exports and your allocation powers to offset that condition which you talked about. There just is not any such thing.

Senator WATKINS. Suppose, as we have already voted in the Senate we are going to help the people across the sea, we are going to send them food, we are going to send them wheat.

Assuming that as a part of the program I would like to have you take that into consideration in your observation. That is going to be done. I do not think the people of this country are going to see those people go without, that they are going to fail to use the weapon they have in their hands to keep those governments free, those people free. Take that into consideration.

Mr. MCCLINTOCK. My answer to your question is this: If your purpose to help prevent communism from appearing in the western European countries is going to involve us into adopting the very tools of communism, such as controls, price fixing, allocations, determining use of materials, those are one of the prime factors, if my understanding is correct, of a communistic regime.

I say there is no advantage in this country attempting to prevent communism in Europe if it means that we adopt it voluntarily here in order to prevent it in France.

Senator WATKINS. I might call your attention to

Mr. MCCLINTOCK. You have, under those circumstances, all of these various controls. We know by our experience that you cannot set down a control here and that it will stay stationary. It reaches into all elements of our economy very soon. We would very shortlywe very nearly had, at the end of OPA-the so-called police state. Inject it in peacetime, I say you have the police state which we decried so severely for other people.

Senator WATKINS. You do not think we are at peace now, do you, with the world? Is it not a fact that we have an ideological war, an economic war, going on now just as vigorously as our shooting war was in World War II?

Mr. MCCLINTOCK. I mean as far as our military efforts are concerned, we are supposed to have peace. And hostilities have not been declared. If there is some way that we have a mental war, or a cold war, or the different descriptions you have heard given, I do not know. It is pretty meaningless to me.

Senator WATKINS. That is imaginary.

Mr. MCCLINTOCK. It is a fact that we have not established ourselves diplomatically very wisely, or very effectively. You can call it an ideology of war, or you can call it a cold war, or whatever it may be. As I see it it is only the fact that the diplomats of our respective countries have not been able to agree. I do not think that approaches war, necessarily.

Senator WATKINS. Of course, I think it would be perfectly clear we could agree if we gave in immediately to what the other side wants. You can always come to an agreement by conceding your position. You would not, of course, advocate that.

Mr. MCCLINTOCK. I would not say the misunderstanding should be resolved in continuation of the efforts we are going through. I do not believe we are terribly exposed to war because we have a disagreement by some selected diplomats in this country.

Senator WATKINS. You think that is about the size of the situation that there is a disagreement between the diplomats.

The reason I am calling this to your attention is because Congress is faced with a condition, not a theory, we are faced with an actual cold war which may become a hot war any time. We are seeking to find some means to alleviate the present situation and prevent prices from getting completely out of control with disastrous inflation as a result. That is the reason why we are making these investigations.

Mr. MCCLINTOCK. Senator, the only thing that I can tell you is to use the same tool that has put the market up to bring it down, and that is your control of allocation of exports. If you tell me that you are going to export, or there is a condition prevailing where we are going to export irrespective of the supplies, the level of supplies that we have in this country, I tell you there is no answer, and I do not care what controls you put on, it will not stop price. You will have it in the black market, or you can have it in the free market, whichever you choose.

Your answer is to use the crank that put the markets up to keep them down, and that is your power that you have granted Government to control exports through the allocation system out of this country. Senator WATKINS. We understand, of course, we could cut down the exports, and if we had done that earlier we would have had a surplus in the United States. There would have been a lot of farmers running around now to find a market and calling on the Government to help in the support price program had we done that, had we stopped the export in grain to Europe.

Mr. MCCLINTOCK. Surely. It is all a question of what is high. You have one thought on it.

Senator WATKINS. There is no argument about what is high now, is there? There is no question on that score.

Mr. MCCLINTOCK. I do not know, when you look at the other levels of our economy. I think we have witnesses here who will prove that maybe they are not high.

Senator WATKINS. Do you say that the price of wheat is not too high?

Mr. MCCLINTOCK. What sort of a measuring stick would you want me to use?

Senator WATKINS. Take the measuring stick in your own country. Are they too high for the good of the people? And I do not think it would be an answer to say they are higher in other countries.

Mr. MCCLINTOCK. I think they are awfully related because the thing that has created high prices in this country is our participation in feeding the world.

So you cannot confine the conditions that affect the prices of this country when you are dealing in world transactions. Therefore the prices in other countries is related to ours.

If you ask me if wheat is too high, and I would have to make an answer "Yes" or "No," I would say "No," I do not think it is too high compared with other conditions in this country.

Senator WATKINS. It is a very interesting subject, and we could pursue the debate at great length on just what should be done. As I gather from what you said, your remedy would be to cut down the amount that we are exporting to the point where our prices come to the level we want them in this country?

Mr. MCCLINTOCK. That is right. If you can agree among yourselves what price you want, that will be it.

Senator WATKINS. That, of course, means that somebody overseas would go without food, food that they ought to have. Of course, that is the alternative. We understand that.

I thought probably

Mr. MCCLINTOCK. We are not arguing against the humanitarian elements that are involved here.

Senator WATKINS. Let us take that into consideration. That is what I wanted you to do, take that humanitarian consideration and keep it in mind to help us work out a program where we are not going, cut down the allocations to Europe so the prices would be very much lower here. We want to help them. We have declared that as a national policy as far as the Senate is concerned, and we will probably go on to the end of the chapter.

I cannot conceive of an American ever denying help to fellow human beings who were suffering, no matter what it does over here. Mr. MCCLINTOCK. We have no disagreement with you on that at all, and I think you all understand that. But taking that attitude. and we will say that it is unanimous, that we all agree that that is the thing to do, we nevertheless have got to be prepared to take the economic effects of that thing.

Senator WATKINS. In other words, let prices go higher here.

Mr. MCCLINTOCK. That is right. There is no point in talking all around the question that we are going to do this, but we are going to not have it make any change in effects. That is silly; that is child talk. We are dreaming; wishful thinking. That is all.

Senator WATKINS. I want to call your attention to the fact that during World War II we did have to adopt some of the methods of a totalitarian government, a police state. We had to have price controls. We had them all. I think they were justified for that emergency. The only question is, are we in such an emergency today. and if we are, probably they will be justified a little bit longer.

Mr. MCCLINTOCK. I think they served probably a useful purpose during the war. I am not denying that they did. But you had an entirely different situation. You had patriotic compliance there that you could not obtain under peace conditions.

Some of us may be able to foresee the need of them, but a large segment of our people do not believe in them. Therefore, in my opinion such controls could not be enforced without the exaction of the full power of the police state which is terribly unpopular in this country.

Senator WATKINS. It is unpopular with the people everywhere, usually. We cannot go along in that field very much longer.

I would like to ask you if you had any experience in the First World War as a trader on the grain exchanges, the commodity exchanges?

Mr. MCCLINTOCK. I had not gotten up in the grain exchange at that time. I was living on a farm, farming, and running a country elevator business.

Senator WATKINS. At that time the exchanges were permitted to operate, but not in futures, very much the same as I understand the exchange in the Northwest, the wheat exchange and the commodity exchange out there now operates without dealing in futures, under a system of licensing.

Mr. MCCLINTOCK. You are talking about Portland and Seattle?

Senator WATKINS. You do not think that could be done again in the Government were forced to get into the position we were in in the First World War, and the Food Administration, the laws that were enacted at that time?

Mr. MCCLINTOCK. That simply means that government sets itself up as being in a better position to determine to what use, and at what price the products of our country should be used for. I do not believe that kind of wisdom is possessed in a few people. Senator WATKINS. Did it not work earlier?

Mr. MCCLINTOCK. In a dire necessity.

Senator WATKINS. Do you not think we are in that position?
Mr. MCCLINTOCK. No. Absolutely I do not. Not by a long shot.
Senator WATKINS. That is the thing I wanted to find out.

Mr. MCCLINTOCK. Not by a long shot.

Senator WATKINS (presiding). Any other questions?

(No response.)

Senator WATKINS (presiding). Thank you, Mr. McClintock.
We will return at 2:15 to continue this hearing.

(Thereupon, at 12:45 p. m., the committee adjourned, to reconvene at 2:15 p. m.)

AFTERNOON SESSION

The committee reconvened at 2:20 p. m., at the expiration of the

recess.

The CHAIRMAN. The committee will come to order. We will proceed with the statement of Mr. Roy D. Crawford.

Mr. SLAUGHTER. Mr. Chairman, with your permission, I would like to call Mr. Cate, first; he is right after Mr. Crawford.

The CHAIRMAN. Mr. Henry H. Cate.

Mr. SLAUGHTER. Yes, sir; of Kansas City.

The CHAIRMAN. You may proceed, Mr. Cate.

STATEMENT OF HENRY H. CATE, PRESIDENT, FLOUR MILLS OF AMERICA, INC., KANSAS CITY, MO.

Mr. CATE. My name is Henry H. Cate, and I am engaged in the flour-milling business, and president of Flour Mills of America, Inc., with headquarters in Kansas City.

This company operates four mills in Kansas, Oklahoma, and grain. elevators, both country and terminal, in those States, and Illinois. The flour-milling business is, in fact, the grain business carried just two steps further. That is, we buy grain just like grain merchants, store it for others. We also process and merchandise it.

As a flour miller who uses the facilities of the commodity exchanges, I wish to discuss what has been variously referred to as the regulation. of exchanges, regulation of speculation, and controls over margins. To any such legislation, I am opposed. We are not speculators and do not want to be compelled to speculate. But speculation is inherent in the marketing and ownership of grain, and speculative risks must be borne by someone.

It is in the public interest that such risks be carried by those, namely, speculators, who wish to assume them.

The proposed legislation is unsound because it would have the effect of casting the burden of risk upon the trade, and so, upon the public, and that would mean increased costs for flour and bread.

In the handling of wheat, the risk of loss through fluctuations in value is greater than in most commodities for several very important

reasons.

First, the supply varies greatly from year to year, and month to month, because of weather conditions, and other factors.

To give you some comparisons, other commodities, such as coal and lumber, are produced in steady volume. That is not true of wheat.. And for that reason, the supply-and-demand relationship changes constantly and, therefore, the price.

Second, wheat is normally produced in this country in quantity in excess of domestic demand and, therefore, is directly influenced by conditions throughout the world from the price standpoint. This does not apply with equal force to other commodities produced in this country.

Third, wheat comes on the market as producers elect to sell it, not merely as millers and merchants may wish to buy it, and the volume of grain bought may be, and frequently is, very large in relation to any demand existing at that time. So that very large amounts must be accumulated without knowledge of when, where, and at what, price it will be sold.

In other words, there is no constant daily flow of this commodity. It must be bought when it is offered if one wishes to establish a source of supply.

Fourth, the price of wheat is a world price, and during the period. of storage, harvest is going on in some part of the world in every month of the year with rapid changes in supply-and-demand relationships, and with wild swings in price frequently a result.

I have discussed briefly the usefulness of the futures market as price insurance through the process of hedging; that is to say, I have implied that, because of these factors which influence the price of wheat, and cause it to change so rapidly flour millers and grain merchants must have insurance; they must have it to a much greater degree than processors and dealers in other commodities.

But the benefits of a free and futures liquid market to the trade and to the public extend beyond the avoidance of risk.

Operators of business enterprises must figure return on the capital invested, as a part of their cost of doing business. It follows, therefore, that the greater the capital investment required, the greater the margin of profit must be.

By reason of the availability of a hedging market, millers and grainmen are able to operate on substantially less capital than they would otherwise require, with corresponding benefit to the public.

The elimination of the risk of market changes through hedging, as applied to the milling business, makes it possible for these businessmen to borrow from the banks on the basis of 90 percent of that market value of their grain inventories, and at rates of interest as low as 14 percent per year currently.

Were it not for this hedging protection, it would be necessary to maintain a working capital from 3%1⁄2 to 5 times that which is now required.

Unless there is a satisfactory futures market, no such basis of credit as now prevails could be granted to millers and grainmen. This would mean as far as mills are concerned, either restriction of operations, with resulting higher costs, or would mean much more capital, with likewise a resulting higher cost.