Fall of Agricultural Prices 
 
 George E. Roberts 
 
 Vice-President 
 
 The National City Bank of New York 
 
 AUG 2 7 1924 
 
 The Academy of Political Science 
 New York City - November 24,1922 
 
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 University of Illinois Urbana-Champaign Alternates 
 
 https://archive.org/details/fallofagriculturOOrobe 
 
Fall of Agricultural Prices 
 
 By George E. Roberts 
 
 Vice-President 
 
 The National City Bank of New York 
 
 An address before 
 The Academy of Political Science 
 New York City - November 24,1922 
 
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 jj Fall of Agricultural Prices 
 
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 TTHE prices of staple farm products were violently affected 
 * by the war. The most important direct influence in the 
 case of foodstuffs was that occasioned by the closing of the 
 Black Sea, cutting off the supplies which the countries of 
 Western Europe were accustomed to receive from Russia and 
 the Balkan countries. For the five years next preceding the 
 war these supplies averaged about 225,000,000 bushels of wheat 
 per year, besides important quantities of other farm products. 
 In addition to the interruption of these shipments, the war 
 caused a reduction of the crops in the countries over-run by 
 the armies. These losses increased the demands upon the pro¬ 
 duction of the United States. 
 
 The price of wheat in the United States was influenced 
 promptly. The range of No. 2 Red Winter in Chicago in the 
 month of June, 1914 was from 7834 to 99 cents, while from 
 August 1 to December 31 the range was from 85^ to $1.33. 
 Other agricultural prices were affected in 1914 but slightly, 
 except in the case of cotton, which declined sharply. The aver¬ 
 age of the high and low monthly quotations of No. 2 Red 
 Winter wheat in Chicago in the calendar year 1915 was $1.31 % 
 per bushel; in 1916, $1.38; in 1917, $2.30; in 1918, $2.23; in 
 1919, $2.53; in 1920, $2.57. In 1920 the highest price was 
 touched in January, when the range was from $2.50 to $3.50 
 per bushel, but in May the range was from $2.83 to $3.45. In 
 
 \ 
 
July the range was $2.29 to $3.00, and it was October 
 before a quotation under $2.00 was made, for the first time in 
 three years. The range in that month was $2.39 down to 
 $1.9634* The low price for November and the year was $1.58. 
 The low price for the year 1921 was $1.0034, in November; and 
 the average for the year $1.48f£. The price during the past 
 week in Chicago has ranged from $1.15 to $1.20. 
 
 All of the grains followed the general course of wheat, 
 reaching their highest prices in 1920. Corn touched $2.17 per 
 bushel in June and in November sold as low as 67 cents. In 
 October, 1921, it touched 42 cents, and is now back to about 
 71 cents. All of these quotations are Chicago prices. 
 
 Live Stock Prices 
 
 ¥¥OGS did not reach unusual prices until well into 1916, and 
 *■“ the highest price for that year was $11.60 per hundred¬ 
 weight. In 1917 they ranged from $12 to $20, in 1918 from 
 $17 to $20.95, and in 1919 touched the high water mark at $23.60. 
 The exports of hog meats jumped from 442,000,000 pounds in 
 1913, to 722,000,000 pounds in 1917, 1,500,000,000 pounds in 
 1918, and 2,000,000,000 pounds in 1919. In 1920 they dropped 
 to 871,000,000 pounds and the price of hogs at the close of 
 1920 had fallen to between $8 and $9. They are now about $8.00. 
 
 Cattle about doubled in price from 1913 to 1919, and from 
 then to the fall of 1921 fell back to about the 1913 prices and 
 in the case of stock cattle in many instances lower, as the central 
 markets were glutted with them. A good recovery has been 
 made in 1922. Sheep followed about the same course as cattle, 
 but have done still better on the recovery, owing in part to 
 the new customs tariff upon wool. 
 
 Rise and Decline of Cotton 
 
 T HE foreign demand for cotton, unlike that for the grains 
 and meats, was unfavorably affected by the war. In the 
 fiscal years from 1910 to 1914 our average exports of cotton 
 were about 9,300,000 bales but from 1915 to 1921 the average 
 was under 6,000,000 bales. Crops, however, were smaller than 
 
in the pre-war period, and down to 1920 great confidence existed 
 in the latent foreign demand. 
 
 It was confidently believed that owing to the interruption 
 of distribution during the war, the world was in need of more 
 cotton goods than the available supplies of raw cotton would 
 make, and under the influence of this belief, cotton, which ranged 
 in 1914 from 11^4 to 14*4 cents per pound rose to 43.75 cents 
 per pound in July, 1920, from which it dropped to 14.5 in De¬ 
 cember of the same year, and to the low point on that crop, 
 10.85, in June, 1921. 
 
 The cotton crop of 1921, 8,000,000 bales, was the smallest 
 grown since 1893, and as a result, the price rose sharply in 
 September to above 21 cents per pound, and in no month since 
 has the average of the highest and lowest quotations been 
 below 18 cents. The crop of 1922 is another small one, about 
 10,000,000 bales, and the price of cotton in New York is now 
 about 25 cents per pound. 
 
 Summing Up 
 
 T^HE rise and decline of crop values is summed up by the 
 
 Department of Agriculture in a table in which the ten 
 principal crops are combined and divided by the total acreage. 
 The average value per acre as shown by this method was $16.49 
 in 1913, and this was the highest per acre value for all crops 
 ever recorded up to that time. In 1919 the calculation showed 
 $35.74 per acre, and in 1921 it had fallen to $14.52, a decline of 
 approximately 60 per cent, and to a figure about 12*4 per cent 
 below the level of 1913. 
 
 The Department of Agriculture has made a calculation of 
 the purchasing power of farm products over the list of com¬ 
 modities for which prices are compiled monthly by the Bureau 
 of Labor, omitting the farm products in that list, and basing 
 all figures upon the prices of 1913 as 100. According to this 
 calculation, farm products were relatively lowest in November 
 and December, 1921, when their purchasing power was but 62 
 per cent of what it was in 1913. From that point it rose to 
 76 per cent in March, 1922, but in September had declined to 64. 
 
The Farmers’ Grievance 
 
 T^HE record of prices of farm products in the United States 
 ^ does not show any previous drop so general and precipitate as 
 that which occurred from the high prices of 1920 to the low 
 ones of 1921, and when the disparity between the prices of 
 what the farmer has had to sell and the prices of what he had 
 to buy is considered, and the further fact that farm indebtedness 
 was greater than ever before, it is not strange that many farmers 
 should feel that as a class they are getting the worst of the 
 situation, probably by the design of somebody, or surprising 
 that resentment should be manifested. 
 
 Evidently a widespread belief exists that the decline was 
 deliberately brought about for profit-making purposes, and that 
 the farmers were successfully exploited. It is charged that this 
 policy was carried out in the case of grain and cotton by 
 manipulation of prices on the exchanges, and particularly by 
 “short-selling”—in other words, by contracting to deliver at 
 future dates, grain and cotton which the sellers did not own 
 at the time they made the contracts. 
 
 It has been alleged that the scheme to break prices was 
 supported by the action of bankers, including the authorities of 
 the Federal Reserve System, in simultaneously forcing a defla¬ 
 tion of credit, requiring farmers and other holders of commodi¬ 
 ties to sell their holdings and pay their obligations. 
 
 The fact that falling prices and credit deflation are features 
 of every business crisis has caused similar charges to be made 
 whenever any serious fall of prices has occurred. The average 
 man is not easily reconciled to a decline in the price of anything 
 that he owns, and when price movements are sudden and vio¬ 
 lent, he is quite disposed to believe that somebody is to blame. 
 
 Findings of the Joint Commission of Congress 
 
 T^HE report of the Joint Commission of Agricultural Inquiry, 
 * created by Congress in 1921, and headed by the Hon. Sydney 
 Anderson of Minnesota, a speaker here today, has dealt with 
 this subject at great length, and its findings are conclusive, at 
 least so far as the charge of discrimination against farmers is 
 concerned. After reviewing the testimony taken, the Commis¬ 
 sion says (Part II, page 117) : 
 
“An analysis of the figures in these studies seems to justify 
 the conclusions: 
 
 “1. That the expansion of bank loans in rural dis¬ 
 tricts during the period of inflation ending 
 June, 1920, was relatively greater than in the 
 industrial sections, taken as a whole. 
 
 “2. That the action of the Federal Reserve Board 
 and the Federal Reserve banks during the 15 
 months preceding April 28, 1921, did not pro¬ 
 duce a greater curtailment of bank ioans in the 
 rural districts than in the financial and indus¬ 
 trial sections. 
 
 “3. Credit was not absorbed by the financial centers 
 at the expense of rural communities for the 
 purpose of speculative activities. 
 
 “4. That the pressure of the forces of liquidation 
 and depression in the agricultural sections was 
 reflected in a reduction of deposits. This re¬ 
 duction of deposits, particularly demand de¬ 
 posits, was relatively larger in the agricultural 
 and semi-agricultural counties in the United 
 States than in the industrial counties.” 
 
 The Position of the Banks 
 
 T HE facts cited by the Commission, that the expansion of 
 bank loans in rural districts during the period of inflation 
 was relatively greater than in the industrial sections, and that 
 the reduction of bank deposits was relatively greater in the 
 agricultural districts than in the industrial districts, go far to 
 explain the drastic conditions of which complaint has been 
 made. With the fall of prices, bank deposits declined, and the 
 banks that were loaned up closely found themselves under the 
 necessity of making energetic efforts to reduce their loans. These 
 efforts in many instances would not have saved them but for 
 the re-discounting facilities afforded by their correspondent 
 banks in the larger cities and by the Federal Reserve banks. 
 
 Another reason for the pressure to collect loans which al¬ 
 ways is manifest in a crisis is that an unusual fall of prices 
 
impairs the credit of many borrowers. A loan against wheat 
 which may have been perfectly good when wheat was worth 
 $3 per bushel might not be good with wheat at $1.50 per bushel. 
 Bankers are under obligations to protect their loans in order to 
 protect their depositors, and if a borrower is unable to supply 
 ample security he must expect to sell the collateral, if need be, 
 in order to make payment at least in part. 
 
 Results of Inflation 
 
 YT is unfortunately true that the banks of the country came 
 * into the crisis of 1920 with too heavy a body of loans, and 
 with insufficient reserves. The strength of every business situ¬ 
 ation is in reserve resources. If everybody was careful to have 
 ample resources in reserve there would be no crises. Our Fed¬ 
 eral Reserve system was planned to have ample reserve re¬ 
 sources, but all banks came out of the war period very much 
 extended. They did not have the resources in reserve that 
 they were planned to have, and which with a proper regard 
 for security they should have. The Joint Commission of Agri¬ 
 cultural Inquiry expresses the opinion that steps should have 
 been taken to check inflation earlier than was done, and this 
 opinion I am bound to say is well supported in the judgment 
 of the banking community. 
 
 There is no basis for the charge that the bankers deliberately 
 planned to force deflation of credit or prices. Bankers are the 
 last people to want to disturb values. They suffer inevitable 
 losses in every crisis, first by the inability of customers to meet 
 their obligations; second, by the shrinkage of deposits and 
 loans; third, by the decline of interest rates. Their reluctance 
 to put the brakes on inflation promptly in the spring of 1919, 
 was due mainly to apprehension that unless credit was extended 
 freely during the period in which the armies were being de¬ 
 mobilized and while the shift from the war industries to the 
 peace industries was being made, a state of unemployment and 
 depression might ensue. In short, they considered the spring 
 of 1919 a critical time. 
 
 But allowing that the banks erred in not taking a stand 
 against further inflation in the spring of 1919, it remains to be 
 said that this is a very different criticism from that which 
 
insists that they never should have taken a stand against infla¬ 
 tion at all. 
 
 I do not wish to take more time here to discuss banking 
 conditions with relation to the break in prices. The subject is 
 ably and fairly discussed in the Report of the Joint Commission 
 of Agricultural Inquiry. I will proceed with the discussion of 
 market conditions. 
 
 The rise of prices in the first place was due to the war 
 demands, and to the inflation which accompanied government 
 financing. The further rise in 1919 and 1920 was caused by 
 the outburst of private buying which followed the removal of 
 restraints which had been imposed in war times, and to the 
 revival of international trade. Nobody knew how long that 
 over stimulated situation would last, but nothing could be more 
 certain than that as the world settled down to peace conditions, 
 and as industry and trade became more normal, prices would 
 decline. 
 
 The Beginning of the Decline 
 
 I^JOW it is a noteworthy fact that the first prices to fall were 
 not those of wheat or cotton, in which future-trading with 
 the accompaniment of short-selling is most common. All kinds 
 of live stock reached the highest prices in 1919; producers suf¬ 
 fered heavy losses upon fat cattle in the winter of 1919-20, 
 although the general level of prices did not fall for some months 
 later. The decline of live-stock followed, and undoubtedly was 
 closely related to a great falling off in our exports of meats. 
 
 The prices of wheat and cotton were well sustained up to 
 the middle of 1920. The staple textile manufactures, silk, cotton 
 cloth, and woolen goods, began to decline in the spring of 1920. 
 Cotton cloth began to fall before raw cotton did, and wool, which 
 is not traded in on any exchange, fell before cotton did. Shoes, 
 leather and hides, which are not traded in on exchanges, fell be¬ 
 fore wheat or cotton. 
 
 The whole downward movement of prices began with the 
 falling off of retail trade, the buyers' strike as it was called. 
 The torrent of order cancellations by merchants, in clothing, 
 shoes and dry goods, began in May, 1920. 
 
 In short, the record shows that instead of the general price 
 decline being inaugurated by short-selling on the exchanges, 
 
the chief commodities traded in on the exchanges were the last 
 to give way. This probably was because of greater confidence 
 in the world’s demand for wheat and cotton than in the demand 
 for the other products. These commodities stand at the top 
 of the list of products traded in upon world markets. Our ex¬ 
 ports of these products constitute a greater share of our produc¬ 
 tion of them than in the case of any other of our staple crops, 
 and for that reason the prices of them in this country are bound 
 to follow in the long run the prices in world markets. 
 
 The Story of Wheat 
 
 T HE situation as to wheat is not quite so clear as the reason 
 for the decline of live stock, because our exports of wheat 
 have continued at a high rate, but let us examine it. 
 
 The wheat crop of the world for 1913 was estimated by our 
 Department of Agriculture at 4,127,000,000 bushels. In 1917, 
 with Russia eliminated, it was estimated at about one-half 
 that, approximately 2,000,000,000. Since then, leaving Russia 
 out of the account entirely, it has been estimated at 2,358,000,000 
 for 1918, 2,571,000,000 for 1919, 2,763,000,000 for 1920 and 
 2,990,000,000 for 1921, thus showing a gain of about 200,000,000 
 bushels in each year over the preceding one. 
 
 There was a good degree of confidence in speculative circles 
 in the fore part of 1920 that all our wheat and cotton would 
 be wanted at the prevailing prices, and this confidence was re¬ 
 flected in the markets until the new crops began to come forward 
 in the fall months. By that time the general trend of com¬ 
 modity prices was distinctly downward. Wheat and cotton had 
 outstayed the others; instead of leading, they followed. By 
 that time, the crops in the southern hemisphere were sufficiently 
 advanced to give assurance that the yields of Australia and Ar¬ 
 gentina would be large, and that the supply of wheat would be 
 sufficient to meet all demands before the harvest of 1921. 
 
 The Speculator’s Service 
 
 A BOUT 75 per cent of the wheat crop ordinarily comes on the 
 markets in the first half of the crop year, i.e.; before Janu¬ 
 ary 1 following, and at this time the importing countries of 
 Europe have supplies of their own production and are under no 
 
pressure to buy. This means that somebody must stand ready 
 to buy the wheat which the American farmer offers and carry 
 a large part of the crop over into the last half of the year, be¬ 
 fore it will be wanted for consumption- This is the function of 
 the speculator, and it is a useful function. You may call him an 
 investor if you like the name better, but in either case he renders 
 that service. 
 
 If, in the fall months, when marketing is heavy, world 
 supplies promise to be large enough to meet all demands before 
 the next year’s harvest, and provide a surplus, a very uncertain 
 future factor figures among the speculator’s risks: that is, the 
 size of the next crop. By the following April or May, and per¬ 
 haps before that, the prospects for the next crop will be a factor 
 in the value of his holdings. 
 
 The Outlook in the Fall of 1920 
 
 7 OOK at the situation confronting a would-be investor in 
 
 wheat in the fall of 1920: Commodity prices generally 
 were tending downward; there were symptoms of coming de¬ 
 pression all over the world; the political and industrial situation 
 in Europe was bad; the exchange situation looked bad; the 
 price of wheat was two to three times the pre-war price, and 
 the supply of wheat promised to be more than sufficient to meet 
 all demands before the next harvest. The investor in wheat 
 must be prepared to carry it into the next crop year. It was 
 considered an uninviting prospect by many dealers; the specu¬ 
 lative demand was not sufficient to take the offerings at the high 
 prices, and prices gave way. 
 
 The situation is clearer today than it was at that time. The 
 heads of the farm organizations insisted that all our wheat 
 would be wanted before the end of the crop year, and endeavored 
 to pledge their members not to sell for less than $3 per bushel. 
 They were sincere, of course, and thought that the dealers who 
 advised sales were frying to get the farmer’s crop away from 
 him for less than it was worth. 
 
 Well, the time for argument over what wheat was worth in 
 the fall of 1920 is now over, although the argument goes on; we 
 know now for a fact that there was wheat enough in this coun¬ 
 try to meet all demands on a declining price scale, and leave 
 
more than 100,000,000 bushels to be carried over into the next 
 crop year. 
 
 The Losses on Wheat 
 
 ¥T must not be thought that the farmers alone were mistaken 
 * about the price of wheat, or alone suffered by the decline. 
 Not all the speculators were wise enough to judge the situation 
 correctly. I have already stated that 75 per cent of the 1920 
 crop left the farmers’ hands before January 1, 1921. Mr. Julius 
 H. Barnes, than whom there is no better authority upon wheat, 
 has calculated that this 75 per cent was sold at an average price 
 equal to 267 per cent of the average price in 1913. He esti¬ 
 mates that the dealers, millers and merchants who took this 
 part of the crop from the farmers suffered a loss aggregating 
 $200,000,000, and that this was more than the aggregate losses 
 of the farmers upon the total crop. 
 
 It is a mistake to suppose that the farmers were the only 
 ones who lost by the decline of wheat. Practically everybody 
 who handled any of the 1920 crop of wheat without hedging lost 
 money on it. It is true that some speculators made money by 
 selling short, but whatever they sold somebody else bought— 
 whatever they made somebody else lost—and in that case pre¬ 
 sumably it was not the farmers. The speculators were divided 
 among themselves, some profiting and others losing. 
 
 Meat Packers’ Losses 
 
 A ND so it is also true that in the decline of other farm prod- 
 ** ucts, the farmers were not the only losers. The meat¬ 
 packing industry, as a whole, has yielded practically no profits 
 for the last three years, and the aggregate losses of the five 
 leading companies in the year 1921 were authoritatively stated 
 at over $60,000,000. In any division between big business and 
 little business, the packers would be classed with big business. 
 If any conspiracy was going on in the financial world, they 
 might be expected to hear of it and ^to escape its effects, but 
 in this instance they have been among the heaviest losers. 
 
 Losses Upon Cattle 
 
 HpHE producers of cattle who suffered most severely were 
 ^ those who, tempted by rising prices, ventured deeply into 
 debt for the purchase of stock cattle. They borrowed too much, 
 
and in many cases borrowed unwisely by having their promissory 
 notes sold On the market to strangers, counting upon pay¬ 
 ing the notes when they fell due by selling new ones. The com¬ 
 petition for stock cattle by growers seeking to increase their 
 herds carried prices very high, and the making of so much in¬ 
 debtedness upon that basis created a precarious situation. When 
 settlement day came, new paper could not be sold to take up the 
 old, and that class of cattle was thrown on the markets in excess 
 of the ability of the markets to absorb it without a heavy decline 
 in prices. 
 
 Increase of Indebtedness 
 
 I T might be supposed, if one had never read history, and did 
 not know much about human nature, that in such a period 
 of rising prices and prosperity as the farmers enjoyed for 
 about five years, they would have reduced their indebtedness 
 of all kinds—paid off their mortgages and cleaned up what they 
 might be owing at the banks. On the contrary, the aggregate 
 farm mortgage indebtedness of the country was very largely 
 increased in this time, the increase in some of the most pros¬ 
 perous states being more than 100 per cent between the censuses 
 of 1910 and 1920. Moreover, although it is represented that 
 the farmers are without adequate banking accommodations, the 
 fact is that the volume of bank loans to farmers in the most 
 prosperous farming states was very largely increased from 1935 
 to 1920. If I wanted to state in the fewest possible words an 
 explanation of the agricultural distress of the last two years, I 
 would put it in three words, “Too much borrowing.” The 
 wholesome fear of debt which was prevalent when some of us 
 were young had been largely dissipated by the rising prices 
 of the last twenty-five years. Men had been led to believe that 
 the way to get ahead was by the use of borrowed money, and 
 that the smaller the margins on which they operated the more 
 rapid their progress would be. The truth is that the number of 
 men able to use borrowed money advantageously always has 
 been comparatively small. 
 
 In speaking of the indebtedness of farmers, I do not wish 
 to be understood as representing farmers as a class as more 
 imprudent or reckless than other people, including business men 
 generally. They had plenty of good company, both in borrow- 
 
ing and losing. They did just what most business men did, 
 and the combined effect of this general policy of inflation was 
 to overdo the use of credit, create an abnormal price level and 
 bring about a disastrous reaction. 
 
 It is pertinent, however, to point out at this time, when 
 relief for the farmer is proposed through various plans for pro¬ 
 viding him with more credit, that the chief factor in the plight 
 in which he is now struggling has been too much credit. I do 
 not say this in uncompromising hostility to every plan for 
 providing credit that may be offered, but as a proposition funda¬ 
 mental to the present situation. I do not think that lack of 
 credit is a factor in the present price situation, and I believe 
 that the farmers are now more interested in prices than they 
 are in increasing production. Dr. Henry C. Taylor, Chief of the 
 Federal Bureau of Agricultural Economics, is quoted as com¬ 
 menting upon fears of a future food scarcity by saying, in a re¬ 
 cent address, that “the problem before the American farmer is 
 not the holding of the population down to the food supply but 
 the holding of the food supply down to the demands of the 
 population.” 
 
 Increased Production—Lower Prices 
 
 FT seems to be in order, therefore, to suggest that if the plans 
 for placing more credit at the disposal of farmers should prove 
 successful, and the production of the farms should be thereby 
 increased, the natural effect might be to reduce the price-level 
 below what it is at present. On general principles, a lowering 
 of prices resulting from a lowering of costs is something to be 
 desired. It is certainly in the interest of consumers, but it is not 
 urged in their behalf at present. The fact may as well be recog¬ 
 nized that it will not bring relief to all farmers, or put an end to 
 the calls for relief. On the contrary, it is probable that the class 
 of farmers who are in deepest distress now would be in still 
 deeper distress if prices went lower as a result of placing in¬ 
 creased facilities for production at the command of the more 
 efficient class of farmers. 
 
 Indeed, there is some ground for questioning whether that 
 is not one of the pinching factors in the present situation. Mr. 
 Julius H. Barnes, in a recent address, stated that in the 20 
 years from the census of 1900 to the census of 1920— 
 
The population of the United States increased 40 per cent; 
 The number of persons engaged in agriculture increased 
 4 per cent; 
 
 The production of wheat increased 58 per cent; 
 
 The production of corn increased 35 per cent; 
 
 The production of cotton increased 47 per cent; 
 
 The production of cattle increased 37 per cent; 
 
 The production of hogs increased 68 per cent 
 These figures would indicate that some portion of the farm¬ 
 ing population has been increasing its efficiency, and presumably 
 decreasing the cost of production, and naturally this would make 
 severe competition for that portion of the farm population which 
 is not keeping the pace. 
 
 Efficient Competition 
 
 I HAVE an editorial clipping from Wallace's Farmer of May 
 27, 1921, at which time farm products w r ere near the bottom. 
 Wallace’s Farmer is published in Des Moines, is one of the 
 leading farm journals of the west, and has not been behind 
 the others in calling for relief for agriculture. The edito¬ 
 rial to which I refer presents a calculation showing that the 
 principal commodities which the Iowa farmer had to buy then 
 stood at about 177 per cent of their pre-war prices, while the 
 products which he had to sell stood at about 104 per cent of 
 their pre-war value. The editorial proceeded to say: 
 
 One hundred and four dollars worth of buying 
 power to satisfy $177 worth of normal needs is a 
 situation calculated to make the Iowa farmer think 
 twice before he buys. Nevertheless, in spite of this 
 temporarily had situation, so far as the average 
 Iowa farmer is concerned, there are thousands of 
 farmers, who own their ozvn farms and who saved 
 their money during the war, who are better off 
 than they have ever been. 
 
 This comment would seem to indicate that present distress 
 is not due to fundamental conditions, but rather to mistaken 
 judgment in dealing with abnormal temporary conditions. The 
 class of farmers referred to in this editorial belong to the class 
 of men who in every line of business are the leaders and price- 
 
makers, and who make conditions difficult for competitors. Is 
 it possible that they are getting so numerous among the farmers 
 that their competition is felt, and if so, can anything be done 
 about it, or ought anything to be done about it ? 
 
 The War’s Disturbance 
 
 ¥ DO not mean to say that the farmer’s troubles are all imagi- 
 
 * nary, or that he does not deserve sympathy and help, so far as 
 it can be given. His troubles are real, and not only are we all 
 obligated to render any possible assistance, but it is to the inter¬ 
 est of all that the farmer’s recovery shall be as speedy as pos¬ 
 sible. The farmer, however, is involved in a world situation. 
 The world has been passing through the most terrible experience 
 of its history. Nothing like the devastating and disorganizing 
 effects of the world war has been known since the world’s popu¬ 
 lation became what it is, or since society reached the state of 
 modern interdependence. All kinds of business have suffered 
 heavy losses, and, if we stop to think about it, what reason ever 
 was there for expecting anything else? War is not a productive 
 enterprise. Nobody ought to profit by it, and the fundamental 
 reciprocity which is the basis of all prosperous societies makes it 
 certain that no important classes ever can prosper by it. There 
 never was any reason for supposing that the war could usher in 
 a period of great and enduring prosperity. Every business move 
 made upon that assumption was miscalculated. 
 
 Industry Unbalanced 
 
 ¥ BELIEVE it to be true that the situation is still out of nor- 
 
 * mal balance as between agriculture and the other industries. 
 That the prices of farm products should fall faster in a reaction 
 than the prices of other products and services is natural and 
 has been so in every crisis. The editorial from Wallace’s Farmer 
 already referred to says that in 1916, 1917, 1918, and 1919 the 
 purchasing power of what the Iowa farmer had to sell was 
 above the pre-war parity in relation to the things he had to 
 buy. He gained on the up-grade and has lost on the down¬ 
 grade. Although the farmer and his family do a great part of 
 the farm work themselves, he is economically in the position 
 of a proprietor and employer who always gain as prices rise and 
 lose as prices fall. He cannot have it both ways. 
 
The disturbance of economic relationships was widespread, 
 and it is not soon over. All the factors in the situation are not 
 affected alike. Farm products, constituting our chief exports, 
 and being more dependent upon foreign markets than other 
 products are more directly and quickly affected. Hired 
 labor is not nearly so much of a factor in the cost of farm prod¬ 
 ucts as it is the cost of manufactures, coal or transportation. It 
 is very doubtful, when the value of his land and equipment is 
 considered, and his taxes and other fixed expenses are taken 
 into account, whether the farmer can gain anything by curtail¬ 
 ing production, as a manufacturer does when prices fall below 
 cost. 
 
 The farmer's chief grievance is that the things he has to 
 buy have not come down to correspond with the prices of what 
 he has to sell, and I think it is a just grievance, but I do not 
 believe there is any remedy for it except by the gradual opera¬ 
 tions of economic law. There are some factors on the other 
 side of the situation which he does not see. House-building 
 fell behind during the war, and the deficit has not been made 
 good. This has made rents very high for city wage-earners, 
 and rent is one of the principal items in their cost of living. 
 High rent constitutes one of the reasons for their resolute resist¬ 
 ance to wage reductions. 
 
 Labor is the chief factor in the prices of which the farmer 
 complains, and the Labor problem, as presented in the wage dis¬ 
 putes and strikes, is a great social problem that nobody can set¬ 
 tle offhand. It is as much the farmer’s problem as anybody’s. 
 The ideal solution is by the development in all classes of such an 
 understanding of mutual interests and mutual obligations as will 
 impel all to join in finding a fair basis of agreement. There is no 
 question that the compensation of the farmer must be brought 
 into just relations with the compensation of workers in the 
 other industries before there can be full and lasting prosperity 
 for anybody. 
 
 The European Situation 
 
 A\NE of the conditions which has affected farm products un* 
 favorably since 1920 has been the lack of speculative interest 
 in the markets. While the farmer has been blaming the specu¬ 
 lator and endeavoring to secure laws to curtail his operations, 
 
the want of speculative spirit, the want of courage to buy farm 
 products and carry them for future sale, has been one of the 
 principal factors in the weakness of the markets. 
 
 The explanation of this lack of speculative interest is to be 
 found in the uncertainty about foreign conditions. It is possi¬ 
 ble, having information as to the world’s wheat supply, to cal¬ 
 culate about how much wheat should be worth, providing Europe 
 will take what it would normally consume. But conditions in 
 Europe are such that it is impossible to say what its buying 
 ability will be over any period in the future. Of course there 
 is speculation, but the speculators want a wider margin of 
 security—in other words, they must buy more cheaply than if 
 they were trading under normal conditions. 
 
 Lack of Speculative Courage 
 
 I T has been known since the 1st of last July that the wheat 
 crop of Europe is approximately 200,000,000 bushels less 
 than last year, and that the world’s supply and demands are 
 very closely balanced this year. If anything should go wrong 
 with the crops of the southern hemisphere which are now ap¬ 
 proaching harvest, there certainly would be a shortage. Never¬ 
 theless the markets have shown but little life. Europe has its 
 own crops to start with—and has been cautious about its buy¬ 
 ing. In the last two months, however, the price of wheat has 
 gone up about 30 cents per bushel in Europe. The advance in 
 the primary markets of this country, where the farmers sell 
 their grain, has not kept pace with the advance in Europe or at 
 this seaboard, mainly because of the transportation blockade. 
 The primary markets are congested, and the normal competi¬ 
 tion there for wheat is held in check for lack of facilities for 
 storage and transportation, with the result that wheat through¬ 
 out the west has been about 10 cents per bushel below the 
 normal parity with the world’s price. 
 
 This situation has affected the dealers as well as the farmers, 
 perhaps even more, for if the movement had been freer prices at 
 the seaboard might have been lower. But dealers have lost 
 millions of dollars through defaults upon contracts, demurrage 
 charges, etc. Of course buyers take these risks into account in 
 the prices they are willing to pay. 
 
The Plight of the Railroads 
 
 H ERE we have the farmer suffering from conditions for 
 which he is himself in some degree responsible. He fights 
 the railroads for lower freight rates, without consideration for 
 the fact that the railroads are unable to reduce their operating 
 costs, and that their earnings are inadequate to pay fair returns 
 upon the capital investment. The popular view of the railroads 
 is that they are owned by a few rich bankers who can put 
 their hands in their pockets for any funds that may be needed 
 to enlarge the facilities from time to time. The truth is that 
 the ownership is widely distributed, and the only way new 
 capital can be raised for them is by offering their securities on 
 the public market. Moreover, the earnings are so low, and 
 the menace to the investment is so great, from the employe 
 organizations on the one side and the farmers’ organizations on 
 the other, that it is increasingly difficult to raise money for the 
 railroads in the public market. The strongest companies are 
 still able to borrow, by creating obligations that rank ahead 
 of the stock, but a sound business should be able to raise about 
 one-half of its new capital by increasing proprietors’ capital, 
 and this the roads are not able to do under present conditions. 
 They cannot go on increasing their indebtedness indefinitely, 
 for the margin of safety is being reduced. 
 
 The result is that railroad facilities have not been kept up 
 to the growing needs of the country and railroad congestion 
 follows. Problems of this kind, affecting the farmers’ welfare, 
 and the welfare of the entire community, need to be treated in a 
 broad and constructive manner. 
 
 Free Play of Economic Forces the Best Remedy 
 
 I^TOTWITPISTANDING all of these perplexing and discour- 
 aging conditions, the prices of farm products have gone a 
 long way on the road to recovery in the past year. Given a 
 settlement of political conditions in Europe, so that industry 
 and trade will have a sound basis over there, and the usual 
 international credits can be safely granted, there is every reason 
 to believe that the products of American agriculture will find a 
 ready market at remunerative prices. The number of mouths 
 to be fed in the world is constantly increasing, and there are 
 
no longer any such areas of readily accessible lands as awaited 
 settlement fifty years ago in the Mississippi Valley. The out¬ 
 look for the farmer is changed in no permanent respect from 
 what it w r as at the beginning of 1914. In my opinion there is a 
 great deal more danger of too much legislation on the subject 
 than of too little. 
 
r 
 
 L 
 
 
 
 Ht UBMM OF IHt 
 AUG 2 7 1924 
 
 UNIVERSITY of ILLINOIS