Cornell University Library 
 HD 9006.H78 
 
 Some notes on agricultural read ustment 
 
 3 1924 013 873 652 
 
Reprinted by permission from the Saturday Evening Post of April 10, 1920 
 Copyrighted by The Curtis Publishing Company of Philadelphia, 1920 
 
 "SOME NOTES ON AGRICULTURAL READJUSTMENT 
 AND THE HIGH COST OF LIVING 
 
 By Herbert Hoover 
 
 The high cost of living is a temporary economic problem, sur- 
 rounded by high emotions. The agricultural industry is a perma- 
 nent economic problem, surrounded by many dangers. We are now 
 entering into our regular four-year period of large promises to 
 sufferers of all kinds. Except to demagogues and to the fellows 
 who farm the farmer, there are no easy formulas ; nevertheless, 
 there are constructive forces that can be put in motion — and these 
 are good times to get them talked about. 
 
 As bearing upon some suggestion of constructive solution, I 
 wish to establish and analyze certain propositions. Amongst other 
 things they involve a clear understanding of the bearings of dif- 
 ferent segm£nts of the total price of food between the different 
 links ip the chain of production and distribution : 
 
 First : That the high cost of living is due largely to inflation 
 and shortage in world production; speculation is an incident of 
 'these forces, not the "cause. 
 
 Second : That the farmer's prices are fixed by the impact of 
 world wholesale prices ; that such prices bear only a remote rela- 
 tion to his costs of production. 
 
 Third : That any increase or decrease in the cost of placing 
 the farmer's products in the hands of the wholesaler is a deduc- 
 tion from or addition to the farmer's prices ; that is, an expansion 
 or contraction of the margin between the farm and wholesale 
 prices makes an increase or decrease in the farmer's return. 
 
 • Fourth : That increase or decrease in the cost of distributing 
 food from the wholesaler to the door of the ultimate consumer 
 is an addition or deduction predominantly to the consumer's cost ; 
 that is, the margin between the wholesaler and consumer in its 
 increase or decrease is largely an addition or subtraction from 
 the consumer's price. 
 
 Fifth : That these two margins in most of our commodities 
 except grain were, before the war, the largest in the world ; that 
 
they have grown abnormally during the war, except during the 
 year of food control. 
 
 <SiXTH : That analysis of the character of the margin between 
 the farmer and wholesaler will show that decreases in price find 
 immediate reflection on the farmer, while immediate increases in 
 »price are absorbed by the trades between, and the farmer gets but 
 a lagging increase. 
 
 Seventh : That an analysis of these margins will show that 
 they can be constructively diminished, but that, regrettable as it is, 
 the prosecution of profiteers will not do it. 
 
 Eighth : That the problem must be solved if our agriculture 
 is to be maintained and if the balance between the agriculture and 
 general industry is to' be preserved so as to prevent otrr becoming 
 dependent upon imports for food, with a train of industrial and 
 national dangers. 
 
 Present Prices Due to Inflation and Shortage in World 
 Production 
 
 Our war inflation does not lie so much in our increased gold 
 and currency. Our currency per capita has increased by perhaps 
 twenty-five or thirty per cent. ; but, compared to European prac- 
 tice of currency inflations of from 200 to 800 per cent., our con- 
 duct has been provident indeed. This is not, however, the real area 
 of inflation. It lies in the expansion of our bank credits. If we 
 exclude the savings banks as not being credit institutions in the 
 ordinary sense, "and if we compile the commercial bank deposits 
 we do no doubt gather in some real savings, but nevertheless the 
 figures show a considerable color of inflation somewhere. No 
 one need think we have gotten so suddenly rich as the money 
 complexion of these figures might indicate. At the outset it 
 should be emphasized that all figures of this kind are subject to 
 dispute and interpretation ; but after all such deductions, the indi- 
 cation of tendencies remains. 
 
 1513 $11,390,918,596 
 
 19U 11,974,760,593 
 
 1915 12,282,097,638 
 
 1916 15,398,090,701 
 
 1917 18,444,103,496 
 
 1918 20,425,067,839 
 
 1919 24,971,784.000 
 
 Bank Deposits Per Cent. Change 
 Total. ^om 1913. 
 
 100.0 
 105. 1 
 107.8 
 135.2 
 161.9 
 179.3 
 219.2 
 
 2 
 
It will be accepted at once that the volume of bank deposits 
 must grow with increased commodity production and therefore 
 we may roughly examine into this as well. If we combine the 
 tonnage productivity of agriculture, metals, coal, salt, cement, 
 lumber and the quarries, we shall cover the great bulk of our 
 products. These figures also must be taken as merely indicating 
 the tendencies of the times. 
 
 Per Cent. 
 Production Change 
 
 In Tons. From 1913. 
 
 1913 1,081,293,417 100.0 
 
 1914 1,019,018,207 94.2 
 
 1915 1,073,472,988 99.3 
 
 1916 1,162,489,530 107.5 
 
 1917 1,241,173,806 114.8 
 
 1918 1,247,787,883 115.4 
 
 1919 1,117,181,233 103.3 
 
 If we attach the index of prices during these periods and com- 
 pare them with the per cent, variation in commodity production 
 and bank deposits, we have the following interesting parallels. 
 
 Dept. of Labor 
 Per Cent. Change Per Cent. Change Wholesale 
 Year In Production In Bank Deposits Index of All 
 
 From 1913. From 1913. Commodities. 
 
 1913 
 
 100.0 
 
 100.0 
 
 100.0 
 
 1914 
 
 94.2 
 
 105.1 
 
 99.3 
 
 1915 
 
 99.3 
 
 107.8 
 
 100.5 
 
 1916 
 
 107.5 
 
 135.2 
 
 120.5 
 
 1917 
 
 114.8 
 
 161.9 
 
 175.9 
 
 1918 
 
 115.4 
 
 179.3 
 
 196.6 
 
 1919 
 
 103.3 
 
 219.2 
 
 214.5 
 
 Two different extreme schools of economists will interpret 
 these tables differently. One will hold that the increase in credit 
 and' money must influence prices in exact ratio. The other will 
 hold the rise of prices as due to shortage in production, either at 
 home or abroad, and that rise in price necessitates an increase in 
 credits and money to carry on commerce. Both are probably 
 right, for short production and inflation probably alternately 
 serve as cause and effect. The first school has some claims upon 
 the large volume of gold we imported the first three years of the 
 war and multiplied into credits — as the cause prior to our coming 
 
into the war. They can also point out that our Treasury and 
 banks deliberately inflated bank credits in order to place war 
 loans, that if this form of credits were removed our expansion 
 would be nothing like its present volume. As necessary as it 
 may have been to use this method in securing quick money at a 
 low rate during the war, there are the strongest objections to it 
 since the armistice was signed. If our postwar finance at least 
 had been secured from savings by offering sufficiently attractive 
 terms, the inflation would be less, though the market price of 
 Liberty Bonds might be lower. 
 
 That short world production has been one of the causes of 
 rising prices cannot be denied. The warring powers of Europe 
 took 60,000,000 men from production — nearly one-third their pro- 
 duction man power — and put it to destruction. They have lived 
 to a great degree by drain t)f commodities from the United States 
 and thus brought their shortage to our shores. They have not 
 yet altogether recovered from the holidays of victory, the gloom 
 of defeat, the persuasive "isms" that would find production with- 
 out work, the destruction of their economic unity, transportation, 
 credits, and other fundamentals necessary to maintain production. 
 It will be some time before they do recover. In the meantime, 
 they are perforce reducing their consumption — their standard of 
 living; — because they have largely exhausted their securities, com- 
 modities or credit to continue the borrowing of our commodities 
 for their own short production, as during the war. The exchange 
 barometer is today witness of the end of this procedure of living 
 on borrowed money. In passing, it may be mentioned that ex- 
 change is no more a cause of their inability to buy from 
 us than is the barometer the cause of blizzards. .The storm is 
 that they have mostly exhausted their credits and they have not 
 recovei-ed production so far as to offer commodities to us in ex- 
 change for ours. 
 
 Our own industrial production, as distinguished from agri- 
 cultural production, has fallen rapidly since the armistice. Some 
 , of the fall is due to war weariness, some to "isms" that have in- 
 fected us from Europe, some to the natural abandonment of 
 high-cost production brought into play during the war, some to 
 strikes, and a host of other wastes. Our consumption has greatly 
 increased after the restraint of war. Decrease had not pene- 
 trated our agricultural community up to 1919 harvest, nor will 
 such decrease arise from these causes, but, as I will set out later, 
 forces arc entering that^ will decrease our agricultural produc- 
 
tion. Our production is nearly all important food commodities 
 except sugar is in surplus of our need. It only becomes a 
 shortage affecting prices under the drain of exports. Therefore 
 it is the world shortage that is affecting our price levels, not, so 
 far, a deficiency for our own needs. 
 
 So far as relief from price influence by shortage in production 
 is concerned, it may arise in two ways: First, slowly through 
 gradual recuperation in world production. Second, by com- 
 pulsory reduction of consumption in Europe through their ina- 
 bility to pay us by commodities, gold or credits. This latter has 
 been very evident through the drop in exchange and engagements 
 for export during the past few weeks. 
 
 The Three Divisions of the Price 
 
 The cost of food to the consumer is divided among the 
 farmers on one hand and storage, manufacture, jobbers, whole- 
 salers, retailers and transportation on the other. I believe these 
 charges between the farmer and consumer fall into two distinct 
 groups : The charges comprising the margin between the farmer 
 and wholesaler and consumer, which mainly concern the con- 
 sumer. To establish this division, it is necessary to analyze 
 shortly the datum point by which price is determined. 
 
 The diet of the American people from a nutritional — not 
 financial — standpoint comprises the following articles and pro- 
 portions : 
 
 Wheat and rye 29.5 
 
 Pork products 15.7 
 
 Dairy products 15.3 
 
 Beef products 5.3 
 
 Com products 7.0 
 
 Sugar products 13 .2 
 
 Vegetable oils 3.6 
 
 89.6 
 AH others, including potatoes 10-4 
 
 100.0 
 
 The wholesale price of about ninety per cent, of our food in 
 normal times is only remotely determined by the cost of produc- 
 tion, but mostly by world conditions. We export a surplus of 
 most commodities among the ninety per cenf., and the prices of 
 
 5 
 
exports are determined by competition with other world supplies 
 in the European wholesale markets. These items in this ninety 
 per cent, that we do not export are influenced by the same forces, 
 because in normal times we import them on any considerable 
 variation in price and the wholesaler naturally buys in the cheap- 
 est market. Even milk is to a considerable degree controlled by 
 butter imports in normal times. When we import butter it re- 
 leases more milk to competition. This cannot be said to such 
 extent of the most of the odd ten per cent., because they are 
 largely perishables that do not stand overseas transport, and 
 consequently rise and fall more nearly directly upon local supply 
 and demand. 
 
 Some economists will at once argue that if prices are unprofi- 
 table to the farmer the situation will correct itself by diminished 
 production and consequently, a general rise in the world level of 
 prices. In the abstract this is true, but as a matter of fact the 
 surplus which our farmers contribute for export is only a 
 small portion of their total production or of the world pool yet 
 the total of the world pool operating through this minor segment 
 makes the prices for a large part of his commodities. There- 
 fore the effect in normal times of restriction in production in any 
 one country does not affect price so much as theoretic argument 
 would believe. The farmer must plant if he would live, and he . 
 must plant long in advance of his knowledge of prices or world 
 production. He can make no contracts in advance of his plant- 
 ing, nor can he cease operations on the day prices fall too low. 
 He is driven on, year after year, in hope and necessity, and will 
 continue over long periods with a standard of return below right- 
 ful living because he has no other course — and always has hopes. 
 He will vary fairly rapidly from one commodity to another — 
 from wheat to other grains, for instance — ^but he mostly raises 
 his maximum of something. In the long run of decreasing prices 
 he would undoubtedly reach so low a standard as to cease pro- 
 duction. Then comes a comparatively short period of higher 
 prices in some commodity; production is again stimulated and 
 followed by long intervals of low standards. As shown by the 
 following table, on the whole, -the farmer has not been under- 
 paid during the war, but the currents again are turning against 
 him: 
 
Department 
 of Labor Index of Prices at the Farm in 
 
 Wholesale Principal Produce States 
 
 Index of All All 
 Commodi- Farm Hogs Corn Wheat Cotton 
 ties Produce 
 
 Pre-war 100 100 100 100 100 lOO 
 
 First quarter 1918.... 187 200 213 224 254 246 
 
 Last quarter 1918.... 206 204 223 220 258 246 
 
 First quarter 1919.... 200 202 225 228 264 215 
 
 Last quarter 1919.... 230 206 178 216 277 268 
 
 It will be seen that the farmer enjoyed prices equivalent to and 
 higher than the general level up to the last six months. He is 
 now, however, falling behind in some important products. Un- 
 Hke the industrial workers, he is unable to demand an adjust- 
 ment of his income to the changed index of living. 
 
 For the moment, what I wish only to establish, is that the 
 farmer's prices are not based upon any conception of costs of 
 production, but upon forces in which he has no voice. He can 
 never organize to put his industry on a "cost plus" basis as 
 industrial producers do, and remedy must be found elsewhere. 
 
 The Two Margins 
 
 As stated, the margin between the farmer and consumer falls 
 into two divisions — one of which predominantly affects the 
 farmer and the other the consumer. It is really the wholesale 
 prices that govern the farmer, rather than retail prices, for it is 
 in wholesale prices that the farmer competes with the world. 
 As the prices paid by the wholesaler are mostly fixed by over- 
 seas trade at the datum point on the Atlantic seaboard or in 
 Europe, then if the margins between the wholesaler and the 
 farmer are unduly large, or increase, it is mostly to the farmer's 
 detriment. For instance, as the price of his wheat in normal 
 times is made in Liverpool, any increase in handling comes out 
 of the farmer's price. Likewise, as the wholesale butter price 
 is made by the import of Danish butter into New York, any 
 increase in the numbers or charges between our farmer and the 
 wholesale buyer comes to a considerable degree out of the 
 
 fanner. 
 
 As the datum point of determining prices is at the wholesaler, 
 the accretion by the charges for distribution from that pomt for- 
 
ward to the consumer's door will not affect the farmer, but does 
 affect the consumer. When competition decreases through 
 shortage the consumer pays the added profits of these trades. 
 
 Studies of the cosjt of our distribution system, made by the 
 Food Administration durihg the war, established two prime 
 conditions. The first is that the margins between our farmers 
 and the wholesaler in commodities— other than grain in some in- 
 stances—are, even in normal times, the highest in any civilized 
 state— fully twenty-five per cent, higher than in most European 
 countries. The expensiveness of our chain of distribution in 
 most commodities in normal times, as compared with Continental 
 countries, is due partly to the wide distances of the producing 
 areas from the dominating consuming areas, but there are other 
 contributing causes that can be remedied. 
 
 In Europe the great public markets in the cities bring farmer 
 and consumer closely together in many commodities, but in the 
 United States the bulk of products are too far afield for this. 
 The farmer must market through a long chain of manufacturers, 
 brokers, jobbers and wholesalers with or without their own dis- 
 tribution system, who must establish a clientele of direct re- 
 tailers; and thus public markets, except in special locations and 
 in comparatively few commodities, have not been successful. 
 Another major factor in our costs of distribution is the increas- 
 ing demand for expensive service by our consumers. There are 
 many other factors that bear on the problem and the economic 
 results of our system which are discussed, together with some 
 suggestion of remedy, later on. 
 
 The second result of these studies was to show the 'great 
 widening of this margin during the war. During the year of the 
 Food Administration in active restraint on this margin there 
 was an advance of six points in the wholesale index while the 
 farmer's index moved up twenty-five points. Both before and 
 after that period the two indexes moved up together. The same 
 can be said of the margins between the wholesaler and the con- 
 sumer. Taking the period of the war as a whole, the margin 
 between the farmer and consumer has widened out to an ex- 
 travagant degree. 
 
 A good instance of a movement in margins is shown in flour 
 in 1917. The farmer's average return for wheat of the 1916 
 harvest, as shown by the Department of Agriculture, was about 
 $1.42. As about four and one-half bushels of wheat are required 
 to make a barrel of flour, the farmer's share of the receipts from 
 
this harvest was about $6.40 per barrel. In 1917, before the 
 Food .Administration came -into being, flour rose to $17.50 per 
 barrel to the consumer, or, at that time, a margin of eleven 
 dollars per barrel. During the administration the farmer received 
 an average of about two dollars for wheat at the farm, or about 
 nine dollars out of a barrel of flour. The consumer paid $12,50, 
 the margin being about $3.50 per barrel. This increase in 
 margins shows vividly in the higher-priced foods; for instance, 
 pork products. If we take hogs at the railway station over the 
 great hog states contiguous to Chicago as a basis, we find: 
 
 Six Months 
 
 1914. 1919. 1920. 
 
 Price of iiogs in principal states per 100 
 
 pounds $7.45 $16.2? $15.37 
 
 Price of cured products to consumer from 
 
 100 pounds hogs.....' 18.97 37.33 37.71 
 
 Margin between farmer and consumer 11.52 21.06 22.34 
 
 Thus, while the farmer has gained about $7.92 in his price, 
 the margin has increased by $10.82 to the consumer, and inci- 
 dentally, during the last year since food-control restraints were 
 removed, the consumer has paid thirty cents more while the 
 farmer got nihety cents less. These instances could be greatly 
 multiplied. 
 
 It is unfortunate that our national statistics do not permit a 
 complete analysis of the distribution of margin between all the 
 various groups in the chain between the farmer and consumer in 
 diflferent commodities. It would be helpful if we could takfe the 
 farmers, railways, manufacturers, wholesalers and retailers, and 
 determine what proportion each receives. 
 
 These margins between farmer and consumer are made up 
 of a necessary chain of charges for transport, storage, manufac- 
 ture and distribution. The great majority of citizens who are 
 engaged in the processes that go to make up this portion of food 
 costs are employed in an obviously essential economic function 
 and they do not approach it in a spirit of criminality, but as a 
 very necessary, proper and honorable function. They have since : 
 the European war began rather overenjoyed the result of eco- 
 nomic forces that were not of their own creation. That a con- 
 siderable margin is necessary to cover the legitimate costs of and 
 
profits on distribution is obvious. The only direction of inquiry 
 is how they can be legitimately minimized. 
 
 These margins, starting from the unduly high expense of a 
 faulty system, have increased not, only legitimately, dtie to in- 
 creased transportation, labor, rent, taxes, and increased interest 
 upon the large capital required, but they have except during the 
 period of control increased unduly beyond these necessities. 
 There are two general characteristics of this margin that are of 
 some interest. In the first instance, all of the transport, storage, 
 manufacture and handling is conducted upon a basis of cost plus 
 either fixed returns or, as is more usually the case, a percentage 
 of profit upon the whole cost of operation. Any distributing 
 agency ceases to operate when it does not secure costs and a 
 profit. Consequently, all these links put up a resistance to a cur- 
 tailment of the margin which the farmer is unable, except by 
 absolute exhaustion, to do against reduction of his price levels. 
 If rapid falls in food prices occur, the farmer, at least in the 
 first instance, has to stand most of the fall because he cannot 
 quit. The farmer's costs of production relate to a period long 
 prior to the fall. Thus, if wages are due to fall as a result of a 
 fall in food prices the farmer is always selling on the old basis 
 of his costs. The farmer has but one turnover in the year. The 
 middleman has several, and can thus adjust himself quickly. 
 
 Second, the custom of many of these businesses is to operate 
 upon a percentage of profit on the value of the commodities 
 handled, even after deducting all their increased costs, interest or 
 other charges. When we have rising prices, therefore, a doubling 
 of prices, for instance, tends to double profits on the same volume 
 of commodities handled. In a rising market competitive pressures 
 are most diminished and the dealer can assess his own profits 
 to greater degree than usual. While the packers make a profit 
 of, say two cents on the dollar value of commodities, it repre- 
 sents double the profit per pound over pre-war, even after allow- 
 ing such items as interest on the larger capital involved. 
 
 Reduction of the Margins 
 Aside from the necessary rise in the margin, that has grown 
 out of the rise in cost of labor, rent, and so on, from inflation 
 and world shortage, there are some causes which have accumu- 
 lated to increase the margins between the farmer and the whole- 
 saler and the wholesaler and consumer that could be greatly 
 mitigated. 
 
 10 
 
Better Tax Distribution. During the year, in order to 
 restrain wild greed and profiteering in the then existing un- 
 limited demand, margins between purchase and sale in the differ- 
 ent manufacturing and handling trades were fixed in all the 
 great commodities — ^iron, steel, cement, lumber, coal and food- 
 stuffs. The first task of the war was to secure production, and 
 the margins were therefore fixed at such breadth as would allow 
 the smaller high-cost manufacturer and the smaller dealer to live. 
 Otherwise the smaller competitors would have been ex- 
 tinguished, production would have been lost, and, worse yet, the 
 larger low-cost operator would have been left with much inflated 
 monopoly. The excess-profits tax was levied as a sequent cor- 
 rective to this necessary first step, so as to take the undue profits 
 of the large producer back to the public. It was a wise war 
 measure, but the moment restraints on profits were taken off 
 and there was a free and rising market ahead, the tax was added 
 to prices by all the participants and passed on to the consumer, 
 or deducted from the farmer when world levels crowded his 
 prices down. It should have been repealed at the time the con- 
 trols were abandoned, but our legislatures have been busy with 
 other things, and in the meanwhile in food it not only increases 
 the margin between the farmer and the consumer but tends, as 
 stated above, to come out of the farmer to a large degree. It has 
 other vicious results in that it stimulates dealers and manufac- 
 turers to speculate their profits away in unsound business, rather 
 than to pay them to the Government. It does sound well to tax 
 the great manufacturers, but to make them the agency to collect 
 taxes from the population is not altogether sound government. 
 It is a very important tax to the Government,, bringing as it 
 does over a billion a year, and a place to put this load is not to 
 be found easily. 
 
 The income tax does not have so malign an effect, for it 
 comes to a great extent from the individual and not from busi- 
 ness. The present method of income tax, however, has some 
 weaknesses. The same levy is made upon earned incomes as 
 upon those that are unearned. The tax on earned incomes tends 
 in certain cases to be passed on to the consumer or deducted 
 from the farmer, and, besides, it is not just that a family living 
 by giving productive service to the community should pay the 
 same as a family that contributes nothing by way of effort. A 
 stiff tax on these latter might send them to work and certainly 
 induces economy. Moreover, the earner of income must provide 
 
 11 
 
for old age and dependents while the unearned-income taxpayer 
 has this already. Altogether, it would seem the part of wisdom 
 at least to increase the income tax on the larger Unearned income 
 and decrease it on the earners. It is argued that this drives great 
 incomes to evasion by investment in tax-free securities, which is 
 probably true. We need more comparative figures than the 
 Treasury statistics yet show to answer this point. In any event, 
 relief to the earner would free his savings to invest in taxable 
 securities, and we need of all things to stimulate the initiative 
 of the saver. Income taxes, except when too high on earned 
 incomes, do not destroy initiative, and every other government 
 has, in taxing, recognized the essential difference between earned 
 and unearned incomes. This distinction would generally relieve 
 the range of smaller incomes, for they are mostly earned. 
 
 The inheritance-tax field has not been fully exploited as yet. 
 it cannot be deducted from either farmer or consumer, it does 
 not affect the cost of living, it does not destroy initiative in the 
 individual if it leaves large and proper residues for depeadents. 
 It does redistribute oversWollen fortunes. It does make for 
 equality of opportunity by freeing from the dead hand control 
 of our tools of production. It reduces extravagance in the next 
 generation and sends them to constructive service. It has a 
 theoretic economic objection of being a dispersal of capital into 
 income at the hands of the Government, but so long as the 
 Government spends an equal amount on redemption of the debt 
 or productive works even this argument no longer stands. 
 
 We may need to come to some sort of increased consumption 
 taxes in order to lift that part of excess profits and tax on earne<i 
 income that cannot be very properly placed elsewhere. When it 
 comes it should lie on other commodities than food, except per- 
 haps sugar, one-half of which is a luxury consumption. The 
 ideal would be for it to be levied wholly on nonessentials in 
 order that it should be a burden on luxury and not on necessity. 
 This is no doubt difficult to classify. Jewelry and furs are easy 
 to class, but where necessity leaves off and luxury begins in 
 trousers is more difficult to determine. 
 
 It requires no lengthy economic or moral argument as a plat- 
 form for denunciation of all waste and useless expenditure. Soihe 
 sane medium is needed between comfort and luxury. Failing 
 definition, and objection to blue laws, the theme must be taken 
 into the area of moral virtues and become a proper subject for 
 the spiritual stimulations of the church. There is a psychology in 
 
 12 
 
luxury wherein we all bu^ high-priced things because they are 
 high-priced, not because they add comfort — and this has con- 
 tributed also to our high cost of living — for those who do it drive 
 up prices on those who try to avoid it. From an economic point 
 of view the only recipe is taxation as a device to make it 
 expensive. 
 
 More constructive than increasing taxes is to take a holiday 
 on governmental expenditures and relieve the taxpayer generally. 
 If we could stave off a lot of expensive suggestions for a few 
 years and secure more efficiency in what we must spend, our 
 people could get ahead with the process of earning something to 
 tax. It would at least be comforting to this great farming and 
 business community. 
 
 Better Transportation Facilities. There is a great weak- 
 ness in our present railway situation bearing upon the farmer and 
 consumer. Everyone knows of the annual shortage of cars dur- 
 ing the crop-moving season. Few people, however, appreciate 
 that this shortage of cars often amounts to a stricture in the free 
 flow of commodities from the farmer to the consumer. The 
 result is that the farmer, in order to sell his produce, often 
 unknown to himself makes a sacrifice in price in local glut. The 
 consumer is compelled at the other end to pay an increased price 
 for foodstuffs due to the shortage in movement. The constant 
 fluctuations in our grain exchanges locally or generally from this 
 cause are matters of public record almost monthly. On one occa- 
 sion a study was made under my administration into the effect of 
 car shortage in the transportation of potatoes, and we cotild 
 demonsrate by the chart and figure that the margin between the 
 farmer and the consumer broadened 100 per cent, in periods of 
 car shortage. Nor did the middleman make this whole margin of 
 profit, because he was subjected to unusual losses and destruction, 
 and took unusual risks in awaiting a market. The same phenome- 
 non was proved in a large way at time of acute shortage of move- 
 ment in corn and other grain. 
 
 The usual remedy for this situation is insistence that the 
 railways shall provide ample rolling stock, trackage and terminals 
 to take care of the annual peak load. We have fallen far behind 
 in the provision of even normal railway equipment during the 
 war, and an additional 500,000 cars and locomotives are no doubt 
 needed. Above a certain point, however, this imposes upon the 
 j-ailways a great investment in equipment for use during a com- 
 paratively short period of the year when many commodities 
 
 13 
 
synchronize to makfe the peak movement. The railways naturally 
 wish to spread the movement over a larger period. The burden 
 of equipment for a short-time use will probably prevent their ever 
 being able to take entire care of the annual delays in transport 
 and stricture in market, although these can be greatly minimized. 
 
 There is possible help in handling the peak load by improving 
 the waterways from the Great Lakes to the Atlantic seaboard by 
 way of the St. Lawrence River, so as to pass full seagoing cargoes. 
 It has already been determined that the project is entirely 
 feasible, and at comparatively moderate cost. The result would be 
 to place every port on the Great Lakes on the seas. Fifteen states 
 contiguous to the Lakes could find an outlet for a portion of their 
 annual surplus quickly and more cheaply to the overseas markets 
 than through the congested Eastern trunk rail lines. It would 
 contribute materially to reduce this effectual stricture in the free 
 flow of the farmer's commodities to the consumers. 
 
 Of far greater importance, however, is the fact that the costs 
 of transportation from the Lake ports to Europe would be greatly 
 diminished, and this diminished cost would go directly int;o the 
 farmer's pockets. It is my belief that there is a saving here of 
 five or six cents a bushel in the transportation of grain. Although 
 a comparatively small proportion of our total grain production 
 flows to Europe, I believe that the economic lift on this minor 
 portion would raise the price of the whole grain production by 
 the amount saved in transportation of this portion of it. The 
 price of export wheat, rye and barley — sometimes corn — usually 
 hogs — ^in Chicago at normal times is the Liverpool price, less 
 transportation and other charges, and if we decrease the transport 
 in a free market the farmer should get the difference. ■ 
 
 Not only should there be great benefits to the agricultural 
 population, but it should be a real benefit to our railways in 
 getting them a better average load without the cost of maintain- 
 ing the surplus equipment and personnel necessary to manage the 
 peak load during the fall months. It has been computed that the 
 capital saving in rolling stock alone would pay for the entire 
 cost of the waterway improvement over a comparatively few 
 years. The matter also becomes of national importance in finding 
 employment for the great national mercantile fleet that we have 
 created. 
 
 Another factor in transportation bearing upon the problem of 
 marketing is the control by food manufacturing and marketing 
 concerns of refrigeration and other special types of cars. This 
 
 U 
 
special control has grown up largely because, owing to seasonal 
 changes in regional occupation for these cars over different parts 
 of the country, no one railway wished to provide sufficient special 
 cars and service for use that may come its way only part of the 
 year. The result has been to force the building up of a domina- 
 tion by certain concerns which control many of the cars and stifle 
 free competition. Much the same results have been attained by 
 special groups in control of stockyards and, in some cases, of 
 elevators. Where such formal or informal monopolies grow up, 
 they are public utilities and if the farmer is to have a free market 
 they must be replaced by constructive public service. 
 
 A Free Market. Every impediment to free marketing of 
 produce either gives special privileges or increases the risks which 
 the farmer must pay for in diminished returns. We have some 
 commodities where manufacture has grown into such units that 
 these units exert such an influence that they consciously or un- 
 consciously affect the price levels of the farmer's produce. When 
 a few concerns have the duty of manufacturing and storing the 
 seasonal reserves of a single commodity they naturally reduce 
 prices during the heavy-production season and increase them in 
 the short season as a method. of diminishing their risk and in- 
 creasing profits. Moreover, their tendency is often to sell the 
 minor portion of their product that goes for export at lower than 
 the domestic price in order to dispose of it without depressing 
 local prices. They do not need to conspire, for there can be 
 perfectly coincident action to meet the same economic currents. 
 Such coincidence has much greater possibilities of general influ- 
 ence with a few concerns in the field than if there were many. 
 
 The experience gained in the Food Administration on these 
 problems during the war led to the feeling expressed at that time, 
 that such business should be confined to one line of activity, just 
 as we have had to confine our railways, banks and insurance com- 
 panies. This is useful to prevent reliance being placed upon the 
 profits of alternative products when engaged in stifling of com- 
 petition, through selling below cost on some other item. Even 
 this restriction may not prove to be sufficient protection to free 
 market by free competition. 
 
 I am not a believer in nationalization as the solution to this 
 form of domination, but I am a believer in regulation, if it should 
 prove necessary. If experience proves we have to go to regula- 
 tion, it is my belief that it should be confined to overswollen units 
 and that the point of departure should not be the amount of 
 
 IS 
 
capital employed but the proportion of a given commodity that 
 is controlled. The point of departure must depend upon the 
 special commodity and its ratio to the whole. When such a 
 concern obtains such dimensions that it can influence prices or 
 dominate public affairs, either with deliberation or innocence, then 
 it must be placed urider regulation and restraint.. Our people 
 have long since realized the advantage of large business operation 
 in improving and cheapening the Costs of manufacture and dis- 
 tribution, but when these operations have become so enlarged that 
 they are able to dominate the community it becomes a social 
 necessity that they shall be made responsible to the community. 
 The test that should apply, therefore, is not the size of the insti- 
 tution or the volume of capital that it employs, but the proportion 
 of the commodity tthat it controls in its operations. 
 
 It is my belief that if this were made the datum point for 
 regulation, and if regulation were made of a rigorous order, this 
 pressure would result in such business keeping below the limit of 
 regulation. Thus the automatic result would be, the building up 
 of a proper competition, because men in manufacturing would 
 rather conduct a smaller business free of governmental regulation 
 than enjoy large operations subject to government control. There 
 are probably only a very few concerns in the United States^ that 
 would fall into this category and they should be glad of regulation 
 in order to secure freedom from criticism. 
 
 Speculation and Profiteering. There are three kinds of 
 speculation and profiteering in the food trades. The first is of 
 the inherent or speculative character of foodstuffs due to their 
 seasonal nature. The farmer, more by habit than necessity, 
 usually markets the bulk of his grain in the fall. By necessity he 
 must market his animals at certain seasons, for they must be 
 bred at certain seasonable periods, they must be fed at certain 
 seasons, and thus come to market in waves of production larger 
 than the immediate demand. In perishables he must market fairly 
 promptly, ashe cannot himself maintain necessary special types of 
 storage. Thus the dealer must speculate on carrying the com- 
 modities for distribution during the period of short production, 
 while the farmer markets in time for surplus production. 
 
 While full competitive conditions might' reduce the charges 
 for this hazard there is a possibility of reducing the hazard by 
 better organization and consequently the charge for the hazard 
 that is now debited to the farmer. It is worth an exhaustive 
 national mvestigation to determine whether an extension of a 
 
 16 
 
system of central markets would not afford great help. I do not 
 mean the extension of our so-called exchange dealing in local 
 produce but the creation of great central exchange markets with 
 responsibilities for service to the entire people. This help arises 
 in two ways. The first is the hourly determination of price at 
 great centers that all may know, and thus the farmer protect him- 
 self against local variations and manipulation. The second is 
 a system of forward contracts through such a market between 
 farmer and consumer on standardized commodities. Such con- 
 tracts in effect remove the necessity of a speculative middleman. 
 This system exists in grain and cotton and in its processes elim- 
 inates a large part of the hazard and carries the commodity at 
 the lower rate of interest. The present trouble with the system 
 of future contracts is that it lends itself to manipulation, but I 
 believe this could be eliminated. 
 
 If we take the case of potatoes, here is an unstandardized 
 seasonal commodity, with no national market and therefore no 
 established daily price at a datum point. A grower in Florida, 
 Maine or Wisconsin, through a local agent or through local sale, 
 consigns potatoes to Pittsburgh because a larger price is reported 
 there than in Chicago. The grower can usually make no actual 
 sale to an actual retailer or wholesaler at destination because the 
 buyer has no assurance of quality. Coincident shipment from 
 many points to a hopeful market almost daily produces' a local 
 glut at receiving points somewhere in the country. Often enough- 
 the shipper gets no return but a bill for freight, and the perish- 
 ables sometimes rot in the yards. 
 
 If potatoes were standardized and sold on contract in national 
 market, protected from manipulation, three things would result. 
 First, there would be a daily national price known to growers. 
 Second, by the sale of a contract for delivery the grower would 
 be assured of this price. Third, the contract and directions for 
 shipment would flow naturally to the distributor where the pota- 
 toes were needed, and thus the present fearfully wasteful system 
 would be mitigated. 
 
 Potatoes would be a most difficult case to handle ; dried beans, 
 peas, even butter and cheese would be easier. I am not advocating 
 widespread dealing in futures, but short contracts giving time 
 for delivery would probably greatly decrease the margin between 
 farmer and local distributor by having great wastes in transport, 
 spoilage and manipulation. 
 
 17 
 
The second class of speculation is one largely of the war as a 
 period of rising prices growing out of inflation, and so forth. 
 It lies in the marking up of goods' on the shelf to the level of the 
 rising daily market. This marking up has been one of the large 
 factors in increasing the margin during the war. No better 
 example exists than the rise of flour during the 1916-17 harvest 
 year, referred to elsewhere. We shall have a remedy for this 
 the moment the tide of inflation turns. The farmer and con- 
 sumer cannot, however, expect that they will get even, during 
 such a reverse period, for their losses on the rise, because the 
 trades have too great an individual power of resistance against 
 selling goods at a loss. Anyway, the marking up of goods will 
 cease when prices cease to rise — and there is a limit. 
 
 The third class ef speculation is wholly vicious. That is the 
 purchase of foodstuffs in times of rising economic levels, sheerly 
 for the rise in price or the deliberate manipulation of markets 
 during normal times. These operations are against the common 
 welfare; they can find no moral or economic justification. They 
 are not to be reached by prosecution ; they must be reached by pre- 
 vention. Our great boards of trade in fine patriotic spirit proved 
 their ability during the war to control deliberate manipulation of 
 grain and other futures. Both of the two latter types of specula- 
 tion are an impediment to free markets and they become an un- 
 necessary charge on the margin. 
 
 Cooperative Marketing by Farmers. There can be no 
 question of the improvement in position of both farmer and con- 
 sumer in cases where cooperative marketing can be organized. 
 The high development of cooperative citrus-fruit marketing has 
 resulted in lower average prices to consumer, better quality and 
 better return to the grower. Here is a case of scientific distribu- 
 tion lamentably absent in many other commodities. There are 
 other speciaHzed products to which it could be well extended. 
 To reach its best development it should have parallel cooperative 
 , development among consumers as discussed elsewhere. 
 
 Sundry Items. There are many ways of assisting the agri- 
 cultural industry not pertinent to this discussion on the cost of 
 distribution. They do demand inquiry and public illumination ; 
 most of them do not demand legislation so much as public edu- 
 cation and consideration when legislating on other subjects^ Our 
 agricultural interests also need a foreign policy. For instance, 
 during the last month there has been a consolidation of control 
 of buying in world markets by the European governments. How 
 
 18 
 
far it may be extended in its policies is not clear. Nevertheless, 
 a combination of importers in all Europe under government con- 
 trol could make the prices on every form in the United States. 
 
 The Margin Between the Wholesaler and the Consumer 
 
 As the datum point of price determination is the wholesaler's 
 market the accretions of charge for distribution from that point 
 forward, the economy or extravagance in these costs, are of 
 primary interest to the consumer. The same phenomena — of 
 marking up goods on the shelf, circulating profits not on com- 
 modities but on dollars handled, a minor amount of vicious specu- 
 lation, the passing on of excess-profits tax — are present in these 
 trades during the past years. A much more pertinent phenome- 
 non in unduly increasing their margins is the increasing demands 
 of the consumer as to service. Several deliveries daily, purchases 
 on credit, the abandonment of the market basket in favor of the 
 telephone have many costs. One of them, much overlooked, is 
 that customers must always have first quality when they buy blind 
 over the telephone, and the seconds and thirds, of equal food 
 value in many commodities, go to waste and are added to the 
 price of the firsts. That there are some people in the United 
 States who want to buy sanely is evidenced by the 400 per 
 cent, increase in cash-and-carry shops, which do business on 
 approximately sixty per cent, of the cost of the delivery-and 
 credit shops. 
 
 There are also too many people in the final stages of distribu- 
 tion. One city in the United States has one meat retailer for 
 every 400 inhabitants; it would be equally well served with one 
 dealer to every 1,200. The result is high margin to the retailers 
 and no out-of-the-way income to any of them. There is no very 
 immediate remedy to this. One possibility is an extension of 
 cooperative buying by consumers. It has proved' a great success 
 abroad. It is not socialism, for it arises from voluntary action and 
 initiative among the people themselves. 
 
 Ill Balance of Agriculture and General Industry 
 
 There is now a tendency to ill balance between the agricultural 
 and general industry. For many years we were large exporters 
 of food and importers of manufactured goods. We gradually 
 imported mouths, manufactured our own goods and just as 
 rapidly diminished our food exports. Up to the point where 
 
 19 
 
we consumed our own food and manufactured our own goods 
 it has been a great national development. 
 
 Our annual exports of food decreased during the past twenty- 
 five years from some fifteen million tons to about six millions 
 just before the European war. In the meantime we increased 
 import of such commodities as sugar, rice, vegetable oils, until 
 our net exports were about five million tons. Of the kinds of 
 food exported this probably represents the decreased exports of 
 from twenty-five to thirty per cent, of our production down to 
 five per cent, of it. 
 
 During the war we gave special stimulus to food production 
 and produced greater economies in consumption, so that these 
 later years somewhat befog the real current, for our agricultural 
 surplus in normal years is really very small. During the war 
 and since, we have given great stimulus to our manufacturing 
 industries. If we shall continue to build up our manufacturing 
 industries and our export trade without corresponding encourage- 
 ment to agriculture we shall soon have more mouths in our 
 country than we can feed on our own produce. We shall, like 
 the European states which have devoted themselves to industrial 
 development, ultimately become dependent upon overseas food 
 supplies. If we examine their situation we find the very life of 
 their people is thus dependent upon maintaining open free access 
 to overseas markets. 
 
 From this necessity have grown the great naval armaments 
 of the world, and the burden they imply on all sections of their 
 population. Such nations, of necessity, have engaged in fierce 
 competition for markets for their industrial products. Thus they 
 built up the background of world conflicts. The titanic struggles 
 that have resulted have endangered the very lives of their people 
 by starvation. Their war tactics have, in large degree, been 
 directed to strangle food supplies. One other result of this de- 
 velopment is the terrible congestion of populations in manufactur- 
 ing areas, with all the social and human difficulties that this 
 implies. 
 
 There is a jeopardy in industrial over-development which has 
 received too littie attention because the world has experienced it 
 only during the past eighteen months. In times of industrial 
 depression or great increase in the cost of living, whether brought 
 about by war or by the ebb and flow of world prosperity, these 
 populations, oppressed with misery, turn to political remedies for 
 matters that are beyond human control. They naturally resent 
 
 20 
 
the lowering of their standards of living, and they inevitably resort 
 to industrial strife, to strikes and disorder. Theirs is the breed- 
 ing ground of radicalism— for all such phenomena belong to the 
 towns and not to the country. 
 
 By and large, our industries are now in a high state of pros- 
 perity. More favorable hours, more favorable wages, are to-day 
 ofJered in industry than in agriculture. The industries are draw- 
 ing the workers from our farms. If this balance in relative 
 returns is to continue we face a gradual decrease in our agricul- 
 tural productivity. If we should develop our industrial side 
 during the next five years as rapidly as we have during the past 
 five years, we shall by that time h& faced with the necessity to 
 import foodstuffs to supplement our own food supplies. 
 
 Some economists will argue, of course, that if we can manu- 
 facture goods cheaper than the rest of the world and exchange 
 them for foodstuffs abroad we should do so. But such arguments 
 again ignore certain fundamental social and broad political ques- 
 tions. These dangers have become more emphasized by ex- 
 perience of the war. From dependence on overseas supplies for 
 food we shall, by the very concern that will grow in the public 
 mind as to the safety of these supplies, soon find ourselves dis- 
 cussing the question of dominating the seas. Our international 
 relations will have become infinitely more complex and more 
 difificult. Unless the League of Nations serves its ideal we shall 
 need to burden ourselves with more taxation to maintain great 
 naval and military forces. 
 
 But of far more importance than this is that the social stability 
 of our country, the development of our national life, rests in the 
 spirit of our farms and surrounds our villages. There are the 
 sources that have always supplied our country with its true 
 Americanism, its new and fresh minds, its physical and its moral 
 strength. Industry's real market is with the farmer by the con- 
 stant increase of his standard of living. We want our exports to 
 grow in exchange for commodities we need from abroad, but 
 we want them to grow in tune with our social and political 
 interests, and to do so they must grow in step with our agri- 
 culture. 
 
 In conclusion, we are in a period of high inflation and shortage 
 
 of world production, and^ consequent abnormal prices. The tide 
 
 is likely to turn almost any time. Some of the outrageous margin 
 
 . between the farmer and consumer will be lessened by the turn in 
 
 the tide itself, for it will eliminate the marking up of goods and 
 
 21 
 
the opportunity of. vicious speculation. The dangers of the turn 
 are twofold: First, that unless we constructively remedy the 
 unnecessary margin between the farmer and the wholesaler the 
 farmer will receive the brunt of the fall long before the supplies 
 he must buy and labor he must employ will have fallen into step. 
 It will bring to him the greatest suffering in the community. The 
 farmer's position can be remedied by better distribution of the 
 tax load, by improvement in our transportation system, by getting 
 our markets free of impediments to free flow of competition, 
 and by constructive improvement in our whole distribution sys- 
 tem. The consumer will get relief from deflation, improvement 
 in world production, and by eliminating the same wastes and 
 unnecessary costs, in our distribution system. 
 
 The second danger is that deflation itself will take place with- 
 out construction consideration. Great wisdom will be required 
 on the part of our Government in its great control of credit that 
 it shall take place progressively and with care, in order that there 
 shall be no sudden breaks, with their resulting demoralization, 
 unemployment and misery. 
 
 We require a careful balance of general industry to agri- 
 culture. We cannot afford to build this nation into an industrial 
 state dependent upon other lands for its food supply. We want 
 our industries to grow, but we want agriculture to grow in pace 
 with them. Many of our farmers made great sacrifices in the 
 war ; they do not want to be coddled in peace ; but they must have 
 an equality of opportunity with all the other elements in the 
 country. 
 
 22 
 
Photomount 
 
 Pamphlet 
 
 Binder 
 
 GaylordBros.Inc. 
 
 Makers 
 Syracuse, N. Y. 
 
 MT. JAN 21, IBOB