Mr. Sharp, we have a few minutes before noon that we can give you. I think you said you had something you wanted to submit to the committee.

STATEMENT OF H. E. SHARP, SECRETARY, NATIONAL WHEAT

LEAGUE

Mr. SHARP. Mr. Chairman and gentlemen, my name is H. E. Sharp. I am secretary of the National Wheat League. I want to impress on you that we are an organization of farmers with about 3,000 members, which makes it probably the smallest organization of farmers in America. But our farmers have been 30, 40, and 50 years in the business, and we think we know.

The statement was made here yesterday that Oregon, Washington, and Idaho produce a crop of wheat with a market for about half of it. I was born in the State of Washington. I have lived all my life in those three States. My figures show that we produce normally 100,000,000 to 110,000,000 bushels of wheat, and we have a market for 10,000,000 bushels.

In the last few years California has been taking some wheat.
Senator MCGILL. You say you are from Washington?

Mr. SHARP. Oregon, Washington, and Idaho. I am speaking for the three States.

Senator MCGILL. Much of the wheat in Washington State is exported, is it not?

Mr. SHARP. It always has been. When the Federal Farm Board bought our wheat and held it I wrote Senator McNary in August stating that if the Farm Board held that wheat until the new crop came on, the old wheat in the warehouse when the new crop came in, the price would drop and break every bank in America.

Let me say before I go any further that if Senator McNary had been able to attend the meetings of this committee I may have sat back in the back of the house and you would not have heard from me. If I had had anything to say, Senator McNary would have said it. Or maybe he would not have said it. I am here on my own responsibility.

Now, I want to say that I see some things that I think are staple to this program, and if I can keep you gentlemen from making a mistake I believe your hearts are with me, but if the statements I make are erroneous, it is up to you to find the error.

It is my recollection that before California went out of the wheat business and began buying Washington wheat, we produced almost 9 bushels of wheat for every bushel we had a market for, and when they undertook to hold our wheat in America, just as I told Senator McNary, they are going to break every bank in the country. I said that in August. In October of that year the price of wheat dropped from 81 cents a bushel to 40 cents in 21 days, and everybody knows what happened.

Now for 18 months the price rode at 45 cents, though we had better than 200,000,000 bushels of wheat overhanging the market all the time. Without reducing the surplus something happend. The price of wheat began to rise. It climbed steadily until it reached $1.27. Early in July I wrote a letter to the President of the United States explaining what was forcing the price of wheat up, and stating it might go to $1.50, "but one of these days one of those speculators is going to drop and wheat may go to a dime."

When wheat touched $1.27 it dropped 39 cents in 3 days. On the third day of that drop I wrote another letter to the President of the United States and left it on Senator McNary's desk. He was not in his office. When he saw the letter he took it straight to the White House and the President closed the wheat pit in Chicago that day, and he closed on the strength of a statement that I made to him then.

Now, I think I know what I am talking about, and with that much background I would be glad to take the question up as it had been handled. There is not time enough to do it, but I will go as far as I can with it.

Senator MCGILL. I do not mean any discourtesy, but I will leave at this particular time.

Mr. SHARP. I hate to lose you, Senator McGill, because you and I have some very harmonious feelings on this subject.

Senator MCGILL. I will be glad to read your statement.

Mr. SHARP. I will submit some tables and figures here that I think will cover the program, but there have been some statements made here that I think cannot be corroborated and I have here the report of the President's committee. On the first page in the introduction this statement is made:

Such a plan should level out partially the economic effects of fluctuations in production, provide the farmer who suffers a crop failure with some income on which to live, and in years of surplus prevent the added supplies from lending their full force to depressing the prices of farm commodities.

Secretary Wallace also stated:

The prices would not go so low in good crop years and would not go so high in poor crop years.

I want to state that the minute this bill is signed by the President, as it is written today, the flour millers of America will step out of the market and quit buying wheat, and within the next few days you will see the price of wheat drop 10 to 25 cents a bushel, just because of the passage of this law. You announce to the millers that we are producing a crop this year larger than we can consume. We will export none of it. We are going to place some of it in the hands of this crop-insurance corporation to be held against the day of the short crop. The flour miller knows he doesn't have to buy wheat. If at any time he cannot buy wheat at the price he wants, he can borrow wheat from this corporation. The corporation will hold a warehouse receipt. The flour miller can issue a warehouse receipt. That thing is being done every day and has been for many years.

Senator POPE. How can he borrow wheat from the corporation? Mr. SHARP. He doesn't borrow wheat from the corporation; he borrows from the warehouse where the wheat is stored.

Senator POPE. How can he borrow from the warehouse Government wheat, under this law?

Mr. SHARP. He will put his warehouse receipt in the hands of the warehouseman where he takes the wheat out, and they have got-as long as they have got a warehouse receipt for it that is all they need, and when harvest time comes the wheat in the hands of the insurance company has been ground up, sold to the bakers, has been eaten up, and there it is on the market in the form of a warehouse receipt.

Senator POPE. Is that your interpretation of this law that a miller can go to the warehouse and take this storage wheat and put it on the market and grind it up? Is that your interpretation of this law?

Mr. SHARP. Yes. He will put his warehouse receipt in the hands of the warehouse that has given you your receipt, so that, knowing that the company is not going to demand this wheat till October, the miller can go in after harvest, after the price is down, when the new crop comes in, using the warehouse receipt as wheat to break down the price of the real wheat that he has to buy to cover his own requirements. Knowing the milling trade pretty thoroughly and with something like 40 years' experience in this game I say they will do it, and what is more, it is not in the power of Congress to pass a law to stop them. I am giving you the physical fact, and because of that fact, and I think the importance of it, it will cause this insurance program to produce this result: It will depress the price of wheat before harvest this year to 25 cents a bushel; it will hold that price down so long as the period lasts between a high crop and the low crop, and then it will prevent the rise that the farmer would get in the short crop year, and if it does that, if I am right about it, I know there is not a Senator in Washington that wants to put the bill through.

I may be mistaken about it, but that is my idea of what this corporation proposes to do. I do not doubt your intentions at all.

Senator POPE. Do you doubt the language that is in the bill, which prohibits the very thing you talk about? Have you read the bill?

Mr. SHARP. I have read the bill very carefully, Senator, studied it very carefully, and it is my opinion that that phase of the question is not touched. I will say that I have prepared an amendment to the bill that I believe will help it some, but I don't see any way to head off that action. Attempts to insure income rather than yield losses alone, thus in effect writing insurance against price decline as against crop failure, have caused the failure of previous insurance attempts.

I would like to say this, that has been overlooked by all the testimony that has been given before this committee, that this is an attempt to insure the crop and the price and the man, and I don't see any way to obviate those things. If the holding wheat has the influence on the price that I think it will have, you are breaking the price on the market. If the crop is a failure, you are going to pass back to him the wheat that has been paid in for that purpose.

Now, I want to cite a specific instance. I have been condemned practically all my life for this. I get into general discussion and I want to cite some specific instance, and people say I have picked an isolated case, but I believe these cases are typical. I was an employee, just a hired man. I didn't own an inch of land, never had owned an inch of land, and I was having a row with the boss every night because I would not do the work the way he wanted it done. I started around the outside of the field, and I was about half done when he came up to the field and said: "Herb, if you can't do this work the way I want it done you will have to give me the team." I climbed down off the machine and handed him the lines, and I said: "I want to say one thing to you before I leave. When you hire me to do your work you hire me to do that work as well as I can do it, and when people come in here to harvest this crop next year I am not going to let you say that if you had hired a man to put in your crop you would have gotten a crop. If it is going to be crop failure you will have to take the blame for putting it in."

And I walked off the field. I was'nt a hired man, I was a fired man. I never saw that field again in my life, but I met that man in town that

fall, and he said to me: "Herb, we ran the harvester right square up to the mark where I took the machine. After that we didn't touch it.'

And I said, "That's what I told you." That is what this insurance is going to be up against more than anything else. Where he took that machine it was his field, and from there on the crop was not worth planting, yet your insurance would insure the yield. You have to insure the man. I could do the same thing with my own land where I maintained an average of 31 bushels an acre. I could have insured with an indemnity of 24 bushels to the acre. I could have slapped in my own crop there without any great expense, hardly a tenth of the expense that my methods of farming cost me, and the insurance company would have taken a total loss and given me 24 bushels, and because of that fact I consider that is one of the insurmountable obstacles to crop insurance.

Now it is time for you to go, Senator.

Senator POPE. It will be necessary for us to recess. If you have prepared an amendment, the subcommittee will be very glad to have it and consider it, and if you will present that at your convenience the Subcommittee will give it such consideration as it thinks proper. Mr. SHARP. Very well.

Senator POPE. Now I think we are about through with the hearing. There is one other witness that I would like to hear this afternoon at 2 o'clock. If Mr. Shields could be here at that time—I see he is here now. How long will it take you, Mr. Shields?

Mr. SHIELDS. Just a few minutes.

Senator POPE. Very well, I think we will continue and hear your discussion and then we will close the hearing.

Mr. SHARP. Here is the amendment, Senator.

Senator POPE. The committee will consider the amendment.

Mr. SHARP. I am very much obliged to you for the consideration you have given me, and I am very glad to have had the opportunity to appear before you.

Senator POPE. There has been considerable discussion of the legality or constitutionality of this measure, and I understand that you have made some investigation of that matter, Mr. Shields, and if you will give the committee the benefit of your investigation and your opinion I think it will be helpful.

STATEMENT OF ROBERT H. SHIELDS, ATTORNEY, SOLICITOR'S OFFICE, DEPARTMENT OF AGRICULTURE-Resumed

MI. SHIELDS. Mr. Chairman, as I stated earlier in the hearing, the statement of the purpose of the bill, namely, to promote the national welfare by alleviating the economic distress caused by wheat crop failures due to drought and other causes, maintaining the purchasing power of farmers, and providing for stable supplies of wheat for domestic consumption and the orderly flow thereof in interstate commerce, indicates that the power of the Congress to enact this legislation may be rested on the spending power of the Federal Government, on the fiscal power of the Federal Government, and possibly on the power of the Federal Government to regulate interstate commerce. The insurance issued under the National Housing Act was justified by the Attorney General under the fiscal powers of the Congress and under the general welfare clause, and I might make reference to his

opinion in that connection, found in Opinions of Attorney General, volume 38, no. 8 (Aug. 26, 1935).

The Supreme Court in the case of the United States v. Butler (297 U. S. 1) did not state definitely what the scope of the general welfare clause was, but it did decide that the power to expend money under the general welfare clause was not limited by other specific grants of power in the Constitution to the Federal Government.

Mr. Justice Roberts in his opinion in that connection said at page 66: It results that the power of Congress to authorize expenditure of public moneys for public purpose is not limited by the direct grants of legislative power found in the Constitution.

It is true that, as I just indicated, the court in that case did not decide definitely whether expenditures for agriculture of any particular character were or were not within the scope of the general welfare clause. The court did state, however, that an examination of the acts of Congress discloses a large number of statutes appropriating or involving expenditure of moneys for otherwise non-Federal purposes have been enacted and have been carried into effect. As we all know, there are numerous examples of appropriations for relief of distress. caused by the elements and other catastrophies, such as fires, famines, tornadoes, cyclones, grasshopper ravages, floods, droughts, and so forth.

Congressional appropriations to deal with relief of these distresses is a matter of common knowledge.

Senator POPE. I suppose no test has been made of the laws carrying those appropriations?

Mr. SHIELDS. Very few tests have been made, because those cases involved pure spending in which the person who received the bounty, of course, did not raise any question, and it is very difficult or practically impossible for a taxpayer to question the expenditure of public funds under the doctrine of Massachusetts v. Mellon (262 U. S. 447).

It seems that the spending in this bill through this corporation is of the character of other expenditures that have been made for the benefit of agriculture, and that the character of that spending is not changed by the fact that the manner of the spending is different.

As was stated by the Attorney General in the Federal Housing opinion I have referred to:

* * *

The power to expend necessarily includes the power to assume contractual obligations to pay money, and contingent obligations are as much within the power as are absolute promises. I am, therefore, of the opinion that the insurance and the guaranties provided for with the act are within the constitutional grants of power to appropriate for the general welfare and to borrow money on the credit of the United States.

That is the Attorney General speaking of the Federal Housing insurance, not of this bill, of course.

Reference has been made in the testimony and in the report of the President's Committee to the vast amount of money that has been spent for the benefit of agriculture over a period of years because of damages suffered on account of drought, floods and so forth, and I believe it has been stated in the hearings that it is believed that this bill, once in operation, would result in a decrease to a considerable degree in the amount of that kind of expenditure in the future.

After all, spending through the form of insurance is merely spreading the loss, and it is still spending to alleviate the distresses which have

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