Representative FUNK. But what the commission would like to know is this: If there is a restriction of credit by the Federal reserve banks, we would like to know whether an undue proportion has been rediscounted for speculative purposes. If you can submit that later, I will appreciate it.

Mr. BROOKHART. I have it right here now. I will complete this statement as to the distribution of these national-bank loans, and then I will answer that question, Mr. Funk.

The total loans and discounts, including rediscounts of national banks, November 15, 1920, amounted to $13,764,000,000.

According to the reports of the national banks, $9,707,798,000 were made under the following classifications:

To farmers, agriculturists, and live stock raisers, $1,998,993,000. Representative FUNK. And have you the percentage of the total

there?

Mr. BROOKHART. No. I figured that out at 14 per cent.

To manufacturing corporations and firms, individuals, and associations directly engaged in manufacturing, $2,862,506,000.

I figured that out as 21 per cent. Perhaps those percentages ought to be rechecked, because I had no help in doing this, and it might not have been done with the greatest accuracy.

To merchants and mercantile corporations, firms, and individuals engaged in the jobbing business, business of trading, wholesale, etc., $3,581,462,000.

I figured that out as 26 per cent.

Bond and stock brokers, and dealers in investment securities, $664,010,000.

Railroad companies, shipping companies, electric railways, light, heat, and power companies, $225,389,000.

Professional men, including lawyers, doctors, clergymen, teachers, chemists, engineers, etc., $375,438,000.

That is about one-sixth of the farmers.

Percentage of total amount, 70.53. And that is all they specify. Representative FUNK. As I get your conclusion, it was to this effect, that the agricultural interests deposited about 50 per cent of all the deposits, but when it came to the rediscounting they only received 14 per cent from the Federal reserve bank?

Mr. BROOKHART. No, not the Federal reserve. That is all the national banks. This is all the national banks I am talking about. Representative FUNK. Now, would you go as far as to recommend to Congress that it pass a law, or amend the Federal reserve bank law, that credits, loans, rediscounts should be allocated to the various interests in proportion to the various amounts they deposit?

Mr. BROOKHART. I would be entirely satisfied, for the farmers, if that were done.

Representative SUMNERS. Have you studied that pretty carefully to see where it gets to?

Mr. BROOKHART. I think the allotment should be based upon resources of the different States. There should be some flexibility under proper safeguards, but in the main each State should be entitled to its allotment. It is arbitrary now against the farmers.

Representative SUMNERS. I want to ask you: Have you figured that out pretty carefully to see where it would get to if you allocated the credits and made a permanent allocation, not a preferential allo

cation, but a permanent allocation? I have not studied it, but might you not get into this difficulty, that at the particular time when the farmers might not need it some industry, such as a cotton mill or a woolen mill, or some industry upon whose successful operation the farmer is interested, would need it, and the farmer might not need the amount allocated to him. I am figuring out where you would get to with a permanent allocation.

Mr. BROOKHART. I was figuring it out as one of the temporary remedies. The permanent remedy is to give the farmers a cooperative banking law that will enable them to organize their own deposits under their own control, and then they themselves decide colfectively what other enterprise they will back with the surplus. That is what any other line of business does, and the farmers are entitled to do that. That would be my permanent remedy.

Senator HARRISON. It strikes me that if the proportion is so large in national banks of farmers' deposits, that in State banks the proportion would be much larger, for the reason that State banks are generally the small banks located in small communities that are patronized by the farmers.

Mr. BROOKHART. I have not the slightest doubt, in fact I know, and am as reasonably certain as I can be, from the reports of the State bankers association, that more than 75 per cent of all the deposits in the banks in the State of Iowa are made by farmers.

Representative FUNK. I was impressed by your statement that the discounts or loans of $90,000,000 in Iowa were called and reduced to $30,000,000.

Mr. BROOKHART. $36,000,000.

Representative FUNK. That is a very severe arraignment of the present system; but I did not get your suggested remedy. If you have thought anything out along that line I am sure the commission would be glad to have your idea.

Mr. BROOKHART. The remedy I suggested here would be to require the allotment to the States in proportion to the resources. That would make it safe enough for agriculture.

Representative FUNK. As shown by what fact? The assessed valuation?

Mr. BROOKHART. Well, the assessment was the one I used, but perhaps the Department of Agriculture's report on values would be better than the assessment values.

Representative SUMNERS. Do you think there is an equal relationship between the credit necessities of the various industries and the business of the country, and the deposits by those businesses?

Mr. BROOKHART. There is a very great variation, there is no doubt about that. But the industry which has the deposits primarily has the right to say to whom it will lend them.

The CHAIRMAN. Isn't it just possible, Mr. Brookhart, that in these estimates that you have been making that you are overlooking the essential differences between the necessities for long-time credits and short-time credits? The national banking system, as I understand it, is based upon the necessity for short-time credits, and is expected to meet the needs of the volume of business from day to day and from week to week and from month to month, rather than the permanent investment necessities of the various industries?

Now, the amounts of money, credit, which the farmer might need to move his crops, as a matter of short-time credit, as proportioned to the amount of credit which business generally might need for the volume of business which it does, is a very different thing from the volume of permanent credit that might be required in the two cases. Your proposition to allocate liquid credits to a base of permanent investment is clearly, it seems, out of line.

Mr. BROOKHART. I was speaking of what you call the temporary or short-time loans. In my statement I barely mentioned the longtime loans. That will be taken up by another gentleman.

The CHAIRMAN. That is true, but what I am getting at is this, that the volume of liquid credit and the proportion of liquid credit that should go to agriculture and industry should be proportioned to the volume of business and not to the volume of permanent credit or permanent capital investment.

Mr. BROOKHART. Well, I could not assent to that system without. some definition of what constitutes business, and I will give you an illustration here from an address made by John Skelton Williams before the Convention of the People's Reconstruction League at Washington, D. C., to show you why. He says:

I am giving this outline of inside events to support my contention that Congress should take action to provide against negligence, lack of ability, or stubborn disregard of the needs and rights of the public by the board or any future board. As an illustration, I knew that certain New York banks were borrowing from the Federal reserve bank, which means from the people of the United States, millions of dollars, at 5 to 6 per cent, and lending it at from 10 per cent to 50 per cent, and sometimes higher still. In fact, among others, I gave them one instance, an extreme case, where a certain large bank last summer borrowed money from its reserve bank at about 6 per cent per annum, and about the same time loaned a customer, the head of a large manufacturing enterprise, $1,000,000, well secured by collateral, of which loan about $500,000 was passed on to correspondent banks (without liability to the selling bank) at about 12 per cent per annum, and $500,000 of the loan retained on a basis of interest and commission which yielded the lending bank about 200 per cent per annum on its net outlay, the whole loan being paid in full in six months.

Now, I am not in favor of allotting our money to business if that is what is called business.

The CHAIRMAN. Well, it may well be that an undue proportion of the credit of the country has been used in speculative transactions. Probably that is the case. But that was not the question that we were discussing. Your proposition was a proposition to allocate credits, liquid credit, to a base of permanent capital investment, and it seems to me the suggestion of Mr. Sumners there is very, very pertinent that it might injure the farmer fully as much if there were a restriction of credit to industries that manufacture his products and put them in condition for consumption as there would be upon a direct restriction of consumption upon his own marketing process. Mr. BROOKHART. The farmer has certainly an indirect interest, after the development of his own business, in developing every other productive business. There is no doubt about that. And he would be willing that his surplus should be used to develop those other lines of business. But it is the enormous speculative use that was made of this money, the immense centralization of it down in New York, to which he objects.

I have here a statement of Mr. George E. Roberts, of the National City Bank, and he claims there was no centralization down there, and gives a set of figures which, if you take those and accept them,

would indicate that there was not very much to it. But Mr. Williams in his statement here says

The CHAIRMAN. What report are you reading from?

Mr. BROOKHART. It is not a report; it is his address here in Washington.

ago.

Senator CAPPER. A few weeks
Mr. BROOKHART. Yes. He said [reading]:

The official reports also show that in addition to the money which the New York banks were lending on call in New York for account of their correspondents and customers, the national banks in New York City this time last year had on deposit to the credit of their correspondent banks in all parts of the country approximately $900,000,000 more, while the total sum which the New York national banks were len fing, directly and indirectly, to all other banks throughout the country, was considerably less than one fourth of that sum.

Senator HARRISON. Now, I do not understand your position to be that you are allocating the credit according to the various deposits of business and industries?

Mr. BROOKHART. No.

Senator HARRISON. I understood you to say, in answer to a question that if such would be true the farmer would suffer by virtue of it, and you gave certain facts there.

Mr. BROOKHART. Yes.

Senator HARRISON. Which are revelations to me. Of course, if by law you should compel the Federal reserve bank to do that, you would destroy the object of the Federal reserve bank, which was to respond to the changing need of trade and commerce, according to the exigencies of the case.

Mr. BROOKHART. If we prohibit the allotment to speculation, and get speculation well defined, we have gone a long ways in the right direction.

The CHAIRMAN. Now, may I just direct your attention to this proposition. Of course, the measure of the short-time credit which the farmer borrows from the national bank is not by any means the measure of the credit which be borrows from those banks. A very large proportion of the deposits are demand deposits. The farmer making those demand deposits in many instances borrows them back upon the basis of a long-time investment, and unless you include in your investigation of this question both the requirements of the farmers for long-time credit and short-time credit, we are not arriving at any very definite relation of the farmer to this credit situation.

Mr. BROOKHART. I see your idea, now. The long-time credits to the farmes come more from the insurance companies and the trust companies rather than the banks, and the farmers themselves are paying a similar proportion into those institutions. The farmer, I am sure, is in no danger of credit if he has control of his own credit affairs, both long and short term.

The CHAIRMAN. I want to say that in asking these questions I am not do ng it in the spirit of argument. I am trying to develop the point of view, as well as the facts.

Mr. BROCKHART. Yes; I understand.

The CHAIRMAN. You referred to the fact that during all of this period of the last four or five or six years, including this period of delation, that the world's demand for farm products was in excess

of the world's supply. Are you prepared to fortify that upon any basis of figures?

Mr. BROOKHART. There are 200,000,000 people, outside of Russia, in Europe, more or less starving right now. We could not feed them

if we could get all of our stuff over there. And there are more millions in China and other places.

The CHAIRMAN. That is to say, your statement there is based upon the assumption-probably the correct assumption that there are enough people in the world, and enough consumption demand from those people, to consume the total world's supply of food. That brings us, it seems to me, to the difference between demand and buying power. There are, unquestionably, we will say, enough people to consume the farmers' products. The difficulty is that they have not the buying power necessary or equivalent to that consumption. Is not that the situation?

Mr. BROOKHART. Yes, there are some great troubles with regard to that proposition, but some way or other the wheat speculators are enabled to sell them the biggest movement of wheat we have had in many years, last year over 300,000,000 bushels, at an actual advance of 33 cents.

The CHAIRMAN. Let me ask you right there: Who figured that actual advance of 33 cents?

Mr. BROOKHART, That is the export price.

The CHAIRMAN. That is the export price above what you figure to be the price received by the farmer at the terminal?

Mr. BROOKHART. Well, it is the export price above what the market was at the beginning. It went down to the farmers an average of 70 cents during the year, but the export price went up an average of 33 cents. That is shown on the reports of the grain movement. Senator Ladd is my authority for that statement.

The CHAIRMAN. You do not have the figures upon which that statement is based?

Mr. BROOKHART. I do not have the figures myself, but the Senator looked them up in the report of the movement, and I have no doubt about their accuracy.

The CHAIRMAN. Now you refer to the fact, or at least you stated that the farmer got 38 cents out of the consumer's dollar. How did you arrive at that figure?

The

Mr. BROOKHART. There was an analysis made of several different farm products, and from that officers of the Farm Bureau and myself estimated that before the war. That is not enough now. spread is wider than that at this time. If you will investigate it at this time you will find it is not quite 38 cents. My judgment would be that it is nearer 32 cents now than 38 cents. I think Dr. H. C. Taylor of the Agricultural Department is making some definite figures on that, a definite analysis, which he promised me he would make some months ago.

The CHAIRMAN. Well, of course there is a great deal in how you arrive at a figure of that sort.

Mr. BROOKHART. Yes.

The CHAIRMAN. And personally I would not be willing to accept a figure of that sort without some supporting statement showing how it was arrived at.