Representative SUMNERS. Governor, in normal times is there much of an international flow of capital influenced by interest and rediscount rates among the several more important nations of the world? Gov. STRONG. In normal times the discount rates are a great influence upon the flow of credit.

Now, Congressman, there has been a good deal of discussion of the flow of capital. Capital can not be transported like a trunk full of clothes. When you speak of a transfer of capital from one country to another, the only capital that is capable of being transferred in a trunk or in your pocket is gold. You may ship goods that are produced by one country to another for consumption or employment in industry, but the transfer of capital from one country to another is really only effected in a basic sense by shipments of gold, and the great transfer of capital that has taken place in recent years has been from other countries to the United States through the great movement of gold to this country.

Now, speaking of normal times, that flow of gold is regulated to some extent by the changes in the relative rates for money in the different markets of the world. It is regulated to some extent, but I do not think completely. Presenting the picture rather simply, we may say that if there is a tendency for gold to flow out of London, say, to New York, and it reaches a point where it is beginning to impair the reserves of the Bank of England to a point where they must take measures of protection, they advance their discount rate. The advance of the discount rate starts a flow of credit to London, and that flow of credit stops the outflow of gold. But I must deprecate such transactions as representing an export of credit; they do not represent anything of the kind.

Representative SUMNERS. You think, then, that the rate of interest which may be offered in other countries during normal times would not probably influence the rediscount situation in the Federal reserve bank sufficiently to make it necessary for it to change its rediscount rate to meet that situation?

GOV. STRONG. I think when normal times come, if they do-and I hope they do soon-that it will be necessary and desirable that arrangements be effected between the important banks of issue throughout the world, so as to effect some regulation of those matters.

The CHAIRMAN. If there is nothing further with Gov. Strong this evening, we will take a recess until to-morrow morning, to go on to-morrow with other matters, and will resume with Gov. Strong on Thursday morning at 10 o'clock.

(Whereupon, at 5 o'clock and 30 minutes p. m., the commission adjourned until to-morrow, Wednesday, August 10, 1921, at 10 o'clock a. m.)

AGRICULTURAL INQUIRY.

THURSDAY, AUGUST 11, 1921.

CONGRESS OF THE UNITED STATES,

JOINT COMMISSION ON AGRICULTURAL INQUIRY,

Washington, D. C

The joint commission met, pursuant to adjournment taken on yesterday, at 10 o'clock a. m., in room 70, Capitol Building, Representative Sydney Anderson (chairman) presiding.

The CHAIRMAN. The commission will come to order.

Before we proceed this morning I would like to read into the record a telegram which I received yesterday, as follows [reading]:

SYDNEY ANDERSON,

Chairman Joint Commission of Agricultural Inquiry:

ST. MATTHEWS, S. C.

Your telegram even date, complete stenographic report Washington conference, to which Gov. Harding refers, is proof positive that his statement: "In other words, they wanted us to sanction a loan of 30 cents a pound on cotton which was worth at that time normally on the market, I think, 28 cents a pound," is absolutely incorrect. No such request has ever been made of Federal Reserve, nor could we be induced make such unreasonable request which lacks first element of sound banking and business.

Request at September Federal Reserve conference was read to full board, with Gov. Harding presiding, explained by section, and then presented to Gov. Harding personally in writing, and most assuredly should be in his files. Stenographic report of conference proves conclusively no such request, as stated by Gov. Harding, was made. Only request made was that necessary renewals be granted on loans based upon agricultural paper, to enable gradual and orderly marketing of crops, and on which credits were based, either by renewal of agricultural paper or substitution therefor of commodity secured paper where expedient, or by rediscounting on cotton in warehouse with proper receipts, as provided in section 13, Federal reserve act. Had our request been granted it would have brought benefits to agriculture and commerce, Nation wide, and distressing condition confronting us to-day would not be one-tenthfold as serious.

Gov. Harding's statement appearing in press, which statement is confirmed by your telegram of to-day, has aroused indignation of officials and members our association throughout cotton belt, who strenuously protest over incorrectness and injustice of statement and insist it has done serious injury to association and officials, including myself, and I urge immediately request Gov. Harding to make correction of said erroneous statement to commission and through press. I therefore telegraphed Gov. Harding urging that he refer to written request made at September conference, copy of which was filed with him at the conference, and immediately issue correction, both in justice to himself, myself, and the association.

Gov. Harding has just replied by telegram as follows: "My statement referred to resolutions passed at Montgomery conference September, 1920, with reference to market value of cotton at time these resolutions were presented to board meeting on September 14. Think you will be satisfied when you see full report of proceedings that I did not misrepresent you. Am not responsible for newspaper accounts."

I am now telegraphing him a second request for correction based upon written request of September conference, of which I hold stenographic report, and copy of which was filed with him, and should certainly be in his records. If Gov. Harding issues correction please telegraph me copy of same. If he declines to promptly

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make correction as requested, I then request that commission permit me to furnish statement for purpose of keeping records straight, supplying them with correct facts, and undoing the injustice that has been done us.

Please read this telegram to commission. I also request that you make this telegram and my telegram of 8th on same subject part of official proceedings of investigation.

J. S. WANNAMAKER, President American Cotton Association.

I also desire to insert into the record at this place, as a part of yesterday's proceedings, a statement addressed to this commission on behalf of the wool-growing industry of the United States.

(The statement referred to is here printed in full, as follows):

A STATEMENT-THE POSITION AND NEEDS OF THE SHEEP INDUSTRY IN THE UNITED STATES.

The COMMISSION OF AGRICULTURAL INQUIRY,

Washington, D. C.

GENTLEMEN: It having been impossible for us to have a representative appear before your commission at the time mentioned in the chairman's telegram, we are submitting the following statement for your consideration. We shall be ready to make any further statements or to assist in presenting matters and devising the means for giving needed stability to all branches of agriculture.

The National Wool Growers' Association through its individual members and affiliated organizations represents a majority of the sheep owners of the country. A list of the affiliated organizations is attached to this statement.

Our discussion of this question is arranged under the following principal topics: 1. Position of sheep raisers and prospects for wool and mutton production. 2. Measures for immediate improvement.

3. How the needed stability and development of sheep raising can be secured.

POSITION OF RANGE SHEEP RAISERS AND PROSPECTS FOR WOOL AND MUTTON PRODUC

TION.

Speaking first for owners of over 20,000,000 sheep in the range States (considerably more than one-half of the total in the United States with most of whom sheep raising is an exclusive business), we will state that more than a majority of them are to-day insolvent.

The following facts have served to depress the sheep business beyond what can be attributed to general deflation:

1. A considerable part of the 1920 wool clip is still unsold. The part sold brought prices equal to 25 per cent of 1919 prices. This clip was grown altogether on a very high cost basis.

2. The 1921 clip has a very low value. Expenses could not be reduced until November, 1921, at which time wage reductions were possible through lessened competition of railroads and mines.

3. The winter of 1919-20 was an unusually severe one and followed a dry summer and fall. Losses of stock were severe and expenses for feed purchased at high rates left most growers deeply indebted to their banks even before the collapse of the wool market on May 20, 1920.

4. The 1918 wool clip was, in effect, commandeered by the Government at less than the 1917 price. This, together with taxes paid, prevented accumulation of reserves for difficult times.

The future is entirely dependent upon the ability and willingness of the bank and loan companies to afford sufficient time to work out the loans. However, there is considerable doubt as to this being done. Within the last few days the State bank commissioner of Utah has notified banks regarding the need of liquidating outstanding loans, particularly mentioning overdue live-stock paper. If such action is started it will naturally become more general and a very great decrease in the numbers of breeding stock will be inevitable. (The cause of this credit condition and its prevention in the future are discussed in section 3.)

At present flocks are very much below their usual numbers as a result of forced marketing of ewe lambs last year, coincident with an unusually expensive winter in 1919-20, an a very short lamb crop following. The 1922 production of wool and of lambs can not possibly amount to as much as 75 per cent of the average yield and the

further liquidation which seems likely will in all probability further reduce production. This condition is upon us in the face of the range feed supply, which is, with the exception of parts of two or three States, the best that has been known for many years. It must be remembered that the grazing of live stock is the only possible method of utilizing the principal part of the area of the 11 principal range States (including Texas). In Nevada, Idaho, and Utah, for example, seven-eighths of the acreage is not in cultivation. This figure applies to the lands outside national forests and other reservations. The cattle grazing business is in no better condition than the sheep business and suffers from the same fundamental defects in our national land and financial policies.

The very drastic depletion of the breeding flocks and herds which was started in 1920 and which threatens to go further this year means (1) an acute shortage in wool, mutton, and beef, and (2) the paralysis of the principal rural industry of Western States.

The crippling of range stockmen affect the farmers of the West and Central West no less vitally. The principal products of the irrigated farms are feed crops. Their natural market is for winter feeding of range-breeding stock and the fattening of steers, wethers, or breeding stock that has passed the age of safety for running on the range. The western farm areas can not be prosperous if the range sheep and cattle business is cut down. Large quantities of 1920 hay are in the fields and the growers are unable to meet any payments upon their loans.

The movement of feeder stock to corn-belt farms is the smallest known since this movement was established, and corn and rough feed are either piled up on the farms that grew them or forced in oversupply upon a market that can not possibly absorb for export or industrial purposes.

In the farming States the low price of wool has stopped a logical expansion of sheep raising on high-priced land which had well started and was greatly needed in the truly economic use of the products and by-products of valuable land and also as a large contribution to the problem of maintaining farm incomes with a scant supply and high cost of farm labor.

In this connection we hope your commission is fully appreciative of prospective wool-trade conditions. The meat problem is usually more fully considered. The farm production of lamb and mutton offers the best prospect of increasing our meat supply without making necessary any reduction of cattle or swine populations. But mutton production can not be separated from wool values.

In 1914, prior to the war, the wool trade was rudely awakened to the fact that world production was falling short of consumption. The war increased consumption of wool in some countries but completely checked civilian trade in wool fabrics. In Europe and in the rest of the world as well there is a vast accumulation of needs of woolen goods but financial conditions prevent resumption of trade. Recently Germany has resumed buying in British wool sales and the surplus that has piled up will soon disappear and demand and supply will be as in the first half of 1914. The United States will then be, as it was in 1917, dependent upon Great Britain for military requirements of wool. In peace our mills will be increasingly dependent upon a diminishing foreign supply. The distress of present conditions would seem really to be secondary to the seriousness of our national safety in the future and our industrial future is endangered unless we clear the way for a larger wool production upon the farms and upon the ranges of our own country.

Measures for immediate improvement: The emergency tariff, the live-stock finance corporation, freight rates.

THE EMERGENCY TARIFF.

A drop in wool values, following the war, was anticipated by sheepmen. It was not anticipated that our markets would be left open as a dumping place for accumulations of other countries and our importers enabled to receive the bonus of 25 per cent which the exchange conditions afforded them. Nor was it anticpated that the Federal Reserve Board's suggestion for deflation would be made in the early part of the regular marketing season of a wool clip produced at the highest cost ever known.

The emergency tariff came into effect on May 27. Its great value has been too lightly estimated by many, who do not consider that in the case of wool the political juggling between December 7, 1920, and April 9, 1921, caused an overloading of the American market with imported wools, that can not fail to keep the market at an abnormally low level for at least a year.

THE LIVE-STOCK FINANCE CORPORATION,

The delayed and drastic deflation of our national financial affairs revealed a dangerous defect in our normal financing of agricultural production. Loans on breeding sheep and cattle had, and still have, no standing in the discounting market, if drawn for

a period longer than that provided for the service of speculative stock feeders, i. e, months.

Our efforts to secure temporary relief from this inequitable plan, through Senate Stanfield's amendment to the War Finance Corporation act and the Sterling-Smith resolution, were set aside. The Treasury Department sought to evade the delay insi dent to Congressional action by the organization of a special $50,000,000 corporation Five serious weeks have passed and not one new loan has been made nor an old loan renewed. We still hope for a practical service from the corporation and adherence to the early announcement of intention to carry loans secured by breeding stock through a period of 30 months in order to allow time for a turnover of the investment.

FREIGHT RATES.

Prohibitive and unjustifiable rates of charge for transportation of live stock had a great deal to do with pulling down values of collateral and increasing expense to the point where it was, not a matter of reduced profits but rather one of increased losses

The reduced wage scale for railway employees has gone into effect, but the same high freight rates apply and are bringing the live-stock business to a condition in which it will be unable to furnish any business to the carriers.

We recommend and urge upon your commission that you insist upon immediate readjustment of freight rates upon wool and live stock.

How the needed stability and development of sheep raising can be secured: Stabiliz ing home markets; adequate financing of production and distribution; instituting a national policy pertaining to public lands, education, and research.

STABILIZING HOME MARKETS.

To prevent extreme fluctuations in prices and profits is the only certain means of stabilizing an industry to the point of insuring efficiency and safe and reasonable expansion. An importing country must have regard to the kind of competition that home producers must face in home market. We believe that the Fordney regular tariff bill is well calculated to stabilize our various lines of business and properly recognize the interests of employees and consumers generally. Unfortunately, sched-. ule 11 contains some features which would operate to defeat what appears to he and what we believe should be the real objects of the bill. We refer to (1) the indefensible 35 per cent limitation upon wool duties, (2) to inadequacy of 25 cents per pound, and (3) to a manufacturer's compensatory protection of from 20 to 36 cents per pound upon, goods when, as a matter of fact, the protection to growers would in many cases be le than 10 cents. We particularly call the attention of your commission to this latter point, because nothing but evil can possibly come from giving extra protection to manufacturing under the guise of protection to a branch of agriculture.

We have confidence that the final form of the regular tariff bill will be such as will serve to stabilize the business of agricultural protection and harmoniously to relate it to other industries and to the present and future welfare of this Nation.

ADEQUATE FINANCING OF AGRICULTURAL PRODUCTS.

We suggest to your commission:

1. That loans upon breeding live stock be made eligible for discount by the Federal reserve system when drawn for 30 months.

2. That a workable system be established for financing wool and other agricultural articles from the time of production to the time of actually entering consumption. The range-sheep business is in its present deplorable state largely as a result of what is now seen to have been overloaning. To some extent the freedom with which loans were made was a reflection of practices in other industries affected by war trade. That the error was carried to an extreme in our case can not be charged wholly to the borrowers. The lenders must have been at fault to at least an equal degree. It is now time to locate and remove the cause of such error in order that the business may be able to stand future strains and in normal times may have the benefit of sound methods.

To a very large degree, the temptation to overborrowing and overloaning arise from the lack of any national policy governing the use of the public domain. This case is given separate discussion on pages 10 to 11.

Loans to sheep raisers are chiefly secured by the sheep themselves and necessarily made for a period of not over six months. In good times the value of the ewe is based on her earning power as a producer of lambs and wool. When lamb and wool markets tumble, confidence is shaken and holders of paper begin to figure the ewe's value in accordance with her immediate carcass value. This greatly depreciates the collateral,