A Challenge to the Federal Farm Board


THE outstanding characteristic of our social and economic history during the past two decades is the remarkable shifting of public interest from the industrial workers to the farmers. The farmer has pushed the city worker aside and now occupies the centre of the stage. His supposed distress is quite monopolizing the attention of reformers, uplifters, men and women high in the councils of the nation, bankers, and politicians both within and without Congress, and he himself has become vocal as never before through extensive organization and a small army of high-salaried advocates.

Throughout these years measures for his relief stand out like milestones, each succeeding one a little more radical, a little more distinctively appealing to class consciousness, and all culminating in the recent act creating the Federal Farm Board. This Board, the sole function of which is to look after the farmer, is clothed with practically unlimited powers and is financially buttressed by the United States Treasury.

One by one the causes of agricultural discontent had faded out, until finally the forces of farm relief had come to be trained on a single issue — the ruinously low prices received by the farmers for their staple crops. The farmer’s perennial dissatisfaction was given a new impetus by the post-war collapse of agricultural prices and by the fact that they persistently remained out of line with the prices received for the products of industry. The belief was widespread that this discrepancy was due to the ability of the speculators on the exchanges to take advantage of the farmer’s need to market his crops immediately after harvest, and that the only way to thwart the speculators was to slow down marketing by storing the crops and feeding them out gradually in response to demand. ‘Marketing would be made orderly’ and ‘prices would be stabilized.’

But the holding movement had, in most cases, proved a disastrous failure. Undeterred, however, its advocates insisted that the failure had been due to imperfect organization and inadequate credit, and the chief function of the new Board was declared to be to assist the farmer to stabilize his prices through orderly marketing; it was to step into the breach, and with its great prestige and unlimited funds to win success where heretofore there had been only failure.

Even before its confirmation, the Board was subjected to increasing pressure from within and without Congress to take some action to relieve the price situation. Its innocuous first statement that it would assist in stabilizing prices, provided the farmers would regulate their production, satisfied no one and raised such a storm of protest that more definite and radical action was imperative. Wisdom, born of sad experience, had made other credit agencies, including the Government’s Intermediate Credit Banks, over-conservative from the point of view of the advocates of holding; and the Board now came forward with the announcement that it would correct the situation by making supplemental loans.

In October, after further goading, it took another step by issuing a statement that in its opinion the price of cotton was too low, as a result of too rapid marketing, and that it would make supplemental loans to enable growers to hold their cotton for higher prices. A few days later it made a similar statement in regard to wheat.

In the case of each of these commodities the maximum loan per unit amounted in many localities to about 100 per cent of the current market price; and prices have since fallen materially. To allay the fears of the wheat growers of the Northwest, the Chairman of the Farm Board came out with the statement that the decline had been brought about by speculators and that no one should think of selling wheat at current prices. Governor Moody of Texas, growing impatient at what he considered the Board’s delay in arranging for its advances, wired that since its announcement cotton had ‘declined about 1.5 cents per pound, resulting in loss of about $5.00 to $7.50 per bale to such farmers as held their cotton under the belief that 16.35 cents per pound was or would soon be available.’ At this juncture, Congress came to the rescue by passing a resolution for the investigation of the cotton exchanges.

It should be noted that, as matters then stood, the loans against these commodities stood at more than 100 per cent of their value, and that no step had been taken, either by hedging or by insurance, to cover the risk of further declines. But this fact did not deter five Senators from making a call on the Board and urging that, since in the Board’s opinion the current prices of cotton were too low, it should show faith in its statement by increasing the maximum loan per pound from sixteen cents to twenty cents. And another ungrateful child — a cotton coöperative—refused to accept the Board’s offer of a loan because it would not meet the Board’s demand that the coöperative include its entire assets in the security. It urged that the Board should make its loans ‘upon its faith in the value of cotton.'

At this writing, December 20, North Dakota farmers are receiving advances of one dollar per bushel on wheat stored in local warehouses; and, with the Minneapolis price at $1.20 per bushel, the freight charges from many points in the state, together with the handling expenses, more than take up the twenty cents differential; or, to put it in another way, since advances to Northwestern farmers were made and are being made on the basis of $1.25 a bushel, Minneapolis, the loans on wheat stand at about 105 per cent of its value. On November 15 the organ of the North Dakota and Montana pool said, ‘They [the members of the pool] can get more cash as a first advance from the pool than they can get to-day at their home station by selling outright, and in addition they retain an equity in their wheat.’

It is evident, therefore, that unless the price of wheat advances enough to restore this differential and take care of the mounting carrying charges the borrowing farmer will receive what amounts to a handsome bonus, because he is still the owner of his stored wheat and can refuse to sell it at a loss, thus forcing the Board to take over the wheat and sell it at a loss or carry it over into the next crop year.

The cotton situation parallels that of wheat. By its October statement, the Board assured the farmers an average advance of 16 cents per pound; but the price of cotton has fallen, and if the freight and shipping charges are to be taken care of the loan will, in many localities, exceed 100 per cent of the value.

I am not indulging in hyperbole when I say that this action of the Farm Board is so radical a departure from ordinary business practice that it amounts to a veritable revolution. It sets up a new scheme of distribution: prices are no longer to be the outcome of the working of supply and demand, but are to be regulated by the Government, acting through a Board sitting in Washington. This Board is to say when prices are too high and when too low, when fair and when unfair; and not only for wheat and cotton, but for practically all agricultural commodities, ranging from wheat to honey. In view of the fact that we are overwhelmingly the largest producer and consumer of agricultural products in the world, the immensity and complexity of the task the Board has set for itself stagger the imagination. I doubt whether in all history so ambitious an attempt on the part of a government to assist agriculture by setting aside economic law has ever been made.'

Its repercussion will inevitably be felt in the industrial world. A leading merchant has well said, ‘If carried through, the programme will affect every part of the distributing organization.'

And it has already been seriously suggested that, in view of the fact that the Government is urging the farmer to combine with his neighbor in holding his cotton for a satisfactory price, and is even financially assisting him to do so, the manufacturer of cotton goods must be accorded the same privilege, now denied him under threat of imprisonment, or, with cotton thus made artificially high, he will have to shut down his mills.


The marketing of the world’s staple crops is carried on through the Futures Exchanges. These exchanges are a product of evolution. At first only a few staple crops were listed, but each year has brought additions until now the list numbers twenty-five, nearly all of which are products of the farm. The chief function of the Futures Exchange is to afford the machinery wherewith the dealer or merchant may shift the risks of unfavorable price fluctuations to the speculator; and out of this function there has developed another of scarcely less importance — namely, the reflecting of price movements. It is the business of the speculator not only to determine the intentions of buyers and sellers in the regions covered by the market, but to weigh all the factors affecting prices during the crop year. In this way prices are prevented from being unduly depressed by heavy supplies or unduly raised by scanty offerings, and the after-harvest feast and subsequent famine are thus eliminated.

This view, however, the Farm Board does not accept. In its eyes these exchanges, as they function to-day, are a menace to the well-being of the farmer. The Board assumes that the speculator makes prices instead of reflecting them, that he thwarts the law of supply and demand, and that therefore he must be eliminated, even though this would mean the destruction of the exchanges. A brief review of the movement of prices under the workings of the exchange should throw light on the correctness of the Farm Board’s position.

Some years ago I subjected the holding movement to careful scrutiny in order to discover whether it was indeed true that farmers were suffering severe losses from marketing their crops soon after harvest, and whether, if they would delay their marketing till later in the season, the higher prices then obtaining would pay for the cost and risk involved in holding and yield them an adequate profit. My study, which covered the decade from 1903 to 1913, shows conclusively in regard to wheat and cotton, the two products with which we are here chiefly concerned, that under modern marketing conditions the free play of supply and demand so regulates prices that, contrary to prevailing opinion, the farmer who waits till the latter part of the season to sell his products is far more likely to lose than to gain by the delay, since during the early months, the period of heavy marketing, prices are relatively higher than during the later months, the period of light marketing. ‘After-harvest gluts’ and ‘autumnal dips’ are giant Mumbos.

A few years later, the Minneapolis Chamber of Commerce made a similar investigation, covering the twenty-nine years from 1885 to 1913, and arrived at the same conclusions. Briefly summed up, the findings of the experts are as follows: that during the months of light movement to market

— namely, May, June, July, and August — the average price of wheat was 4.25 cents a bushel higher in the case of No. 1 Northern, and 4.23 cents higher in the case of No. 2 Northern, than during the months of heavy movement to market — namely, September, October, November, and December; but that, if carrying charges be taken into account, the farmer who held his wheat till the period of light movement to market would have lost

— in twenty years out of the twentynine in the case of No. 1 Northern, and in eighteen years out of the twentynine in the case of No. 2 Northern. ‘In short,’ concludes the Chamber of Commerce, ’the less prosperous farmer who, owing to his debts, was forced to sell immediately after harvest was, if anything, more fortunate on the average than his more prosperous neighbor who was able to dispose of his grain at the end of the crop year.’

Let us see how the holding farmer would have fared in the years 1921-22 to 1928-29. During this period, on an average, about 75 per cent of the wheat was marketed during the first six months of the crop year. If we take the average price received during each of these months, and if we allow a nominal carrying charge of nine cents a bushel, we discover that only in two years, 1921-22 and 1924-25, would the holding farmer have gained. In the former year, his gain would have been about two cents a bushel and in the latter about twenty-four cents; in the other six years he would have sustained a loss, which in 1928-29 would have been about ten cents a bushel.

A study of the price movement for cotton gives similar results. During the eighty months of the decade from 1903 to 1913 there were twenty-four in which the grower could have sold at a profit, of from one tenth of a cent to 2.4 cents per pound, from holding; while had he sold in any of the remaining fifty-six months he would have sustained a loss of from one tenth of a cent to 2.8 cents per pound from holding.

Price statistics for 1921-22 to 192829 show that in only two of the eight years, if allowance be made for a carrying charge of one cent a pound, was the average price of cotton as high during the last six months of the marketing period, the time of light marketing, as during the first six months, the time of heavy marketing. In 1922-23 there would have been an average gain from holding of about 2.3 cents a pound, and in 1925-26 an average loss of about 4.6 cents a pound.

Similar studies for other crops traded in on the exchanges give similar results; and the experiences of the various coöperative holding pools bear eloquent testimony to the correctness of these conclusions. Their failures to realize their hopes were attributed to a lack of credit, and to fill the gap the Federal Government, established the Intermediate Credit Banks. But almost every year the heavy loans made by these banks during the first half of the crop year have had to be liquidated during the second half, with little or no profit or with substantial losses. For example, a year ago the cotton coöperatives had direct outstanding loans from the Intermediate Credit Banks to the amount of $20,000,000; and they were finally forced to liquidate these loans by selling their cotton at prices substantially lower than those at which it would have been sold when it went into storage.

As we have seen, the Farm Board’s declaration that the prices of wheat and cotton were too low was based on the theory that the exceptionally heavy marketing of these products by farmers in the early autumn had interfered with the working of the law of supply and demand. A careful analysis of the situation, however, shows that in the case of cotton there is little justification for this position. While it is true that farmers marketed their cotton somewhat earlier than usual, there is little evidence that this caused material derangement of the market.

In the case of wheat, however, the situation is different. New methods of harvesting have greatly speeded up the movement to market; and the flood of new wheat met the flood of old wheat from the huge 1928 ‘carry over,’ which was still glutting the farmer’s bins and the terminal elevators and was making unusual demands on transportation. It is not strange, therefore, that cash prices got out of line with futures and for the time being did not accurately reflect adjustment between the entire season’s supply and demand. However, it is easy to exaggerate the amount of price depression; and the ephemeral nature of the situation is strikingly shown by the fact that a little more than a month after the Board’s announcement cash prices and nearfuture prices had returned to their normal relationship. And the present quotations on the distant futures show that the market is skeptical of materially higher prices later in the season.

The generous lending policy of the Board will undoubtedly encourage holding, and cash prices will be forced above normal levels. It goes without saying that acreage will be stimulated and that the prospect of next year’s increased production will be hanging over the market and will join the unmarketed surplus in depressing the endof-the-season prices below normal levels unless the unexpected happens — stimulation of the demand by war or depletion of the supply by crop failure. Barring such developments, prices will fall materially below the amount advanced by the Board, and the pressure to carry the surplus over into the next crop year will be irresistible.

The head of the Farmers National Grain Association, writing about the surplus on December 16, said, ‘The unusually large surplus of wheat is menacing. The very large surplus carried over from the previous year has been troublesome, and, if weather conditions continue favorable and some way is not found to market the surplus which has been difficult to work for export, the difficulty in handling the 1930 crop may be very serious.’ It is well known that the carried-over surplus is the rock on which all ventures in holding have sooner or later foundered. The very success of such ventures in raising prices has eventually worked destruction. This the Board well understands and it early declared against the policy of carrying over surpluses. But if the Board is to avoid the common fate it will be forced to meet the situation in the only possible way— namely, by bringing about curtailment of production.


As originally drafted, the Farm Board bill provided that the coöperatives should be instructed to urge their members to reduce their acreage ‘as a patriotic duty’; but farm leaders saw to it that this provision did not appear in the final bill. However, the Board early intimated that it would not continue to support the market if farmers went on increasing their output. As was to have been expected, this warning fell on deaf ears. Curtailment of production has never been popular with farmers. Indeed, at the time the warning was sounded our winter wheat growers were planning a substantial increase of acreage. The Board can function only through the coöperatives, and the weakness of the situation is revealed by the fact that scarcely 25 per cent of the farmers are members of the coöperatives. Furthermore, this percentage would undoubtedly be greatly reduced by any vigorous measure looking toward enforced curtailment of production.

How fearful both the farm leaders and the Board are of antagonizing the farmer is shown by the fact that in the statutes accepted by the Board as a model for grain coöperatives not only is no provision made for crop curtailment, but it is even provided that a non-member farmer may enjoy all the benefits of the organization except the privilege of borrowing on his stored crop.

But if the Board should succeed in persuading the farmers to enter the coöperatives and at the same time getting them to agree to curtail their acreage, it would still be faced with the staggering problem of administration. In regard to wheat alone, it would be obliged to make and enforce provisions for fixing the acreage of nearly 1,500,000 growers who are scattered throughout forty-eight states, and among whom there is an utter lack of homogeneity. There is no uniform cost of production; there are large growers whose sole crop is wheat and who are situated where no other crops can be successfully grown, and others who grow wheat as part of an orderly rotation. All must be coerced into limiting their acreage to a maximum prescribed by the fiat of a Board sitting in Washington.

For the sake of argument, however, let it be granted that the Board, acting through coöperatives, can bring about such curtailment of acreage. We are still confronted by the question, What acres shall be lopped off? Since yield is a product, not alone of the number of acres, but of soil fertility and tillage, the individual farmer can comply with the demand that he reduce his acreage and, at the same time, can enormously expand his output merely by choosing better acres, giving them more careful tilth, and resorting to fertilizers.

It is a fact too little appreciated that American agriculture is far from having reached the point where increased application of capital and labor would not bring larger yields at lower costs per unit. Farmers understand the theory of comparative costs and do not hesitate to act on it when prices warrant. How can any government agency deal successfully with such intangible and uncontrollable factors?

This new departure in government is bureaucracy gone mad; and it predicates such intolerable interference with the affairs of the individual and encroachment on his freedom of action as to make the success of such a scheme unthinkable.


The wrecks which the holding movement has left strewn along the highway of its comparatively short course bear eloquent and tragic testimony to the truth of what I have just written. The failure of the post-war wheat pools of the Northwest and the collapse of the sugar and rubber attempts spring immediately to mind. At this writing Poland is struggling with a demoralized grain market growing out of the huge surplus which resulted from last year’s price fixing. The Government itself has sustained heavy losses, and the taxpayers are to be further mulcted to pay the heavy export bounties on grain which have recently been instituted.

It is generally assumed also that Canada’s experiment in wheat holding has accomplished wonders for her growers; but just what is to become of the huge surplus carried over from last year’s crop is in the lap of the gods. The real test is yet to come.

However, the attempts to set aside the law of supply and demand which are likely to become classic are the Brazilian coffee valorization scheme and the coöperative holding movement of our own raisin growers.

For some years previous to the World War prices of coffee ruled discouragingly low, and in order to raise them to higher levels a holding movement supported by state loans was inaugurated by the Brazilian Government. There were many factors favorable to the success of the attempt: Brazil is overwhelmingly the world’s largest coffee producer; its production is mainly in the hands of large growers; the demand is not oversensitive to price changes, and coffee lends itself well to storage.

Prices were indeed raised; but the Government was faced by ever-increasing supplies, which it had to buy in order to sustain the market. Coffee production was stimulated at home and abroad and end-of-the-scason surpluses mounted. One crisis followed another; but the situation was saved, now by a timely frost and now by new loans. The Government found it impossible to withdraw its support, and what had been intended as a temporary measure to meet a temporary emergency became a permanent policy.

From season to season the problem of disposing of the surplus has become more serious. Domestic production has gone on expanding, and the competition of coffee growers outside of Brazil has enormously increased.

This autumn the flood broke: there is a coffee surplus equal to the world’s consumption for an entire year; and, since the hoped-for frost did not materialize, another big crop lies in the offing. While the Defense Committee, which is in charge of valorization, is refusing shipments from growers, our markets are bare of coffee. The confidence of the market in the statements emanating from the Defense Committee has been shaken; and, in the expectation of lower prices, dealers have adopted a policy of hand-to-mouth buying.

Brazil has practically exhausted her borrowing power; and the recent loan of $10,000,000 is so inadequate and carries with it such onerous conditions that the relief afforded is a mockery. Says a coffee expert, ‘This small loan merely postpones the ultimate solution of Brazil’s difficulties, for it would not deal at all with the basic problem of overproduction; and no real confidence in the market can be felt as long as Brazil continues to pile up an unmanageable surplus. What Brazil needs more than anything else is a price which will enable her to sell her coffee.’

Taking their cue from the Brazilian coffee growers, the California raisin producers in turn began their campaign in 1912 to raise the price of raisins above that afforded them under the law of supply and demand. The story of their losing battle so strikingly parallels that of the coffee growers of Brazil that its telling would be mere repetition. This season’s devastating frost and a huge supplementary loan by the Farm Board have afforded a breathing spell; but the situation created by long flouting of economic law is as critical as ever and presents quite as baffling a problem.


It is time to ask the question, which I am sure has already occurred to my readers, Are there not new factors of control at the disposal of the Farm Board which will save its venture in price raising from the fate of similar attempts? Is it not probable that the Farm Board, with the political and financial backing of the Federal Government, and with a carefully selected personnel, will be able to succeed where other agencies less substantially supported have signally failed? My answer is, No. The difference between the Farm Board and the organizations which have had charge of the various pooling and valorization schemes is one of degree, not of kind. It is true, of course, that the Board has great prestige, and, as the public is being repeatedly told these days, unlimited funds, which are at the disposal of the coöperatives. But it was not faulty organization or lack of funds that defeated Poland’s holding movement, Brazil’s valorization scheme, and our numerous ventures in holding, but the attempt to set aside economic law as immutable as the tides; and the Board is making the same attempt.

Though it is true that the Board has greater prestige and larger resources, it should be pointed out that its task is immeasurably more difficult. It is not the instrument of private initiative on the part of a single industry, such as raisins or wheat, but it is an instrument created by the Government and supported by taxes drawn from all the people; and, while it may be able to confine its efforts to helping the farmers, it cannot limit its efforts to aiding any particular group of farmers, — the wheat or cotton growers, for example, — but must come to the succor of every group appealing to it. This is exactly what has already come to pass. The list of agricultural industries appealing to it for aid is already long and bids fair to include all agricultural production of any consequence. Some conception of the magnitude of the task set the Board may be gathered from the fact that the annual value of our agricultural products hovers around $12,000,000,000.

Furthermore it is a mistake to look upon agriculture as a single industry, for it is made up of many industries, with conflicting interests. One group’s meat is another group’s poison. Higher prices for the wheat grower mean higher prices to the miller for his offal and hardship for the dairyman. Higher prices for the corn grower of the Middle West will depress the price of lean cattle, the chief product of the Western rancher. The consequent clamor for relief could be disregarded by a private agency, but must be met and silenced by a government board if it is to survive.

Furthermore the Board has increased the difficulty of its task by its overgenerous lending, as a result of which it finds itself fixing prices and taking over from the shoulders of the Futures Exchanges the enormous burden of keeping supply and demand in adjustment. Indeed it is not too much to say that, if the Board continues on the road it is now traveling, private handling of our staple products will come to an end and the speculative exchanges will cease to function. This very day, December 20, wheat on the Chicago exchange fell to $1.15 3/4 per bushel. This is two and a quarter cents below the basis fixed by the Board for its loans to farmers, and after the close of the market a coöperative agency acting for the Board posted a notice that it would pay the Board’s upset price, $1.18, for all shipments within the next twenty days, and there is a well-grounded rumor that the Board will continue to sustain the market at this level. Under such conditions, it is evidently out of the question for private enterprise to function.

If experience teaches us anything, it is that human institutions must be built from the bottom up through slow processes of evolution; but in this plan for farm relief the very reverse is the case. The building is to be put up overnight and the work is to be begun at the top. It is not strange, therefore, that the structure is top-heavy with politics. Private initiative and private control are quite overshadowed by political meddling and political control. The taxpayers’ money is turned over to so-called farm coöperatives, which only by the widest stretch of the imagination can, in most cases, be said either to represent or to be controlled by the farmers. Such conditions inevitably place a premium on unbusinesslike methods and give rise to grave abuses of many sorts. Canada has gone about the matter in a radically different way; the government is kept in the background, and it does not furnish the funds. The local coöperatives finance their operations with their own capital supplemented by bank loans, and this fact guarantees a certain degree of supervision and restraint. Europe has for years been trying to get back to a policy similar to that of Canada, and we are taking up her discarded methods. It is strange indeed that we find ourselves in the position of a people in the act of robbing the waste-basket of another people.

Space will not permit more than brief mention of the international irritations which a public board is sure to create in carrying out its policy of disposing of our surplus commodities in foreign markets. Any attempt to raise domestic prices by dumping products on European markets would arouse the antagonism of European producers, who would demand protection from their governments and would get it. It is a strange delusion that European governments will permit such a policy, which we would not tolerate for a moment. They too have farmers who must be reckoned with at election time.

On the other hand, it is plain that European consumers will vehemently protest against paying our inflated domestic prices, with the result that only as a last resort will they look to the United States for supplies. The advocates of the holding movement are beginning to sense this opposition.

A prominent Senator has suggested that our coöperatives enter into an alliance with Canadian coöperatives to combat the threat of Europeans to make their first purchases of wheat from the unorganized markets of the Southern Hemisphere. And the wheat member of the Board suggests, ‘The organized European purchaser will be confronted by an organized selling market.’

Earlier in this paper I have alluded to the growing class consciousness of our farmers. It is a thousand pities that this new Board, which so intimately speaks for the nation, has not seen fit to allay this growing distemper instead of aggravating it. The Board should know (or, if it does not, it might consult the shade of Chancellor Caprivi) that a self-conscious agrarianism can be quite as selfish and unlovely as the class consciousness of other groups. It may well be that the American farmer is desperately in need of relief, but, I suggest that we can scarcely hope to bring about his succor by flouting economic law and urging upon him the belief that he is a victim of class discrimination.