Voluntary Allotment: Planned Production in American Agriculture [Reprint 2016 ed.] 9781512818062

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VOLUNTARY ALLOTMENT

VOLUNTARY ALLOTMENT Planned Production in American Agriculture By

EDWARD S. MEAD, Ph.D. University

of

Pennsylvania

and

BERNHARD OSTROLENK, Ph.D. College

of the City of New

York

Philadelphia UNIVERSITY OF PENNSYLVANIA PRESS London:

Humphrey

Mil ford:

1933

Oxford

University

Press

Copyright, 1933 UNIVERSITY OF PENNSYLVANIA PRESS Manufactured in the United States of America by Lancaster Press, Inc., Lancaster, Pa.

CONTENTS PAGE

Introduction

I

CHAPTER

I II III IV V VI VII VIII IX X

Ole Swanson—A Typical American Farmer 6 The Farmer in 1932 21 The Profitless Decade in American Agriculture 29 Increasing Production and Decreasing Demand 40 The Operation of " Natural Economic L a w " in American Agriculture . . . 52 Stabilization by Farm Attrition versus Controlled Production 70 The Repeal of the L a w of Supply and Demand 83 The Voluntary Allotment Plan 96 How the Plan Will Work 110 Farm Relief the W a y Out of the Depression 126

v

INTRODUCTION

T

H E competitive system is breaking down. T o no milder conclusion can a recognition of the obvious facts of the present depression direct the open-minded observer. T h e comfortable theory of the identity of mass prosperity with the unrestricted pursuit of private gain no longer serves. Private enterprise, unregulated, uncontrolled, free to follow its perceived advantage at the cost of whom it may concern, has brought mankind to the crossroads. One road leads to socialism. Russia is traveling that broad highway. T h e other leads to controlled production, which, while preserving the essentials of private property and contract, regulates and restrains the operation of individual self-interest, and directs it into the channels which converge on the welfare of the masses. Italy, Germany, and, more recently, Great Britain are turning in that direction. T h e two systems have many points in common. T h e i r aims are the same—the w e l f a r e of the masses, the orderly operation of the complicated industrial system which the Machine Age has produced, to the end that all people may share abundantly in its benefits. T h e i r criticisms of the system of free competition are the same. T h e protagonists of both systems point to the masses of unemployed in England, Germany, and the United States, larger here than elsewhere; to the periodical breakdowns in the business structure, each disaster more severe than

1

VOLUNTARY ALLOTMENT the last: to the persistence and prevalence of poverty in the midst of abundance; to the amazing paradox of starvation in the midst of plenty. It is only in the remedies for this impossible situation that they part company. The Socialists would merge all industrial activity in the functions of the State, placing the industrial system under the control of a vast bureaucracy, which will actually run it for the production of goods and services. Under this system private property in the means of production is abolished. The State is the universal employer, capitalist, landlord, distributor. Everyone works for organized society. T h e Socialist ideal is the army, where implicit, unthinking, instant obedience to the order of a superior is the universal rule of action; where personal liberty is unknown; where, however, in return for the surrender of his liberty, the soldier is fed, clothed, sheltered, wanned, educated, and amused. On the other hand, the ideal of the European opponents of Socialism is a system of controlled, orderly production within the framework of the capitalistic system. It preserves and stabilizes all the institutions of private property. Business in Italy and Germany is carried on by private corporations capitalized with stocks and bonds, earning profits, and distributing those profits to investors. These corporations are compelled to form associations or trusts, which are protected in the monopolies of their several fields. Competition among the members is rigidly controlled, to the end that there shall be no running amuck in the industry of outlaw competitors. Labor is forced to organize. Strikes, however, 2

INTRODUCTION are forbidden. Agreements between union and employers are compulsory, and their terms are supervised by the State. T h e State encourages and directs the development of industry in the interest of the entire people. While preserving the benefits of private property, it aims by proper control to prevent its abuses, especially the socially disintegrating phenomenon of periodical business depression. Within limits set by considerations of the public welfare, state-controlled production recognizes the right of free contract, the right of investment, the right of inheritance. Under its control, a successful business man can grow as rich as his energy, ability, and luck will permit, always providing that he contributes largely of his substance to the State. T h e United States is offered a choice between these two systems. T h i s is the richest country in the world. I t s resources of power, raw material, inventive talent, technical skill, liquid capital in cash and credit, elaborate and efficient mechanical equipment, are superior to those of any other nation. Even if shut in within its own boundaries by the accident of war, the United States could carry on successfully its industrial life. I t approaches most nearly the ideal of a self-contained economic unit, not forced into foreign trade, but going abroad only when it can gain an advantage. In the United States, however, 11 million persons are unemployed. At least an equal number are partially employed. T h e resources of public and private relief are strained to support a vast multitude. T h e largest industry, agriculture, is prostrated, semi-bankrupt. Other industries such as copper, coal, textiles, rail transporta3

VOLUNTARY ALLOTMENT

tion, are in evil case. The building industry has almost vanished. The banking structure is so weak that thousands of institutions must be kept alive by government loans. Public revenues have been so much reduced that some of the largest cities, Chicago and Philadelphia among others, have been unable to meet their payrolls. Even the credit of New York City has been tarnished. Cities, states, and the nation, because of the loss of revenues due to the business breakdown, are reducing expenses, so increasing unemployment, and imposing new burdens on trade and industry, reducing the volume of profits from which these taxes must be paid. To this condition has the operation of the competitive system brought the nation which has always been considered as its principal beneficiary. The virtues of competition are so well regarded in this country that a group of drastic federal laws, rigidly enforced by the courts, force business men to compete. They combine at their peril. Fine and imprisonment are threatened the violators of the Sherman Anti-trust Act. And yet, to repeat our opening sentence, the competitive system is breaking down. It will no longer function to supply the necessaries of life to all the people. What will take its place ? Five years ago, the authors published Harvey Baum, a Study of the Agricultural Revolution. In this essay, we traced in detail the operation of the machine culture in the largest American industry. W e showed how unrestrained agricultural production had almost destroyed farm profits, and had reduced a vast population to the level of European peasants. At that time, the cities offered a refuge to the younger victims of the agricultural 4

INTRODUCTION revolution. Four millions of them, in ten years, were absorbed into the city's industrial life. That refuge is now closed by the depression. Agriculture has continued its downward course until its products, still flooding in undiminished volume into saturated markets, are selling at the lowest prices in recorded history; until bankruptcy is an almost universal phenomenon; until farm wages have fallen to pre-Civil-War levels; until the largest of American industries is prostrate. We propose now to tell the sequel to the story told in Harvey Baum, to describe in some detail the agricultural crash in which the agricultural depression has culminated; to outline the pattern of the rural life of the future, provided events are allowed to work themselves out without control, remedy, or effective farm revolt; and finally to discuss the plan to use the arm of the Federal Government to stabilize agriculture, the largest American industry, a plan which may furnish a pattern for the realization of planned production.

5

Chapter I OLE SWANSON—A T Y P I C A L AMERICAN FARMER ISCUSSIONS of the agricultural question are, by convention, based upon figures compiled for the entire country, or for entire branches of agriculture— wheat, cotton, or dairy products. They deal with millions and hundreds of millions. They are often expressed in terms of averages. It is difficult, from these bloodless computations, to visualize the operation of vast forces of supply and demand, impinging upon multitudes of American farmers and their wives and children — 3 2 million American people—to translate them into terms of contentment and security, or hardship, misery, and despair. In the attempt to express the agricultural problem in terms of personal experience, to illustrate the effect of the agricultural revolution, we have selected from a large number of available cases three typical instances.

D

Southern Minnesota is a flat, treeless, stoneless prairie. In winter the icy winds sweep across the land with blizzard force. Farmers are often lost on their way from the house to the barn. Roads are often impassable with snowdrifts. It is a land of desolation. In summer, the hot sun beats down on the treeless fields and the unshaded houses. Droughts are frequent. The grasshopper is a burden. L i f e is hard. 6

A TYPICAL AMERICAN FARMER T o this bleak and uncompromising country, under the potent lure of free land, after the Civil W a r came large numbers of Scandinavian immigrants. Living at first in sod houses, burning prairie hay twisted into bundles, carrying water for household use, living on the plainest fare, these sober, thrifty, hardworking men and women slowly struggled upward to positions of comparative comfort and economic security. The soil was rich. Fertilizer was not needed. Prices, on the whole, were above cost. Labor was furnished by their large families. By the turn of the century South Minnesota farmers, measured by western standards, were prosperous. Near Canby, in Yellow Medicine County, Minnesota, lives Ole Swanson, fifty-seven years old, farming a 160acre farm. The farm has the usual improvements of the better class: a six-room house, without modern conveniences except running water; a large barn, with stabling f o r ten cows and six horses; and the usual chicken houses, hog pens, and corn cribs. M r . Swanson has eight cows, four horses, ten brood sows, and some chickens. His livestock and equipment represent a cost of about $3,000. His crop rotation includes wheat, corn, oats, and hay. The corn is fed to the horses, hogs, and cattle. For many years he has purchased feeder cattle in Montana, fed them his own corn, and thus marketed his corn crop in the form of beef, at a higher price. Until recently, practically everything consumed on the farm, except milk, eggs, and chickens, was purchased from the store, because of the high cost of farm labor. Swanson's farm is a typical Middle

7

VOLUNTARY ALLOTMENT Western agricultural enterprise. T w o million farmers are operating under substantially the same conditions. This farm was homesteaded by M r . Swanson's father, who came from Norway in 1885. H e carried on f o r more than twenty-five years, dying in 1 9 1 2 . T h e farm represented his entire estate. By his will, it was divided among his five children. Ole Swanson was at that time thirty-seven years old. H e had operated a nearby f a r m as a renter during his adult life. H e was already known as a successful farmer. Because he was honest, industrious, and competent, he enjoyed the confidence of the local bank. H e had accumulated $2,000 in cash, two pairs of horses, farm equipment, a few brood sows, and some cattle. With this start, he decided to buy his father's f a r m from the estate. M r . Swanson paid $2,000 in cash, gave a second mortgage of $8,000 to the estate, and assumed the $ 1 0 , 0 0 0 first mortgage held by an insurance company, paying $20,000 f o r the farm. Out of this price, as one of the heirs, he received a refund of $4,000 as his share of the estate. Between 1 9 1 2 and 1920, a time of reasonable prosperity to Middle Western agriculture, M r . Swanson paid off the second mortgage, improved his barns, enlarged his herd of cattle, increased his equipment, and made minor improvements on the house, including the purchase of a considerable amount of furniture. A f t e r having given his two girls and three boys a highschool education, he sent one of his sons to the agricultural college of the University of Minnesota, a daughter to the normal school, and the second daughter to a busi-

8

A TYPICAL AMERICAN FARMER ness college. T h e other two sons found employment in the motor industry in Detroit. Subsequently, the University of Minnesota graduate became a teacher in an agricultural high school. T h e daughter who had gone to business college obtained employment as a stenographer in Canby, and the other daughter taught f o r several years, and then married the manager of a country grocery store. Ole Swanson, in 1 9 2 0 , was a successful man. His f a r m and improvements were worth $ 3 0 , 0 0 0 . His equity in this property was valued by the local bank at $ 2 0 , 0 0 0 . H e had reared and educated his family. He looked f o r w a r d to a dignified and prosperous old age. A pillar of the community, admired and respected by his neighbors, a good citizen and neighbor, a good husband and father, taking his proper part in local affairs, he represented the best type of American f a r m e r . Between 1 9 2 0 and 1 9 2 9 M r . Swanson's operating costs, because of the industrial activity in the cities, which drew largely on rural labor, were growing burdensome. T h e wages of his hired hand—his sons had gone—had increased f r o m $ 2 5 per month before the war, to $ 5 5 by 1920. F o r extra help during harvest, he paid as high as $8 a day. T h e prices of everything that he purchased — a n d he purchased nearly everything he consumed—had doubled during the W a r , and remained high a f t e r the War. H i s annual taxes, due to road construction and the establishment of consolidated schools in his community, f o r which he voted, had increased f r o m $ 1 2 5 in 1 9 1 5 to $ 3 0 0 by 1 9 2 5 . In addition to taxes, he was

9

VOLUNTARY ALLOTMENT burdened with $600 annual interest on his first mortgage, making his fixed charges $900 per year. Agricultural prices declined about 40 per cent in 1 9 2 1 , and failed to recover. In fact, the trend in beef, pork, and grain prices was steadily downward. M r . Swanson's gross farm income, which was $4,900 in 1920, had, by 1926, fallen to $ 1 , 7 0 0 . With his expenses and fixed charges mounting, in 1 9 2 5 , after paying his labor, seed, machinery, and fertilizer bills, his cash income was $400, out of which he had to pay f o r personal maintenance and the necessary repairs on buildings and equipment. His nineteen-year-old daughter, in her first position as stenographer in a real estate office, without investment or experience, was paid $ 1 5 a week, $ 7 8 0 per year, almost twice the amount her father was receiving after a lifetime of experience in farming. M r . Swanson's income was less than half the wages he paid his own hired man. It represented no return on his $20,000 equity, and starvation wages f o r himself. During the next six years, M r . Swanson's situation went from bad to worse. Farm prices continued to fall. Wages, taxes, and farm-consumer prices did not fall, and M r . Swanson's money income disappeared. In 1929, in lieu of part of the accumulated interest on the first mortgage, in order to keep his head above water, he gave to the insurance company a chattel mortgage on his personal properly. Again, in 1930, he was able to pay his taxes, but gave an additional chattel mortgage to secure his mortgage interest. By this time M r . Swanson's situation was desperate. In 1 9 2 0 with wheat at $ 2 a bushel, pork at $ 1 5 a hun-

10

A TYPICAL AMERICAN FARMER dredweight, and butter at 60 cents a pound, his gross income was $4,900, and his labor income was $ 1 , 5 0 0 . In 1 9 3 1 with wheat at 35 cents a bushel, pork at $ 3 a hundredweight, beef at $5, and butter at 1 5 cents a pound, his gross income was less than $ 1 , 0 0 0 . He had no labor income, and was paying his fixed charges out of his capital. This situation could not continue. In 1 9 3 1 , he could pay neither taxes nor interest; he could borrow no more money; and the insurance company in the spring of 1932 foreclosed on the farm, for satisfaction of both the chattel and land mortgages. At the age of fifty-seven, Ole Swanson, on his father's farm, the farm on which he had been born, and which he had owned for twenty years, was a failure. Not only had he lost his equity in the real estate, but his personal property was subject to a chattel mortgage of $2,000, more than its sale value. In one respect M r . Swanson was fortunate. H e was known to be a thrifty, industrious, and intelligent farmer. The agent of the insurance company could find no buyer for the farm at a price which would replace the investment. He was, therefore, glad to continue the former owner as a tenant, on a basis of one-third of the gross value of his crop. Instead of a prosperous owner, M r . Swanson had become a cropper, but at least he had not been driven from his home. In Russia the Swansons, Olsons, and Thalsons of Yellow Medicine County would be called Kulaki. The Communists, in their campaign to socialize agriculture, have " liquidated" these Kulaki. They have confiscated their property by forcing them to donate it to the 11

VOLUNTARY ALLOTMENT collective farms, on which, if they bring forth fruits meet f o r repentance, they and their families are allowed to labor. I f , however, they do not cheerfully accept the new order, they are sent to the lumber camps, where, like Darling Nellie Gray, they wear away the brief span of existence remaining to them in hard and ill-paid labor. Our American Kulaki are not treated in the Muscovite manner. They are fortunately protected by the Constitution of the United States in the peaceable possession of their property. Without due process of law they cannot be dispossessed. This " due process," however, too often, through no fault of the farmer, takes the form of writ, foreclosure, and eviction. It all comes to the same end, the dispossession of the farmer from his home and property, his reduction to the status of a share tenant, or hired hand—in brief, to his economic ruin. But he is free — f r e e to go into debt, free to sign mortgages, free to gamble on the weather, on world prices, on consumer demand, free to struggle helplessly against the vast impersonal sweep of economic forces which he does not understand, and over which he has no control. By 1 9 3 1 , misfortune had overtaken M r . Swanson's children. The two boys who had migrated to Detroit lost their jobs in the automobile factory, and, with their wives and five children, returned to the parental roof. They had nowhere else to go. T h e high-school teacher, because of the pressure f o r lower taxes, and because it seemed unnecessary to teach high-school boys how to increase an unsalable surplus of f a r m products, lost his position, and, with his wife and children, returned to the farm. The grocery manager, due to the failure

12

A TYPICAL AMERICAN FARMER of the business, lost his job and, with Swanson's daughter and their two children, joined the returning procession. The real estate office closed, and the stenographer daughter returned to the homestead. Here, then, is the situation. In M r . Swanson's sixroom house are now living M r . Swanson and his wife, his five children, with their three in-laws, and seven grandchildren, making a total of seventeen people. Ole Swanson has to provide for this large family group. From another angle, the situation is not so bad. There is shelter, a bit crowded, but still weather-proof; a windbreak provides fuel, and when this is gone, there is plenty of cheap corn to burn; the farm provides food; and, strangely enough, even at the ruinously low farm prices of 1932, M r . Swanson has some cash in his pocket. His gross receipts in 1932 were $900. Of this he paid $300 as rent, and, after paying interest on his chattel mortgage, had $480 for himself and his family, more money than he had had for years. As tenant he paid no taxes. Aside from interest on his $2,000 chattel mortgage, he was free of interest burden; his boys furnished more than sufficient unpaid labor to carry on the work. H e plants a large vegetable garden, which is worked by his family, and the farm, garden, orchard, dairy, and piggery yield nearly all the sustenance for this large group. The grandchildren go to the local school. The adults work on the farm. In all material respects, except for the overcrowding, this family is at least comfortable, and it has never had more than comfort. Each day brings its appointed tasks. There is no scanning of want ads in cast-off news13

VOLUNTARY A L L O T M E N T papers, no burrowing in dugouts, no sleeping in police stations, no weary tramping the streets in futile search of employment, no standing for long hours in bread lines, no humiliating inquisitions by relief representatives, none of the privation, anxiety, and despair which afflict so many unemployed city-dwellers. All M r . Swanson's family are busy, and the morale of the young people, so far as can be observed, has not suffered. But M r . Swanson's spirit is broken. H e is an economic failure. H e is no longer a prosperous business man. H e is only a tenant, living, by the sufferance of the insurance company, on the farm he once owned, and always apprehensive that his farm will be sold and his home lost. M r . Swanson's experience and present situation are identical with the experience of many thousands of American f a r m e r s 1 who have been subjected to this disaster in twelve years. Thousands more are tottering precariously on the imminent brink of ruin, occupying their homes only by the sufferance of their creditors. In every agricultural community farmers in large numbers have lost title to their farms. A large number of them have also lost their personal property. In many cases where the farm and chattels could be sold, the former farm operators are working for bare subsistence wages 1 U . S. Department of Agriculture, Crops and Markets, November, >93*> P- 11". makes the following summary of farm income in 1931. " For 1931 income [of the farmers] fell short by over $1,000,000,000 of rewarding farm operators and members of their families for their labor, even if they had received only the reduced wage rates now paid to hired hands, leaving nothing available for capital and management." In 1932, farm income had dropped $1,700,000,000.

14

A TYPICAL AMERICAN FARMER for their neighbors. All over the country the unemployed of country origin drift to their parents' homes, and these small farm homes are filling up with families who have nowhere else to go. In every part of the agricultural sections, the burdens of interest and taxes have been shifted to the creditors, who are themselves, because of these radical, unwanted, and unforeseen reversals of their relationship to the security of their debts, unwilling owners. Throughout the agricultural sections, many business men and bankers in the small towns have prospered as the farmer prospered, and when he failed, they followed him into bankruptcy. For many years, one of the leading banks of southwestern Minnesota was the Bank of Minnehaha, a state institution controlled by Sam Bjornson. 2 In 1929, this bank had owned resources—capital, surplus, and undivided profits,—of $150,000, with deposits of $500,000. It had been established sixty years before. M r . Bjornson, as a boy, was employed as a clerk in the bank, and after the manner of Horatio Alger's heroes, in time succeeded to the presidency. In the strictest sense of the word, this was a bank. Bjornson was an old-fashioned banker. He knew personally and intimately every farmer for miles around. He had found it profitable to cooperate with his customers. For example, he introduced Swanson to the business of purchasing cattle in Montana in the fall, feeding them through the winter, and selling them in the spring, in this way realizing a higher profit for his corn, and protecting the fertility of 2

Names are fictitious.

Persons, situations, and events are as stated.

15

VOLUNTARY ALLOTMENT his land. T h e farmers came to him to borrow money for new machinery, feed, and fertilizer; for improvements to their buildings; to finance the education of their children. H e was the most important factor in the business life of his community. Nothing of moment went on without consulting him. H i s advice and financial support were always forthcoming for worthy enterprises. H e was the leading figure of the county, greatly respected and esteemed. In 1930 (and this was only one of a large number of similar transactions which finally ruined the bank) Swanson borrowed $2,000 from the bank and invested it in feeder cattle at $11 a hundredweight. H e had followed this practice for more than a decade, buying his feeders with increasing expertness and fattening them more efficiently. H e fattened them over the winter. When the time came for sale, due to the decline in prices to $6 a hundredweight, in place of the $1,500 profit he had expected, M r . Swanson lost the entire value of his corn crop, the cost of some additional feed, and had only $1,100 to apply on his $2,000 loan. Multiply this by the thousands of Swansons in the community, and you have the reason for the suspension of the bank. T h e collapse of farm prices ruined it. Its capital and surplus were wiped out. In vain Bjornson drew on his personal resources. T h e bank closed. Its depositors, however, because of the conservatism of M r . Bjornson's methods, have already received a large percentage of their deposits, and the liquidation is not yet complete. M r . Bjornson in 1930, measured by local standards, was a rich man. T o d a y , at seventy years of 16

A TYPICAL AMERICAN FARMER age, he has lost all his property, and is making his living selling life insurance. T h e experience of this bank is typical of thousands of country banks. During the three years of the depression, 4,542 country banks, with 2.8 billion dollars of deposits, were forced to close their doors. N o t all of them had been as well conducted as Bjornson's institution. M a n y of them, in an attempt to show a profit, and paying high competitive interest on their time deposits, had invested in high-yield, high-risk bonds as " secondary reserves," many of which were foreign bonds, to whose sale the United States Department of State " saw no objection." T h e default of these bonds carried the banks down to ruin. 3 But large groups of bankers, of which Bjornson was a representative, had employed their deposits in financing the f a r m e r s in projects which they considered to be s a f e and " self-liquidating." But the unprecedented and therefore unforeseen drop in f a r m prices in 1 9 3 1 and 1 9 3 2 brought their plans to naught, f r o z e and depreciated their assets, and closed their doors. 8 Senator Glass's speech in the Senate, M a y 9, 1932, quoted in the Commercial and Financial Chronicle, M a y 14, 1932, said that it had proved impossible to rescue the country banks from " involuntary servitude " to the " great banks in the money centers of the country. " It was because of that system of involuntary servitude that these great banks in the money centers choked the portfolios of their correspondent banks from Maine to California with utterly worthless investment securities, eight billions of them being the investment securities of tottering South American republics and other foreign countries. " Incidentally I may remark that the State Department is largely culpable for the extent of these worthless loans. It assumed, without sanction of law, and without precedent of any sort, the impossible function of passing upon foreign loans."

17

VOLUNTARY ALLOTMENT Many banks survived. Of these banks, a large number were not, however, banks in the proper sense of the word. They were collateral loan offices, doing a kind of pawnbroking business, lending money on chattel mortgages with ample security, or taking other available collateral with a safe coverage over the amount of the advances. These bankers cannot be blamed for playing safe. Their banks are still open. It is impossible, however, not to sympathize with the misfortunes of men like Bjornson, who operated their banks for the benefit of the community, seeking in the general welfare their own advantage, and who, like M r . Hoover and M r . Mellon, failed to discern the approach of the financial storm. Mr. Swanson lost his farm because, at present price levels, it was too heavily mortgaged. But his neighbor, Theodore Thalson, has had a different experience. Thalson was no gambler. H e was a conservative man. H e practised all the maxims in Poor Richard's Almanac. He purchased only with the cash of last year's crop, never with the credit of next year's crop. In 1907, he bought a 160-acre farm, paying some cash, and assuming a $15,000 mortgage. H e had four boys. Like many of the foreign born, he treated his boys as he treated his horses. They were his private property, his chattels, to be worked for his own advantage. When he died, he expected to repay them for their lives of unpaid service by shares of his estate. Meanwhile they worked long hours, for a few dollars for spending money and clothes. They attended school the minimum time required by law. 18

A TYPICAL AMERICAN FARMER For the rest of their time they worked with their father to reduce the mortgage. Unlike his neighbor Swanson, Thalson felt no obligation to educate his children. They lived only to pay off the mortgage. His house was comfortless; the family lived in squalor. Comfort, convenience, and enjoyment were sacrificed to reduce the mortgage. A constant menace, an ever-present threat of disaster, the mortgage roosted on Thalson's rooftree. By hard work and the unpaid labor of his sons, Thalson, in 1932, had reduced the original $ 1 5 , 0 0 0 mortgage to $1,500. The balance, an insignificant fraction of the original amount, falls due in 1 9 3 3 . This is a good farm mortgage. It is well secured. The property can be sold under the hammer for three times the amount of the mortgage. Thalson's greatest worry—and his worry is based upon the experience of many of his neighbors—is that he cannot secure a renewal from his creditor. In any event, he will be charged heavily for this renewal. We have here a curious paradox. The greater the security, the smaller the mortgage in reference to sales value, the greater is the danger that the debtor will lose his home. His creditor can foreclose on Thalson, obtain a piece of property which is worth three times the amount of the mortgage, and thereby recover a part of the $10,000 loss on Swanson's farm. T o Swanson the creditor insurance company is lenient and considerate. His farm is not pressed for sale. The creditor, although he has this heavy loss, is not willing to recognize it by selling the security. But in Thalson's case, there is an evi19

VOLUNTARY ALLOTMENT dent profit in foreclosure and eviction; and Thalson's nights are troubled. There is no source of funds in the country upon which he can draw to pay off this mortgage. If the insurance company which holds this mortgage should decide to foreclose, nothing could save Thalson from losing his farm.

20

Chapter THE

FARMER

II IN

1932

W

H E N we consider that the farm income in 1 9 2 5 , all of which, in one form or another, was spent or saved, was 1 2 billion dollars, dropped to 6.4 billion in 1 9 3 1 , and 5.2 billion in 1 9 3 2 , we can envisage the calamity which has befallen the United States—not only the farmer and those directly dependent upon him, but the entire country—in the terrible disaster briefly expressed in these figures. But this does not tell the entire story. There is the failure of thousands of banks in the farming sections, paralyzing exchange throughout large sections of the country, drying up all credit, intensifying the distress which has come from the collapse of farm prices. T h e life insurance companies which own, as a group, two billion dollars of farm mortgages, 1 at least one-third of which are not represented by full security,2 are having difficulty in maintaining their solvency. The railroads which carry the lumber, cement, fertilizer, fuel, automobiles, machinery, groceries, and dry goods to the farmer find their traffic now mainly confined to the outbound movement of grains and livestock. T h e wage income of factory workers and miners who 1 David L. Wickens, Farm Mortgage Credit, U. S. Department of Agriculture, Technical Bulletin No. 228, p. 220. 2 Estimated from data in Wickens, op. cit., p. 57, and recent declines in farm values quoted in Crops and Markets.

21

VOLUNTARY ALLOTMENT have manufactured these articles of farm demand, the volume of which has been so much lessened, has been greatly reduced along with the income of the railway workers. Western colleges, drawing a large part of their enrollment from farms and small towns, have suffered heavily in registration. As we have already shown, thousands of country banks, still open, are staggering under the burdens of farm credit. Whether the collapse of farm values is due to the depression, or the depression is due to the collapse of farm values, a selection of effective evils upon which argument is unprofitable, the agricultural situation in the United States is one of the most serious economic disturbances in economic history. In its scope, in the number of people affected, it is worse than the farm depression of the '90s, out of which sprang the Populist Party and the agitation for free silver. The rapid reduction of 32 million people from a condition of comparative comfort and stability, even though the situation of the farm population had been seriously impaired since the War, and was, at any rate, growing no better, to their present miserable condition, represents a disaster of the first magnitude. It presents a situation which should engage the anxious attention of everyone who is interested in perpetuating American institutions in their present form. In 1930 there were 2,911,644 operator-owners, and 1,569,510 free from all mortgage debt.' In the same year the tenant-operated farms numbered about 2,664,365, or approximately 42 per cent of the total. These 1

Fifteenth census of the United States.

22

T H E FARMER IN 1932 tenants, moreover, had a large amount of personal property in the f o r m of livestock, tools, and equipment. T a k i n g the country over, much of this tenant-owned property has been lost. If present conditions are allowed to continue, most of the owner-farmers must become renters, and a large number of the renters have pledged their chattels as security f o r loans, and are likely at any time to lose possession of them. T h e y have no future as f a r m operators. T h e y must " hire out " f o r whatever wages the poverty of their employers and their own urgent need will give them. These owner farmers, and tenant farmers as well, make up the bony structure of the capitalistic system of the United States. T h e y have been reared to revere the institution of private property with all its ramifications and implications. T o them it is sacred. They are the original " rugged individualists." T h e y subscribe to all the tenets of the " American system." They revere the Bible, the home, the flag, and the Constitution of the United States. T h e f a r m e r is, by inheritance and instinct, a conservative. From the f a r m s have come a large percentage of the dominant conservative leaders of thought in the cities. T h e business ethics of the f a r m and the small town have been carried over into the city environment. T h e f a r m has always been properly considered the stronghold of private property. Only in the cities, until the recent debacle, has there been found even scanty material f o r a Communistic revolution. In the cities was concentrated most of the poverty and distress. Even in the cities, however, millions of work23

VOLUNTARY ALLOTMENT ers owned their own homes, and had other savings in the f o r m of bank deposits, securities, or insurance policies. T h e y were firmly united by these vested interests to the established order. A large part of these urban property reserves have now been swept away. With the loss of their small but sufficient stakes in the capitalistic system, the city workers are growing more susceptible to inoculation with the germs of revolution. But it is in the rural sections, and in the towns dependent upon them, that the danger of subversive political action is most serious. H e r e in the central stronghold of the institution of private property, the last redoubt of capitalism, many of its most loyal supporters have been ruined. T h e y have lost title to their property, and are existing only by sufferance of the landlord. T h e i r children, who have lost their hold in the cities, are descending upon them f o r f o o d and shelter. While the f a r m e r is slow to wrath, inarticulate, firmly attached by inheritance, prejudice, and long-time discipline to the ways and works of private property, there is a point beyond which he cannot be forced. T h e r e is a level of misery on which he will rebel, and when he does rebel, the d a m a g e which he can do may be extremely serious. A t last the question of Edwin M a r k h a m ' s M a n W i t h the H o e must be met by the people of the United States. Oh, masters, lords, and rulers in all lands, How will you answer this man? How answer his dread questions when The whirlwind of rebellion shakes the world? 24

THE FARMER IN 1932 W i t h the confident hope of bettering his condition apparently lost, the American f a r m e r needs only leadership to turn him into an ardent revolutionist. " M y Country, 'tis of T h e e , " with its glorification of rocks, rills, and templed hills, no longer thrills him with the w a r m glow of patriotic fervor. L i k e the I . W . W . ' s , with whose radical ideas he has had, until recently, no sympathy, he is asking his neighbor, " H o w much of this country do you o w n ? " and the answer is, " L i t t l e or none." A l r e a d y ominous signs are multiplying of a rising spirit of revolt in the f a r m i n g sections. F a r m e r s are refusing to pay taxes. In Nebraska, I o w a , and M i n n e sota, they have been picketing the h i g h w a y s to forcc up the prices of f a r m products in the cities. T h e y a r e preventing, by communal activity, the repurchase of f a r m s taken under foreclosure sale. Sheriff's sales in the M i d dle W e s t a r e l a r g e l y attended. T h e y a r e carried on, as the f a r m e r s stand about in silent groups and listen to the bidding, in the atmosphere of a lynching p a r t y . A t these sales, especially under chattel m o r t g a g e s , the debtor's representative is usually the only bidder. It is dangerous to d e f y public sentiment by purchasing the cattle and machinery of the distressed debtor. 4 In many cases, where land h a s been sold by the holder of the m o r t g a g e , * The following news item in the Nnv York Times on November n , 1932, is significant: O M A H A , Nov. 10.—When the annual sale of delinquent taxes was opened in Madison County several buyers were present but no sale was made. There was no sale because there were no offers, and no offers probably because there were also present 250 farmers to protest against the sale of tax titles.

25

VOLUNTARY ALLOTMENT the purchaser has been boycotted in his new residence by a silent conspiracy of the neighbors. H e can borrow nothing from them. His family is unwelcome at the church, his children at the school. His neighbors pass him on the road with averted heads. H e is an alien and a social outcast. These are only straws in the wind. The farmer is still inarticulate, still unorganized. T h e tide of his wrath is rising but slowly. But the materials of revolt are there, and it only needs intelligent leadership, such as the Lenin group furnished to Russia in 1 9 1 7 , to turn this sentiment into channels which lead straight to revolution. Already this leadership is taking form. A t the Des Moines conference of governors, in September, 1 9 3 2 , attended by governors of all the Middle Western states, the united opinion of the conference expressed in formal resolution was that the orderly operation of the lending system, an essential part of the capitalistic order, should be suspended, so f a r as it applied to the farmer. T h e governors demanded that the national agricultural credit system should be reorganized so as to finance the farmer at a low rate of interest. Properly interpreted, this means a forcible reduction by law of the mortgage interest rate, a confiscation of the creditor's property, a forced conversion of the farm debt. Another demand of the conference is that the Reconstruction Finance Corporation immediately extend its credit facilities directly to the American farmer. The governors' sense of justice was outraged by the spectacle of enormous loans to prop up bankrupt railroads and insolvent banks, 26

T H E FARMER IN 1932 while the f a r m e r , in their opinion as deserving of support as any railroad, is unable to get credit anywhere. An even more significant demand of the conference is the following: " T h a t the President immediately order all banks and other creditors to refrain f r o m foreclosure until Congress may assemble to further discuss the matter." T h i s is a demand which challenges the right of creditors, unquestioned f r o m immemorial antiquity, to levy on the property of the defaulting debtor. T h e borrower who, through no fault of his own, is caught and ruined in a great flood of disaster, these representatives of f a r m sentiment insist, should not pay the penalty of losing his home and means of support. T h e resolution on this point continues: " T h a t the President then direct all agencies referred to above to refrain f r o m foreclosure f o r a year, or until the property of farmers who have an equity in it may be preserved to them; that the United States Department of Agriculture refrain f r o m any attempt to collect feed and seed loans until the farmer's income can be restored." T h e s e resolutions have a political flavor, and the f a r m e r has sufficient political strength to force their adoption at this time. T h e governors also recommend that owners of mortgages refrain f r o m foreclosure or eviction f o r debt or taxes unless the f a r m e r refuses to buy the share of the creditor. Already the people of N o r t h Dakota have under consideration a constitutional amendment prohibiting a corporation f r o m acquiring title to any land in the state, and while that prohibition can be evaded in foreclosure 27

VOLUNTARY ALLOTMENT proceedings by a process of transference to a straw man who acts for the creditor, its consideration is significant as a measure of the temper of the times. Other recommendations of the governors' conference deal with remedies. All these worthy men who represent us in high places of power and authority hug to their breasts the comfortable delusion that the situation is temporary, that normal conditions will soon be restored, and that the application of simple remedies will restore agriculture. When the storm is over, these emergency measures can be repealed. In the meantime, they recommend that the tariff be revised to give the farmer equality with industry and, in particular, to lessen the burden of foreign competition, especially in fats and oils. They favor " sound expansion of the currency," which means a reduction of the value of the dollar by a dilution of the currency even to abandonment of the gold standard. They recommend a reorganization of the national agricultural credit system, and surplus control legislation to elevate the domestic price of American products. In this list of recommendations, the governors' conference has anticipated a radical and revolutionary step copied after the methods of the Old World, in Germany, France, Italy, and England, one which will attract increasing attention as the agricultural situation grows worse, and the hopelessness of ordinary methods of alleviation becomes more apparent.

28

Chapter

III

T H E PROFITLESS DECADE IN ICAN AGRICULTURE

AMER-

I

N 1928, as the foundation of our study of the agricultural revolution, we printed the income account of the American farmer in 1926. 1 Briefly summarized, this showed that the gross operating income of the American farmer, after deducting for seed, waste, wages for hired help, and other operating costs, including binder twine and other materials, was approximately 7.8 billion dollars. 2 Out of this sum must come the farmer's fixed charges: interest, 750 million dollars; taxes, 654 million, and rent on property leased from non-operators, 1,042 million, making a total of 2.4 billion. This leaves 5.4 billion cash for the farmer's share of the gross value of farm production, or $860 per family, to pay f o r his equity in the farm and for his own and his family's labor. In 1926 the farmer was operating a plant including land, buildings, and equipment which was valued at 56 billion dollars. 1 If we assume that the item of operating costs of 3 billion dollars, already deducted, included a reasonable allowance for maintenance—and this as1

E. S. Mead and B. Ostrolenlc, Harvey Baum, A Study of the Agricultural Revolution, Philadelphia, 1928, Chapter II. 2 See Table I. * U . S. Department of Agriculture, Year Book of Agriculture, 1932, p. S93.

29

VOLUNTARY ALLOTMENT sumption is fair, because the farmer's repairs are mainly done by the farmer and his hired help with materials included in this estimate of 3 billion—and if we allow only 5 per cent interest on operator's investment, a deTABLE I (in millions of dollars) 1916 Gross Value of Farm Production

$11,480 (a)

Expenses and Charges Wages for hired labor $ Operating costs Taxes of operator-owned investment Rent on property rented from non-operators Interest on debts to non-operators Interest on operators' investment at 5 per cent

'93' >6,955

1,238 2.987

* 838 2,17s

654

456

1,042

692

750

650 1,100 (r)

J.59 1

TOTAL Available for farmers' capital, labor, and management

«

>8,273

#5,911

$ 763

% 160(f)

(a) U. S. Department of Agriculture, Crops and Markets, July, 1927. (b) ¡bid., November, 1932. ( f ) Estimated by authors.

duction of 1.6 billion must be made from the 5.4 billion, which leaves 3.8 billion as total f a r m labor income, or an average of $603, which represented the actual cash return to the American farmer and his family. This was less than the wages paid f o r hired help, and about one30

T H E

PROFITLESS

DECADE

third the income which semi-skilled labor in the cities was receiving at that time. T h i s $ 5 0 . 2 5 per month represented the return f o r the f a r m e r ' s own labor, the work of his family, and the management of the f a r m . T o put the matter in another way, in 1 9 2 6 , exclusive of the land he rented, the American f a r m e r had 56 billion dollars invested in his business. If he credited himself with reasonable wages, this vast sum, which was almost three times 4 the amount invested in the railway system of the United States, and f r o m which the country drew most of its subsistence and a large part of its raw materials, showed no return to its owners. E v e n in 1 9 2 9 , when industrial prosperity was at its peak, a f t e r maintaining his plant and property and paying his fixed charges, there remained only $ 8 8 7 5 return f o r his labor, the labor of his family, and return on his investment. Deducting the return on his investment, his annual labor income was $ 6 2 0 . W e characterized the situation of the American f a r m e r in 1 9 2 6 as f o l l o w s : T h e situation here presented is w i t h o u t parallel. leading A m e r i c a n

industry, largest

in capital

H e r e is the

invested,

in

value

of product, in importance to general w e l f a r e ; an industry recognized as the foundation of all other industries; w h i c h feeds and clothes the nation; which supplies a large number of essential r a w materials, without whose orderly and continuous functioning our national life w o u l d be impossible, and yet this supremely important * U . S. Department of Commerce, Statistical Abstract, 1930, p. 293. R a i l r o a d s and equipment were valued at 19.9 billion dollars. 6 Ü . S. Department of Agriculture, Year Book of Agriculture, 1932, p. 892.

31

VOLUNTARY

ALLOTMENT

industry pays starvation wages to the men who run it, and gives them no return on the huge mass of capital which they employ. . . . On the farms of the United States is a group of workers, admittedly the most important in the country, men who must have skill to perform their work, men who are not employed in gangs with a foreman, but where each for himself furnishes the driving force that sends him through his daily task; men whose thrift is invested in the industry in which they labor; and yet this great army of workers not only receives no reward for its investment, but sells its labor at a wage one-half that of unskilled labor in manufacturing or mining. This situation, considered in relation to our national well-being, is significant and sinister. A farm population of twenty seven millions, considered as a group, receives less than half the amount which is recognized as adequate to maintain a decent standard of living. T h e children of these farms are denied proper opportunities for education. These families are deprived of proper medical attendance, proper food and clothing. T h e y have no opportunities for travel and recreation. They are forced to a sub-American standard of living, comparable to the living conditions from which our Italian and Polish immigrants have escaped to the larger opportunities of America. In their income and surroundings, our farm population consists of twenty seven million American peasants. A s they contrast their austere life and their hopeless future with the advantages and opportunities which are possessed by city dwellers, with the fortunes of their own relatives who have escaped to the city, they are discontented.6 T h i s w a s in 1 9 2 6 , seven years ago.

T h e situation of

the A m e r i c a n f a r m e r at that time w a s so desperate that a large amount of the time of C o n g r e s s w a s employed in the consideration of measures to alleviate his distress. 6

Harvey Baum, pp. 19, 22-3.

32

THE PROFITLESS DECADE A s early as 1 9 2 1 , Congress had enacted the Fordney Emergency T a r i f f , especially designed to assist the f a r m e r . T h e F a r m Bloc was organized in 1 9 2 1 to consolidate the political influence of agriculture. It had twelve senators. Its purpose was to establish rural credit, control stockyards, regulate freight rates in the interest of agriculture, establish intermediate credit banks, re-establish the W a r Finance Corporation to finance agricultural exports, and to secure the passage of a number of minor measures designed to improve the agricultural situation, which had been brought prominently to their attention by the collapse of f a r m prices in the depression of 1 9 2 0 — 1 9 2 1 . A t the same time the farmer, in the belief that his condition could be explained in part by wasteful methods of producing and marketing, inaugurated on a large scale the system of cooperative marketing. T h e origin of f a r m cooperation goes back to the '70s, with the Granger movement, but it never assumed much importance until a f t e r the W o r l d W a r when, with evangelical fervor, 7 great numbers of f a r m e r s were herded into commodity cooperative groups and organizations, and large marketing organizations f o r f a r m crops. In 1 9 2 4 it was estimated that 884,207, or 1 3 . 9 per cent of the farmers in the United States, were already numbered in these cooperative associations, with an annual sale of $ 8 5 8 , 2 8 4 , 000, whose purpose it was to achieve the marketing of the crops at lower costs, and to prevent the dumping of crops on saturated markets. T h e ultimate aim was 7 A a r o n Sapiro, active in the organization of commodity cooperatives, w a s generally labeled as the " e v a n g e l i s t " of the movement.

33

VOLUNTARY ALLOTMENT to obtain a higher total value f r o m their sale. 8 By 1 9 3 1 , it was estimated that 1 1 , 9 5 0 commodity cooperative associations had a membership of 3,000,000 (with some duplications) doing a business of 2.4 billion dollars annually.* Along with these measures, which were designed to remove the abuses and unnecessary competition f r o m the system of distribution, and to secure on reasonable terms credit f o r the production and marketing of crops, another movement developed in Congress, backed by the united influence of the f a r m interests, to secure higher prices f o r f a r m products. T h e efforts were embodied in a number of bills, the most important being the M c N a r y - H a u g e n Bill and the E x p o r t Debenture bills, which were designed to raise the cash income of the American f a r m e r at the expense of the American consumer. T h e M c N a r y - H a u g e n Bill provided f o r an advance out of the Federal T r e a s u r y , a revolving fund, as working capital to a government export corporation to purchase the annual surplus of certain f a r m crops at prices equal to the market price plus the tariff. T h i s would raise domestic prices, but would create a surplus in the hands of the export corporation. T h e surplus was to be warehoused and sold in foreign markets. It was realized that these commodities, such as wheat, would be sold in competition with foreign countries, and that the prices obtained in the case of wheat, f o r example, would be at least 42 cents—the 8

U. S. Department of Commerce, Statistical Abstract, 1930, p. 646. U. S. Department of Agriculture, Year Book of Agriculture, 1932, p. 948. 9

34

THE PROFITLESS DECADE amount of the tariff—less than the price paid by the export corporation in the domestic markets. T h i s loss was to be estimated and assessed upon the f a r m e r in the f o r m of an equalization fee. Since the domestic consumption is about 600 million bushels, and production is about 800 million, it would follow that threefourths of the wheat would sell f o r the market price plus the tariff, and the remaining fourth at the market price. T h e f a r m e r was to receive a sum equal to the market price plus the tariff f o r the entire crop, and was to refund to the export corporation the portion of the tariff on the one-fourth that was exported. The first M c N a r y - H a u g e n Bill embodying these ideas was defeated in June 1 9 2 4 . On the second attempt, the bill was again defeated in M a y 1 9 2 6 , but on the third attempt it passed both houses of Congress. President Coolidge vetoed it on the ground that it was unworkable and unconstitutional. A fourth edition of the bill passed both houses of Congress in 1 9 2 8 , and was again vetoed by President Coolidge. T h e debenture plan also deserves discussion here because of the prominent part it played as a possible substitute f o r the M c N a r y - H a u g e n Bill. T h i s plan proposed to give a bounty equal to one-half of the tariff to exporters of agricultural commodities. F o r example, wheat exporters would receive a bounty of 2 1 cents a bushel, one-half the tariff, on all wheat exported. This, it was claimed, would enable exporters to bid 2 1 cents higher f o r wheat here, and would raise domestic prices of all wheat by that amount. T h e debentures would, however, be paid only on the wheat exported. If the

35

VOLUNTARY

ALLOTMENT

production of wheat is 800 million bushels and exports 200 million bushels, farmers would benefit by an advance of 168 million dollars, while the Treasury would pay out on debentures 42 million dollars. The debenture plan differed from the equalization plan in that its operation was comparatively simple, and in that the government paid the bonus instead of assessing it back on the farmers, as provided in the equalization plan. The Export Debenture plan did not pass Congress. Both plans proceeded on the theory that exports will continue, and neither plan made provision for restricting production. Both political platforms in 1 9 2 4 had pledged the support of the government to the improvement of the condition of agriculture. In 1928 these pledges were repeated. President Hoover made the following statement in his speech of acceptance, concerning the importance of agriculture. T h e farm is more than a business.

It is a state of living.

do not wish it converted into a mass production machine.

We

There-

fore, if the farmer's position is to be improved by larger operations, it must be done not on the farm, but in the field of distribution. . . . A n outstanding proposal of our party program is the wholehearted pledge to undertake the reorganization of the marketing system upon sounder and more economical lines.

W e have already

contributed greatly to this purpose by the acts supporting f a r m cooperatives, the establishment of intermediate credit banks, the regulation of stockyards, public exchanges, and the expansion of the Department of Agriculture. much farther.

The

platform proposes to

go

I t pledges the creation of a Federal F a r m Board

36

THE

PROFITLESS

DECADE

of representative farmers to be clothed with authority and resources with which not only to still further aid farmers' cooperatives and pools and to assist generally in solution of farm problems, but especially to build up with Federal finance farmer-owned and farmer-controlled stabilization corporations which will protect the farmer f r o m the depressions and demoralization of seasonal glut and periodical surpluses. 1 0

T h e Democratic party was in no way behind its rival in its promises of agricultural relief. Governor Smith in his speech pledged the support of the Democratic party to the cause of agriculture, and promised to call a conference of " those best equipped " in the subject, to " work out a solution for the relief of agriculture." Cooperative, coordinated marketing and warehousing of surplus farm products are essential just as coordinated, cooperative control of the flow of capital was found necessary to the regulation of our country's finances. . . . T h e question for agriculture is complex. Any plan devised must also be coordinated with the other phases of our business institutions. O u r platform declares for the development of cooperative marketing and an earnest endeavor to solve the problem of the distribution of the cost of dealing with crop surpluses over the marketed unit of the crop whose producers are benefited by such assistance. O n l y the mechanics remain to be devised. . . . I n my administration of the government of my state, whenever I w a s confronted with a problem of this character I called into conference those best equipped on the particular subject in hand. I shall follow that course with regard to agriculture. F a r m e r s and f a r m leaders, with such constructive aid as will come from sound economists and fairminded leaders of finance and business, m u s t work out the detail. T h e r e are varying plans for the attainment of the end which is to be accomplished. Such plans 10

Commercial

and

Financial

Chronicle,

37

A u g u s t 1 8 , 1928, p. 902.

VOLUNTARY ALLOTMENT should be subjected at once to searching, able, and fairminded analyses, because the interests of all require that the solution shall be economically sound. 11

A f t e r his election in 1928, President H o o v e r called a special session of Congress, which substantially advanced the duties on many agricultural products. It also created the Federal Farm Board for the purpose of establishing and promoting cooperation and stabilizing production; and appropriated 500 million dollars to the Board to carry out this program. T h e money of the Farm Board was expended during the next two years in the purchase, through advances to corporations organized for the purpose, of the unmanageable surplus of farm products, most of it going into the purchase of wheat and cotton. It was unofficially estimated that, at the peak, the Farm Board owned through its corporate agents 250 million bushels of wheat and wheat futures, and 1,300,000 bales of cotton. 12 In a substantial and most unprofitable manner, since most of this money has been lost, the devotion of both political parties (both joined in the support of the legislation) to the cause of agricultural relief has been demonstrated. Meanwhile, in spite of these well-meant endeavors, which are significant chiefly because they show a realization of the importance of the agricultural problem, the situation of the farmer went on from bad to worse. The index of farm prices, based on the figures of 1 9 1 0 - 1 9 1 4 as 100, and which at the peak in 1919 was 209, had deIbid., August 25, 1928, p. 1046. See B. Ostrolenk, " Analysis of Annual Report of the Farm Board," The Annalist, January 2, 1932. 11

12

38

T H E

PROFITLESS

clined b y 1 9 2 6 t o 1 3 6 . 1 9 2 8 and

1929

it w a s

DECADE

In 1 9 2 7 it f e l l to 1 3 1 , and in 1 3 9 and

138

respectively.

In

1 9 3 0 it f e l l t o 1 1 7 , and in 1 9 3 1 t o 8 0 ; in 1 9 3 2 it h a d f a l l e n to 58. 1 3

In 1 9 3 1 the g r o s s income of A m e r i c a n

a g r i c u l t u r e h a d f a l l e n to 6.9 billion d o l l a r s f r o m billion in 1 9 2 6 , a 4 0 p e r cent decline.

Fixed

11.5

charges,

including t a x e s and interest, r e m a i n e d substantially same.

the

F a r m w a g e s , rent, and o p e r a t i n g costs w e r e re-

duced in the s a m e p r o p o r t i o n , l e a v i n g in 1 9 3 1

to the

f a r m e r o p e r a t o r , tenant o r o w n e r , a b o u t 1 billion d o l l a r s to p a y w a g e s f o r his l a b o r and p r o f i t s f o r his m a n a g e m e n t , o r $ 1 6 0 f o r the a v e r a g e f a r m e r .

By

1 9 3 2 , the

t o t a l income f r o m a g r i c u l t u r a l p r o d u c t i o n h a d f a l l e n t o 5.2 billion d o l l a r s , l e a v i n g n o t h i n g w h a t e v e r to p a y w a g e s f o r himself a n d his f a m i l y , and l e a v i n g him s h o r t million d o l l a r s as a r e t u r n on his equity.

700

Moreover,

the v a l u e of his p r o p e r t y h a d d e p r e c i a t e d b y 9 billion dollars.14 A c c o m p a n y i n g the s h r i n k a g e in gross f a r m income there has also been a sharp r e d u c t i o n in the c u r r e n t v a l u e of f a r m c a p i t a l . . . . The

total v a l u e of

farm property including land, buildings,

m a c h i n e r y and l i v e s t o c k declined f r o m $ 5 8 billion in the

and

spring

of 1 9 3 0 t o a b o u t $ 4 4 billion in 1 9 3 2 , a d r o p of $ 1 4 b i l l i o n in the last t w o years.

Of

that d r o p , a b o u t $5 b i l l i o n o c c u r r e d

1 9 3 0 and $9 b i l l i o n d u r i n g

F o r the y e a r

during

1931.15

1 9 3 2 , the f a r m e r h a d m a d e n o w a g e s

w h a t e v e r , h a d not even m a d e sufficient g r o s s income t o c o v e r expenses. 13 14

U. S. D e p a r t m e n t of A g r i c u l t u r e , Crops and Markets, October, 1932. U . S. D e p a r t m e n t of A g r i c u l t u r e , Crops and Markets, N o v e m b e r ,

1932, p. 44615 Crops and Markets,

N o v e m b e r , 1932, p. 440.

39

Chapter I V INCREASING PRODUCTION AND CREASING DEMAND

DE-

N Harvey Baum, published in 1928, the authors outlined the causes of the agricultural decline, which even then had seriously impaired the economic position of the American farmer. The cause of the agricultural depression which was then in full swing, was the rapid expansion of agricultural production, due mainly to the mechanization of agriculture, which enabled a diminishing number of farmers to cultivate an increasing area of land. Going back to 1906 for purposes of comparison, we found that wheat production in the United States had increased from 633 million bushels for the five years 1 9 0 6 - 1 9 1 0 , to 822 million bushels in 1920-1924. The average increase in the production of corn during the same years was 500 million bushels. Oats increased by 400 million bushels, potato production increased from 238 million to 396 million bushels, and cotton increased 1.5 million bales. The output of hay, in spite of tractor substitution and consequent reduction of the number of horses and mules, rose from 48 to 90 million tons. The production of tobacco rose from 750 million pounds to 1,285 million pounds. These increases in farm production were made in the face of diminishing farm labor. The number of persons gainfully employed on farms fell from 12,388,309

I

40

PRODUCTION A N D DEMAND in 1 9 1 0 to 1 0 , 6 6 5 , 8 1 2 in 1 9 2 0 , a reduction of 1 4 per cent in the number of f a r m workers. T h e r e was a gain of 20 per cent in f a r m production during this period. 1 This reduction in man power was the consequence of the increase of efficiency due to a larger use of f a r m machinery. F r o m 1 9 1 0 to 1 9 2 0 production per worker increased 3 0 per cent, the largest in our history. The total increase in efficiency per worker was 61 per cent from 1 8 8 0 to 1 9 2 5 , one-third of which was made in the fifteen years before 1 9 2 5 . T h e World W a r and the post-War period brought with them, with their scarcity of labor, the wholesale installation of large-scale laborsaving machinery, of which the combine, which could do the work of seventy-two laborers of fifty years ago, was the most conspicuous example. Whereas one man with a seven-foot binder drawn by horses could harvest seven acres of wheat in a day, one man with a combine could harvest seventy-five acres. T h e tractor rapidly

Index of crop land 1880 = 100

Index of crop production 1879--1881 = 100

Index of aKricultural working population 1880 = 100

Index of workers' productive efficiency 1880 ™ 100

1880...

IOO

IOO

IOO

IOO

1890..

132

119

114

1900...

170

>36 167

1910...

180

207

•35 172

114

1920...

209

230

156

1925...

200

234

141

Year

12 3 !47 165

Based upon E. P. Day, Index of Physical Volume of Production. The other index numbers are calculated by the authors from figures taken from the U. S. Department of Agriculture, Year Boots of Agriculture.

41

VOLUNTARY ALLOTMENT replaced the horse as the cost of man labor rose. In 1929 there were 500,000 tractors in use on American farms, displacing 5 million horses. M a n y other farm operations were also mechanized. Corn pickers and huskers, machines f o r soil preparation, potato diggers, elevators, milking machines, are only a few of the machines which reduced f a r m labor and enabled fewer men to produce larger crops. A s this agricultural revolution proceeded, a large part of the f a r m population became superfluous. From 1 9 2 0 to 1 9 3 0 the farm population was reduced 3 million, and those who remained, while they produced without profit or at a low labor income, maintained a continued increase in production. T h e rapidly growing migration from the farm to the cities was absorbed in the new industries, notably the automobile industry and its various ramifications, which at the peak in 1929 employed 3.5 million people. 2 A large part of the surplus produce of the American farm has always been exported. Although wheat exports had shown a downward trend, the United States was still the principal source of the raw cotton supply of Europe and the Orient. From 1 9 2 1 to 1929, 56 per cent of the cotton crop was exported. 3 A large volume of meat products, into which the corn is converted, were exported mainly to western Europe. The value of American farm exports in 1929 was still 1.8 billion dollars, out of a total export trade of 5.1 billion/ and a total 2

U. S. Department of Commerce, Commerce Yearbook, 1932, I, p. 364. »Ibid., I, 1 6 1 . * Ibid., I, 84.

42

PRODUCTION AND DEMAND f a r m value of 1 1 . 9 billion. 5 In 1 9 2 9 , one-half of the tobacco crop was exported, 1 6 per cent of the wheat crop, 4 1 per cent of the cotton crop, and almost onefourth of the corn crop, in the f o r m of pork and beef. T h i s export trade had always been the mainstay of American agriculture, because it absorbed the surplus which could not be consumed in the domestic markets. Because the demand f o r f o o d stuffs is inelastic, the export trade, because of the surpluses pushed on to the market, was subjected during this period to certain corroding and disintegrating influences, which finally culminated in the agricultural collapse of 1 9 3 0 and 1 9 3 1 . E v e n by 1900, a gigantic geographic shift in surplus wheat production, f r o m the United States to areas nearer to water-borne transport, had begun. Production in the United States was at that time ( 1 9 0 0 — 1 9 1 4 ) readjusting itself to a basis of disappearing exports in wheat. This was the Golden A g e of American agriculture, in spite of the smaller volume of exports, because the f a r m e r was diversifying his production. W h e a t exports, which had been as high as 200 million bushels in 1 9 0 0 , averaged about 1 2 0 million bushels by 1 9 1 3 , but prices had advanced f r o m 65.3 cents a bushel, the average f o r the years 1 9 0 0 - 1 9 0 4 , to 86 cents, the average f o r 1910— 1914.6 Beef exports dropped f r o m 5 5 0 million pounds to 2 0 0 million in 1 9 1 4 ; and pork exports declined f r o m 1 , 6 0 0 million pounds to less than a billion. 7 5

U. S. Department of Commerce, Commerce Yearbook, 1932, p. 124. U. S. Department of Agriculture, Year Book of Agriculture, 1930, p. 596. 7 For fuller discussion of the process, see B. Ostrolenk, The Surplus Farmer, New York, 1929, Chapter IV. 0

43

VOLUNTARY A L L O T M E N T D u r i n g this period, there were reasonable returns f o r most farmers, and excellent profits f o r the more efficient. L a b o r continued to be drained off the f a r m by the high wages in the cities. T h e free land of the frontier had disappeared, and the continued mechanization of agriculture gave employment to fewer f a r m workers. D u r i n g the period preceding the W o r l d W a r , the nonagricultural population saw in the decline of agricultural production a threatened calamity. Increasing f o o d prices and decreasing agricultural exports aroused a fear of the peril of f o o d famine. T h e r e was no such peril. But the national mind had been nourished on the belief that agriculture was the foundation of our economic life. T h e decline in exports f r o m the f a r m s aroused general alarm. T h e slogan " B a c k to the F a r m l " made its appearance. President Roosevelt appointed a Country L i f e Committee to report on ways and means of keeping agriculture supreme. T h e n came the W a r , with an unlimited demand f o r food and raw materials to be burned up in the trenches. T h e p r e - W a r supply f r o m the newly developed wheat regions of Canada, Australia, and Argentina was blocked by the German submarines, but a protected lane f r o m the United States to Europe carried a vast volume of agricultural produce. Agricultural exports during and a f t e r the W a r rose to new and unprecedented heights. W h e a t exports, f o r example, rose to 3 1 2 million bushels in 1920, and averaged 237 million bushels between 19x4 and 1920, as against an annual average of 1 1 6 million bushels f r o m 1900 to 1 9 1 4 . F a r m land values rose rapidly as prices advanced. In the W e s t N o r t h Central 44

PRODUCTION AND DEMAND States, f o r example, the index of land prices rose f r o m 1 0 3 in 1 9 1 4 to 1 7 4 in 1 9 2 0 (average 1 9 1 2 - 1 9 1 3 = 100). F a r m mortgage debts increased with land and crop values. In I o w a , the increase in f a r m mortgage debt was f r o m 4 3 1 million dollars in 1 9 1 0 to 1,098 million in 1 9 2 0 ; and in the W e s t N o r t h Central States, of which I o w a is one, f r o m 1 , 2 9 6 billion in 1 9 1 0 to 3 , 1 9 9 billion in 1 9 2 0 , and to 4 , 1 2 6 billion in 1 9 2 5 . During this period, f o r the entire country, mortgage debt increased f r o m 3 . 3 billion dollars in 1 9 1 0 to 9.3 billion in 1 9 2 5 . T o t a l f a r m debt of all kinds, including shortterm debt, in 1 9 2 8 was estimated at f r o m 1 3 to 1 4 billion dollars. 8 A f t e r the W a r American agriculture prospered f o r a short time. T h e dislocation of agriculture in E u r o p e had been severe, and the post-War inflation, also largely financed with the proceeds of American loans, maintained European purchasing power. H i g h prices on all agricultural products continued in 1 9 1 9 and early in 1 9 2 0 , the index of f a r m prices rising to a high of 2 3 5 in M a y of 1 9 2 0 . T h e s e high prices could not survive the restoration of normal production in Europe. In the summer of 1 9 2 0 , f a r m prices fell 40 per cent, 9 spreading ruin over large sections of the South and M i d d l e W e s t , in the foreclosure of mortgages and the calling of loans. American agriculture has thus f a r never recovered f r o m this blow. F a r m prices remained low compared 8

U. S. Department of p. 1 0 1 0 . 9 U . S. Department of p. 1020. Price index of M a y to 140 in December,

A g r i c u l t u r e , Year

Book

of Agriculture,

1930,

A g r i c u l t u r e , Year Book of Agriculture, 1931, all commodities fell f r o m an index of 23 s in 1920.

45

VOLUNTARY ALLOTMENT with war figures, during the next ten years. Exports never regained their former levels. Average annual wheat exports during 1929, 1930, 1 9 3 1 , and 1 9 3 2 were 61 million bushels, as against the war exports of 237 million bushels, and there were months, such as January 1 9 3 1 , in which wheat exports were less than half a million bushels, as against 10 million bushels the preceding January, and the normal January export of 20 to 30 million bushels. Pork exports fell back to around one billion pounds, from a peak of 2.7 billion pounds in 1 9 1 9 ; beef exports rapidly dropped to 100 million pounds in 1930, from 600 million at the peak in 1 9 1 8 . Only cotton retained its export position, with exports from 1926 to 1930 averaging 8.5 million bales. 10 All other farm exports showed a continuous decline. The American farmer in 1929, though he still exported in large volume, had lost most of his wheat market; he had lost at least half of the foreign demand for meat products; and cotton was beginning to show the effect of foreign competition. The rapid shrinkage of farm exports was mainly the consequence of the rapid expansion of grain growing and pork production in competing countries. Argentina, Canada, Australia, India, and after 1928 Russia, rapidly increased the supply of surplus grains. 11 In particular the expansion of corn production in Argentina, which was exported to Europe to be turned into pork and beef, curtailed the markets of the American pork and beef producers. The new grain10 All export figures taken from U. S. Department of Agriculture, Year Book of Agriculture, 1931, p. 948. 11 Ibid., p. 589.

46

PRODUCTION AND DEMAND growing countries, especially Canada and Argentina, carry on mechanized agriculture on a large scale, and produce at costs, including transportation charges, much lower than the minimum costs of many regions in the United States. These countries therefore were able to undersell the American farmer in the consuming market. Only American cotton has maintained a portion of its position, but here too the growing competition of Indian and Egyptian and now, it is announced, Russian cotton, has already affected the foreign demand. American cotton exports have lost ground since 1 9 2 0 in the percentage f o r foreign consumption supplied. 12 With the world business breakdown, which was ushered in in the United States by the stock market crash of October, 1 9 2 9 , the export situation became rapidly worse. Prices of all raw materials, including foods, under the pressure of supplies from low-cost countries, fell rapidly from 1 9 3 0 to 1 9 3 2 . By 1 9 3 2 , not only had the American export market f o r all the staple agricultural food products almost disappeared, but the unmanageable surplus had forced f a r m prices of these products, and also of cotton, to the lowest figures on record. In the summer of 1 9 3 2 cotton sold at $ 2 5 a bale, 5 cents a pound. Corn was 18 cents a bushel on the f a r m ; oats, 1 0 cents; wheat, 35 cents; beef, $6 a hundredweight; and hogs, cents a pound. 13 T h e situation had been made much worse by the general advance in duties on agricultural products by most of the consuming countries. 12 Ibid., p. 680. In 1920 American cotton growers provided 60 per cent of world needs; in 1929, only 56 per cent. 13 Prices taken from Minneapolis Journal, July 5, 1933.

47

VOLUNTARY ALLOTMENT Italy, Germany, France, and now England, by quotas, embargoes, and almost prohibitive duties, endeavored to stimulate domestic agriculture and to lessen their dependence on outside sources of supply. T h e y have been measurably successful, and in consequence, they increased still further the world surplus. T o this point had the post-War dependence of American agriculture on the export trade brought the American f a r m e r . T h e f a r m i n g industry had grown to depend on the foreign market. Railroads had been improved at great expense to carry agricultural produce to the seaports; foreign commerce had been adjusted on a basis of agricultural exports. T h i s mainstay had failed lamentably. T h e export market in 1 9 3 2 had shrunk to less than half a billion dollars. T h e effect of the industrial depression upon the domestic demand f o r agricultural products can easily be exaggerated. So f a r as evidence is available, the consumption of f o o d stuffs in urban communities has not been greatly reduced. T h e income of the city-dweller, even if derived f r o m charity, has been sufficient to maintain his consumption of the necessaries of life. On the other hand, it is less easy to exaggerate the contribution of the f a r m e r to the volume of business demand. T h o u g h the domestic demand f o r agricultural products declined very little, if at all, the f a l l in f a r m prices destroyed agricultural purchasing power, and, in consequence, his effective demand f o r urban industrial products disappeared almost overnight. I t may be argued that there was industrial prosperity during the ten years f r o m 1 9 2 0 to 1 9 2 9 in spite of the fact that the

48

PRODUCTION AND DEMAND farmer was making no profits. W e had industrial prosperity coincident with a period when net f a r m income was less than half of what was paid to city unskilled labor, when the f a r m e r was receiving no return on his own equity, and when he was getting poorer and poorer. These facts show that industrial prosperity is not tied up with f a r m prosperity. T h e r e is considerable evidence to support this view. Cheap f o o d f r o m the farms makes f o r higher real wages in the city. Cheap raw materials make f o r higher manufacturing profits. But this is true only if the f a r m e r has purchasing power sufficient to keep the machinery of f a r m production in full operation, the consequence of a large volume of sales at home and abroad at adequate prices. He then contributes to urban prosperity even if he himself makes no profit. H e may spend f o r interest, taxes, machinery, building material, freight, and commissions all of his gross income, and have little or nothing l e f t f o r personal expenditures, but the expenditure of this large income f o r urban goods and services sustains industrial activity in the cities. A s a whole, the city is not affected if the f a r m e r is not prosperous, provided his purchasing power is sufficiently high to pay f o r urban goods and services that are used in f a r m production, and there is supplied a continuous stream of cheap f o o d and raw materials. T h e proof of this statement is found in the f a c t that the cities prospered f r o m 1 9 2 2 to 1 9 2 9 , a period when the labor income of the f a r m e r was steadily declining. Only in the competition f o r the f a r m e r ' s dollar are certain industries more interested in f a r m prosperity than 49

VOLUNTARY ALLOTMENT f a r m purchasing power. T h e farmer, f o r example, will buy less furniture, groceries, clothes, and automobiles if there is small profit in agriculture, but his entire gross income goes to stimulate urban activity. T h e 1 9 3 0 — 1 9 3 2 development in agriculture differs f r o m the situation of 1 9 2 0 - 1 9 2 9 , in that f a r m prices have fallen so low, and f a r m purchasing power has been so impaired, that the f a r m e r not only has no profit, but also has insufficient gross income to pay f o r interest, taxes, freight, or any of the industrial goods and services necessary f o r orderly production. F r o m 1 9 2 0 to 1 9 2 9 , the gross spending power of the f a r m e r was around 1 1 billion dollars, a sum that, because of the high prices of the goods he bought, l e f t no profit f o r him, but was sufficient to pay f o r the urban goods. But in 1 9 3 0 , his gross income had dropped to 9.3 billion, in 1 9 3 1 to 6.9 billion, and the estimate f o r 1 9 3 2 is 5.2 billion. 14 In brief, the f a r m situation now confronting the country is new and different. I t is not the restoration of f a r m prosperity that is sought, which, by the accepted definition of prosperity, would mean high wages and 6 per cent on the operator's investment. T h a t is impossible. T h e f a r m e r as a class has never enjoyed such earnings, and it is useless f o r him to expect them. What can be gained is the restoration of f a r m purchasing power, to enable the f a r m e r to continue orderly production and permit an orderly f a r m consumption of industrial products. M e a s u r e s that seemed unsound economics when proposed to increase f a r m profits, need to be 14

U. S. Department of Commerce, Commerce

50

Yearbook,

¡932,

p. 124.

PRODUCTION AND DEMAND reëxamined now that they are proposed to restore farm purchasing power. The enlightened self-interest of the city demands that some of the disabilities under which the farmer has been working be removed, that there be some shift of the urban income back to the farmer.

51

Chapter V T H E OPERATION OF "NATURAL ECONOMIC LAW" IN AMERICAN AGRICULTURE

P

REDICTIONS

should be m a d e w i t h g r e a t caution

and m a n y reservations.

I t is possible, h o w e v e r , if

the elements and the existing trend of an economic situation a r e clearly perceived, to v e n t u r e with c o m p a r a t i v e s a f e t y upon a cautious f o r e c a s t of f u t u r e developments. The

a u t h o r s are e n c o u r a g e d

to p r o j e c t the results

of

their analysis into the f u t u r e of A m e r i c a n agriculture b y the

striking

verification

which

nished to their conclusions of

subsequent

events

fur-

1928.

A t least a third of the m o r t g a g e s resting upon A m e r i can f a r m s are n o w actually o r potentially in d e f a u l t . 1 A s these m o r t g a g e s m a t u r e , if the creditors e n f o r c e their rights, the f a r m s will not sell f o r the amount of the m o r t 1 This is an estimate based on defaulted mortgages as reported by Joint Stock Land Banks, the Federal Farm Land Banks and such state credit institutions as those in North Dakota and Minnesota. See also " Farm Bankruptcies," U. S. Department of Agriculture, Year Book of Agriculture, 1931, p. 1029. In U. S. Department of Agriculture, Technical Bulletin 288, p. 48, Table 25, it was shown that on January 1, 1928, 45 per cent of the mortgaged farms had mortgages in excess of 75 per cent of their valuation. The value of farm property has declined from a value index of 1 1 7 in 1928 to 89 in 1932, a drop of 24 per cent. (See Croft and Markets, May, 1932, p. 183.) The mortgages are long term and have remained about the same. The drop in farm land prices was from 139 in 1928, to 50 in August, 1932, or 64 per cent.

52

NATURAL gages.

ECONOMIC

LAW

A t the present time, f r o m the figures a l r e a d y in

hand, w e k n o w that 3 9 p e r cent of the m o r t g a g e s in the N o r t h w e s t exceed the value of their security, and the situation in the South, M i d d l e W e s t , and p a r t s of the E a s t is almost as bad. cember

1,

1932,

In his annual r e p o r t , d a t e d D e -

Secretary

of

Agriculture

Arthur

M.

H y d e describes the f a r m m o r t g a g e situation as f o l l o w s : M o r t g a g e debt presses upon the American farmer today with exceptional severity. T o t a l farm mortgage debt in the United States increased from $ 3 . 3 billion in 1 9 1 0 to $7.9 billion in 1 9 2 0 , and to $ 9 . 5 billion in 1928. Since then it has fallen slightly, largely as a result of foreclosures. Interest and attendant costs on this mortgage debt in 1 9 3 0 represented a fixed annual charge of $ 5 6 8 millions. While the capacity to carry this charge has declined greatly in the last two years, the charge itself remains about the same. In 1 9 3 1 , interest on the farmer's debt absorbed about 8 per cent of the gross farm income, compared with 4 per cent in 1 9 2 0 and 3 per cent in 1 9 1 0 . In recent years an increasing number of farms have been mortgaged. T h e department estimates that in 1 9 3 0 40 per cent of all farms were mortgaged. Foreclosures are all too prevalent. T h e y are blighting the hopes of men who can get as much out of the land as anyone could. A g r i c u l t u r e , in other w o r d s , h a s been g r e a t l y o v e r c a p i talized in the f o r m of m o r t g a g e s .

T h e burden of debt

is, of course, much increased b y the o v e r w h e l m i n g l o a d of taxes.

T a x a t i o n of f a r m s n o w in cultivation increased

f r o m an index of 1 6 3 in 1 9 1 0 to 2 5 3 in 1 9 2 7 , 2 in response to the d e m a n d schools,

and

an

of

the f a r m e r

enlargement

for good of

other

roads,

social

better

services.

2 Whitney Coombs, Taxation of Farm Property, U. S. Department of Agriculture, Technical Bulletin 172, p. 5.

S3

VOLUNTARY

ALLOTMENT

These taxes represent a lien prior to the lien of interest, and must be paid before the creditor receives anything. In addition to the mortgage burden, there is an estimated amount of nominally short-term debt held by banks, amounting to 4 billion dollars in 1 9 3 0 . * Much of this is secured by chattel mortgages. These loans are f o r the most part frozen. The makers cannot pay. While the debts are nominally secured, the security cannot be sold for the face amounts of the debts. Farm taxation also represents a serious burden. Again quoting from the Secretary of Agriculture: F a r m taxes have remained practically unchanged during the depression, although in a very substantial relief.

f e w states, farmers have

received

T a x e s for the country as a whole have been,

in the last t w o years, about 1 6 6 per cent higher than they were in 1 9 1 4 .

W i t h gross farm incomes down to the pre-war level, the

tax load is extremely onerous.

A s in the case of the mortgage

debt burden, its real weight has been doubled by falling prices since 1 9 2 9 .

It takes more than four times as many units of

farm produce to pay the farm tax bill now as it took in 1 9 1 4 .

In

1 9 3 1 , taxes on farm property absorbed about 1 1 per cent of the gross farm income, compared with only 4 per cent before the w a r .

Agriculture, in other words, like the railroads and city real estate, is in need of a drastic reorganization. T h e security of the immense volume of debt on farm property cannot be sold f o r the amount of the obligations. Neither can it produce, after the payment of taxes, the interest called for by these obligations. These debts, therefore, must be scaled. The law requires this reor* U. S. Department of Agriculture, Year p. 502.

54

Book

of Agriculture,

1930,

NATURAL ECONOMIC LAW ganization. A n insurance company or bank is not allowed to carry indefinitely real estate taken in foreclosure to satisfy debt. A national bank may retain real estate f o r five years, and an insurance company according to the regulations of the insurance commissioners. But it is not contemplated that banks and insurance companies should remain large owners of real estate. T h e y are not authorized to carry on such a business. T h e y must dispose of the property which they take over by foreclosure sale. E v e n did the law permit lending institutions to hold land taken in foreclosure, it is not their desire to do so. A s we have seen in the case of Ole Swanson, while he was meeting his charges the life insurance company received $ 6 0 0 a year f r o m his mortgage. A t present, as the owner of this $ 2 0 , 0 0 0 f a r m , the insurance company receives $ 2 5 0 a year, which is less than the taxes by $ 5 0 , and it must pay these taxes. E v e r y year that the insurance company carries this burden adds $ 6 5 0 to its loss on the loan. I t is not to be expected, moreover, that a tenant, even as good a tenant as Swanson, will keep his buildings in repair and maintain the fertility of the soil, as he did when the f a r m was his own. Y e a r a f t e r year, therefore, as long as the insurance company holds the f a r m , its costs will mount. A conservative estimate of the cost of maintenance on Swanson's f a r m , allowing f o r depreciation and depletion of land, unpaid interest, and tax deficits, is $ 1 , 0 0 0 . In five years, the insurance company will lose $ 5 , 0 0 0 on this dead investment, leaving only $ 5 , 0 0 0 remaining out of $ 1 0 , 0 0 0 of policy holders' 55

VOLUNTARY ALLOTMENT funds. T h i s situation is typical, and the loss must be stopped at the earliest possible moment. E v e n if the insurance company should write off the entire value of the f a r m , and take its loss in a lump sum, it would probably save money in the long run. Of course, this will not be necessary. T h e f a r m can be sold at some price. T h e present dead line is $ 1 0 , 0 0 0 , but the f a r m cannot pay interest on a valuation of $ 1 0 , 0 0 0 . A t present prices, it is doubtful that a return can be paid on more than $ 5 , 0 0 0 , one-fourth of the original appraised value. If these facts are admitted, $ 5 , 0 0 0 is the price at which the insurance company will, if it finds a buyer, sell this 160-acre f a r m . On the basis of 1 9 3 2 prices, and assuming a gross annual income of $ 1 , 0 0 0 and a 50 per cent cut in taxes, which is indicated, the purchaser of this f a r m f o r $ 5 , 0 0 0 would have $ 5 0 0 a year to pay his f a r m and living expenses. If he were optimistic, he might be willing to take this chance. But $ 5 , 0 0 0 is the extreme price which can be obtained f o r the Swanson f a r m on the present level of f a r m prices. W e may expect, therefore, in all parts of the country, either a f t e r judicial sale or by private settlement, to have these defaulted mortgages liquidated, losses to the creditor determined, further losses stopped, and a doubtful investment converted into a fixed sum of money upon which interest can be paid. Already indications are multiplying throughout the agricultural sections that this development is in progress. A joint stock land bank, f o r example, will sell a f a r m taken over at foreclosure sale on a $ 1 0 , 0 0 0 mortgage, at $ 5 , 0 0 0 . T h i s money is then used to purchase at 20 56

NATURAL ECONOMIC LAW or less the bonds of the joint stock land bank, leaving the bank $ 1 4 , 0 0 0 ahead. 4 It has retired $ 1 5 , 0 0 0 of its obligations with $ 3 , 0 0 0 , and has $ 2 , 0 0 0 in cash remaining. When lending institutions have secured their funds by an issue of their own bonds—and this is true both of the joint stock and the Federal land banks, as well as many private mortgage companies—the heavy depreciation in many of these bonds makes such an operation as that outlined above easy. In this mortgage conversion, the Federal L o a n Banks, so it is claimed, have been much more considerate of the debtors than the joint stock land banks. 4 * W e may expect, therefore, to see wholesale disposal of mortgaged f a r m lands. T h e buyers, in cases like that of Ole Swanson, will probably be the former owners or their sons. T h e y are familiar with the properties; they can do more with them than a newcomer. They have the necessary tools and livestock, unless these are taken f r o m them under their chattel mortgages. Even though they have no cash to put into the transaction, they can make a small mortgage pay. In other cases, where failure has been due to the declining years of the owner, to dissipation, or to plain incompetence, the mortgagee landlord, acting on the advice of a local representative who is familiar with all these facts, will sell a foreclosed f a r m to a young man raised on a f a r m , who has lost out in the competition in the city and desires to return to the 4 Special dispatch from Des Moines, Iowa, to Ne