Senator MCNARY. Would I interfere with the ordinary course of your argument if I should suggest something concerning your grain exchange notions that you have, with respect to the control of those different exchanges?

Mr. BROOKHART. I would prefer if you would ask about it at the end of my statement, Senator, but it would not seriously disturb me to answer that at this time.

Senator MCNARY. Very well; proceed.

Mr. BROOKHART. The total loans and discounts of the national banks were $14,000,000,000.

The CHAIRMAN. What year?

Mr. BROOKHART. That is last year, the last report of the Comptroller of the Currency. I have used round numbers. Of course, that is not the exact figure. Of this sum agriculture received 14 per cent; manufacturing, 21 per cent; merchandising, 26 per cent; and speculation and miscellaneous, 39 per cent.

Of the primary deposits in all the banks of the United States, agriculture furnished approximately 50 per cent; labor, 20 per cent; and other business, 30 per cent.

Senator CAPPER. Are those official figures?

Mr. BROOKHART. No; those are estimated; but I will sustain them with some official figures that point quite strongly to this conclusion. Upon these facts agriculture would have been entitled to $7,000,000,000 of national-bank credit and it only got $2,000,000,000; it was entitled to more than manufacturing and merchandising combined and it got less than one-third as much.

Under the law the Federal reserve allotment of credit is unfair to agriculture, and in addition its administration has had the direct and arbitrary purpose of forcing a deflation in farm prices.

This conclusion is best illustrated by the facts in a single State. In Iowa the allotment of credit under the law was $36,000,000. They, in fact, loaned $91,000,000, but as early as February, 1920, announced these excess loans would be called when the crops were matured. This forced Iowa farmers to sell on a falling market and sent more farmers into bankruptcy than in all the history of the State.

If Iowa's allotment had been an average of the States it would have been nearly $110,000,000 instead of $36,000,000. But Iowa is far more than an average in resources. It was fifth in assessed valuation in 1919 and upon that basis was entitled to eight-one hundred and thirty-fourths, or an allotment of $300,000,000. In fact, it got $91.000.000 and was called for two-thirds of that.

While this allotment was entirely inadequate and wholly unfair to agriculture, still, when it was exceeded, as in Iowa, a heavy penalty was placed upon the borrowing banks by increasing the interest rate, which John Skelton Williams says reached 87 per cent in one instance to a small bank in a farming section. This system is the principal direct cause of high interest rates, not only in Iowa but everywhere, and it has placed a burden upon the American farmer that is unbearable. That this restriction of credit was arbitrary and the rise in interest rates a Wall Street profiteering scheme there can be no doubt, when we take Mr. Williams's statement on April 15 that “Our 12 Federal reserve banks at this time have an unused lending power of approximately $1,500,000,000."

This illustrates the position of agriculture throughout the United States. As a result of this credit monopoly the speculators were enabled to force down the price of wheat to 70 cents per bushel to the American farmer in 1920. At the same time they forced it up 33 cents a bushel to the starving millions of Europe. Over 300,000,000 bushels moved on this spread and not over $60,000,000 could be charged to increased freight rates. Therefore, the speculators by this control of credit were enabled to take an extra toll of $240,000,000 upon export wheat alone.

The remedy for this is to amend the law and require the Federal reserve to allot credit in proportion to resources and deny all credit directly or indirectly to speculation.

Also, we must have a cooperative banking code, both State and national, which will enable the farmers to deposit their money under their own control and themselves decide how their surplus shall be allotted to other lines of business.

The functions of the Federal land bank should be enlarged until it will furnish long-time credit large enough in volume and cheap enough in rate to enable every farmer to own his home.

The rise in freight rates as farm prices fall is a flagrant extortion. It is caused by a cost-plus guarantee law that puts a premium upon waste, extravagance, and mismanagement. Under this law a valuation of $18.800,000,000 is put upon the railroads. At the same time all their stock and all their bonds representing all their value could be bought on the market for less than $14,000,000,000. Heretofore we have regarded this value too high, but this law has added to it over $5,000,000,000 of water. It is said the advance in wages of labor caused the advance in rates. Last year maintenance expense increased $1,406,000,000, but the amount paid for increased wages was only $480,000,000. This leaves $926,000,000 to explain. It is next said the causes were the high prices of steel and coal, but the same men who controlled the railroads controlled the prices of steel and coal. When the Government was operating the Pennsylvania and the New York Central their locomotives were repaired in their own shops at a cost of $4,466 each. After the roads were turned back the men in these shops were discharged and 299 locomotives were sent to the Baldwin Co. at a cost of $19,057 each for the same work. The Baldwin Co. is controlled by the same men who control the roads. Therefore, they got more profits by increasing the expense over 300 per cent, most of which the farmer must pay.

A unified government control under the management of honest and competent men would reduce costs of transportation in vast amounts. The railroads now have about $10,000,000,000 of capital at an average rate of 4 per cent. Upon all of this they have a guarantee of 6 per cent. This means a bonus of $150,000,000. Add to this the guaranty on capital above market value and there would be a saving of $450,000,000 on capital charge alone. Seven hundred millions could be saved on coal, steel, and other expenses when the profiteering of the trusts is broken. The waste of competition could be reduced by over $400,000,000. The capitalization of unearned increment at the rate of over $300,000,000 per year would be saved. Labor has already been reduced over $400,000,000. These items make a grand total of over $2,000,000,000, most of which could be used in the reduction of rates. The farmers pay 56 per cent of the freight rates. an have a just demand for this reduction.

Another subject that needs the immediate attention of this committee and of Congress is the gigantic claims of the railroads for undermaintenance during Government operation. A fair investigation will show that the Government increased the maintenance and in fact paid large sums that should properly have been charged to additions and betterments. Besides, the return guaranteed to the railroads by the Government was over $300,000,000 per year in excess of the Liberty-bond rate which the Government paid to other people for the use of their money. After the armistice everything possible was done by the management to discredit Government operation. If railroad labor was inefficient it was not of its own choice but under the direct orders of the management. In spite of all this the roads were better maintained than when the Government received them, but they are seeking to grab an extra billion and a half dollars mainly at the expense of the farmers.

I will also call attention to the fact that the railroads now have a surplus of $1,200,000,000 to $1,500,000,000 which the people have paid to them for the purpose of paying deficits and tiding over lean years. They never use this money for that purpose but treat it as a bonus or gift. In this way the people have built the railroads principally for 8,000 millionaires in New York.

It is now generally said that the cause of the great deflation in prices of farm products, is the breakdown of our foreign markets. This, of course, is true, but the causes of this breakdown are shrouded in various mysteries and mysticisms. Foreign credit, foreign exchange, foreign poverty, foreign bolshevism, pacifism, the League of Nations, and the fact that we are not in the league are each cited as the true and only cause. I want to brush all of these things aside. So far as the American farmer is concerned, it is all due to his failure to organize and control his own affairs both politically and economically. A few established facts and a little horse sense will demonstrate this conclusion. Outside of Russia there are 200,000,000 underfed people in Europe now, therefore, the demand for farm products exists.

These people paid the speculators an advance of 33 cents per bushel on wheat which proves our products can be marketed when properly handled.

There are $1,500,000,000 of unused credit in the Federal Reserve Bank, the majority of which the farmers would control if they had their own money in their own banks and they would control many other hundred millions besides that which went to the use of speculators.

With such a control of their own credit they could easily have marketed their products in Europe. This could probably have been done without loss on the necessary loans, but the farmers could better afford to suffer such a loss of $2,000,000,000 or even $3,000,000,000 than to take a loss of $7,000,000,000 in the slump of prices. The farmers can only do this by a cooperative organization of their credit, and there is no national law for such organization. Instead, they were exploited by the United States Chamber of Commerce and every financial combination in the country.

The best illustration of this is found in the action of the Beef Trust. The first preparatory step toward deflating the farmer was to safeguard the packers. Armour floated a $60,000,000 long-time loan at 8 per cent, Swift $50,000,000, and the others in proportion. The loans

were underwritten by the big banks. They sent out confidential advices to their country correspondents that here is something gilt edge and it is 8 per cent; buy $10,000 or whatever had been allotted. Money was plentiful and the little banks bit and passed on this paper to their farmer customers. The farmers put up the money to finance the Beef Trust, and the trust took the money to Argentina and used it in the cattle and meat business to knock down the prices of farm products. Emergency tariffs and packer regulation are all right, but the farmers must be allowed to organize their own credit upon the cooperative principle.

The cooperative organizations for which the farmers are asking legal sanction produce exactly the opposite result of trusts and combinations in restraint of trade. The trusts collect profits into the hands of the few; cooperation distributes them broadcast among producers and consumers. The power and rates of profit for capital are unlimited in the corporation trust system. In cooperation capital has no power; it does not vote; the rule is one man one vote, and the earnings of capital are limited to the legal interest rate.

To these must be added a general remedy of taxation. The millions made out of the war must be taxed to pay for the war. Up to date they have paid nothing. They have added it in and passed it on to the public. These war profits must be surveyed and a tax levied which they will pay and not pass on, in an amount sufficient to pay for the war, including any adjusted compensation that may be granted to the men who were drafted at $30 per month.

Senator MCNARY. I started a moment ago to ask this question: I was interested in your discussion of the grain exchanges. Are you familiar with the terms and provisions of what is known as the Capper-Tincher grain-exchange control bill?

Mr. BROOKHART. Not entirely. I have not absolutely accurate knowledge of it all the way through.

Senator MCNARY. Well, that legislation has passed the House, and has now been reported favorably in the Senate. It has been before the Agricultural Committee for some time, and it tends to regulate and correct what we think constitutes some of the ills and practices of the present time. But it does permit the "hedge"; it does not affect thehedge."

Mr. BROOKHART. What is the particular proposition it permits? Let me see if I understand it.

Senator MCNARY. Well, I do not want to go into a discussion outside of the question, because that legislation has been before us at our hearings. I was wondering if you were familiar with that measure, and if you were, if you thought the bill would correct the evils you pointed out in your statement.

Mr. BROOKHART. I am not familiar with the particular proposition which they say it permits, which is called "hedging. As I understand it, it is not what I call hedging that is permitted by the Senator's bill.

Senator MCNARY. Perhaps you have in mind some forms of speculation and manipulation.

Mr. BROOKHART. Well, this selling or buying for insurance purposes, I call all that hedging; if you want to do that I say let us organize a cooperative insurance company to do it. I know, for example, a man in my town who hedged and made $40,000 in hedg

ing, and went up to collect it, and his fellow was busted. And that is what happened with your hedging. Who are you hedging with? It is one end of the gambling proposition in that form, and I don't think we want any element of gambling in the grain exchanges. Senator MCNARY. Then you would destroy, if you had your way, the machinery that has been built up by the grain exchanges? Mr. BROOKHART. Most of it.

Senator MCNARY. And you advocate also the Government control of the railroads? Do you mean to the extent of price fixing, in the way of tariff rates, wages, etc.?

Mr. BROOKHART. Oh, yes.

Senator MCNARY. That is what you advocate in your statement? Mr. BROOKHART. Well, a unified Government control is what the Farmers Union declared officially for, and that is the way I stated it here.

Representative SUMNERS. I am interested in getting your judgment as to how and through what sort of marketing machinery you would effect sales of agricultural commodities so as to reduce the spread between what the farmer receives and what the consumer pays. Before you begin the answer to that question I would say that I do not want to break in on your program, and if you have on your program somebody that is scheduled to make that explanation, I will not ask you that question now.

Mr. BROOKHART. I can give you a general answer on that, sir. The Grain Growers (Inc.), which has already been organized by the farm organizations of the country, is the best illustration, under present law, of the way it can be done. It is not absolutely cooperative, because we do not have these cooperative laws.

is as near cooperative as can be done, I think, under the present law.

Representative SUMNERS. You believe that the economic distribution of these commodities can be effected without an exchange through which they may be sold by grade?

Mr. BROOKHART. Not without some kind of an exchange, but I would substitute the Grain Growers (Inc.), for the board of trade. Representative SUMNERS. You mean you would permit them to effect sales by grades? When you say "substitute" do you mean you would destroy one by law and establish the other by law?

Mr. BROOKHART. No, if the board of trade wants to reorganize under the same restrictions, I have not the slightest objection. Representative SUMNERS. What sort of restrictions?

Mr. BROOKHART. The cooperative restrictions.

Representative SUMNERS. Well, how would it operate?

Mr. BROOKHART. Well, on that, one man, one vote, and capital has a limited earning of 8 per cent, I believe.

Representative SUMNERS. Yes, and that is the cooperation among the producers, but I am talking about the market place, the place where the sales of these commodities are effected. How would you manage it?

Mr. BROOKHART. The Grain Growers (Inc.), is going to do everything toward distributing grain from producer to consumer that the board of trade ever does. I don't know of anything that it does in the way of carrying it on from producer to consumer that is eliminated in the organization of the Grain Growers (Inc.). But this selling and reselling on futures and margins and all that will not happen.