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203 ;
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AN
A D D R E S S
Ay
before the
NORTH CAROLINA BEEF BREEDERS AND FEEDERS ASSOCIATION
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• By
FREDERIC A. £>ELANO
Vice Governor, Federal Reserve Beard,
at
Pinehurst, Nortli Carolina
April 10th, 1915.
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203
TO THE NORTH CAROLINA BREETER'S
AND PETER'S ASSOCIATION
Although I had some boyhood experience on a farm
and have always been interested in agriculture and horticulture, it is not my purpose to come down here and tell
the farmer how he should run his business; and even though
now officially connected with the development of an important banking and currency system known as the Federal
Reserve System, it is not my purpose to come here and t?alk
to bankers as to how they should run their business.
IIy
object is rather to discuss in a very informal way the importance of cooperationCooperation, like many other good words in our language,
is used so often that it ha3 ceased to mean very much.
Lit-
erally, it means working together, but it carries with it a
broader idea of producing harmonious results.
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An orchestra
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of musicians, however expert, cannot sit down and produce
pleasing or harmonious music without cooperation-
But
this example illustrates the true and underlying meaning
of the work.
Ten or twenty-five or a hundred men, all
expert musicians, cannot produce a fine piece of music without leadership; in the same way, a hundred thousand or a
million men may be an irresistible army with good leadership, whereas, without leadership, they are dimply a mob
who can be reduced to obedience by a mere handful of policemen.
And along with cooperation, which in turn requires
intelligent leadership, we see that both ideas involve the
necessity of intelligent organization.
Thus, an army, to
be effective, needs more than trained men, good weapons, and
a good general.
It needs organization.
An army divided
as it is into companies, regiments, brigades, divisions, is
a fine example of organization.
So it appears to me that
in the problems which you gentlemen face it must be recognized that results will not be obtained except by cooperation;
and that that cooperation will require intelligent leadership and organization.
When you have these you will at-
tain efficiency, another of the words which is now-a-days,
so often used, that it has come to mean little.
The
farmers1 problem in this country is a very big one and I
can well believe that the farmer is more than often annoyed
at the abundance of advice he is given by the banker, the
merchant, the manufacturer and the railroad nan.
I can
well believe that the farmer sometimes wishes that the distinguished gentlemen who are telling him whab he should and
should not do, would do it themselves.
But while gratu**
itous advice is never pleasant for the recipient, the very
fact that so much is being said upon this subject indicates
a great appreciation of its fundamental importance.
More
than three hundred years ago, Lord Bacon, the writer, philosopher and statesman of England in the time of Shakespeare,
said there were three things which could make a nation great
and powerful;
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the production of the soil, the manufacture
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and the carriage or transportation of these commodities
to market.
In other words, Lord Bacon, even in those
early days, saw that the same principles apply to a nation
which apply to an individual or a group of individuals;
that a nation can gain in wealth or power only when it
produces more than it consumes.
He also recognized that
complete production-depended upon the farmer, the manufacturer, and the carrier.
You may say, "where do our
friends, the bankers, come in?"
Bacon did not mention
them, for bankers, in the modern sense in which we use
the word, were unknown, and yet the banker is an essential link in the productive chain.
money and credit.
He is the merchant in
He is the man who brings the seller of
money or credit (in other words the investor) and the borrower together.
Nothing in modern industry has contrib-
uted more in increasing the possibilities of the average
man.
It is almost unthinkable now that there could
be a coirmunity in which every man was dependent upon his
own personal resources.
So, I think it is generally
appreciated that the tanker plays a very necessary
part
in the development of all modern industry alike in his re
lation to the merchant, the manufacturer and the carrier.
As I have already said, the whole nation is interested in the success of the farmer.
Every individual
is interested in seeing the product of the
increased.
The constantly rising cost of living is very largely
due to the fact pointed out by Maithus that there is
a constant tendency for the population of the world to increase more rapidly than the area available for production.
Our virgin fields in this country which encour-
aged us for years to adopt extravagant and wasteful
methods, have now been occupied, and we are compelled to
turn our attention to more intelligent methods; methods
such as Europe long since was forced to adopt.
stead of our
acres producing, as they do,
less
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or corn per acre than they did twenty-five to fifty years
ago, they should "be producing more.
And yet I can hear
someone say that the farmer is frequently confronted with
the fact that he actually earns less from a very big crop
than he dacs from a moderate crop, and right there a question arises which is too big for the individual farmer to
settle, for it involves the great problems of diversified
farming production, the study of markets, the,successful
marketing of crops, actually produced, the reducing of
rates of interest which farmers must pay, etc.
These problems, as has already been said, are too difficult for any single farmer to handle, for their solution involves too great a risk in experimenting; and some plan of successful cooperation which will distribute these costs and •
give all communities the advantage of experience and special study, is necessary.
I am glad that in this community
you have progressed so far in this direction,, As I understand it
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you have for years depended, upon one crop - cotton; - that
you are now going into stock raising which in turn involves
the raising of forage crops, alfalfa, clover, cowpeas, grain,
etc»
The Department of Agriculture at Washington has ac-
complished wonders in an educational way and the agricultural
schools of the various states of the union and the work of
state and county demonstrators has "been important.
Crop rotation and the determination as to what sort of
crops to raise involves many difficult problems and cannot
"be accomplished in a day or a year.
The object of such
organizations as you have here formed is to secure by joint
effort the necessary information and then to apply the result of the experience as rapidly as can be done intelligently,
We have many problems closely related to the farm
problem; for example, the problem of labor, and especially
the
difficult
problem of
consequent unemployment
tenant
farming
seasonal employment
during
question which,
the off seasons;
and the
the
in times past, brought
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disaster to European countries, as for example to France at.
the time of the French Revolution and to Ireland in more recent years, is one which must be met and settled right.
In
some parts of our country some fifty to eighty per cent of
the farms are occupied by tenants; but, what with absentee
ownership and inadequate protection and unwise or improper
forms of lease, the tenant has not always been protected in
his improvements; and the effect has often been in this country, ,as it was for years in Europe, to "skin" the farms and
bring them to a lower and lower condition of production. This
again is a problem which no one farmer can settle alone; and
yet, organizations like this can, at a comparatively moderate
expense, put before its members the result of foreign experience.
The marketing of produce is another important subject for
the American farmers is often at the mercy of the commission man
or buyer in the city. In some of our states.notably in Wisconsin
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progress has been made in the line of marketing cooperatively
already developed in some of the foreign countries, notably
in Denmark,
Successful marketing of produce carries with
it the necessity for intelligent standardization.
If the
grades of cotton, grain, butter, cheese or any kind of produce become an established fact by State-wide, or better
still, country-wide standardization, the market price of "
these products becomes an established and recorded fact
and the producer is no longer at the mercy .of the buyer.
This State and other Southern states have, by their
close proximity to phosphate deposits, been able to make
unusual and extraordinary use of artificial fertilizers.
At the same time, it has been abundantly shown by those
expert in such matters that there can be a very extravar •
gant and wasteful use of these fertilizers.
It is just
as important that expenditures for fertilizers shall be so
made as to render as large a return on the investment as
any other expenditure.
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And here again the intelligent
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rotation of crops and the feeding of stock cattle aro
bound to play a very important part in the future.
Tho rate of intorest which the farmer has to pay
for advances for farm improvements or against his expend! tur GO in producing- h&s crop, is a very important
phase of the matter, and one in which the banker is
interested alike with tho farmer.
It is easy enough
to find fault with the banker for high rates of interest, but neither fault-finding nor laws against usury
will over reduce interest rates.
The banker repre-
sents certain invested funds, and it is his business to
make a living and a return on the funds invested.
The
rates of interest which a banker charges depend, broadly
speaking, upon two things:
First, the relation of the
supply of money and credit to the demand, going down if
the supply Is large, and going up if the supply is small
in
relation
to the demand;
involved, in which case,
secondly,
of course,
a part
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upon the risk
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of the
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interest rate represents insurance upon the risk taken.
In
the past, interest rates have been higher in the South and
yet there is nothing, so far as I know, which shows that the
profits from banking in the South have been inordinately
large-.
The inference is, therefore, unescapable
that high
rates of interest are due either to-the paucity of capital
invested in banking or to the risk involved.
Diminish the
risk and you will automatically increase banking profits,
attract additional capital and then interest rates will go
down.
Some thirty years ago the mill owners of New England
were weighed down by high rates of insurance.. They joined
together and employed the ablest actuary ( Mr. Edward Atkinson) they could find to make a study of the question, and he
soon developed the fact that the reason insurance rates were
so high was not so much that the insurance companies wer'j making inordinate profits but on account of the extraordinary fire
risks.
Careful study of the problem soon developed the fact
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that a type of mill construction could be adopted which
would greatly lessen fire risks and consequently reduce
the cost of insurance.
The lesson to be learned from
this citation is that it lies within the power of an organization of farmers, such as you have here, to standardise
and diminish banking risks, and as rapidly as you accomplish
this, you will find more money coming into the district.
In
other words, your interests and the Bankers' interests are
largely mutual not antagonistic.
The new Federal Reserve Act is yet in its infancy, but
as one of the indirect results of it, the banks have been able
to retire practically all of the emergency currency issued last
fall and in spite of the serious loss in the market for cotton,
the price of this staple has noticeably stiffened.
The banks
of the country have not yet learned the full benefit of the new
system, but the framers of the Act realized that it would take
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two to three years to get the Act into its full operation
and that these three years must largely "be a period given
over to carcful development and education.
The new
system, while differing widely in principle from the old
system, had to "be so adjusted that it would gradually engraft itself upon and take the place of the old.
One of
the main results of the Act is to standardize loan paper*
so that the cotton loan made in Georgia, or Forth Carolina,
can be discounted equally well in Atlanta, Richmond or New
York.
This law makes commercial paper a basis of our
future elastic currency; that is to say, the bank making
the loan to the farmer, the manufacturer or the merchant
can, if the paper is in regular and proper form, borrow
funds against it from the Federal Reserve Bank and so
have his loanable funds reimbursed.
In this way, the
little bank of ^25,000 capital has its resources so greatly
enlarged
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that it can, if carefully managed,
safely do as.
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large a business in the community, as a bank having a much
larger capital under the old lav;.
This is another way of
saying that the new law is going to greatly increase the
availability of banking capital seeking investment or capital secured whether by live stock, cotton, farm produce
or goods partly or wholly manufactured.
I will make no pretense that the new law covers the
question of rural or farm credits.
That is another branch
of the banking question which must be dealt with separately.
The important point to be borne in mind is that the intelligent handling of that question depends largely upon cooperation between the farmer, the manufacturer, the merchant and
the banker.. You will never have cheap money unless you can
improve
and standardize your method3} unless you can great-
ly diminish the hazards.. In a rather long experience in the
Western states ( 29 years residence ) I can remember very well
when cattle paper used to soli on a ten to twelve per cent basis--
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@FedFRASER