Message to the Senate Returning Without Approval S. 4808— The McNary-Haugen Farm Relief Bill
To the Senate:
The conditions which Senate Bill 4808 is designed to remedy have been, and still are, unsatisfactory in many cases. No one can deny that the prices of many farm products have been out of line with the general price level for several years. No one could fail to want every proper step taken to assure to Agriculture a just and secure place in our economic scheme. Reasonable and constructive legislation to that end would be thoroughly justified and would have the hearty support of all who have the interests of the nation at heart. The difficulty with this particular measure is that it is not framed to aid farmers as a whole, and it is, furthermore, calculated to injure rather than promote the general public welfare.
It is axiomatic that progress is made through building on the good foundations that already exist. For many years—indeed, from before the day of modern agricultural science—balanced and diversified farming has been regarded by thoughtful farmers and scientists as the safeguard of our agriculture. The bill under consideration throws this aside as of no consequence. It says in effect that all the agricultural scientists and all the thinking farmers of the last fifty years are wrong, that what we ought to do is not to encourage diversified agriculture but instead put a premium on one-crop farming. The measure discriminates definitely against products which make up what has been universally considered a program of safe farming. The bill upholds as ideals of American farming the men who grow cotton, corn, rice, swine, tobacco, or wheat, and nothing else. These are to be given special favors at the expense of the farmer who has toiled for years to build up a constructive farming enterprise to include a variety of crops and live stock that shall, so far as possible, be safe, and keep the soil, the farmer's chief asset, fertile and productive.
The bill singles out a few products, chiefly sectional, and proposes to raise the prices of those regardless of the fact that thousands of other farmers would be directly penalized. If this is a true farm-relief measure, why does it leave out the producers of beef, cattle, sheep, dairy products, poultry products, potatoes, hay, fruit, vegetables, oats, barley, rye, flax and the other important agricultural lines? So far as the farmers as a whole are concerned, this measure is not for them. It is for certain groups of farmers in certain sections of the country. Can it be thought that such legislation could have the sanction of the rank and file of the nation's farmers? This measure provides specifically for the payment by the federal board of all losses, costs and charges of packers, millers, cotton spinners, or other processors who are operating under contract with the board. It contemplates that the packers may be commissioned by the Government to buy hogs enough to create a near scarcity in this country, slaughter the hogs, sell the pork products abroad at a loss, and have their losses, costs and charges made good out of the pockets of farm taxpayers. The millers would be similarly commissioned to operate in wheat or corn and have their losses, costs and charges paid by farm taxpayers.
It is roughly estimated that in this country there are 4,000 millers, over 1,000 meat-packing plants, and about 1,000 actual spinners. No one can say definitely after reading this bill whether each of these concerns would be entitled to receive a contract with the Government. Certainly no independent concern could continue in business without one. Each of the agencies holding a contract—the efficient and inefficient alike—would be reimbursed for all their losses, costs and charges. It seems almost incredible that the producers of hogs, corn, wheat, rice, tobacco and cotton should be offered a scheme of legislative relief in which the only persons who are guaranteed a profit are the exporters, packers, millers, cotton spinners and other processors.
Clearly this legislation involves Governmental fixing of prices. It gives the proposed federal board almost unlimited authority to fix prices on the designated commodities. This is price fixing, furthermore, on some of the nation's basic foods and materials. Nothing is more certain than that such price fixing would upset the normal exchange relationship existing in the open market and that it would finally have to be extended to cover a multitude of other goods and services. Government price fixing, once started, has alike no justice and no end. It is an economic folly from which this country has every right to be spared.
This legislation proposes, in effect, that Congress shall delegate to a Federal Farm Board, nominated by farmers, the power to fix and collect a tax, called an equalization fee, on certain products produced by those farmers. That certainly contemplates a remarkable delegation of the taxing power. The purpose of that tax, it may be repeated, is to pay the losses incurred in the disposition of the surplus products in order to raise the price on that portion of the products consumed by our own people. This so-called equalization fee is not a tax for purposes of revenue in the accepted sense. It is a tax for the special benefit of particular groups. As a direct tax on certain of the vital necessaries of life it represents the most vicious form of taxation. Its real effect is an employment of the coercive powers of Government to the end that certain special groups of farmers and processors may profit temporarily at the expense of other farmers and of the community at large.
The chief objection to the bill is that it would not benefit the farmer. Whatever may be the temporary influence of arbitrary interference, no one can deny that in the long run prices will be governed by the law of supply and demand. To expect to increase prices and then to maintain them on a higher level by means of a plan which must of necessity increase production while decreasing consumption is to fly in the face of an economic law as well established as any law of nature. Experience shows that high prices in any given year mean greater acreage the next year. This does not necessarily mean a larger crop the following year, because adverse weather conditions may produce a smaller crop on a larger acreage, but in the long run a constantly increasing acreage must of necessity mean a larger average crop.
Under the stimulus of high prices, the cotton acreage increased by 17,000,000 acres in the last five years. Under the proposed plan, as prices are driven up irresistibly by the artificial demand created by the purchases of the board, the millions of farmers, each acting independently, with no assurance that self-restraint on his part in the common interest will be accompanied by a like restraint on the part of millions of other individuals scattered over this immense country, will do just what any one else would do under the circumstances, plant and grow all they can in order to take full advantage of a situation which they fear is only temporary. This was, of course, recognized by the authors of the measure; and they proposed originally to offset this tendency by means of the equalization fee to be paid by each producer. But in the present bill the equalization fee is to be paid by only part of the producers.
On the other hand, higher prices will make a decreased consumption. From 1917 to 1925 the per capita consumption of pork increased from 55 pounds to 86.3 pounds, but in the following year, when the price of pork rose by $3.60 a hundred and the price of beef rose only 40 cents a hundred, the per capita consumption of pork fell off almost nine pounds.
It is not inconceivable that the consumers would rebel at an arbitrary high price and deliberately reduce their consumption of that particular product, especially as uncontrolled substitutes would always be available. The truth is that there is no such thing as effective partial control. To have effective control, we would have to have control of not only one food product but of all substitutes. Increased production on the one hand, coupled with decreased domestic consumption on the other, would mean an increased exportable surplus to be dumped on the world market. This in turn would mean a constantly decreasing world price until the point was reached where the world price was sufficiently low so that, even though increased by our tariff duties, commodities would flow into this country in large quantities.
A board of twelve men are granted almost unlimited control of the agricultural industry and can not only fix the price which the producers of five commodities shall receive for their goods, but can also fix the price which the consumers of the country shall pay for these commodities. The board is expected to obtain higher prices for the American farmer by removing the surplus from the home market and dumping it abroad at a below-cost price. To do this, the board is given the authority by implication to fix the domestic price level, either by means of contracts which it may make with processors or cooperatives, or by providing for the purchase of the commodities in such quantities as will bring the prices up to the point which the board may fix.
Except as it may be restrained by fear of foreign importations, the farm board, composed of representatives of producers, is given the power to fix the prices of these necessities of life at any point it sees fit. The law fixes no standard, imposes no restrictions, and requires no regulation of any kind. There could be no appeal from the arbitrary decision of these men, who would be under constant pressure from their constituents to push prices as high as possible. To expect moderation under these circumstances is to disregard experience and credit human nature with qualities it does not possess.
It is not so long since the Government was spending vast sums and through the Department of Justice exerting every effort to break up combinations that were raising the cost of living to a point conceived to be excessive. This bill, if it accomplishes its purpose, will raise the price of the specified agricultural commodities to the highest possible point and in doing so the board will operate without any restraints imposed by the anti-trust laws. The granting of any such arbitrary power to a Government board is to run counter to our traditions, the philosophy of our Government, the spirit of our institutions, and all principles of equity.
The administrative difficulties involved are sufficient to wreck the plan. No matter how simple an economic conception may be, its application on a large scale in the modern world is attended by infinite complexities and difficulties. The principle underlying this bill, whether fallacious or not, is simple and easy to state; but no one has outlined in definite and detailed terms how the principle is to be carried out in practice. How can the board be expected to carry out after the enactment of the law what can not even be described prior to its passage? In the meanwhile, existing channels and methods of distribution and marketing must be seriously dislocated. This is even more apparent when we take into consideration the problem of administering the collection of the equalization fee. The bureau states that the fee will have to be collected either from the processors or the transportation companies, and dismisses as impracticable collections at the point of sale. In the case of transportation companies it points out the enormous difficulties of collecting the fee in view of the possibility of shipping commodities by unregistered vehicles.
In so far as processors are concerned, it estimates the number at 6,632, without considering the number of factories engaged in the business of canning corn or manufacturing food products other than millers. Some conception of the magnitude of the task may be had when we consider that if the wheat, the corn and the cotton crops had been under operation in the year 1925, collection would have been required from an aggregate of 16,034,466,679 units. The bureau states that it will be impossible to collect the equalization fee in full.
The bill will not succeed in providing a practical method of controlling the agricultural surplus, which lies at the heart of the whole problem. In the matter of controlling output, the farmer is at a disadvantage as compared with the manufacturer. The latter is better able to gauge his market, and in the face of falling prices can reduce production. The farmer, on the other hand, must operate over a longer period of time in producing his crops and is subject to weather conditions and disturbances in world markets which can never be known in advance.
In trying to find a solution for this fundamental problem of the surplus, the present bill offers no constructive suggestion. It seeks merely to increase the prices paid by the consumer, with the inevitable result of stimulating production on the part of the farmer and decreasing consumption on the part of the public. It ignores the fact that production is curbed only by decreased, not increased, prices. In the end the equalization fee and the entire machinery provided by the bill under consideration will merely aggravate conditions which are the cause of the farmer's present distress.
We must be careful in trying to help the farmer not to jeopardize the whole agricultural industry by subjecting it to the tyranny of bureaucratic regulation and control. That is what the present bill will do. But, aside from all this, no man can foresee what the effect on our economic life will be of disrupting the long-established and delicately adjusted channels of commerce. That it will be far-reaching is undeniable, nor is it beyond the range of possibility that the present bill, if enacted into law, will threaten the very basis of our national prosperity, through dislocation, the slowing up of industry, and the disruption of the farmer's home market, which absorbs 90 per cent of his products.
With the limited number of farm cooperatives with whom contracts may be made for surplus disposal and the fact that farm cooperatives are not likely to be engaged in meat packing, flour-milling or cotton spinning, it appears certain that the largest part of these contracts must be made between the board and the processors and other agencies. It means that the whole contract in swine, for instance, must be carried out with the meat packers; that a large part of wheat operations must be carried out with flour millers, wheat exporters and others. It means that any establishment which has such a contract can charge what it likes to our American consumers because it can place the loss from any product unsalable at home on the farmer or the Government by dumping it abroad. In actual working this is a complete guarantee of the profits of these concerns without restraint or limitation on profiteering against American consumers, of which the farmer himself is a very large element. It is not a guarantee to the farmer. The implications of this were pointed out in significant remarks in the minority report of the House Committee on Agriculture, which merits fuller attention than it has been given:
The silence of the majority report on this phase of the subject, in view of its wide circulation in the farming communities of the country, can be only because the proponents of the bill are unwilling that the farmers of the nation shall learn that it is proposed that the equalization fee principle shall be utilized to assure to the packers what they have not been able to gain for themselves—a certain profit from every year's operation.
The proponents of the bill at the hearings conceded that it could not operate as to animals except under a contract with the packers. It incidentally follows that no packer without a contract could operate with the board. The bill nowhere protects the independent packer. It does provide that there shall be no discrimination between cooperative associations. It contains no like provisions as to processors.
The bill would impose the burden of its support to a large degree upon farmers who would not benefit by it. The products embraced in the plan are only about one-third of the total American farm productions. The farmers who grow these commodities are themselves large consumers of them, and every farmer consumes some of them. There are several million farmers who do not produce any of the designated products, or very little of them, and they must pay the premiums upon the products designated in the bill. In some commodities, such as com and mill feed, the farmers are practically the sole consumers. It is proposed to increase the price of corn and mill feed to American farmers, and therefore the costs to the dairy and cattle feeding industries whose products are omitted from the bill. Beyond this, it seems that by dumping of American feeds abroad at lower prices than those charged under this plan to the American swine, cattle and dairy farmer, we should be directly subsidizing foreign production of pork, dairy, beef and other animal products in competition with our own farmers in the markets of the world. We shall send cheap cotton abroad and sell high cotton at home.
The effect of this plan will be continuously to stimulate American production and to pile up increasing surpluses beyond the world demand. We are already overproducing. It has been claimed that the plan would only be used in the emergency of occasional surplus which unduly depresses the price. No such limitations are placed in the bill. But on the other hand, the definition of surplus is the "surplus over domestic requirements," and as we have had such a surplus in most of the commodities covered in the bill for fifty years and will have for years to come it means continuous action.
It is said that by the automatic increase of the equalization fee to meet the increasing losses on enlarged dumping of increasing surplus that there would be restraint on production. This can prove effective only after so great an increase in production as will greatly enlarge our exports on all the commodities except cotton. With such increased surpluses dumped from the United States on to foreign markets the world prices will be broken down and with them American prices upon which the premium is based will likewise be lowered to the point of complete disaster to American farmers. It is impossible to see how this bill can work.
Several of our foreign markets have agriculture of their own to protect and they have laws in force which may be applied to dumping and we may expect reprisals from them against dumping agricultural products which will even more diminish our foreign markets.
The bill is essentially a price fixing bill, because in practical working the board must arrive in some way at the premium price which will be demanded from the American consumer, and it must fix these prices in the contracts at which it will authorize purchases by flour millers, packers, other manufacturers, and such cooperatives as may be used, for the board must formulate a basis upon which the board will pay losses on the export of their surplus.
The present volume of exports of the commodities designated in the bill is one and one-half billion dollars per annum. A multitude of contracts involving scores of different grades and qualities and varieties of products with thousands of individuals, both for raw and manufactured materials, must be entered into—practically cost-plus contracts. The monetary volume of these contracts will be further expanded beyond even this sum because in hogs, for instance, the exports are in the main lard and bacon, while other parts of the animal are consumed at home, and thus contracting must apparently need cover all hogs, not the export surplus alone. Therefore the bill means an enormous building up of Government bureaucracy to let and inspect these billions of dollars of contracts with all their infinite variety of terms covering different goods and their different grades and qualities. In turn, all of the contracts of resales by these institutions must be examined and checked to determine the losses made.
Parallel with it another bureaucracy must be built up to collect and distribute the equalization fee. It all calls for an aggregation of bureaucracy dominating the fortunes of American farmers, intruding into their affairs and offering infinite opportunities to fraud and incapacity. It does not replace any middlemen or manufacturers; it means that thousands of officials are set to watch them and the farmers to see that they do not evade the requirements. One of our difficulties today is the great spread between the farmer and the consumer. All these increased processors' profits and this cost of bureaucracy must simply add to this spread without bringing to the farmer any return on such items. In fact, as he is a large consumer he also pays this.
While the Government is not directly buying or selling these commodities, it must under this bill let contracts for others to do so and name therein the terms upon which they shall buy and sell. No matter how disguised, this in plain terms is Government buying and selling of commodities through agents.
It is proposed that the administration of this plan shall be in the control of a board whose members are nominated to the President by agricultural organizations for his transmission to the Senate for confirmation. That appears to be an unconstitutional limitation on the authority of the President, but, far more important than this, I do not believe that upon serious consideration the farmers of America would tolerate the precedent of a body of men chosen solely by one industry who, acting in the name of the Government, shall arrange for contracts which determine prices, secure the buying and selling of commodities, the levying of taxes on that industry, and pay losses on foreign dumping of any surplus.
There is no reason why other industries—copper, coal, lumber, textiles and others—in every occasional difficulty should not receive the same treatment by the Government. Such action would establish bureaucracy on such a scale as to dominate not only the economic life but the moral, social and political future of our people. The amount of the equalization fees, the method of collection and disposition of these great sums of money are to be determined by the board without any effective check or review from the Executive or Congress—a delegation of powers under which our form of Government cannot continue.
No time limit is placed upon the contracts which the board may make. Such contracts might easily be for a term of years and in some commodities, as, for example, cotton at the present time, must necessarily be for a considerable period since the surplus cannot be disposed of in a single year. During the continuance of any such contract, the equalization fee must continue to be levied unless the whole burden of a continuing operation is to be borne by the producers of the first crop. Consequently the suggestion often made that the scheme should be tried, and if it fails be repealed, loses all force.
This suggestion is faulty in another respect, namely, that failure would be demonstrated only by the accumulation of a huge surplus in storage. The discontinuance of operations, while a vast supply remained in storage, would result in a prolonged depression of price through the surplus being fed into the markets or through fear of its sale.
While the bill authorizes an appropriation of $250,000,000, it fails to restrict the contracts of the board within that sum and nowhere denies the liability of the United States for additional sums of money. If the board had begun operating in the 1925 cotton crop when prices were around 20 cents a pound and had then attempted to hold up the price on the 1926 crop at a level which induced the picking of the whole crop, the whole $250,000,000 would have been spent and great commitments beyond that figure have been entered into. The allocation of $100,000,000 to cotton in last year's bill, plus the suggested fee of $5 a bale, would have been completely exhausted long before the 1926 crop came into the market. And, if the equalization fee should prove unconstitutional or otherwise uncollectible, the Treasury would have been committed by contracts to a liability to the extent of the whole revolving fund.
Apart from the necessity of contracting with the packers, the bill confers upon the board unlimited power as to the nature, extent and duration of contracts with other processors. It does not even enjoin an absence of "unreasonable" discrimination between them, although it does prohibit "unreasonable" discrimination between cooperatives. The board would therefore possess an absolute power of life and death over many legitimate business organizations, since none could compete against a processor enjoying a contract with the board protecting it against loss. The board could go unlimitedly into processing for its own account, if it so desired. No such unrestricted powers have ever been conferred upon any board.
The insurance proposal amounts to a straight Government agreement to pay to the cooperative associations any loss which they may incur in withholding commodities from the market—no matter how high the price may go in the meantime. For example, a wheat cooperative may, in a year of shortage, take wheat from a member on a day when it is selling at $2.50 a bushel. Under this bill it may decide to hold it for $3 but be insured that if the market breaks the Government will pay it the difference between $2.50 and the price at which the cooperative actually disposes of the wheat. Nothing more destructive of all orderly processes of trade could be imagined, and nothing more unfair to the nonmember of the cooperative, since his equalization fee would be used to pay the losses.
Let us see how the bill is to be put into operation. This act provides that before operations as to any one of these commodities shall begin it shall be necessary to obtain an expression from the producers of the commodity through a state convention of such producers. This applies in any state where not so many as 50 per cent of the producers of the particular commodity are members of cooperative associations or other organizations. The best estimate that can be made is that this would apply to every state in the Union. I quote from the Record with reference to this provision to show that this construction was given to it. The Congressional Record of February 11, page 3602, reads as follows:
Mr. McKellar—Immediately following that amendment I offer another amendment on behalf of the senior Senator from North Carolina (Mr. Simmons), * * *
The Vice President—The amendment will be stated.
The Chief Clerk—On page 8, line 16, after the word "commodity," insert the following proviso:
Provided, That in any state where not as many as 50 per cent of the producers of the commodity are members of such cooperative associations or other organizations, an expression from the producers of the commodity shall be obtained through a state convention of such producers, to be called by the head of the Department of Agriculture of such state, under rules and regulations prescribed by him.
Mr. Reed of Missouri—Mr. President, will the rules permit an inquiry of the Senator from Tennessee at this point? Does the last amendment read fix it so that if less than a majority are in favor of the scheme it may be adopted? Is it planned to call a state convention, a minority of which may be able to accomplish the result desired?
Mr. Reed of Missouri—Then what does it mean?
Mr. McKellar—It means exactly what it says, that such a convention shall pass on it before it is put into operation.
Mr. McKellar—I offer an amendment on behalf of the senior Senator from North Carolina (Mr. Simmons).
The Vice President—The clerk will state the amendment. [Amendment repeated.]
Mr. Reed of Missouri—Mr. President, I do not desire to delay the Senate, but I ask for a record vote on these important amendments. I call for the yeas and nays.
The yeas and nays were ordered, and the Chief Clerk proceeded to call the roll. * * *
So Mr. McKellar's amendment was agreed to.
You will note that is a state convention of the producers and that the proponent of the amendment said that a minority could not accomplish the result. Usually when there is a convention it is composed of delegates selected by producers. This provision is for a convention of the producers themselves, and before operation as to any commodity can be put into effect there must be such convention called and held in every state where the majority of the producers of the particular commodity are not members of cooperative associations or organizations. The extent of this provision is not limited as to the amount of the commodity produced in any state. For instance, some swine is produced in almost every state; some wheat is produced in the majority of all states; some corn is produced in the majority of all states, and, regardless of the amount produced, each such state would have to hold a state convention of all the producers.
If all the producers attended the convention the expense which must be borne by them individually would be a tremendous addition to the operating cost, and if the majority of them did not attend the convention the deliberations would not represent the voice of the producers. If such relief as that contemplated by the general plan of this bill were desirable, it would be extremely unwise to hamper it with this most cumbersome and awkward provision, the compliance with which is made mandatory as a condition precedent to the operation of the law. It is impossible to see how such conventions of producers could ever be held. The bill does not say "delegates," it says "producers," the farmers themselves, and if a majority of them must meet in state convention, it is entirely unworkable.
Corn is a crop that varies between 2,500,000,000 and 3,000,000,000 bushels per year, and the normal export is very small. The reason, then, for operating this bill on corn would not grow out of the exportable surplus, but according to the definition in Section 6 (c) (2) would grow out of a surplus above the requirements for orderly marketing. The marketing of corn would include marketing to a purchaser to feed to cattle and hogs, so that a situation might arise where there would be a surplus above the requirements for orderly marketing. The act then could be put into operation as to corn under all the different kinds of agreements. But the vast expense of financing the operation of these agencies in the corn market would be charged not against the entire commodity, but against that part of the commodity which is used for milling or processing or that is transported by a common carrier. This, according to statistics, amounts only to some 15 or 20 per cent of the corn produced.
That the equalization fee is not laid on the entire commodity is not apparent from a casual reading of the act. But a close study shows that Section 10 provides that there shall be paid "an equalization fee upon one of the following: The transportation, processing or sale of such unit." There is no other way to collect the fee. If that stood alone, then all the corn would be subject to the fee unless it were used by the raiser, but Section 15 (1) says:
In the case of * * * corn, the term "processing" means milling for market of * * * corn or the first processing in any manner for market * * * of corn not so milled, and the term "sale" means the sale or other disposition in the United States of * * * corn for milling or other processing for market, for resale or for delivery by a common carrier * * *.
So, unless the corn is processed or sold for milling or other processing for market or is transported by common carrier, it is not subject to the equalization fee. But the great bulk of it which is neither processed nor transported by common carrier is free from the equalization fee.
The only figures in the debates with reference to corn are some estimates based solely upon exportable surplus, which really form no basis for the present proposed plan based on desire for orderly marketing and not for controlling the small exportable surplus. While it is difficult to estimate the burden of this equalization fee, which must be borne for the entire crop by this small proportion, the simplest calculation will show that the amount per bushel necessarily would be tremendous, so that the market for corn milling and other processing and for transportation would be entirely dislocated.
The provisions of the present measure with reference to an equalization fee on corn must not be confused with the other measures which have been proposed for the reason that former measures put the burden upon the entire crop, but this measure, in undertaking to place the duty of collecting payments on the processor, has reached this disastrous result. It is no answer to say that the corn producers would induce their advisory council and the members of the board from their land bank districts to exclude corn from the operation of this bill because the people who do not want to pay an equalization fee and on whom the burden does not fall are 80 or 85 per cent of the producers of corn.
It may be contended that since there is to be an equalization fee on swine the feeders would be taxed, but the swine and corn are separate units and have a separate stabilization fund, and under the law the fees on swine cannot be turned into the stabilization fund for corn.
In figuring the percentage of the corn crop upon which the fee would fall, while it is possible that the fee might fall on corn carried by a common carrier, it is doubtful whether any board would lay a tax on transportation where the corn was being transported to be sold to feeders. If they did, of course, the result would be that to avoid the fee in most cases the seller would not transport by a common carrier.
It is not enough to say that the right to put the equalization fee on swine would adjust the inequalities between those bearing the burden and those not bearing the burden, first, because the board might commence operating as to corn and not desire to operate or be permitted to operate as to swine. However, much of the corn would be fed to cattle and live stock other than swine, and there is no right to bring the products of live stock other than swine under the provisions of the law.
With a requirement for a fee on part of the corn crop and no fee on the balance, the free movement and dealing in that commodity would be hampered to an almost unbearable extent. It would take a horde of inspectors to assure the payment of the fee on the particular corn required to bear it. A feeder of cattle who had the necessary machinery to grind or crush his corn bought from other farmers for feeding purposes would be able to market his cattle free from the cost of the equalization fee, while another feeder who purchased such ground feed would be compelled to market his cattle with the added cost of the equalization fee on the corn. This, of course, would be true as to swine; moreover, the feeder who had been compelled to purchase the ground feed would pay the fee on that, and when he sells his swine he pays an additional fee on that transaction. He pays twice.
It is provided in the law "the board shall determine in the case of any class of transactions in the commodity whether the equalization fee shall be paid upon transportation, processing, or sale." While this language is not very clear, a plan is set out by Representative Haugen, one of the co-authors of the bill, in the following language (Congressional Record, February 10, page 3528):
For wheat on hand at the beginning of the operation period the board would undoubtedly have to collect on the processing. In the case of transaction during the operating period the board would pick either the sale or the transportation.
The act itself provides in Section 10 (b) the board may, by regulation, require any person engaged in the transportation, processing, or acquisition by sale of a basic agricultural commodity: "(1) * * * (2) to collect an equalization fee as directed by the board and to account therefor." Thus the common carrier if on transportation, or the processor if on processing, or those who secure by sale, if on sale, collect the fee which must fall on the producer. Transportation under the act means the acceptance of a commodity by a common carrier for delivery (Section 15 (5)). Regardless of just how it is collected it is the intent that it shall fall upon the producer. The farmer pays it when his product moves.
Thus the Senate report, page 23, says:
The fees are imposed at the point of transportation, processing, or sale, as the board may determine. Their amount will, of course, be reflected in the price to the producer. * * * The committee bill, however, requires agricultural producers to meet their own losses with their own moneys. * * *
On page 25 it adds:
Neither of the above effects of the fee constitutes price fixing. The producer or other person may sell for such price as he chooses. The buyer may pay such price as he wills. There is no limitation upon the price to be fixed by the contracting parties save that the equalization fee, just as a broker's fee, will be taken into account in arriving at the price to be paid.
It is important to bear in mind that the equalization fee can only be levied upon a unit of the basic agricultural commodity. This means the actual commodity itself as defined in Section 6, to wit, cotton, wheat, corn, rice, tobacco and swine. The reference in subdivision (h) of Section 6 to food products of the commodity specifically limits the application thereof of Sections (d), (e), and (f) of Section 6, which do not in any way relate to the equalization fee. All of the sections dealing with the equalization fee and all of the references to it clearly limit its application to the basic agricultural commodity itself, and they cannot lay a fee upon flour or other products of wheat, meal, or other products of corn, meats, or other products of swine.
While there may be some conceivable way of reaching an import of any of these agricultural commodities as such, there is no possible way of reaching any of these commodities after they are processed. The result would be to throw all of our processors and millers who would have to buy the commodity with the cost of equalization fee added into competition with imports from Canada or other countries who sent in any product of any of the basic agricultural commodities.
Of course, the millers or other processors who happen to get desirable contracts from the board might be able to recoup that loss to a certain extent, but the milling capacity of the small mills and large mills is great enough to take care of twice the amount of milling and other processing to be done, and the mills which were not fortunate enough to get such contracts would be ruined. It is a fundamental principle in writing a tariff law that when a duty is placed upon a raw product a compensatory duty must be placed on the manufactured or processed product in which the raw product is used. Here is a fee placed upon the raw product without an opportunity to place a like fee upon the processed product which might be imported. Raw products dumped abroad can there be processed and reshipped here to the disaster and destruction of this whole bill.
In fixing the amount of the equalization fee the board must necessarily estimate the crop, because it is their duty to estimate the probable "advances, losses, costs and charges to be paid," and to determine the amount for each unit. Of course, they are compelled to estimate the crop in order to estimate the number of units. One of the co-authors of the bill suggests that if the law had been in operation from 1925 the equalization fee on wheat should yield $131,750,000.
I mention this to show the large sums involved. If either the estimate of the crop or the size of the fund needed should be inaccurate, so that there is collected many millions more than needed, there is no way to return it to the producer. Suppose there should be estimated an exportable surplus of 200,000,000 bushels of wheat and there is a surplus of but 100,000,000, the fund would be almost twice as large as it should be, and if the amount involved should be anything like that stated by Representative Haugen the board would have fifty-five or sixty millions more than needed of the farmers' money. There is no way to return it. Now, in the case of cotton there is provision that any excess that is accumulated for the stabilization fund shall be paid back to the producer.
This is contained in Section 10, Subdivision (3), and Section 11, Subdivision (e) as follows:
10 (3) In the case of cotton, to issue to the producer a serial receipt for the commodity which shall be evidence of the participating interest of the producer in the equalization fund for the commodity. The board may in such case prepare and issue such receipts and prescribe the terms and conditions thereof. The Secretary of the Treasury, upon the request of the board, shall have such receipts prepared at the Bureau of Engraving and Printing.
II (e) When the amount in the equalization fund for cotton is, in the opinion of the board, in excess of the amount adequate to carry out the requirements of this act in respect of such commodity, and the collection of further equalization fees thereon is likely to maintain an excess, the board may retire in their serial order as many as practicable of the outstanding receipts evidencing a participating interest in such fund. Such retirement shall be had by the payment to the holders of such receipts of their distributive share of such excess as determined by the board. The account of the distributive share payable in respect of any such receipt shall be an amount bearing the same ratio to the face value of such receipt as the value of the assets of the board in or attributable to the fund bear to the aggregate face value of the outstanding receipts evidencing a participating interest in such fund, as determined by the board.
But there is no place in the law which provides for a return to the producer of other products where the assessment of the fee levies an amount in excess of that necessary for the stabilization fund. There is quite a large variance from year to year of the amount of production of these different basic agricultural commodities, and it is manifestly unfair to provide that as to cotton the producer shall share in any excess collected, while as to corn, wheat, swine, rice and tobacco no such provision exists.
In all the similar bills heretofore considered by Congress it has been thought necessary to provide for the return to all producers of any amount they should pay in excess of that required, and it is illogical and indefensible to deem it necessary to still make that provision for the cotton producer and deprive the other producers of that benefit. This appears to be the rankest kind of discrimination in favor of one crop and against all the other crops in the bill.
Another difficulty will be in making proper estimates of the amount of products and the amount of the equalization fee. It is improbable that this board could do any better in this respect than has been done by the Department of Agriculture. In spring wheat the estimates of the department have been 78,000,000 bushels too small and 90,000,000 bushels too large; in winter wheat, 126,000,000 bushels too small and 1,400,000 bushels too large; in corn, 430,000,000 bushels too small and 657,000,000 bushels too large. In cotton the range has been 2,983,000 bales too small for 1926 and 3,286,000 bales too large for 1918.
These are all recent estimates and show conclusively the impossibility of arriving at accurate conclusions. No rebates are allowed except on cotton. Any year therefore that a large corn'or wheat crop is estimated which turns out to be too high too much money would be collected, and as it is not returnable it would result in so much loss to the farmer. If the crop were underestimated, the fee might not furnish a large enough sum to sustain the market on that particular commodity.
The main policy of this bill is an entire reversal of what has been heretofore thought to be sound. Instead of undertaking to secure a method of orderly marketing which will dispose of products at a profit, it proposes to dispose of them at a loss. It runs counter to the principle of conservatism, which would require us to produce only what can be done at a profit, not to waste our soil and resources producing what is to be sold at a loss to us for the benefit of the foreign consumer. It runs counter to the well-considered principle that a healthy economic condition is best maintained through a free play of competition by undertaking to permit a legalized restraint of trade in these commodities and establish a species of monopoly under Government protection, supported by the unlimited power of the farm board to levy fees and enter into contracts. For many generations such practices have been denounced by law as repugnant to the public welfare. It can not be that they would now be found to be beneficial to agriculture.
This measure is so long and involved that it is impossible to discuss it without going into many tiresome details. Many other reasons exist why it ought not to be approved, but it is impossible to state them all without writing a book. The most decisive one is that it is not constitutional. This feature is discussed in an opinion of the Attorney General, herewith attached and made a part hereof, so that I shall not consider the details of that phase of my objections. Of course it includes some good features. Some of its provisions, intended to aid and strengthen cooperative marketing, have been borrowed from proposals that do represent the general trend of constructive thought on the agricultural problem. In this measure, however, these provisions are all completely subordinated to the main objective, which is to have the Government dispose of exportable surpluses at a loss and make some farmer taxpayers foot the bill. This is not a measure to help cooperative marketing. Its effect, on the contrary, is to eliminate the very conditions of advantage that now induce farmers to join together to regulate and improve their own business.
That there is a real and vital agricultural problem is keenly appreciated by all informed men. The evidence is all too convincing that Agriculture has not been receiving its fair share of the national income since the war. Farmers and business men directly dependent upon agriculture have suffered and in many cases still suffer from conditions beyond their control. They are entitled to and will have every consideration at the hands of the Government.
Surely, a real farm relief measure must be just and impartial and open the way to aid for all farmers. Surely, it must not contemplate, as this measure inescapably does, that farmers in some regions should be penalized for the benefit of those in other regions. Surely, it must be aimed to promote the welfare of the community at large. There is no thoughtful man who does not fully appreciate how vital a prosperous agriculture is to this nation. It must be helped and strengthened. To saddle it with unjust, unworkable schemes of governmental control is to invite disaster worse than any that has yet befallen our farmers.
It has been represented that this bill has been unanimously approved by our farmers. Several of our largest farm organizations have refused to support it, and important minorities in the members and leadership among the most important organization who are recorded as giving it endorsement have protested to me against it. It is not to be thought that the farmers of the United States want our agricultural policy founded upon legislation as is proposed in this measure. The final judgment of American farmers always has been and will be on the constructive rather than the destructive side. What the farmers want, and what the American people as a whole will approve, is legislation which will not substitute governmental bureaucracy for individual and cooperative initiative, but will facilitate the constructive efforts of the farmers themselves in their own self-governed organizations.
Although these arguments and others have been advanced in Congress and outside, I find little attempt has been made to answer them. The pressure for this bill arises primarily from the natural and proper sympathy with the farm distress from the after-war inflation speculation and collapse. Many sincere and thoughtful people have expended a great deal of time and energy in working out this measure and are entirely honest and honorable in their advocacy of it. It is a great regret to me that I am unable to come to the conclusion that the bill would help agriculture, be of benefit to the country, and be in accord with the Constitution.
Other plans have been proposed in Congress for advancement in this recovery, which plans offer promise of sound assistance to the farmers without these unconstitutionalities, invasions of Executive authority, this contracting with packers and flour millers and other manufacturers, this overproduction with its inflation and inevitable crash, without this indirect price fixing, buying and selling, this creation of huge bureaucracies. They are, on the contrary, devoted entirely to the principle of building up farmer-controlled marketing concerns to handle their problems, including occasional surplus production, and applicable to all agriculture and not to a minor fraction. I have frequently urged such legislation. I wish again to renew my recommendation that some such plan be adopted.
I am therefore obliged to return Senate Bill 4808, entitled "An act to establish a federal farm board to aid in the orderly marketing and in the control and disposition of the surplus of agricultural commodities," without my approval.
THE WHITE HOUSE, February 25, 1927.
Calvin Coolidge, Message to the Senate Returning Without Approval S. 4808— The McNary-Haugen Farm Relief Bill Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/328767