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J-'UmH /W *rvj

glad

I aa glad to be the guest of your association

guest

accept

and to be able to acoept your invitation to address

realize

this meeting.

precious
opportunity
restricted
second-hand
intimately
familiarly
average fanner
perplexing

But you realize that a New York banker

probably knows precious little about farming*

His

opportunity to learn of farming conditions is much
restricted, and most of the information which comes to
him in regard to the farmer's problems is second-hand.
So you will not expect me to discuss intimately and
familiarly the difficult problems of farm economy.
On the other hand, I suppose the average farmer likewise
knows quite as little about the many perplexing problems
of the New York banker, which largely have to do with

trade

industry

the financing of the vast trade and industry of our
country;

foreign

and in these difficult days the even more

perplexing task of financing the country's foreign trade.
New York does, however, produce a breed of

breed
farmer with which you are little familiar.
Wall Street
agriculturist

them are to be found in and about Wall Street.
them agriculturists. and an agriculturist

works hard
country
good time
works hard
city




Many of
We call

The difference between a farmer
is this:

-

A farmer works hard

on his farm all the year in order to make enough money
to enable him to go to the city and have a good time;
an agriculturist

works hard in the city all the year

in order to make enough money to run a farm where he can
go and have a good time.

—2~
Having had no experience with either kind of

no experience
observations

farming, I must content myself with a few observations
which have some bearing, I believe, upon the problems
with which you are now very much perplexed and by which ^
~ I __Amany farmers are very much distressed.
Jt'l
h V t fl

perplexed
distressed

A few years ago when poor health'TMUUtSuiUllBll “
abandoning work for a period, I made a trip through the
Far East.

Japan etc

During some months of travel in Japan, China,

Malaya, Burma, India, and the Dutch Indies, a large part
farm districts

of my time was spent in farming districts.

One thing

that struck me most, I think, was the great similarity

similarity

in much that we saw.

Consider Java, which is probably

Consider Java
the richest of all of the Eastern fariaing countries, bath

richest

in fertility of soil and in the natural advantages of an
equable climate with abundant rainfall*

climate
rainfall
hundreds

There for

hundreds of miles one sees the Javanese farmer, his wife
miles

paddy
irrigation
patches

and his children working in the paddy fields where rice
is grown by irrigation*

What one describes as a field

is really a series of patches of land, frequently but a
fraction of the size of this room, often running up the

volcano
banked
basin of mud

slope of a volcano, each patch carefully banked by hand to
retain the water which is supplied by irrigation;
is little more than a basin of mud.

- it

When one sees a

plough, it is being drawn with leisurely dignity by a
water buffalo
bare-foot




huge water buffalo-

The work in fact is done almost

entirely by bare-footed Javanese, both nen and women, who

-3-

ankleB in mud

work over their ankles in oud and water with simple

hand tools

hand iatpletwnts.

crop

crop is rice, which starts its growth in a seed bed and

rice

As you know, their principal cereal

transplanted

is transplanted from there - every plant - by hand into

operation

the paddy.

bent back

the farmer and his wife and children stand with bentback

poking

That operation alone, where for hours on end

in a pool of wid, poking these little sprouts into the

toil

ground, is a species of toil that would try the soul of

hardiest

the hardiest American farmer.
When the harvest cosies, these people go into the

harvest
knives

fields with small knives and cut simply the tops of the

sheaves

stalks by hand, bind them up in little sheaves and carrj^
them horas on their heads.

Their clothing consists of

1 - 2 garments

one or two light cotton garments.

loin cloth

works dressed only in a loin cloth, and the woman dressed

sarong
houses

The man frequently

in a short skirt, or earong, and loose jacket.

The homes

where they raise and support large families of children,
consist of one or at the most two room huts.

The walls

mats

are built of loosely woven mats made of strips of bamboo

thatched

or palm fibre, and the roofs are thatched with palm leaves

aoors
no furniture

or rice straw.

The doors and windows are simply openings

without glass or shutters.

There is no furniture,

frequently no stove, and no oooking utensils to speak of.
The family equipment usually consists of but little more
pot

than an earthenware or copper pot in whioh the food is

cooking

boiled.




The cooking is frequently done out in the road

road
meal

in front of the house, where the fanily gathers around
the fire, and the meal, consisting of rice nixed with
sons vegetables ;uid possibly some chicken and eggs, is

pilaf

prepared in a sort of dbew or pilaf.

Not infrequently

I have seen the family meal served by the simple method
banana leaf

of each member pulling a broad leaf from a banana palm,
scooping out his share of the meal from the pot and eating
it with his fingers, sitting on the ground.

planting
harvest
travelling
restaurant

During the

planting and harvest season when the village is working•
in the fields, the asal is quite possibly furnished from
one or more travelling restaurants, and is cooked alongside
of the road, where one sees a good part of the farming
community gathered in groups, eating this simple meal such
as I have described,.

100 years
jungle
Daendals

About a hundred years ago, this Island of Jai
was an almost impenetrable jungle.

Under one of the

early Governors - Daendels - a rather brutal system of
enforced native labor brought about the clearing of the

roads

jungle and the building of a great system of roads.

At

that time I believe the Island had a native population in
4 million

the neighborhood of four millions.

To-day, the Island

has a population of 36 millions, and practically all are
engaged in agriculture, principally the raising of rice,
rice, tea
coffee, sugar
Rot unlike India
320 million




sugar, tea and coffes.

Now the conditions are not unlike

this in other parts of the East.

India with its population

of 3E0 millions is engaged largely in just such agriculture.

-5-

Indian peasant

The life of the Indian peasant fanner so far as I could
observe was not unlike that of the Javanese peasant

standard living

farmer, with possibly a slightly higher standard of living*
I have not been in Russia, but from what I have read, one
conceives that conditions there are not unlike those in
India, China and Java.

East irrigated
painstaking toil
draw water

Practically the whole of the

agricultural East is irrigated.

With the most painstaking

toil the peasant faraer in India irrigates his little fara
with water dram from a deep well in a bucket or the skin
of a buffalo, drawn by a windlass operated by a bullock.

25 3/4 million

Although 25 5/4 million acreas of land in the hill country
are irrigated by the Indian Govemmant irrigation works,

vast plains

the vast plains of India are cultivated by small peasant
farmers, and the success of his crop depends largely upon

monsoon
primitive
give picture

the seasonal rainfall, called the monsoon, and upon this
primitive method of irrigation.
This I hope will give soma picture of those less

leee fortunate

fortunate farmsrs in other lands with whom the Amei'ican

compete

faraer does and must coa p e ^g ^. When I say compete, I u

broadept term

the word in the broadest term because the work of the

area limited

farmer is principally to feed the world.

The area of

\

distribution of what he produces is limited by a great
frontiers

variety of factors.

His frontiers may expand and contract

according to relative costs of production and transportation,
surplus




but broadly spdafclng, any nation with a surplus of fara
production is in competition with every other nation with a

-6surplus of farm production*

While the surplus rice

Burma

of Bursa assists in feeding the hundreds of millions in

India

India, the surplus wheat from India and Southern Russia

Mediterranean

competes in Mediterranean ports with American wheat.

Later on I shall refer to the importance of the

refer later
competition

competitive markets;

but now let us compare what I have

described with our own situation.
puzzled

/

I have been deeply

puzzled to explain the meaning of some of the figures

figures

published by our Government in regard to our farming
Yeer Book

industry.

Acoording to the Year Book of the Department

of Agriculture, I find that the value of all of our farm
crops, excluding animal products, in the last two years
before the war was "as follows:
1915
1914

- $6,155 millions
- $6,112 millions

If roughly the same values were produced in
1911 - 1912
25 billion

1911 and 1912, the total value of the crops of the four
years immediately preceding the war was about

25 billions.

From the saas source, and again excluding animals, I find
that the value of all the crops of the country for the
1917 - 1920

four years

&55 billions

$55 billions;

1917 to 1920, inclusive, was in round figures
that is to say, in the four years subsequent

to our entering the war the total value of all the crops
50 billions

in the United States was

50 billions in excess of the

value of all of the crops in the four years immediately
What became




prior to the outbreak of the war.
great treasure?

What became of this

We can roughly assume that this enlarged value could
principally have been disposed of in three ways:
1.

For payment of debts.

2.

For increased oost of production and for improvements.

3.

In a better standard of living for the fa r n r s .
Now as to payment of debts.

I find further

in the bulletins of the Department of Agriculture that the
bank loans
$3,800
mortgage $8,500
enormous enhancement

total of bank loans to farmers as of December 30, 1920, was
estimated at over $5,900 millions, and the total of
mortgage loans exceeded $8,500 millions, and that notwith­
standing the enormous enhancement in the value of the crops
of the four preceding years, these figures represent the

largest amount

largest amount of credit ever employed by the American farmer,
and in fact the census shows that between 1910 and 1920,

doubled
1910 - 1920

the debts of American farmers were about doubled.
As to increased production cost.

Our investigations

would indicate that only a part of this could have been
absorbed in increased cost of labor, fertilizer, and other
operating supplies.

I shall not attempt to enlarge upon

what is not capable of more exact estimate, beyond saying
that the experience of each farmer can be relied upon to
indicate what his farm and his labor is capable of producing
at any given price level.
standard of living
cannot help

And finally as to the farmer’ s standard of living.
I cannot help but believe from theee figures and from what
I have personally observed that for provident farmers it

provident farmer




has generally and greatly improved throughout the years.

-8-

Without burdening you with a further statistical
Without
statistical
& 8 BUBH 9

discussion of this matter, which 1 confess puzzles me a
good deal, may it not be safe to as suns that this great
value produced from the American farms is, in fact,

expressive
possibilities

expressive in large degree of the possibilities of improved
standards of living in this country.

Julius Barnes
20 years
40 per cent.
4 per cent.

We note - as Mr.

Julius H. Barnes has recently explained - that while in
the first 20 years of this century the population of the
United States has increased 40 per cent., the number of
persons engaged in agriculture has increased only 4 per cent.,
whereas the farm production during this period increased from

com 55 per cent,
hogs 68 per cent.

55 per cent, in the case of corn, to as high as 68 per cent,
in the case of hogs.

In other words, in this country, where

we get possibly the smallest production per acre planted,
smallest per
acre planted
and the largest production per capita of farm population,
largest, per capita
farm population
we are in fact developing agriculture under conditions which
developing egric.
promote

do promote the highest standards of living that are possible]
for farmers in any part of the world.

must be product
efficiency

And this standard of

living must be the produot of a higher efficiency applied to
our abundant natural resources.
Some of these questions I think are often approached

questions
approached

without an appreciation of the fundaasntal facts as to what

prosperity, wealth
happiness

makes prosperity, wealth and happiness.

famine

consider only that such a thing as famine is unknown in this
country to-day, nor has it been since our Republic was
founded.

not uncommon
normal




For instance,

Yet there was a time when famine was not only not

uncommon but was almost the normal condition in North America

-9200 - 500 years
ago

every winter.

Only two or three hundred years ago, our

natural resources

oountry possessed natural resources vastly in excess of
what we now have, because since it has become settled we

drawn heavily

have drawn heavily upon the stores of our fertile soil,
our coal, iron, oil, timber, another things that we have
taken out of the ground;

few hundred
thousand Indians
died

and yet but two or three centuries

ago, the few hundred thousand Indians living in this country
in the midst of this vast abundance, often suffered and
died from lack of food*

It is not, therefore, simply the

natural resources of a country that make wealth and economic
contentment and a high standard of wellbeing*
population elone

Nor can it be population alone in conjunction with
natural resources which makes wealth, for we have seen in

densely populated
exhausting
back-breaking
natural resources

the densely populated regions of the East the farmer extract­
ing by exhausting and back-breaking toil only a miserable
and precarious living from lands as rich in natural resources
as our own.

What make6 wealth

What makes wealth is the application of the energies
and ingenuity of a people of higher intelligence to the

development

development and use of these natural resources, to their

exploitation

exploitation by methods devised by inventive genius and

inventive

through the conversion of the things produced into the means

increasing prod­

of again increasing production*

uction
raises standard
no country

That alone is what raises

the standard of living, and no country is capable of attain­
ing a high standard of living no matter what its population
or its natural resources unless its people are willing to

work and save




work and to save.

-10apprehend
precisely
advantages

Now I apprehend that it is precisely this whioh
has provided for the American farmer the advantages of
education, and the enjoyment

of association with his

degree

fellowbeings to a degree unattainable in any other

Be assured

agricultural country in the world.

Javanese

Javanese farmer, like the Chinese or the Hindu, has no
automobile;

banana and coooanut
couple garments
no shoes
auto, radio
Victrola, phone
movieB,education

Be assured that the

his house garden usually consists of a few

banana and cocoanut palms;
linen garments;

his clothing a couple of simple

he wears no shoes;

no radio equipment, no movies;

he has no Victrola,

his opportunities for

education are small.
But in this oountry, and I fear in like degree in

setback

the East, agriculture has had a temporary setback.
i

scarcely be
must not

‘

It

~

can scarcely be, it oust not be allowed to be, permanent.
The8e things that the American farmer enjoys, including

things enjoys
possibly more important than any other, the opportunity to
education
entitled
assured

educate his children, are the things to which he is entitled

so far

the laws of nature under which we live in this country are

and in the enjoyment of which he oust be assured so far as

capable of assuring them to him.
momentary
d ifficulties

speak
quoting




There are momentary difficulties.
I would like
O r V -6 ^
to speak of one of the greatest difficulties with which the
farmer has been confronted, by quoting a few very simple
figures:
In the Survey of Current Business issued by the
Department of Comaeroe for November, you will find on page
111, a tabulation of cereal exports which includes barley,




corn, oats, rye and wheat*

Flour and neal are converted

into equivalent bushels of the grains*

The monthly

average exports of these grains for the year 1913 was
20 3/4 Billion bushels*

Froa 1913 to 1921 the aonthly

average varied froa 14 aillions in 1914 - the low figure to 46 millions in 1921 - the high figure - and I imagine
the record high figure*

In the last three years, the

figure has been
1920

- 35 million bushels

1921

- 46 million bushels

and so far for the year 1922 - 43 Billion bushels*
The months of August and September of this year were 60 and
61 aillion bushels respectively, and those figures have
only twice been exceeded in the last three years, being
90 Billion bushels in August 1921 and 68 aillion bushels in
September 1921*

Now compare these monthly average figures

of quantities of exports of the five cereals naasd, with
the figures of values of exports of grain and grain products
for the sante periods as reported by the Department of
Commerce*

I believe they closely relate to the quantities

I have quoted*
1913
1920
1921
1922

-12-

It is obvious that while exports have been

obvious

pretty well maintained in quantity, the varying return

quantity

upon these farm exports has been caused by the price*

price
another figure




Now let me refer to another figure.

On page six of the

same publication, you will find that throughout the years
1916 to 1921, down in fact to February of 1922, the chart
of prices shows a very close correspondence in the index
numbers of the prices of "all commodities" and of "wholesale
food prices".

In February of 1922, for the first time,

however, a considerable divergence began to appear;

the

prices of "all commodities" advancing some 15 points in
the index number above "wholesale food prices".

In other

words, prices of articles the farmer had to buy advanced
out of proportion to prices of articles he had to sell.
But this is a situation which never has, and I believe
inherently cannot long continue.

We now have in this

country a tremendous urban and industrial population -

4

O '

q /^

twice that now of the farm population.

\

It seems to

inconceivable that this vast army of urban and factory
workers can be prosperous and the farmer not share this
prosperity in the fullest degree.
Now to sum up, it seems clear that:
FIRST - We seem able to compete with farmers
in other countries where standards of living are far below
our own.
SECOND - The quantities of our food exports are
not declining.

Last year, one of great depression, they

were, I believe, the highest on record.

THIRD - The enormous increase in the crop
values of recent years has been unprecedented and could
scarcely long continue,
FOURTH - That increase did not result in a / y N
reduction of the total of the farm debt.

*

^

FIFTH - That the farmer needs stable prioes and
a proper relation of prices between what he consumes and
what he produces.
The fanner
two individuals

The farmer like every other member of our industrial
organization is, in an economic sense, two individuals.

As

a consumer he is interested in having prices low;

as a

producer

producer he is interested in having prices high.

During

planting

tha planting season when the farmer is employing labor to

consumer

plough and plant his fields, when he is buying fertilizer,
repairing his fences and his buildings, than he is, in
current phrase
deflationist
prices low

currant phrase, a deflationist;
see prioee low.

that is, he would like to

In the fall whan his crop is harvested

harvest

and moving to the elevator or the concentration point, he

inflationist
prices high

is an inflationist;

System

ha would lika to see prices high.

Now obviously any system which attempted to insure that the
farmer or any other man in his capaoity as a consumer should
get the advantage of low prices, while at the sane time in
his capacity as^producer getting the advantage of high prices,

futile
fantastic

would be futile and fantastic.

No such system is possible.

I think you will agree with me without the slightest
farmer needs

reservation that what the farmer needs as well as every

capitalist

other business man, whether he be a capitalist or a common

laborer



&

-14-

large st attainable

laborer, is the largest attainable measure of stable prices.

stable prices

When I say this I mean not only that, in general, prices

violent fluctuation

shall not be subject to violent fluctuation but that the
price8 of different things so far as is possible in this

relation
reasonable
certainty
labor etc

imperfect world, run in their normal and natural relation
with each other.

If the farmer knows with reasonable

certainty what his cost for the season is to be in labor and
fertilizer, in supplies, in the gasoline for his tractor or
car, in the wire for his fenoes, in the cattle that he may

reasonably
violent fall

buy to fatten, and he can be reasonably assured also that
there will be no violent fall in the price of the crop that
he produces, whether it be cattle, hogs, corn, wheat or
cotton, he can then bring into play the two elements which

bring into play
two elements

are essential to success in business, whether farming or

incentive

manufacturing or what not.

He can work with the incentive

of a reasonably certain rewardj-that is, margin of profit
intelligence

and he can apply his intelligence to the determination of

kind crop

what kind of a crop to grow with due-regard to the advantages

due regard

or limitations of the soil, the climate, of accessibility to
market, and all of the other factors which should influence
his judgment on this important point.

It is a reasonable

assurance as to stability of prices in both of his capacities
as a consumer and producer which he requires in order to be
assured of just reward for his toil and for the ingenuity
with which he plane his work.
great problem
approached fairly
many elements



Now this great problem of prices must be approached
fairly if we are to discuss it with any profit, with a clear
understanding that there are many elements which enter into
the making of the prices of things.

Obviously, one of the

-15-

quantity

most important is the quantity of a crop in relation to

demand

the demand.

state of mind

mind of the public generally, whether it is in the mood

Hardly less in importance is the state of

to buy, so to speak, or whether in a mood to sell;

or

as the economists describe it , whether it is a seller's
seller’ s

buyer’ s

changing cost
transportati on

what influences




market, or a buyer's market;

and changing cost of production,

changing rates of transportation cost, and a great number of
other factors must be taken into account in arriving at a
judgment as to what it is that influences prices to move
either upward or downward.
You will, however, agree with me that one of the
important elements, although far from being the only controlling
element, is credit, which can be expressed in various ways,
but let us call it the purchasing power of money.

By the

purchasing power of money I include of course the relation
between the quantity of money and the quantity of goods,
which influences the purchasing power.

By money I mean not

only metal coins and paper currency which pass from hand to
hand, but principally bank deposits upon which checks may
be drawn; in other words, bank credit.

I f , therefore,

stable prioes are desirable and if the quantity of credit
exerts any influence upon prioes, as I believe it does, what
should be the objective^ of a banking policy?

It seems

to me that it should be about as follows:
On the one hand, it should insure that there is
sufficient money and credit available to conduct the
business of the nation and to finanoe not only the seasonal
increases in demand but the annual or normal inorease in
volume which throughout long periods is fairly constant.




-16-

On the other hand, there should be no such excessive or
artificial supplies of money and credit as will simply
permit the marking up of prices when there is no increase
in business or production to warrant an increase in the
volume of money and credit.

On this point I think I should

state to you without reservation the views that I personally
hold in regard to this important matter,and while I cannot
speak for any member of the Federal Reserve System except
the New York Reserve Bank, I may say that I have never heard
views expressed that differ greatly from those which I now
desire to express as my own.
I believe that it should be the policy of the
Federal Reserve System, by the employment of the various
means at its command, to maintain the volume of credit and
currency in this country at such a level so that, to the
extent that the volume has any influence upon prices, it
can not possibly become the means for either promoting
speculative advances in prices, or of a depression of
priceb .

You oust not understand from what I say that I

assume that the power of price fixing rests or should rest
with any one*

It does not.

combination of many influences.

Price changes- result from a
So far as the influence

of credit is a factor in prioes, I am frank to say that I
think our policy should be to avoid any development which
would promote or encourage simply price expansion or prioe
contraction.

We should aim to keep the credit volume

equal to the country's needs, and not in excess of its needs,




-17and then price readjustments, ae between the various
classes of commodities, will take place with the least
possible disturbance to agriculture or to any other
industry.

It seems to me that sons such polioy will

permit of that readjustment of the values of the various
classes of commodities to which we must look in order that
the farmer may again enjoy that proper balance,between the
cost of what he consumes and the prioe he realizes for what
he produces*

When that happy tine comes, and I believe

confidently that it is coming, and when that margin of
profit presents the opportunity of doing so, I sincerely
need to
trust that the American farmer, as a class, will feel less
anxiety as to borrowing money, and better able to direct his
efforts toward repaying what he owes.________
Now as to credit and the influences whioh directly
bear upon its administration by the Federal Reserve System.
One especial

reason at this time why the relationship of

credit and prices m st be particularly considered or is
extremely important, is that one of the most important
influences that normally restrains undue fluctuation of
prices is not now in operation.

Before the war when the

oredit machinery of the world was working normally, if the
price level of any country got out of line with world prices,
in other words, if for one or another reason prices advanced
to a point where that country became a good selling market,
the balance of trade turned against it;

its exohange

became depressed, and if the development went far enough,
that country would have heavy payments to make abroad and




-18would likely lose gold.
reserves.

This loss of gold impaired bank

The banks of the country then were naturally

forced to raise their discount rates to protect their
remaining reserves.

The advance in the discount rate

usually brought about two developments;

it attracted funds

to that market and it induced people who were carrying goods,
possibly for speculation, or people who had swollen inventories,
to sell them.

This reduced the prices of goods, enabled

the country to resuae exports in competition with the rest
of the world, checked excessive imports, arrested the outflow
of gold, and frequently caused gold to flow in.
Under the conditions of to-day, caused entirely by
the war, dollars are at a premium the world around.

We

could indulge in a riot of speculation in this country which
would put prices to very high levels, and with a few exceptions,
hardly any nation in the world would be in position to withdraw
large amounts of our gold.

And even then our gold holdings

are so great that we could still lost a large amount without
suffering serious impairment of reserves.

With this

situation as it is, and having regard to the interests of the
whole country, there is every possible inducement for the
Federal Reserve System to adopt and to execute, so far as it
may, a policy of stabilization in every direction;

to avoid

encouragement to unhealthy speculation, on the one hand, and
to encourage the return of stable values, on the other hand.
There may indeed be little that we can do beyond what I have
described and that is to keep the credit volume at a reasonably
steady level, but sufficient to meet the seasonal needs of
business, and its normal annual growth.

/

A

-19Now more specifically, as to farm credit

specifically
farm credit
^various projects
production marketing
variety propos&Is

would like to refer in a very general way to various
\ c
nity N
projecte which are designed to assist the farming community

in the production and orderly marketing of the crops.

A

great variety of measures have been proposed to the Congress,
and I have no doubt that they have been carefully examined

familiar
3 or 4 points

by your organization and that you are fully familiar with all
of their details.

There are three or four points in

connection with these proposals that I would like to discuss
candidly

with you quite candidly and I shall ask you to give them
special consideration*.

First
enlarged membership

FIRST - In my opinion, any new legislation should
be designed to very greatly enlarge the membership of the
banks of the country in the Federal Reserve System.

first essential

Let

me say earnestly that I believe this to be a first essential
to the administration

of credit in the interest of agriculture.

conserving reservoir The Reserve System is the conserving reservoir of credit.
That credit oust be applied throughout the various sections
water or fertilizer

of the country exactly as water or fertilizer, ie applied to
the soil.

No farmsr can expect to make a crop if his land

pile in corner

is fertilized by piling a heap of fertilizer on one comer

even distribution

of his field.

It mist have a fairly even distribution,

and so too with water.
look at conditions




Now look at the conditions as to

membership in the System which exist to-day.

In the great

area known as the Mississippi Basin, with the exception of
the States of Iowa, Illinois, Indiana, Alabama, Oklahoma and
Texas, and extending east, south of the Mason-Dixon line to
the Atlantic Seaboard, there is no State where more than

**




-20-

25 per cent, of the banks are members of the Reserve
System.

Missouri and Mississippi have only 10 per cent,

and the percentages vary as follows:
North and South Dakota 22 per cent.
n
Minnesota
24 ••
N
Wisconsin
19 K
H
Nebraska
17 II
N
Kansas
20 II
N
10 n
Missouri
it
It
24
Arkansas
It
•
t
Louisiana
19
It
Mississippi
10 N
n
It
Tennessee
20
It
Kentucky
24 n
it
It
16
North Carolina
It
22 if
South Carolina
it
It
25
Georgia
n
n
25
Florida

!(o

The exoeptions that I mention have the
percentages:

L

Iowa
Illinois
Indiana
Alabama
Oklahoma
Texas

27 per cent.
it
SO it
it
50 it
it
55 it
t
t
i
t
59
i
t
i
t
49

West of this section there is only one State which
has more than 50 per cent, of its banks members of the
System, and that is Idaho which has 60 per cent.

The

percentage of membership in these western States varies
from 50 per cent, in the case of California to 50 per cent,
in the oase of Arizona.

Broadly speaking, therefore, in

about one-half of the agricultural sections of this country,
less than 25 per cent, of the banks are members of the Federal
Reserve System, and as to the other one-thalf, between 25 and
50 per cent, are members.

Now in the East, there is a very

-21-

different situation.

In ny own State, New York, 72 per

cent, of the banks are members of the Reserve System, and
from this percentage, it runs to
51 per cent in
62 "
"
"
70 n
n
n
42 "
■ »
71 n
B
n
61 «
»
"
55 h
«« «
56 "
"
"
69 '
"
"
If distributirg

Connecticut
Pennsylvania
jjew j er8ey
Delaware
Massachusetts
Rhode Island
Maine
Vermont
New Hampshire

If you were distributing liquid fertilizer on

liquid fertilizer

your farm, you would not consider that you were doing a

5p to 90 per cent.

very effective operation if from 50 to 90 per cent, of the
outlets of your sprinkler were clogged.

One of the particular

influence noticeable influences of the Federal Reserve System is noticeable to us
now in this way.

Since last year the great bulk of the

loans of the Federal reserve banks have been repaid by their
City banks

members.

Most of the banks of the large cities which were

at one time heavy borrowers have almost entirely paid off
what they owe.
2300 country banks

But do you realize that not many months ago

there were still 2300 banks - nearly 25 per cent, of our
members - which were borrowing from the Reserve banks, and
these were almost entirely banks in the rural comnunities?

N. Y. State
4th or 5th

It has been so right in New York State.

realize that New York is the fourth or fifth largest agricultural
producer of all the States.

city repaid




You may not

The banks in our large cities

have repaid most of what they owed to the Federal reserve bank.
Until within the last month or two almost all that we were

-22lending was to the country bankers and largely to those
in the farming communities.
Might not the situation have been very different

situation different
twice ae many

indeed had there been twice as many oountry banks in direct
contact with the Federal reserve banks and thereby enjoying
the security and protection they afford, not only for
c
themselves, but for the farmers and business men they serve.'
One of the difficulties of our banking system,

difficulty

and one which I apprehend there will be great difficulty in
insufficient

remedying, is that there is not a sufficiently direct contact

contact

between the different elements in the banking system, so

elements

that the capital supplies in the richer communities can be
drawn upon for credit by the less developed comunities where

branch banking

credit is needed.

Of course, a system of branch banking

might accomplish this, but a system of branch banking extending
over an area so wide as that of our country would be most
difficult to manage and would hardly be adaptable to our
conditions.
network
default

No one wishes to see a comparatively small

number of banks extending a network of branches throughout
the entire United States.

In default of that possibility

is it not reasonable to take some steps to bring a larger
larger membership

number of the country banks into the Federal Reserve System,
and in part to remedy the difficulty by that means?

But

one-third of the banks of the country are now members of the
two-thirde

System.

If we had two-thirds of the banks in the System,

I believe this distribution of#credit would be sufficiently
effective




effective to meet all reasonable needs.

-23-

SECOND - Now as to another point which I believe
carefully consider

you should consider with care.

It is frequently proposed

that the Federal Reserve Act be amended so that agricultural
longer maturity

paper of longer maturity than six months might be eligible
for rediscount at Reserve banks.

sure
accomplish

I would ask you to be sure

that this proposal if adopted would accomplish what is desired.
Personally, I cannot see that any very great injury, in

probably no injury

fact possibly no injury at all, would result to the Reserve
System from extending the maturity of eligible agricultural
paper say from six months to nine months;

but I believe

this proposal overlooks some important influences which
overlooks influences

control this type of credit.
personal experience

I must ask you to review such

personal experience ae you may have had in borrowing money
so as to judge whether there is not considerable basis for
the following statement:
There are two reasons why the president or cashier

two reaeonB

of a country bank does not like to lend money for nine months
or a year or longer to hie farmer customer or for even two
or three years to a cattle breeder.
middleman

One reason is that he

is simply the agent or middleman for receiving deposits
from one class of customers and lending them to another
class.

check

30 daye

Host of those deposits can be withdrawn by check

or upon thirty days notice.

No prudent banker likes to

commit himself beyond a moderate amount for loans that run
6 moe.

3 years

demand deposits




from six months to as long as three years, when his own
obligations are payable upon, demand.

It is not prudent

-24-

other simple

banking.

The other influence is a simple one, known

to every banker.
hazards inherent

Farming is an industry in which certain

hazards are inherent which are possibly greater than applying
to many other industries.

The cashier of the bank wishes

to have the farmer's note mature at sufficiently frequent

mature

intervals so that he may be in position to meet changing
do not believe

conditions.

Now personally I do not believe that simply

a provision which will give the member bank the right to
discount paper at the Reserve bank which has a maturity of
inducement

more than six months will be a sufficient inducement to him
to make the longer time bank loans that the farmers, possibly

justified expecting

with every justification, believe

that they are entitled to

receive.
Practically all commercial banks have the right
to make loans now for any length of time that good judgment

no legal

permits.

The reasons why they do not do so are those that

reasons stated
I have stated.

But even if the country banker were induced

to make longer time loans simply because he gained greater
protection not
induce•

protection in doing so in the event of heavy deposit
withdrawals because he is able to discount this paper at the
Reserve Bank, he would not want to discount long time paper

borrow

profit

anyway.

Banks as a rule do not borrow money nor should

they be induced to borrow money from the Reserve bank simply
increase busiaees

for profit or to permanently enlarge their business.

The

inducement to borrow is to take care of the needs of their
customers' needs




customers, and when they do borrow they prefer to borrow for
the shortest possible time.

To discount a note running for

i
i
i

I
j

-25-

commit borrowing

nino months or more commits the borrowing bank to a long
time borrowing which it would prefer as a rule not to make.
And furthermore, you must bear in mind that this remedy,

only l/5 anyway

even if it were effective, would apply to only one-third of
the banks of the country.

My suggestion is that a certain

proportion of these farm credits, especially those relating
to the business of the stock men, should be furnished by
investment funds

attracting investment funds.

You know that banks throughout

the United States generally, and in the East particularly,
banks buy securities

short maturity

are large investors in securities.

hold securities of reasonably short maturity, and it is wise
that they should-

always surplus

They often prefer to

They are purchased by those banks which

always have a surplus of funds over what their borrowing
customers require.

If by some method, the long time credit

requirements of the fanner, and especially of the cattle man,
read this

can be met by some such method as thi6, it will in a measure
avoid the difficulty which I have described as inherent in
many country banks.

Third
familiar

THIRD - The third point is one with which every
one of you is familiar.

To the extent that it is possible,

it seems to me that the credit needs of the farmers should
existing agencies

be met by the employment of existing agencies rather than
by creating new agencies which for many years would be too
remote from the actual borrower to afford him the immediate

close contact

facilities and the close contact which present organizations
can afford if properly organized.

character
mortgage loans



One of the principal

elements in credit is the character of the borrower.

A

mortgage loan of course requires time for negotiation and

-26-

the borrower is allowed a long time for repayment.
time

He can

make an application and send it a considerable distance to
some lending office, such as a Farm Loan Bank;

it can then

be investigated and after a lapse of time, after the farm is
inspection
title

inspected and the title examined, the loan may be made.
But when the farmer needs credit for his turnover, he cannot

turnover credit

wait In order to go through this elaborate operation.

He

should be able to go to the local institution where hie

promptly
character, farm
record

character and credit and the general record of his farm is
known.
In a word, the faraer, and especially the stock man,

intermediate
bank credit

needs a type of credit which in maturity is interaediate
between the loan which he now gets at his local bank and the
long time mortgage loan which he obtains possibly through

farm loan

the farm loan system.

For this type of credit I believe

his interests will be better served by appealing to the
investment market

investment market.

sympathy

towards making this possible, but the point I wish to make

commercial banks

is that existing agencies, - the commercial banks and the

farm loan system

I am wholly in sympathy with efforts

farm loan system, - should be used so far as practicable
but facilities provided which will enable them to furnish
services which heretofore have not been possible for then

read

to afford.
FOURTH - And finally there comes the question of

finally
cost

the cost of this credit.

I am perfectly aware that in

some sections of the country where the usury laws permit,
familiar




and possibly in some cases where the laws do not permit,
the farmers are charged 3, 10 and 12 per cent, and sometimes

-27conception

even store.

My conception of a proper system of

agricultural credit is that two elements are essential*
sufficient and
reasonable
not excessive cost

One is that a sufficient and reasonable amount of credit
should be available when needed, and the other that the
cost of the credit should not be excessive. •

But, on the

other hand, I do not think that it is always fair to charge
not fair
country banks
lack credit
demand

the country banks with too much responsibility for these
interest rates*

Primarily they arise from the lack of

adequate credit and a demand in excess of the supply.

The

best opinion I can express upon this subject is that any
beet opinion
means employed for developing agricultural credit facilities
read

will go a long way gradually to eliminate some of these very
high interest rates, if the three points I have mentioned are
adequately dealt with*

Membership by more banks in the

Federal Reserve System will help more than anything else to
do it*
But let as point out what would be the effect of

point out
effect

drawing investment
$1,000,000

drawing upon investment funds for these loans with intemsdiate
maturity*

Every million dollars of such loans negotiated

in the form of debentures or other obligations running for a
year or more which found lodgment with Eastern investors or
banks which had surplus funds to invest, would place a fund of
investment money at the disposal of the community where the

relieve burden

original loan was made, and would relieve the local banks of
the burden of a million dollars of loans which they are now

release
West and South




carrying and would release that amount of credit for other
employment*

It would draw to the West and So&th the type

-28of investment money which is needed for thiB intermediate
agricultural financing;

lower rates

reduction of local rates*

Now I have been discussing in a very general and

diBcus8ing
general
informal
reconcile
foolish things
transform

gradually this would effect a

informal way some of the things which it seems to as to be
more important in dealing with this matter of farm credit*
The question is how to reconcile all the various views, how
to prevent foolish things being done and at the same time to
transform the various discussions which you and others are
having into some concrete action*

Let no take the liberty

of making a suggestion entirely upon my own responsibility.
Joint Comm.

You know that as a result of the Hearings of the Joint
Commission of Agricultural Inquiry last sujmoer, certain
legislation is proposed.

War Finance

I have been told that the officers

of the War Finance Corporation are advocating certain measures.
I believe that more than one Senator has introduced or is

Senators
machinery

proposing to introduce bills in the Senate to deal with this
subject*

The measures with which I am familiar bring

into play by one or another method, the machinery and resources
of the Federal Reserve System and Farm Loan system.
Fed. appropriation

In one

or two cases they provide for Federal appropriations.

They

have a direct bearing upon work and investigations of great
Dept.Agriculture,
if a member

importance being conducted by the Department of Agriculture*
It seems to me, if I were a member of your organization,
that I would be inclined to take steps, possibly even going

President Harding

to President Harding with the proposal, to bring together the
representatives ofvtheBe various interests, including

representatives



representatives of your own organization and other similar

-29-

organizations, have all of these plans examined and
discuss
competent men

discussed by competent men who are able to put forward each
his own point of view and that these men, all of whom in
my opinion are honestly seeking a wise solution of these

wisdom

matters, should in their wisdom be able to reconcile
differences of view and produce a plan which will meet the
need of the occasion and meet the views of people of sound

Bound judgment
once prepared

judgment in the country.

Once that plan is prepared then

let's all get behind it, ask Congress to put it through and
ask the President to approve it .

after informal

After this most informal talk you may wish to ask
me with every justification in what way the Federal Reserve
System proposes to assist in the solution of the problem

what do
of agricultural credit.

I can express only my own opinion

and that of my associates in New York.
my own opinion




two principal things that we can do.

I think there are
We can endeavor by

our policies, as I have already described, to maintain $e
stable credit conditions in this country as are possible,
by employing such means as we command.

Further than that

we can, if means can be found to do so, enlarge the membership
of the Federal Reserve System, as it should be, ta cover all
parts of this country with the facilities of the System and
bring about a more even and equable distribution of the
A
credit which we furnish.
We can serve all of the banks of
the country that are entitled to membership just as readily
and efficiently as we can serve one-third of the banks of
the country which are now members.

-50In conclusion, I must^thank you for your
thanke

courteBy in inviting me to this meeting and for the
patience Kith which you have listened to this talk.

I can assure you that the members of this organization
welcome

will always be welcome at our office in New York.

Ve

will be glad to tell you all that we know about the
tell about

operation of the Federal Reserve Bank and of the System,
and we will esteem it a privilege to make any contribution

privilege

that will promote a sound solution of the problems with
which you are now dealing and the successful treatment

contribution




of which are essential to the welfare of the most
responsible and important element in the economic life
of this country.