He might conclude after study of the specific commodity that this tax would raise the price to such an extent that there would be a great falling off in consumption, which would react unfavorably to the producers.

(4) Other relevant data as to changes in the cost of living of consumers, consumers' buying habits, and current and prospective conditions in industry pertinent to determining the probable effective demand for the commodity.

(c) The Secretary of Agriculture shall certify to the Secretary of the Treasury from time to time the rate of tax in effect for any commodity under this act.

The CHAIRMAN. Mr. Secretary, you bring in, under (1) on page 9, reports as to wage scales, employment and unemployment in urban regions. I take it that you mean that the tax is imposed to bring a parity between the price of the article after manufacture and the raw material; if it tends to raise the price to the consumer, then the tax, that parity, cannot be sustained on account of the cost of the manufacturing process?

Secretary WALLACE. That is not it. We will say in the case of cotton that the parity price of cotton would be 13 cents, and that the current price of cotton is 6 cents, and that the amount of the tax therefore should be, we will say, 7 cents, and that an examination of the employment situation indicates that the industry simply can not stand 7 cents; that the consumers will not buy if the thing is moved up that rapidly-as a matter of fact, the officers of the cotton association, the American Cotton Cooperative Association, have told me that they believe-speaking for producers, mind you they believe that at the present time about all the tax that could be passed on would be, say, 2 cents. Mr. Blalock, for instance, has suggested some such figure. These considerations, 1, 2, 3, 4, are considerations which would cause you temporarily to adopt a much lower figure; after all factors in the industry have approached the problem they might, under these considerations, arrive at a lower figure. The CHAIRMAN. That is the very point I was making that the power of the public to consume the article and the unemployment and the low wage scales existing elsewhere than in the particular industry would affect the thing, and you would then have to scale your tax to provide for the maximum consumption under the conditions to get the maximum possible return to the producers in view of all the surrounding circumstances.

Senator CAPPER. You mentioned the parity price of cotton; haveyou any idea what the parity price on wheat would be?

Secretary WALLACE. Roughly, 94 cents.

Senator WHEELER. When you speak of the "parity price," just what do you mean?

Secretary WALLACE. The basic relationship existing from 1909 to 1914 between the particular commodity and the prices of things which the farmers bought. The price of things which farmers are buying today costs them about 104 percent of that basic period. The price of wheat in the basic period was, we will say, 90 cents; 104 percent of 90 cents would be, roughly, 94 cents. That is the way in which we ascertain it.

The CHAIRMAN. Have you worked out what was the parity in the period that you have selected, 1909 to 1914, in reference to cotton? About what was it in relation to what the farmers bought?

Secretary WALLACE. The price of cotton in that period-by the way, are we using in this bill 1909 to 1914 for cotton?

Mr. EZEKIEL. Yes.

Secretary WALLACE. The price of cotton, as I remember it, in that basic period was 12.3 cents; 104 percent of that gives you, we will say, 12.7 cents-something like that.

The CHAIRMAN. I did not have an opportunity after I brought in the bill to look up just what was the chart in reference to that.

Senator NORRIS. I am just a little bit confused about the word "parity price ". Is that well understood in the trade? Is that a term the meaning of which is definitely known?

Secretary WALLACE. No; this concept is rather a new concept in the idea of social justice. It is just gradually coming into use. Senator NORRIS. Does it mean anything like "commodity price "? Secretary WALLACE. No; it involves the idea of ratios; that here in a normal situation there was this relationship existing among the commodities which farmers sold and the commodities which farmers bought, in the period when the farmers themselves were relatively prosperous and the people in the cities were relatively prosperous, that is, a normal, balanced situation. We used the parity" between the elements entering into that situation.

The CHAIRMAN. In other words, his bargaining power, expressed in terms of his commodity as compared with the bargaining power of those that sell to him, in the price of their commodities is out of relation as compared with 1909 to 1914?

Secretary WALLACE. That is right. We do not have parity now. That is one of the great causes of our trouble. There is not a sitution of balance.

Senator MCNARY. The second paragraph here in the bill," changes in the consumption of the agricultural commodity," that are used to determine the tax, might move from one position to another every day, every few days, and that is closely related to the sum of money that the producer receives for his product. Would not that prevent the open dealing in products because of the extreme uncertainty of price?

Secretary WALLACE. I will say frankly, Senator McNary, that there is some argument on both sides of that point. It has seemed to me that it would be undesirable to have the power to change that with the frequency which this wording indicates to me.

The CHAIRMAN. How would a manufacturer proceed with his business, with the uncertainty of the change of the tax that he has. got to pay?

Secretary WALLACE. I think that is a matter which we could clear up. I have been very busy in the past few days-I have been wanting to get an apportunity to discuss that with Mr. Ezekiel, but I have not had the opportunity yet.

Senator MCNARY. It seems to me that that extreme flexibility would prevent any dealing beyond the immediate necessity of the time.

Secretary WALLACE. Too frequent changes might seem like the whim of one man.

Senator NORRIS. Certainly.

The CHAIRMAN. It would inevitably slow up all manufacturing, for the reason that the manufacturer would have no certain period in which to operate, as to the tax.

Secretary WALLACE. I would like to get the opinion of both Mr. Lee, of all three of my advisers here, on that matter, so that we can come to some conclusion. Mr. Lee, can you give the committee the benefit of your advice on that?

Mr. LEE. Well, any lowering of the rate depends on a finding by the Secretary, after appropriate hearing, that there has been or is likely to be a substantial reduction in the quantity of the commodity, of his product, that is domestically consumed, as a result of the particular type of rate being in effect. That, of course, depends in a measure upon that word "substantial." Obviously, every minor variation in consumption is not to be taken into account, but after a hearing and finding, and my thought is that that machinery would prevent a constant fluctuation in the tax, just like in your flexible tariff, where you have standards of differences in the cost of production. I do not think any gentleman on this committee has found that the Tariff Commission changes have been so rapid that business has been interfered with because of the rapidity of the change.

Senator WHEELER. We have the same thing in the Interstate Commerce Commission. We have the fixing of rates, of railroad rates. Mr. LEE. Yes.

Senator MCNARY. That follows the hearing.

Senator WHEELER. But this follows a hearing. In the second paragraph it says that, "if the Secretary, after investigation and due notice and opportunity for hearing to interested parties." you have exactly the same provision, practically, as the Interstate Commerce Commission has.

So

Senator NORRIS. Would it not be well, Mr. Lee-now, even though you have the hearing, you do not know when you get through whether you are going to reduce the tax or not, or raise it, as the case may be; you never do that until the decision is made-now right at that moment it has the effect on the man in business, and would it not be well to provide that the new rates should go into effect after a stated period of time such as 30 days or 60 days or something of that kind?

The CHAIRMAN. That is imperatively necessary, because the trade would not know-even during the hearing they would not know then.