excellent agencies through which more orderly marketing processes can be worked out and put into practice. I do not believe that the speculative markets-let us say the Chicago Board of Trade-have functined satisfactorily as distributing agencies. If the wheat growers, for example, had had a larger number of cooperative marketing organizations marketing a larger volume of wheat, I doubt whether there would have developed the condition that existed on the exchange when wheat dropped 25 cents a bushel suddenly last fall and recovered 25 cents a bushel with almost equal suddenness. That situation demonstrated that there were not readily available an unlimited number of intelligent wheat operators ready to buy wheat on a moderate decline and carry it until the consumer came along. And the same thing proved to be true of the cotton market in 1920 and in the early part of 1921. The cooperative marketing associations are not only valuable factors in improving distribution, but they are relieving the farmers of undue reliance upon speculative markets. Entirely apart from any ethical or moral considerations, the speculative markets for such agricultural products as cotton and wheat have proved to be economically inadequate properly to discharge the functions they are assumed to discharge. The maximum period for rediscounts to cooperative marketing associations under the pending bill is nine months. This does not mean, I should like the committee to understand, that the cooperatives will carry all their loans for nine months, but merely that the longest maturity will be nine months. It will probably work out in practice that they will borrow, say, one-third of their requirements for three months, one-third for six months, and possibly one-third for nine months. In other words, it will not be necessary for the cooperatives to borrow all the funds they require for the maximum period, as a considerable portion of their commodities naturally will be sold prior to the expiration of that period. Mr. STRONG. What would be the objection to extending that 9-months period to 12 months? Mr. MEYER. Nine months, according to our experience, is all that is necessary, Mr. Chairman. Mr. STRONG. I am considering the experience of the farmers out in my State, who think that they need 12 months. Mr. MEYER. They have a total of more than 12 months under this bill. For illustration, let us take cotton, which is harvested principally in September, October. and November. In those three months a big volume of cotton ordinarily comes to market, and a quarter of the crop, at least, is paid for in cash. The problem, therefore, is to provide for the carrying of the remainder to be marketed throughout the balance of the year. Mr. STRONG. I do not know anything about cotton. Mr. MEYER. The same thing is true of wheat. As a matter of fact, credit for 18 months is provided for under this bill. A bank may make a nine months' loan to a farmer in connection with his planting operations, and when he turns his product over to his cooperative marketing association, the association can borrow against it for an additional period of nine months. In other words, it is 18 months from the time of planting until the time of final marketing. Mr. STRONG. The farmer will oftentimes find himself financially to the bad about the time he harvests his wheat. The result is that he must put his wheat immediatly upon the market. That places a great quantity of wheat upon the market at one time and that, of course, bears the price down. He ought to be financed long enough to carry that wheat until there is a better market. Mr. MEYER. This bill can do that, Mr. Chairman. I have been living, day and night, with this situation for a year and a half, and I would not come here and say that this bill will do what you have in mind unless I feel confident that it will. It provides credit not merely for nine months, but, as I have said, for a period of 18 months from the time of planting-nine months for planting, cultivating, and harvesting, and nine months for marketing. Of course, this does not mean that everybody will carry their products for nine months. It does not mean that every farmer will need credit for nine months; he may have a good chance to sell his crop before six months have gone by. It simply means the maximum period. Perhaps I should point out that the agreements of the War Finance Corporation with the cooperative marketing associations provide for orderly marketing. but they do not require the sale of any fixed percentage each month. As a safe guard, however, the corporation reserves to itself the right, if they do not market in an orderly way, to require them to accelerate their marketing program. And in connection with its right to accelerate sales, the corporation has placed a limit upon the amount it may require the associations to market. It is a reasonable requirement, and one that was arrived at by mutual agreement. We have never had occasion to invoke it, because, on the whole, the associations have satisfactorily complied with the principles of orderly marketing. Part III extends until March 31, 1924, the time during which the War Finance Corporation may make advances. This provision was inserted by the Senate Committee on Banking and Currency in accordance with the suggestion of the Secretary of the Treasury. While there has been a great improvement in credit conditions, with a corresponding decline in the demands upon the corporation for assistance, the Secretary, in a letter to the chairman of the Senate committee, stated that it appears to be generally agreed that the operations of the corporation have been conducted to the satisfaction of the agricultural interests, and that its extension for a limited period, coupled with the enactment of the Capper-McFadden bill, would give to the farmer full assurance that credit would be available for his needs on a sound basis during the period required for the practical working out of the enlarged facilities of the Federal reserve system and for the organization of the more permanent credit agencies provided by the bill. I would like to incorporate in the record a copy of the Secretary's letter. I make this suggestion particularly because I would have had considerable hesitation in suggesting an extension of the War Finance Corporation for a further period. You will remember, gentlemen, that when I had the honor of appearing before you to advocate its resumption, I said I did not want a perpetual extension of the organization. I am opposed to Government banking, except in times of extraordinary emergency. I would like to see the War Finance Corporation's activities terminated as soon as it is possible to do so with the approval of all parties in interest. (The letter of Secretary Mellon above referred to is as follows:) OFFICE OF THE SECRETARY OF THE TREASURY, Washington, D. C., December 29, 1922. DEAR MR. CHAIRMAN: I received your letter of December 23, in which you ask my opinion as to S. 4103, the latest edition of the bill, introduced by Senator Lenroot in the Senate and by Congressman Anderson in the House of Representatives, to provide additional "credit facilities for the agricultural and live-stock industries of the United States." This bill would set up "farm credits departments" in the existing Federal land banks, into each of which it is proposed that the United States Government should pay a capital of $5,000,000, or $60,000,000 for the 12 banks taken together. I understand from your letter that this amount might be increased to $10,000,000 for each Federal land bank, or $120,000,000 in the aggregate. With this initial working capital, the bill proposes that these farm credits departments would act as rediscount agencies for agricultural paper from banks, credit associations, live-stock loan companies, and similar institutions, and that the Federal land banks would obtain such additional funds as may be needed for the purpose by issuing taxexempt collateral trust bonds for sale in the investment markets and, indirectly, by rediscounts with the Federal reserve banks. The operations of the farm credits departments would be placed under the supervision of the Federal Farm Loan Board. The bill contains many good features, not the least of which is the provision for aggregating agricultural and live-stock paper in such shape as to give an acceptable basis for credit, but it depends so much upon the large initial contribution from the Treasury and the grant of full tax exemption to the new securities, both of which seem to me objectionable, that I have taken occasion to survey the whole field of the present discussion in order to see what might be done to harmonize the various plans which have been presented and combine their best features in one sound and workable measure. Needless to say, I am entirely in sympathy with the efforts which are being made to provide better credit facilities for the agricultural and live-stock industries, and believe that one of the first conditions of sound recovery in the country as a whole is the restoration of the purchasing power of the farmer, the impairment of which had so much to do with the depression in business from which we are emerging. There has already been a considerable recovery, with substantial advances in most staple agricultural products, but prices are still somewhat out of gear and there must be further readjustments and better facilities for distribution and marketing before the farmer's position can be fully restored. The trouble lies partly in the derangement of markets and dislocation of prices; and recovery depends on many factors, of which credit is only one. At the same time, however, there is need for improved credit facilities, and particularly for a better organization of credits that will make available the necessary capital and credit for the use of the agricultural and live-stock industries. I should say that this could best be accomplished through the adoption of some such measure as the Capper bill (S. 4063), with its provisions for increased rediscount facilities at the Federal reserve banks and for the organization of rural credit corporations and rediscount corporations on a businesslike basis, coupled with provision for a further extension of the life of the War Finance Corporation for a limited period, say until March 31, 1924, in order to take care of any emergency conditions which may remain and also give opportunity for the establishment of the new agencies on a practical working basis. A measure of this character could be drafted without much difficulty along the lines of the Capper bill; and it would, I believe, provide a practicable and comprehensive plan of agricultural credits, embodying the best features of the Anderson-Lenroot bill and at the same time avoiding the objections that may properly be raised against that bill in its present form. The objectionable features of the Anderson-Lenroot bill as it now stands may be summarized, I should say, under three heads. In the first place, it would place the Government to a large extent in the commercial banking business, for it contemplates what amounts to a system of Government banks, capitalized with public funds and supervised by Government officials. As at present organized the Federal land banks are conducting solely a farm-mortgage business. To enable these land banks to undertake the business of rediscounting agricultural paper for country banks, loan companies, and credit associations new officers and new personnel would have to be supplied. Since the Government would contribute the capital, it would also have to supply the management. This involves serious difficulties. Government operation of necessity means centralization and standardization. It requires rigid rules and policies, ill adapted to a country as large and as varied in its economic structure as the United States. The Federal land banks now can operate upon uniform rules, in so far as their present farm-mortgage business is concerned, for the farm-mortgage business lends itself to standardization. The handling of current farm credits, however, requires promptness, flexibility, and adaptation to local needs, and these essentials Government banking could not, in my opinion, supply; certainly not without grave administrative difficulties. The second objection is that the bill would make heavy drafts upon the Treasury for the capital of the farm-credits departments, and that would mean either more Government borrowing or higher taxes on all the people in order to supply the funds. Either would be unfortunate, for the Government's borrowings are already heavy enough, and existing taxes are too high for the good of agriculture, business, and industry. The Government's contribution, moreover, would be insufficient to handle more than a fraction of the agricultural rediscounts of the country, and the bill accordingly contemplates the sale of collateral trust bonds to secure any necessary additional funds. These securities would be entitled, under the terms of the bill, to full exemptions from all Federal, State, and local taxation, and from this arises the third serious objection to the bill. Tax-exempt securities afford perhaps the most outstanding avenue of escape from the income surtaxes imposed by Congress, and their continued issuance is prejudicing the revenues and at the same time having a most unwholesome effect on the development of business and industry. An amendment to the Constitution of the United States restricting further issues of tax-exempt securities is already pending in Congress, and I repeat here the hope expressed in my annual report that this amendment will have early consideration and soon be submitted to the States for their approval. Public opinion is crystallizing more and more against tax-exemptions, which are defeating our system of taxation and threatening the public revenues, and it would come with particlarly bad grace, it seems to me, for the Federal Government to authorize the creation of a large volume of new tax-exempt securities at the very time of proposing to the States a constitutional amendment directed against such issues in the future. I may say in this connection that I have been following with much interest • the reports of the hearings before your committee, and am impressed with the wide diversity of opinion among the witnesses upon the Anderson-Lenroot bill in its present form. The representatives of the American National Live Stock Association testified that the live-stock industry did not want Government funds or tax-exemption privileges, and that the bill would not meet the needs of the industry. The representative of a large number of the cooperative-marketing associations in the United States, while recommending enactment of part of the bill, merely to provide a reserve agency in case of need, stated that the associations which he represented believed that their main financial resource should and would be the Federal reserve system. The representative of the Farm Loan Board, while not opposing the bill, stated in effect that the Farm Loan Board was not equipped to administer it, and suggested that it be transferred to the Federal Reserve Board. The representative of the Federal Reserve Board recommended that it be placed under the Farm Loan Board. The representative of one of the national farm organizations asked that neither of these boards have charge of its administration, but that a new and independent board be created for the purpose. In view of this diversity of opinion, and of the substantial objections to the bill already pointed out, I believe that the most helpful course that can be pursued now is to adopt a substitute measure along the lines of the Capper bill, with the suggested extension of the life of the War Finance Corporation until March 31, 1924. This would adapt our present banking system to the needs of agriculture, and include the best features of the various plans, upon which there is virtual agreement. It would admit to discount at the Federal reserve banks agricultural paper with a maturity up to nine months, secured by commodities in process of orderly marketing or by live stock which is being fattened for market. To this there can be no substantial objection. It is safe, and the testimony before your committee shows that it will be helpful. Nor is there any disagreement as to the wisdom of Federal incorporation and supervision of live-stock and agricultural loan companies, which is also a feature of the Anderson-Lenroot bill. Representatives of the great cattlebreeding industry have testified, moreover, that such a provision is essential to the proper conduct of their business. These proposals embodied in the bill introduced by Senator Capper have met with general support and are, in my opinion, sound and constructive, and I hope that this bill, with such changes of detail as may seem necessary, will commend itself to the favorable consideration of your committee. I am convinced that in the long run our present banking system, modified and liberalized on these lines, will serve the needs of agriculture far better than any rival system built upon Government capital and under Government control. A rural credits program like that embodied in substance in the Capper bill would draw capital and credit from available sources for use where needed by the agricultural and live-stock industries, and would accomplish this on a business basis, without depending on Government money or tax exemp tions. At the same time it would enlarge the facilities of the Federal reserve system to provide further for agricultural discounts, and I hope so as to encourage larger membership among eligible banks in the agricultural districts, and would extend up to $25,000 the limit on loans by Federal land banks. Altogether, it presents a comprehensive plan of permanent relief on practical lines. To meet any emergency situation that may remain and bridge the gap until the new facilities can be organized, it is by far the best course, in my judgment, to make use of the War Finance Corporation, which is a temporary organization and will expire with the emergency. This corporation is already in existence, and it has sufficient funds at its command, with a trained personnel able to make those funds effective to the extent that they are needed. Its operations have been conducted, it is generally agreed, to the satisfaction of the agricultural interests, and its extension for a limited period, coupled with the enactment of the Capper bill, would give to the farmer full assurance that credit will be available for his needs on a sound basis during the period required for the practical working out of the enlarged facilities of the Federal reserve system and for the organization of the more permanent credit agencies provided by the Capper bill. Cordially yours, Hon. GEORGE P. MCLEAN, A. W. MELLON, Secretary of the Treasury. Chairman Committee on Banking and Currency, United States Senate. Washington, D. C. Mr. STRONG. We certainly ought to have the War Finance Corporation continued until we have something to take its place. Mr. MEYER. That is the idea. This would extend it to March 31, 1924. If the Capper-McFadden bill functions effectively, the War Finance Corporation can be liquidated. If it does not do so, the corporation, with its large re sources and rather extensive organization in the agricultural territory, will be in existence and will give confidence and provide funds in case of need. Mr. STRONG. Mr. Meyer, I was called out of the committee room for a few moments, and I would like to inquire whether you have discussed what this bill will do in the matter of credit organizations? Mr. MEYER. I have done so. Mr. STRONG. This bill has not yet been read to the committee, but some members have read it privately. When you are through with your statement, some members may want to ask you some questions about the bill. Mr. MEYER. The only other section is Part IV, which increases from $10,000 to $25,000 the amount which Federal land banks may lend to any one borrower. I will not discuss this matter, as I understand the committee has already considered it in connection with the bill introduced by Mr. Strong. I have here a few resolutions received from various organizations, cooperative marketing associations, and live-stock associations, and I would like to insert them in the record. Mr. STRONG. If there is no objection, it is so ordered. (The resolutions referred to are as follows:) RESOLUTION ADOPTED BY THE AGRICULTURAL LEGISLATIVE COMMITTEE OF CALIFORNIA. EUGENE MEYER, JR., SACRAMENTO, CALIF., December 8, 1922. War Finance Corporation, Washington, D. C.: At a special meeting of the Agricultural Legislative Committee of California the following preamble and resolution was unanimously adopted. This committee is a voluntary association of 31 cooperative associations of producers with an aggregate membership of 60,000 growers, which associations have an annual output of approximately $250,000,000. This committee is familiar with the helpful activities toward agriculture of the War Finance Corporation and has conferred from time to time with Eugene Meyer, jr., managing director of that corporation, concerning remedial legislation which will prove helpful to the preservation and development of the agricultural and live-stock industries of the United States. The committee has carefully considered the Capper Federal agricultural credits act now pending before Congress, which act embodies many of the suggestions of this committee to the War Finance Corporation: Therefore be it Resolved, That this committee do approve and do urge adoption by Congress of the fundamental principles embodied in said act. AGRICULTURAL LEGISLATIVE COMMITTEE OF CALIFORNIA, REPORT OF THE RURAL CREDITS COMMITTEE ADOPTED BY THE CONFERENCE OF NATIONAL COUNCIL OF FARMERS' COOPERATIVE MARKETING ASSOCIATIONS IN WASHINGTON, D. C., DECEMBER 15, 1922. The committee on rural credits of the National Council of Farmers' Cooperative Marketing Associations has made a survey of the subject of farmers' credits and the legislation proposed on such rural credits. Your committee recommends as follows: 1. That this national council announces as a general policy that the primary reliance of the farmer for credits for production or for marketing should be upon the local banker, and that under normal conditions the local banker is likely to meet the greater part of such needs. 2. That the Federal reserve system should be modified so as to meet the special requirements of farm credits and to permit the financing of farmers and farmers' cooperative marketing associations conveniently and efficiently through normal banking channels. That such modification involves primarily the extension of the maturity of agricultural paper to a maximum limit of nine months, with the fixing of cooperative marketing for loans on such agricultural paper to any one cooperative marketing association to be fixed as 50 per cent of the capital and surplus of banks, members of the Federal reserve system, subject to the State laws wherever applicable, and that encouragement and inducement be made to |