Farmers in the Pit

THE scene is laid on one of the upper floors of the largest bank in Chicago. The spacious offices are wainscoted in heavy mahogany and furnished with rich simplicity. In one of these rooms ‘the old man’ is to be found. Past sixty now, the powerful frame is somewhat bent by years of unremitting toil. His eyes are still clear and discerning and he speaks as one having authority. Plainly he has been long accustomed to dealing with large affairs.

Thus far the setting might be that of any big business.

Around the corner is another ample chamber, outfitted like the lounge of a rich man’s club. The only suggestion of business is to be found in the tickers, which incessantly convey a record of the market news of the world. Seated in earnest conversation are a few sunburned men. Their large hands and strong bodies evidence years of labor and exposure in the open air. Farmers and business men, they are the board of directors of this corporation, and the big business man around the corner is their manager, their employee, their hired man.

The enterprise is itself a novel experiment in American trade. It is a spectacular combination of business and agricultural coöperation, the rural lamb lying down peacefully with the urban lion. Grain-trading corporations possessing extensive elevator properties and capitalized for many millions have merged with the coöperative ventures of thousands of farmers scattered through a dozen slates. What this accomplishes and what it fails to accomplish must have large consequences, since it is the culmination of a conspicuous effort, with concessions on both sides, to bridge the chasm which has so long separated American farmers and business men.

No one can understand what is being attempted in Chicago unless he knows the underlying and often ignored facts. The chief of these is the political power of the American farmer. In 1916 that long-headed Irishman, Sir Horace Plunkett, who has devoted so much of his life toward bringing about a better understanding between the American and British peoples, was asked by his Government when the United States would enter the war. He replied, ‘ When the Middle West is ready.’ This opinion was based on his observation that in this country political sovereignty, or certainly the balance of power, had for some years been resting in the agricultural states of the Mississippi Valley. History proved that this opinion was correct; when the Middle West was ready, which incidentally was many months and perhaps a year after the Atlantic States were in the mood to throw aside neutrality, Congress declared war.

Chicago business men have been engaged in a conflict — an unwilling conflict, it may be admitted — with Western farmers ever since the Civil War. During two generations the farmers have had much the same set ot grievances. Again and again they have sought through political channels to obtain redress. Not always have they succeeded in getting satisfaction; their plans have often been frustrated, even though their activity left a deep mark on the development of the nation. All the while, however, their strength has been growing and now, in a vital affair, the business leaders are willing to compromise and to treat for peace.

Low prices for agricultural products have been the persistent source of the farmers’ unrest. Sixty years ago Western farmers, impoverished by low prices, fought the attempt of the Treasury Department to withdraw the greenbacks from circulation just as within the past few years the grandsons of the same men have been critical of the deflation policy of the Federal Reserve system. In each case men who had agricultural products to sell have believed that the policies adopted by the Government at the instigation of the ‘ moneyed interests ‘ have worked to their disadvantage. It does not matter whether the Greenbackers were sound in their objection to Secretary Hugh McCulloch’s plans for refunding the Civil War Debt or whether present-day farmers are justified in their antagonism to the policies adopted by the Federal Reserve Board in 1920. The important fact is that several million farmers, then and now, have drifted into a position of sharp hostility to business men and bankers and that these controversies are the result of disproportionately low prices of farm produce.

During the last four years the Farm Bloc in Congress and the unrest in grain states of which it was an expression have been regarded as a strange and unprecedented phenomenon in American life. Actually, however, this new insurgency is but a reappearance of one of the oldest and most solid traditions in the development of the country. The Farm Bloc of 1924 speaks the same language and stands sponsor for many of the same principles characteristic of the Greenbackers, the Grangers, and the Populists. Higher prices — if necessary at the cost of an inflated currency — and lower freight rates were issues which moved the Western farmers during the seventies and eighties quite as much as they do to-day. As the conflict became sharp, fifty years ago, city men said that the farmers believed in repudiation of national debts when they asked for currency-inflation. The lowering of freight rates and the regulation of railroads were termed confiscation and the demand for such things was loudly denounced as a proof of the inherent dishonesty of the men on the farms. Yet it is historically true that the Granger agitation resulted in the establishment of governmental regulation of railroads. The Interstate Commerce Commission and the numerous state railroad commissions are monuments to the unrest of the farmers.

The difference between the present and that earlier period, when even so brilliant and generous a man as Charles Francis Adams could say, on the very eve of the creation of the Interstate Commerce Commission, that any general law attempting to regulate railroads was inherently impossible because of the diversity of conditions, lies in the greater sophistication of the leaders on both sides. However much conservatives may dislike the ideas and personalities now dominant in the politics of the Northwest, moderate men in all quarters and all activities recognize that the farmers did suffer disproportionately during the depression which began in 1920.

It is of course arguable that the rule of supply and demand is like the law of the Medes and the Persians and that the farmers should accept its blessings and its penalties without complaint. The truth is, however, that other groups do what they can to modify this economic principle to their own advantage, sometimes with success. Wise farmers concluded that the wide gap between falling wheat-prices and steady bread-prices was due to the highly integrated condition of the flour and bread markets and to the disordered state of the agricultural market. The city men had learned how to protect themselves against rapid variations in the prices of what they had to sell while the farmers remained exposed to the full fury of economic elements.

In the opinion of the leaders of rural thought, they too might stabilize agricultural prices as J. P. Morgan had steadied the price of steel. In this belief they had support in some wellinformed circles. Two years ago Bernard M. Baruch, former chairman of the War Industries Board, worked out a plan by means of which a farmers’ coöperative organization might attempt to stabilize prices through the acquisition of terminal elevators and the formation of an export company. Nothing came of this immediately, but the idea, as will be seen, is now bearing fruit.

Since 1920 the farmers have centred their efforts upon four lines of activity. They have demanded and obtained laws favorable to the creation of producers’ coöperative societies. They have sought and secured loans from the Federal Government. They have asked for lower freight, rates, so far without success, and they have succeeded in obtaining the passage of legislation designed to restrict trading in the grain markets. Their aspirations have been by no means fully met; but both in that which they have already attained and in that which has been promised them by all three political parties they are in a more favorable position than ever before.

Under such circumstances the Grain Marketing Company was formed — a farmers’ coöperative society, organized under a recent Illinois law. This business is capitalized at $26,000,000 and it has already absorbed the Armour Grain Marketing Company, the Rosenbaum Grain Corporation, and Rosenbaum Brothers. When negotiations are completed the buying farmers will have at least nominal control of a majority of the elevators and of the marketing facilities in Chicago. In addition they will have very large establishments in Kansas City, Duluth, Buffalo, and other grain centres. The coöperative has taken over the offices and staff of the Armour Grain Marketing Company, and George E. Marcy, for a generation the managing director of the Armour interests in the grain market, is now the chief executive.

This shift seems hardly credible to those whose memories run back even twenty years. For fifty years the Chicago packers have been rated as the enemy by insurgent farmers. Among the Chicago packers old P. D. Armour, and after him his son, J. Ogden Armour, have personified the ‘big business’ which the countrymen regarded as so antagonistic to their prosperity. The conflict between the farmers and the packers has been every whit as sharp as that between capital and labor. These hostile groups are now united in a common enterprise. Peace such as this passes understanding and an explanation is due.

I asked those responsible for the venture, and many others whose positions gave them comprehension of the realities of the grain trade, how it happened that these conspicuous traders had come into agreement with their hereditary foes. The answers obtained from diverse sources were strikingly similar. Here is a composite reply:—

‘ We grain-dealers are tired of fighting the farmers. The wheat-growers think that the elevator men and traders make all the money out of grain. They believe that sharp practice and even dishonesty are used against them.

‘This long-standing belief has begun to register itself in legislation. Already the trading-in-futures act is being enforced. This law does not forbid trading in futures, but it does provide potential publicity for those who so trade. The brokers must give the names of their customers to the Department of Agriculture. The man who knows that at any time his deals may be made public by a government official is less inclined to buy against the future.

‘In other ways the business has already been handicapped. Economic conditions, especially the inability of the European buyers to purchase American wheat, have rendered trade less profitable. Moreover the future looks gloomy. If the radical farmers have their way in Congress — and who can say that they will not — the Federal Government will soon take charge of the grain-marketing business. We do not favor that development.

‘Furthermore, we think that if the farmers knew more about, the grain business they would be less critical of what we do. They would learn that the restrictions they seek to impose upon us hurt the business itself. Consequently we are in the mood to try something new.’

This is not the whole explanation, but it is the gist of what the traders say. Personal elements are also involved, and important among them was the attitude of Bernard M. Baruch, who was in Europe at the time the actual experiment was determined upon. Mr. Baruch first presented the idea forcefully to the men who afterward carried it, to fruition.

The War Industries Board in the stress of international fighting induced the leaders of many American industries to coöperate. Chairman Baruch brought together at Washington competitors and rivals, and the necessities of making war led them to see industry from a common point of view. Good consequences and bad have followed from this coöperation since peace eliminated the common welfare as the prime objective of the joint dealing. Nevertheless the picture remained one of promise, and when the farmers, threatened with bankruptcy by the swift reduction in the value of all their possessions and of their products, sought counsel, Mr. Baruch advised the sort of coöperation the War Industries Board had encouraged during the war.

In company with a group of farmers he journeyed to Chicago and conferred with J. Ogden Armour, George E. Marcy, and other prominent traders. He proposed that one or more of the large dealers sell their elevators and their organizations to a farmers’ coöperative. By entering the export trade and holding their wheat for rising prices Mr. Baruch thought the farmers might better their condition. For the moment the plan was abandoned. No one was willing to yield, and then the West continued to send to Washington representatives and senators pledged to enact laws for the relief of the wheatgrowers.

Coöperation continued to be discussed and many of those in high position gave their sanction to the idea. Frank O. Lowden, a distinguished former governor of Illinois and a son-inlaw of George M. Pullman, who a generation ago was typical of the hard-headed business men of Chicago, abandoned Presidential aspirations to work for an improvement in agricultural conditions. Politicians and statesmen hailed coöperation as the refuge from intolerable conditions and the grain-dealers began to wonder if there was not something in the idea. A few of them at least were also influenced by idealism. The man chiefly responsible on the traders’ side for what has been attempted said with some embarrassment. when questioned closely: ‘I have given my entire life to this business and when I pass out I would like to leave the industry a little better than I found it.’ That is a characteristic Chicago attitude. Nowhere is business harder and nowhere is a generous public conception more likely to express itself in action. Fourteen years ago Joseph Shaffner, a clothing-manufacturer, at the end of a long strike, gave voice to a similar conviction, and already his industry has been revolutionized and the standards of living of hundreds of thousands of workers have been raised. Another Chicagoan, Daniel H. Burnham, put on paper an architect’s dream of making his city beautiful and to-day Chicago is being rebuilt with the prodigality of a Napoleon. Unless idealism is conceded, it is not possible fully to understand what is happening in the West.

The organization with which the grain-dealers made their contract is the American Farm Bureau Federation. This is a large and representative body having branches in most of the states. It is dominated by the larger farmers and, compared with certain other agricultural associations, is conservative rather than radical. Still the Farm Bureau Federation actively supported the McNary-Haugen bill, which the Chicago business men denounced as diabolically bad. This measure, which failed of passage in the last Congress, would have established an agricultural export commission with an authorized capital of $200,000,000. Its purpose was to ‘restore and maintain approximately the pre-war normal relationship between the prices of certain farm products and the general price level.’ It would in fact have put the Federal Government in the business of marketing wheat and, had the scheme succeeded, the domain of those who have so long dominated the Chicago Board of Trade would have indeed been restricted.

The Farm Bureau Federation is itself the result of other Federal legislation. The Smith-Lever Act. which provided county agricultural agents, presupposed the organization of the farmers. To secure the benefits of the law, countrymen were compelled to form cooperative associations. Within two years the entire country has been covered by these coöperatives. County groups have been united into state associations, the states in turn bound together in a national federation.

Marketing problems were at once attacked, and already some important achievements have been recorded. The National Live Stock Producers’ Association is a child of the Farm Bureau Federation; last year it did a business of more than $100,000,000. Likewise the vegetable and fruit growers in many states have been organized. Since its very beginning the Federation has been giving attention to wheatmarketing. When the grain-dealers arrived at willingness to compromise, it was an available buyer for those who would yield their control of elevator facilities.

The terms of the bargain have been criticized, but the statement of one of those immediately involved was probably fair when he said: ‘This is neither a sheriff’s sale nor a hard trade; we have come together at a fair price.’

The contract called for the creation of a $26,000,000 company. The farmers paid out nothing in cash and the graindealers undertook to provide $4,000,000 working capital. The previous owners of the grain companies retained 500,000 shares of Class B stock at fifty dollars a share — in effect a $25,000,000 mortgage on the entire business. The farmers have undertaken to sell 1,000,000 shares of common stock at one dollar a share and 1,000,000 shares of Class A stock at twenty-five dollars a share. As rapidly as the common stock and the Class A preferred are sold to the wheat-growers, the mortgage will be retired.

Moreover the profits of the business will be used to pay off the mortgage. It has been estimated that economies resulting from the merging of interests will be from six to eight cents a bushel. This will immediately redound to the benefit of the producers in accordance with cooperative principles. How large the earnings of the business will be is naturally problematical, but one of the companies involved has made an average profit of $1,250,000 during the past ten years. The same company’s interest on its share of the Class B stock, or mortgage, will be but $400,000 a year. Manifestly it has yielded something and the farmers have been given a comparatively painless method of buying a large business.

Not less important is the fact that the executives and the personnel of the merged companies are now employed by the farmers. Good management is the key to all business success, whatever the system under which trade is conducted. Hitherto coöperation has frequently failed because the coöperatives lacked expert direction. The Grain Marketing Company starts with managers and a trained staff whose competence none disputes. In truth their very skill has in the past been the farmers’ argument against them.

So it has happened that the farmers are in possession of sumptuous offices on Chicago’s La Salle Street, the financial centre of the Middle West. There, within earshot, of the pit of the famous Board of Trade, they direct a business the very volume of which would arouse criticism and perhaps Federal prosecution if it had not the immunity from antitrust suspicion which attaches to agricultural coöperation.

It seems that something of almost revolutionary significance is happening in the West. Power appears to be passing from one group to another. The grain-dealers say they have given themselves five years more in the business. Within that time the wheatgrowers should have learned the intricacies of the market place, trained their own merchants, and become prepared to displace those who are now hired to carry on the business. In the process they will have become accustomed to an environment they have long viewed with suspicion. Likewise the business men with whom the farmers associate so closely will have reached a better understanding of agricultural problems.

Already local coöperative societies in many states possess elevators; added now are storage facilities in the terminal cities, and a marketing-agency with national and international ramifications. The wheat-growers’ business is different, however, from that which it may supersede. In producers’ coöperation there are no profits in the ordinary sense of the word. Interest must of course be paid on borrowed money and, if the management continues to be as successful as the same men have been in the past, ample net earnings should be shown on the balance sheet. But these earnings will be returned to the coöperators. The wheat-grower will obtain rebates in accordance with the number of bushels distributed for him. What is earned will thus be scattered over the farming-country and not accumulated in the cities.

This is on the assumption that the plan succeeds. There are those who profess to believe that soon enough the farmers will be glad to abandon the wheat pit, where so many speculators have waged their spectacular campaigns, and return to their ploughs and tractors. Such pessimism ignores too much. The farmers who have sponsored these adventures are universitytrained and acquainted with financial methods. The contract they negotiated is the expression of their intelligence as well as that of the lawyers, bankers, and grain-dealers involved. The scientific methods they have long applied to growing their products they would now direct to the distribution and sale of the fruits of their labor.

Excessive enthusiasm is not needed to conclude that this effort or one like it is apt to strike root and to flourish. A little while ago, throughout vast areas the wheat farmers, on the verge of bankruptcy, seemed unequal to the struggle against an economic system which tended to reduce them to a condition of economic serfdom. If there were not intelligence enough in the agricultural regions to master the problem of favorably disposing of such a commodity as wheat, then in fact American farmers might be expected to sink to the level of a peasantry. Fortunately, however, from many directions comes the assurance that the men who plant and harvest the crops are able also to dispose of them.

The Chicago grain-dealers offered no treaty of peace until the farmers persuaded the leaders of the pit that the Government was likely to take over their business. They accepted coöperation because they dreaded governmental operation. The McNaryHaugen bill, which implied Federal domination of the grain market, was close to passage at the last session of Congress, thereby proving that the farmers could wage aggressive warfare in order to win back the relatively high standard of living they once enjoyed. It is interesting to the nation, however, that in an elemental industry, producing and distributing the chief food article of the world, men should agree and seek to work together. Coöperation, honestly and wisely administered, avoids some of the inherent disadvantages of a bureaucratic service. Assuredly this trial of large-scale coöperation is better for the nation than that scheme for bringing the United States Government directly into the grain business, a measure seriously considered during the recent sessions of Congress.