STATEMENT OF MR. SMITH W. BROOKHART, REPRESENTING THE NATIONAL FARMERS UNION, WASHINGTON, IOWA.

The CHAIRMAN. Give your full name, your residence, and the organization which you represent, Mr. Brookhart.

Mr. BROOKHART. Smith W. Brookhart. Washington, Iowa. I am a lawyer and a farmer. I live on a farm and make my living practicing law. I represent officially the National Farmers Union.

I prefer, gentlemen, to make a statement of what I deem to be the farmers' case, and then submit to cross-examination on all the propositions.

In reference to the losses of the farmer and the causes, responsibilities, and remedies therefor I desire to state as follows:

The world demand is, and at all times during and since the war, has been greater than the supply of farm products. If, therefore, the law of supply and demand had been in force the farmer would have sustained no loss.

The farmer produced his last crop under the most expensive conditions and at the greatest cost, therefore he was entitled to the highest prices and in justice there should have been no deflation of prices for these crops.

Based upon these facts and taking account of all deflation up to date, the farmer has sustained a total loss of $7,000,000,000.

The principal direct causes of these losses are as follows:

1. Unnecessary profiteering of middlemen, which includes speculative gambling.

2. The arbitrary restriction of credit by the Federal reserve bank and the holding up of the Federal land banks by litigation.

3. The unreasonable rise in railroad rates.

4. The breakdown of foreign markets.

All these causes have been created by autocratic economic power exercised under unjust laws.

Profiteering and speculation of middlemen is shown by the following facts:

The farmer is both a producer and a consumer.

The laborer is both a producer and a consumer.

Each is the principal customer of the products of the other.

Out of the dollar which labor pays for the products of the farm, the farmer only gets 38 cents.

Out of the dollar which the farmer pays for the products of labor, the labor man only gets 35 cents.

The cost of distribution each way is over 60 cents on the dollar, and against this might be cited a cost of less than 10 cents in cooperative Denmark.

We can not reduce distribution to 10 cents in America, but it might be reduced to 20 cents. This would make a saving of 42 cents on farm products. If the farmer seeks to take all of this, he will receive no help from the public. If he is willing to cooperate and divide with his consumers, the principal of which is the laboring man, he can add over 50 per cent to the price of his products and give a reduction equal in amount to his consumer. In this all labor will gladly join.

On the other hand, there should be a saving of 45 cents on the dollar in the distribution of the products of labor. If labor seeks to

take it all, it will fail. If it is willing to divide with its principal consumer, the farmer, it will succeed.

The total wages of labor are approximately $25,000,000,000, and this goes to about 35 per cent of our people. There may be an error in this estimate, and if the clerical workers are included it goes to about 50 per cent of our people.

The total value of farm products since the deflation, that means for 1920, including all sold and all used by the farmers themselves, does not exceed $20,000,000,000, and that goes to about 43 per cent of our people.

If all of the returns of the farmer be counted as wages he gets 20 per cent less total than the wages of labor, and there are 20 per cent more farmers than laborers on the first estimate and only about 14 per cent less on the second.

In addition to this the farmer had a capital investment of $80,000,000,000 upon which he gets no return, although mortgages upon it called for vast amounts of interest.

The business and other capital investments were about double farm capital, and if they had received the same return it might therefore take two ciphers to express it. Instead, this capital and the speculators got a return of about $20,000,000,000 and this went to about 7 per cent of our people. A just distribution of this sum would give the farmers more than $7,000,000,000 increase with but slight readjustment of the wages of labor. The capital of the farmer is just as sacred as the capital of the Steel Trust, the Oil Trust, the Beef Trust, the Tobacco Trust, the Cotton Trust, the Sugar Trust, the Railroad Trust, the Machinery Trust, the Money Trust, or the Telephone Trust, and is entitled to an equal return.

Perhaps the most conspicuous example of speculative gambling which directly helps to produce these results is found in the Chicago Board of Trade. They sell 51 times as much grain as ever comes into Chicago. They sell three times as much as is produced in the whole world. Only twenty-eight one-hundredths of 1 per cent of this grain sold on futures is actually available for delivery at Chicago. The total volume is approximately 18,500,000,000 bushels and its value ranges from $15,000,000,000 to $20,000,000,000. Upon all these pyramided sales a commission is paid, the direct tendency of which is to increase the cost of distribution and increase the spread between producer and consumer. These commissions amount to more than three times as much as the net receipts of Monte Carlo, the greatest gambling institution on earth. The farmer objects to having his prices fixed by a gambling institution.

The conclusions of these facts are inevitable. The producers and consumers, composed of farmers and all necessary labor of hand or brain in both production and distribution, must join in such complete economic and political cooperation as to take over the distribution of their products from producer to consumer. This calls for a cooperative code, both State and National, upon the Rochdale principle, and board of trade gambling, including hedging," must be ended by law as was the Louisiana lottery.

In both the economic and political action necessary to bring this about we will be opposed by the Chamber of Commerce of the United States, because it represents both the profits of the middleman and the speculator.

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

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

Senator MCNARY. Very well; proceed.

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

The CHAIRMAN. What year?

Mr. BROOKHART. That is last year, the last report of the Comptroller of the Currency. I have used round numbers.

that is not the exact figure. Of this sum agriculture received 14 per cent; manufacturing, 21 per cent; merchandising, 26 per cent; and speculation and miscellaneous, 39 per cent.

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

Senator CAPPER. Are those official figures?

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

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

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

If Iowa's allotment had been an average of the States it would have been nearly $110,000,000 instead of $36,000,000. But Iowa is far more than an average in resources. It was fifth in assessed valuation in 1919 and upon that basis was entitled to eight-one hundred and thirty-fourths, or an allotment of $300,000,000. In fact, it got $91,000,000 and was called for two-thirds of that.

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

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

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

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

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

The rise in freight rates as farm prices fall is a flagrant extortion. It is caused by a cost-plus guarantee law that puts a premium upon waste, extravagance, and mismanagement. Under this law a valuation of $18,800,000,000 is put upon the railroads. At the same time all their stock and all their bonds representing all their value could be bought on the market for less than $14,000,000,000. Heretofore we have regarded this value too high, but this law has added to it over $5,000,000,000 of water. It is said the advance in wages of labor caused the advance in rates. Last year maintenance expense increased $1,406,000,000, but the amount paid for increased wages was only $480,000,000. This leaves $926,000,000 to explain. It is next said the causes were the high prices of steel and coal, but the same men who controlled the railroads controlled the prices of steel and coal. When the Government was operating the Pennsylvania and the New York Central their locomotives were repaired in their own shops at a cost of $4,466 each. After the roads were turned back the men in these shops were discharged and 299 locomotives were sent to the Baldwin Co. at a cost of $19,057 each for the same work. The Baldwin Co. is controlled by the same men who control the roads. Therefore, they got more profits by increasing the expense over 300 per cent, most of which the farmer must pay.

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

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

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

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

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

There are $1,500,000,000 of unused credit in the Federal Reserve Bank, the majority of which the farmers would control if they had their own money in their own banks and they would control many other hundred millions besides that which went to the use of speculators. With such a control of their own credit they could easily have marketed their products in Europe. This could probably have been done without loss on the necessary loans, but the farmers could better afford to suffer such a loss of $2,000,000,000 or even $3,000,000,000 than to take a loss of $7,000,000,000 in the slump of prices. The farmers can only do this by a cooperative organization of their credit, and there is no national law for such organization. Instead, they were exploited by the United States Chamber of Commerce and every financial combination in the country.

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