Fourth: That increase or decrease in the cost of distributing food from the wholesaler to the door of the ultimate consumer is a deduction or addition predominantly to the consumer's cost; that is, the margin between the wholesaler and consumer in its increases or decreases is largely an addition or subtraction from the consumer's price.

Fifth: That these two margins in most of our commodities except grain were, before the war, the largest in the world; that they have grown abnormally during the war, except during the year of food control.

Sixth: That analysis of the character of the margin between the farmer and wholesaler will show that decreases in price find immediate reflection on the farmer, while immediate increases in price are absorbed by the trades between and the farmer gets but a lagging increase.

Seventh: That an analysis of these margins will show that they can be constructively diminished but that, regrettable as it is, the prosecution of profiteers will not do it.

Eighth: That the problem must be solved, if our agriculture is to be maintained and if the balance between agriculture and general industry is to be preserved so as to prevent our becoming dependent upon imports for food, with a train of industrial and national dangers.

PRESENT PRICES DUE TO INFLATION AND SHORTAGE IN WORLD PRODUCTION

Our war inflation does not lie so much in our increased gold and currency. Our currency per capita has increased by perhaps 25 or 30 per cent, but, compared to European practice of currency inflations of 200 to 800 per cent, our conduct has been provident indeed. This is not, however, the real area of inflation. It lies in the expansion of our bank credits. If we exclude the savings bank as not being credit institutions in the ordinary sense, and if we compile the commercial bank deposits, we still no doubt gather in some real savings, but nevertheless the figures show a considerable color of inflation somewhere. No one need think we have gotten so suddenly rich as the money complexion of these figures might indicate. At the outset it should be emphasized that all figures of this kind are subject to dispute and interpretation; but, after all such deductions, the indication of tendencies remains.

Per Cent Bank Deposits Change Year Total from 1913 1913 11,390,918,596 100.0 1914 11,974,760,593 105.1 1915 12,282,097,638 107.8 1916 15,398,090,701 135.2 1917 18,444,103,496 161.9 1918 20,425,067,839 179.3 1919 24,971,784,000 219.2

It will be accepted at once that the volume of bank deposits must grow with increased commodity production and therefore we may roughly examine into this as well. If we combine the tonnage productivity of agriculture, metals, coal, salt, cement, lumber and the quarries, we shall cover the great bulk of our products. These figures also must be taken as merely indicating the tendencies of the times.

- Per Cent Production Change Year in Tons from 1913 - 1913 1,081,293,417 100.0 1914 1,019,018,207 94.2 1915 1,073,472,988 99.3 1916 1,162,489,530 107.5 1917 1,241,173,806 114.8 1918 1,247,787,883 115.4 1919 1,117,181,233 103.3 -

If we attach the index of prices during these periods and compare them with the per cent variation in commodity production and bank deposits, we have the following interesting parallels:

Department Per Cent Per Cent of Labor Change in Change in Wholesale Production Bank Deposits Index Year from 1913 from 1913 of All Commodities 1913 100.0 100.0 100.0 1914 94.2 105.1 99.3 1915 99.3 107.8 100.5 1916 107.5 135.2 120.5 1917 114.8 161.9 175.9 1918 115.4 179.3 196.6 1919 103.3 219.2 214.5

Two different extreme schools of economics will interpret these tables differently. One will hold that the increase in credit and money must influence prices in exact ratio. The other will hold the rise of prices as due to shortage in production, either at home or abroad, and that rise in price necessitates an increase in credits and money to carry on commerce. Both are probably right, for short production and inflation probably alternatively serve as cause and effect. The first school has some claims upon the large volume of gold we imported the first three years of the war and multiplied into credits—as the cause prior to our coming into the war. They can also point out that our Treasury and banks deliberately inflated bank credits in order to place war loans and that if this form of credits was removed our expansion would be nothing like its present volume. As necessary as it may have been to use this method in securing quick money at a low rate during the war, there are the strongest objections to it since the armistice was signed. If our post-war finance at least had been secured from savings by offering sufficiently attractive terms, the inflation would be less although the market price of Liberty Bonds might be lower.

That short world production has been one of the causes of rising prices cannot be denied. The warring powers of Europe took 60,000,000 men from production (nearly one third their productive man power) and put it to destruction. They have lived to a great degree by gain of commodities from the United States, and thus brought their shortage to our shores. They have not yet altogether recovered from the holidays of victory, the gloom of defeat, the persuasive "isms" that would find production without work, the destruction of their economic unity, transportation, credits, and other fundamentals necessary to maintain production. It will be some time before they do recover. In the meantime, they are perforce reducing their consumption—their standard of living—because they have largely exhausted their securities, commodities or credit to continue the borrowing of our commodities for their own short production, as during the war. The exchange barometer is today witness of the end of this procedure of living on borrowed money. In passing, it may be mentioned that exchange is no more a cause of their inability to buy from us than is the barometer the cause of blizzards. The storm is that they have mostly exhausted their credits and they have not recovered production so as to offer commodities to us in exchange for ours.

Our own industrial production, as distinguished from agricultural production, has fallen rapidly since the armistice. Some of the fall is due to war weariness, some to "isms" that have infected us from Europe, some to the natural abandonment of high cost production brought into play during the war, some to strikes and a host of other wastes. Our consumption has greatly increased since the restraints of war. Decrease had not penetrated our agricultural community up to 1919 harvest, nor will such decrease arise from these causes, but as I will set out later, forces are entering that will decrease our agricultural production. Our production in nearly all important food commodities except sugar is in surplus of our own need. It only becomes a shortage affecting prices under the drain of exports. Therefore, it is the world shortage that is affecting our price levels, and not, so far, a deficiency for our needs.

So far as relief from price influence by shortage in production is concerned, it may arise in two ways. First, slowly through gradual recuperation in world production. Second, by compulsory reduction of consumption in Europe through their inability to pay us by commodities, gold or credits. This latter has been very evident through the drop in exchange and engagements for export during the past few weeks.

THE THREE DIVISIONS OF THE PRICE

The cost of food to the consumer is divided among the farmers on one hand and storage, manufacture, jobbers, wholesalers, retailers and transportation on the other. I believe these charges between the farmer and consumer fall into two distinct groups—the charges comprising the margin between the farmer and wholesaler which mainly concern the farmer, and charges between the wholesaler and consumer, which mainly concern the consumer. To establish this division, it is necessary to analyze shortly the datum point by which price is determined.

The diet of the American people from a nutritional (not financial) standpoint comprises the following articles and proportion:

Wheat and Rye 29.5% Pork Products 15.7% Dairy Products 15.3% Beef Products 5.3% Corn Products 7.0% Sugar Products 13.2% Vegetable Oils 3.6% 89.6% All other, including potatoes 10.4%——— 100.0%

The wholesale price of about 90 per cent of our food in normal times is only remotely determined by the cost of production, but mostly by world conditions. We export a surplus of most commodities among the 90 per cent and the prices of exports are determined by competition with other world supplies in the European wholesale markets. Those items in this 90 per cent that we do not export are influenced by the same forces, because in normal times we import them on any considerable variation in price and the wholesaler naturally buys in the cheapest market. Even milk is to a considerable degree controlled by butter imports in normal times. When we import butter it releases more milk in competition. This cannot be said to such extent of most of the odd 10 per cent, because they are largely perishables that do not stand overseas transport and consequently rise and fall more nearly directly upon local supply and demand. Some economists will at once argue that if prices are unprofitable to the farmer the situation will correct itself by diminished production and, consequently, a general rise in the world level of prices. In the abstract, this is true, but as a matter of fact the surplus which our farmers contribute for export is only a small portion of their total production or of the world pool, yet the total of the world pool operating through this minor segment makes the prices for a large part of the farmers' commodities. Therefore, the effect in normal times of restriction in production in any one country does not affect price so much as theoretic argument would believe. The farmer must plant if he would live, and he must plant long in advance of his knowledge of prices or world production. He can make no contracts in advance of his planting, nor can he cease operations on the day prices fall too low. He is driven on, year after year, in hope and necessity, and will continue over long periods with a standard of return below rightful living because he has no other course—and always has hopes. He will vary fairly rapidly from one commodity to another—from wheat to other grains, for instance—but he mostly raises his maximum of something. In the long run of decreasing prices he would undoubtedly reach so low a standard as to cease production. Then comes a comparatively short period of higher prices in some commodity; production is again stimulated and followed by long intervals of low standards. As shown by the following table, on the whole, the farmer has not been underpaid during the war, but the currents again are turning against him.

It will be seen that the farmer enjoyed prices equivalent to or higher than the general level up to the last six months. He is now, however, falling behind in some important products. Unlike the industrial workers, he is unable to demand an adjustment of his income to the changed index of living.

- Index of Prices at the Farm in Principal Produce States - A P l r W C Department of Labor l o H C h o Wholesale Index of d o o e t All Commodities F u g r a t a c s n t o r e n m - Pre-war 100 100 100 100 100 100 First Quarter 1918 187 200 213 224 254 246 Last Quarter 1918 206 204 223 220 258 246 First Quarter 1919 200 202 225 228 264 215 Last Quarter 1919 230 206 178 216 277 268 -

For the moment, what I wish to establish is only that the farmer's prices are not based upon any conception of the cost of production, but upon forces in which he has no voice. He can never organize to put his industry in a "cost plus" basis as industrial producers do, and remedy must be found elsewhere.

THE TWO MARGINS

As stated, the margin between the farmer and consumer falls into two divisions—one of which predominantly affects the farmer and the other the consumer. It is really the wholesale prices that govern the farmer, rather than retail prices, for it is in wholesale prices that the farmer competes with the world. As the prices paid by the wholesaler are mostly fixed by overseas trade at the datum point on the Atlantic seaboard or in Europe, then if the margins between the wholesaler and the farmer are unduly large, or increase, it is mostly to the farmer's detriment. For instance, as the price of the farmer's wheat in normal times is made in Liverpool, any increase in handling comes out of the farmer's price. Likewise, as the wholesale price of butter is made by the import of Danish butter into New York, any increase in the numbers or charges between our farmer and the wholesale buyer comes, to a considerable degree, out of the farmer.

As the datum point of determining prices is at the wholesaler, the accretion by the charges for distribution from that point forward to the consumer's door will not affect the farmer, but will affect the consumer. When competition decreases through shortage the consumer pays the added profits of these trades.

Studies of the cost of our distribution system, made by the Food Administration during the war, established two prime conditions. The first is that the margins between our farmers and the wholesaler in commodities other than grain in some instances, are, even in normal times, the highest in any civilized state—fully 25 per cent higher than in most European countries. The expensiveness of our chain of distribution in most commodities in normal times, as compared to Continental countries, is due partly to the wide distances of the producing areas from the dominating consuming areas, but there are other contributing causes that can be remedied. In Europe, the great public markets in the cities bring farmer and consumer closely together in many commodities, but in the United States the bulk of products are too far afield for this. The farmer must market through a long chain of manufacturers, brokers, jobbers and wholesalers with or without their own distribution system, who must establish a clientele of direct retailers; and thus public markets, except in special locations and in comparatively few commodities, have not been successful. Another major factor in our cost of distribution is the increasing demand for expensive service by our consumers. There are many other factors that bear on the problem and the economic results of our system which are discussed, together with some suggestion of remedy, later on.

The second result of these studies was to show the great widening of this margin during the war. During the year of the Food Administration's active restraint on this margin, there was an advance of six points in the wholesale index while the farmer's index moved up 25 points. Both before and after that period the two indexes moved up together. The same can be said of the margins between the wholesaler and the consumer. Taking the period of the war as a whole, the margin between the farmer and consumer has widened to an extravagant degree.

A good instance of a movement in margins is shown in flour in 1917. The farmer's average return for wheat of the 1916 harvest, as shown by the Department of Agriculture, was about $1.42. As about four and one-half bushels of wheat are required to make a barrel of flour, the farmer's share of the receipts from this harvest was about $6.40 per barrel. In 1917, before the Food Administration came into being, flour rose to $17.50 per barrel to the consumer, or, at that time, a margin of $11.00 per barrel. During the Administration, the farmer received an average of about $2.00 for wheat at the farm, or about $9.00 out of a barrel of flour. The consumer paid $12.50, the margin being about $3.50 per barrel.

This increase in margins shows vividly in the higher priced foods, for instance, pork products. If we take hogs at the railway station over the great hog states contiguous to Chicago as a basis, we find:

Price of Hogs Price of Margin Six in Principal Cured Products Between Months States to Consumer Farmer and Per 100 Lbs. 100 Lbs. Hogs Consumer 1914 $7.45 $18.97 $11.52 1919 16.27 37.33 21.06 1920 15.37 37.71 22.34

Thus, while the farmer has gained about $7.92 in his price, the margin has increased by $10.82 to the consumer and, incidentally, during the last year since food control restraints were removed, the consumer has paid $.30 more while the farmer got $.90 less. These instances could be greatly multiplied.

It is unfortunate that our national statistics do not permit a complete analysis of the distribution of margin between all the various groups in the chain between the farmer and consumer in different commodities. It would be helpful if we could take the farmers, railways, manufacturers, wholesalers and retailers, and determine what proportion each receives.

These margins between farmer and consumer are made up of a necessary chain of charges for transport, storage, manufacture and distribution. The great majority of citizens who are engaged in the processes that go to make up this portion of food costs are employed in an obviously essential economic function, and they do not approach it in a spirit of criminality, but as a very necessary, proper, and honorable function. They have, since the European War began, rather over-enjoyed the result of economic forces that were not of their own creation. That a considerable margin is necessary to cover the legitimate costs of, and profits on, distribution is obvious. The only direction of inquiry is how they can be legitimately minimized. These margins, starting from the unduly high expense of a faulty system, have increased not only legitimately, due to increased transportation, labor, rent, taxes, and increased interest upon the large capital required, but they have, except during the period of control, increased unduly beyond these necessities. There are two general characteristics of this margin that are of some interest. In the first instance, all of the transport, storage, manufacture and handling is conducted upon a basis of cost plus either fixed returns or, as is more usually the case, a percentage of profit upon the whole cost of operation. Any distributing agency ceases to operate when it does not secure costs and a profit. Consequently, all those links put up a resistance to a curtailment of the margin which the farmer is unable, except by absolute exhaustion, to put against reduction of his price levels. If rapid falls in food prices occur, the farmer, at least in the first instance, has to stand most of the fall because he cannot quit. The farmer's costs of production relate to a period long prior to the fall. Thus, if wages are due to fall as a result of a fall in food prices, the farmer is always selling on the old basis of his costs. The farmer has but one turn-over in the year. The middleman has several and can thus adjust himself quickly.

Second, the custom of many of these businesses is to operate upon a percentage of profit on the value of the commodities handled, even after deducting all their increased costs, interest or other charges. When we have rising prices, therefore, a doubling of prices, for instance, tends to double profits on the same volume of commodities handled. In a rising market, competitive pressures are much diminished and the dealer can assess his own profits to greater degree than usual. While the packers make a profit of, say, two cents on the dollar value of commodities, it represents double the profit per pound over pre-war, even after allowing such items as interest on the larger capital involved.

REDUCTIONS OF THE MARGINS

Aside from the necessary rise in the margin that has grown out of the rise in cost of labor, rent, etc., from inflation and world shortage, there are some causes which have accumulated to increase the margins between the farmer and the wholesaler and the wholesaler and consumer that could be greatly mitigated.

BETTER TAX DISTRIBUTION

During the war, in order to restrain wild greed and profiteering in the then existing unlimited demand, margins between purchase and sale in the different manufacturing and handling trades were fixed in all the great commodities—iron, steel, cement, lumber, coal and foodstuffs. The first task of the war was to secure production, and the margins were therefore fixed at such breadth as would allow the smaller high cost manufacturer and the smaller dealer to live. Otherwise, the smaller competitors would have been extinguished, production would have been lost, and, worse yet, the larger low-cost operator would have been left with much inflated monopoly. The excess profits tax was levied as a sequent corrective to this necessary first step, so as to take the undue profits of the large producer back to the public. It was a wise war measure, but the moment restraints on profits were taken off and there was a free and rising market ahead, then the tax was added to prices by all the participants and passed on to the consumer, or deducted from the farmer when world levels crowded his prices down. It should have been repealed at the time the controls were abandoned, but our legislatures have been busy with other things and, in the meanwhile, in food it not only increases the margin between the farmer and the consumer but tends, as stated above, to come out of the farmer to a large degree. It has other vicious results in that it also stimulates dealers and manufacturers to speculate their profits away in unsound business, rather than to pay it to the government. It does sound well to tax the great manufacturers, but to make them the agency to collect taxes from the population is not altogether sound government.

It is a very important tax to the Government, bringing as it does over a billion a year, and a place to put this load is not to be found easily. The income tax does not have so malign an effect, for it comes to a great extent from the individual and not from business. The present method of income tax, however, has some weaknesses. The same levy is made upon earned incomes as upon those that are unearned. The tax on earned incomes tends in certain cases to be passed on to the consumer or deducted from the farmer, and, besides, it is not just that a family living by giving productive service to the community should pay the same as a family that contributes nothing by way of effort. A stiff tax on these latter families might send them to work, and certainly would induce economy. Moreover, the earner of income must provide for old age and dependents while the unearned income taxpayer has this provision already. Altogether, it would seem the part of wisdom at least to increase the income tax on the larger unearned income and decrease it on the earners. It is argued that this drives great incomes to evasion by investment in tax-free securities, which is probably true. We need more comparative figures than the Treasury statistics yet show to answer this point. In any event, relief to the earner would free his savings to invest in taxable securities and we need above all things to stimulate the initiative of the saver. Income taxes, except when too high on earned incomes, do not destroy initiative, and every other government has, in taxing, recognized the essential difference between earned and unearned income. This distinction would generally relieve the range of smaller incomes, for they are mostly earned.

The inheritance tax has not been fully exploited as yet. It cannot be deducted from either farmer or consumer, it does not affect the cost of living, it does not destroy initiative in the individual if it leaves large and proper residues for dependents. It does redistribute overswollen fortunes. It does make for equality of opportunity by freeing the dead hand from control of our tools of production. It reduces extravagance in the next generation, and sends them to constructive service. It has a theoretic economic objection of being a dispersal of capital into income in the hands of the government, but so long as the government spends an equal amount on redemption of the debt or productive works, even this argument no longer stands.

We may need to come to some sort of increased consumption taxes in order to lift that part of excess profits and tax on earned incomes that cannot be very properly placed elsewhere. When it comes, it should lie on other commodities than food, except perhaps sugar, one half of which is a luxury consumption. The ideal would be for it to be levied wholly on non-essentials in order that it should be a burden on luxury and not on necessity. There is no doubt difficulty in classifying. Jewelry and furs are easy to class, but where necessity leaves off and luxury begins in trousers is more difficult to determine.

It requires no lengthy economic or moral argument as a platform for denunciation of all waste and useless expenditure. Some sane medium is needed between comfort and luxury. Failing definition, and objection to blue laws, the theme must be taken into the area of moral virtues and become a proper subject for the spiritual stimulations of the church. There is a psychology in luxury wherein we all buy high-priced things because they are high-priced, not because they add comfort—and this has contributed also to our high cost of living, for those who do it drive up prices on those who try to avoid it. From an economic point of view, the only recipes are taxation as a device to make it expensive.

More constructive than increasing taxes is to take a holiday on governmental expenditures and relieve the taxpayer generally. If we could stave off a lot of expensive suggestions for a few years and secure more efficiency in what we must spend, then our people could get ahead with the process of earning something to be taxed. This would at least be comforting to the great farming and business community.

BETTER TRANSPORTATION FACILITIES

There is a great weakness in our present railway situation bearing upon the farmer and consumer. Everyone knows of the annual shortage of cars during the crop-moving season. Few people, however, appreciate that this shortage of cars often amounts to a stricture in the free flow of commodities from the farmer to the consumer. The result is that the farmer, in order to sell his produce, often unknown to himself makes a sacrifice in price to local glut. The consumer is compelled at the other end to pay an increased price for foodstuffs due to the shortage in movement. The constant fluctuations in our grain exchanges locally or generally from this cause are matters of public record almost monthly. On one occasion a study was made under my administration into the effect of car shortage in the transportation of potatoes, and we could demonstrate by chart and figures that the margin between the farmer and the consumer broadened 100 per cent in periods of car shortage. Nor did the middleman make this whole margin of profit, because he was subjected to unusual losses and destruction, and took unusual risks in awaiting a market. The same phenomenon was proved in a large way at time of acute shortage of movement in corn and other grains.

The usual remedy for this situation is insistence that the railways shall provide ample rolling stock, trackage and terminals to take care of the annual peakload. We have fallen far behind in the provision of even normal railway equipment during the war and an additional 500,000 cars and locomotives are no doubt needed. Above a certain point, however, this imposes upon the railways a great investment in equipment for use during a comparatively short period of the year when many commodities synchronize to make the peak movement. The railways naturally wish to spread the movement over a longer period. The burden of equipment for short time use will probably prevent their ever being able to take entire care of the annual delays in transport and stricture in market, although it can be greatly minimized.

There is possible help in handling the peak load by improving the waterways from the Great Lakes to the Atlantic seaboard by way of the St. Lawrence River, so as to pass full seagoing cargoes. It has already been determined that the project is entirely feasible and of comparatively moderate cost. The result would be to place every port on the Great Lakes on the seas. Fifteen states contiguous to the Lakes could find an outlet for a portion of their annual surplus quickly and more cheaply to the overseas markets than through the congested eastern trunk rail lines. It would contribute materially to reduce this effectual stricture in the free flow of the farmer's commodities to the consumers. Of far greater importance, however, is the fact that the costs of transportation from the Lake ports to Europe would be greatly diminished and this diminished cost would go directly into the farmer's pockets. It is my belief that there is a possible saving here of five or six cents a bushel in the transportation of grain. Although a comparatively small proportion of our total grain production flows to Europe, I believe that the economic lift on this minor portion would raise the price of the whole grain production by the amount saved in transportation of this portion of it. The price of export wheat, rye, and barley—sometimes corn—usually hogs—in Chicago at normal times is the Liverpool price, less transportation and other charges, and if we decrease the transport in a free market the farmer should get the difference. Not only should there be great benefits to the agricultural population, but it should be a real benefit to our railways in getting them a better average load without the cost of maintaining the surplus equipment and personnel necessary to manage the peakload during the fall months. It has been computed that the capital saving in rolling stock alone would pay for the entire cost of this waterway improvement over a comparatively few years. The matter also becomes of national importance in finding employment for the great national mercantile fleet that we have created during these years of war.

Another factor in transportation bearing upon the problem of marketing is the control by food manufacturing and marketing concerns of refrigeration and other special types of cars. This special control has grown up largely because, owing to seasonal changes in regional occupation for these cars over different parts of the country, no one railway wished to provide sufficient special cars and service for use that may come its way only part of the year. The result has been to force the building up of a domination by certain concerns who control many of the cars and stifle free competition. Much the same results have been attained by special groups in control of stock yards and, in some cases, of elevators. Where such formal or informal monopolies grow up, they are public utilities, and if the farmer is to have a free market they must be replaced by constructive public service.

A FREE MARKET

Every impediment to free marketing in produce either gives special privileges or increases the risks which the farmer must pay for in diminished returns. We have some commodities where manufacture has grown into such units that these units exert such an influence that they consciously or unconsciously affect the price levels of the farmer's produce. When a few concerns have the duty of manufacturing and storing the seasonal reserves in a single commodity they naturally reduce prices during the heavy production season and increase them in the short season as a method of diminishing their risk and increasing profits. Moreover, their tendency is often to sell the minor portion of their product that goes for export at lower than the domestic price in order to dispose of it without depressing local prices. They do not need to conspire, for there can be perfectly coincident action to meet the same economic currents. Such coincidence has much greater possibilities of general influence with a few concerns in the field than if there were many.

The experience gained in the Food Administration on these problems during the war led to the feeling expressed at that time, that such business should be confined to one line of activity, just as we have had to confine our railways, banks and insurance companies. This is useful to prevent reliance being placed upon the profits of alternative products when engaged in stifling of competition, through selling below cost on some other item. Even this restriction may not prove to be sufficient protection to free market by free competition. I am not a believer in nationalization as the solution to this form of domination, but I am a believer in regulation, if it should prove necessary. If experience proves we have to go to regulation, it is my belief that it should be confined to overswollen units and that the point of departure should not be the amount of capital employed but the proportion of a given commodity that is controlled. The point of departure must depend upon the special commodity and its ratio to the whole. When such a concern obtains such dimensions that it can influence prices or dominate public affairs, either with deliberation or innocence, then it must be placed under regulation and restraint. Our people have long since realized the advantage of large business operation in improving and cheapening the costs of manufacture and distribution, but when these operations have become so enlarged that they are able to dominate the community, it becomes of social necessity that they shall be made responsible to the community. The test that should apply, therefore, is not the size of the institution or the volume of capital that it employs, but the proportion of the commodity that it controls in its operations. It is my belief that if this were made the datum point for regulation, and if regulation were made of a rigorous order, this pressure would result in such business keeping below the limit of regulation. Thus the automatic result would be the building up of a proper competition, because men in manufacturing would rather conduct a smaller business free of governmental regulation than enjoy large operations subject to governmental control. There are probably only a very few concerns in the United States that would fall into this category, and they should be glad of regulation in order to secure freedom from criticism.

SPECULATION AND PROFITEERING

There are three kinds of speculation and profiteering in the food trades. The first is of the inherent speculative character of foodstuffs due to their seasonal nature. The farmer, more by habit than necessity, usually markets the bulk of his grain in the fall. By necessity he must market his animals at certain seasons for they must be bred at certain seasonal periods, they must be fed at certain seasons, and thus they come to market in waves of production larger than the immediate demand. In perishables he must market fairly promptly as he cannot himself maintain necessary special types of storage. Thus, the dealer must speculate on carrying the commodities for distribution during the period of short production while the farmer markets in time of surplus production. While full competitive conditions might reduce the charges for this hazard, there is a possibility of reducing the hazard by better organization and, consequently, the charge for the hazard that is now debited to the farmer. It is worth an exhaustive national investigation to determine whether an extension of a system of central markets would not afford great help. I do not mean the extension of our so-called exchanges dealing in local produce, but the creation of great central exchange markets with responsibilities for service to the entire people. This help would arise in two ways. The first is the hourly determination of price at great centers that all may know, and thus the farmer protects himself against local variations and manipulation. The second is a system of forward contracts through such a market between farmer and consumer on standardized commodities. Such contracts in effect remove the necessity of a speculative middleman. This system exists in grain and in cotton and in its processes eliminates large part of the hazard and carries the commodity at the lower rate of interest. The present trouble with the system of future contracts is that it lends itself to manipulation, but I believe this could be eliminated.

Take the case of potatoes; here is an unstandardized, seasonal commodity, with no national market and therefore no established daily price as a datum point. A grower in Florida, Maine, or Wisconsin, through a local agent, or through local sale, consigns potatoes to Pittsburgh because a larger price is reported there than in Chicago. The grower can usually make no actual sale to an actual retailer or wholesaler at destination because the buyer has no assurance of quality. Coincident shipment from many points to a hopeful market almost daily produces a local glut at receiving points somewhere in the country. Often enough the shipper gets no return but a bill for freight and the perishables sometimes rot in the yards. If potatoes were standardized and sold on contract in national market, protected from manipulation, three things should result. First, there would be a daily national price known to growers. Second, by the sale of a contract for delivery the grower would be assured of this price. Third, the contract and directions for shipment would flow naturally to the distributor where the potatoes were needed, and thus the present fearfully wasteful system would be mitigated. Potatoes would be a most difficult case to handle; dried beans, peas, even butter and cheese would be easier. I am not advocating widespread dealing in futures, but short contracts giving time for delivery would probably greatly decrease the margin between farmer and local distributor by saving great wastes in transport, in spoilage and in manipulation.

The second class of speculation is one largely of the war as a period of rising prices growing out of inflation, and so forth. It lies in the marking up of goods on the shelf to the level of the rising daily market. This marking up has been one of the large factors in increasing the margin during the war. No better example exists than the rise of flour during the 1916-1917 harvest year, referred to elsewhere. We shall have a remedy for this the moment the tide of inflation turns. The farmer and consumer cannot, however, expect that they will get even during such a reverse period for their losses on the rise, because the trades have too great an individual power of resistance against selling goods at a loss. Anyway, the marking up of goods will cease when prices cease to rise—and there is a limit.

The third class of speculation is wholly vicious. That is the purchase of foodstuffs, in times of rising economic levels, sheerly for the rise in price or the deliberate manipulation of markets during normal times. These operations are against the common welfare; they can find no moral or economic justification. They are not to be reached by prosecution; they must be reached by prevention. Our great boards of trade in fine patriotic spirit proved their ability during the war to control deliberate manipulation of grain and other futures.

The two latter types of speculation are an impediment to free markets and they become an unnecessary charge on the margin.

CO-OPERATIVE MARKETING BY THE FARMER

There can be no question of the improvement in position of both farmer and consumer in cases where cooeperative marketing can be organized. The high development of cooeperative citrus fruit marketing has resulted in lower average prices to consumer, better quality, and better return to the grower. Here is a case of scientific distribution lamentably absent in many other commodities. There are other specialized products to which it could be well extended. To reach its best development it should have parallel cooeperative development among consumers as have we discussed elsewhere.

SUNDRY ITEMS

There are many ways of assisting the agricultural industry not pertinent to this discussion on the cost of distribution. They do demand inquiry, and public illumination; most of them do not demand legislation so much as public education and consideration when legislating on other subjects. Our agricultural interests also need a foreign policy. For instance, during the last month there has been a consolidation of control of buying in world markets by the European Governments. How far it may be extended in its policies is not clear. Nevertheless, a combination of importers in all Europe under government control could determine the prices on every farm in the United States.

THE MARGIN BETWEEN THE WHOLESALER AND CONSUMER

As the datum point of price determination is the wholesaler's market, the accretions of charge for distribution from that point forward, the economy of extravagance in these costs, is of primary interest to the consumer. The same phenomena of marking up goods on the shelf, calculating profits not on commodities but on dollars handled, a minor amount of vicious speculation, and the passing on of excess profits tax, are present in those trades during the past years. A much more pertinent phenomenon in unduly increasing their margins is the increasing demands of the consumer as to service. Several deliveries daily, purchases on credit, the abandonment of the market basket in favor of the telephone, mean many costs. One of them much overlooked is that customers must always have "first" quality when they buy over the telephone, and the seconds and thirds of equal food value in many commodities go to waste and are added to the price of the firsts. That there are some people in the United States who want to buy sanely is evidenced by the 400 per cent increase in "cash and carry" shops. There are also too many people in the final stages of distribution. One city in the United States has one meat retailer for every 400 inhabitants; it would be equally well served with one dealer for every 1200. The result is high margin to the retailers and no out-of-the-way income to any of them. There is no very immediate remedy for this. One possibility is an extension of cooeperative buying by consumers. It has proved a great success abroad. It is not socialism, for it arises from voluntary action and initiative among the people themselves.

ILL BALANCE OF AGRICULTURE AND GENERAL INDUSTRY

There is now a tendency to ill balance between the agricultural and general industry. For many years we were large exporters of food and importers of manufactured goods. We gradually imported mouths, manufactured our own goods and just as rapidly diminished our food exports. Up to the point where we consumed our own food and manufactured our own goods it has been a great national development. Our annual exports of food decreased during the past twenty-five years from some 15,000,000 tons to about 6,000,000 just before the European War. In the meantime we increased the import of such commodities as sugar, rice, vegetable oils, until our net exports were about 5,000,000 tons. Of the kinds of food exported this probably represents a decreased export of from twenty-five or thirty per cent of our production down to five per cent of it.

During the war we gave special stimulus to food production and produced greater economies in consumption so that these later years somewhat befog the real current, for our agricultural surplus in normal years is really very small. During the war and since, we have given great stimulus to our manufacturing industries. If we shall continue to build up our manufacturing industries and our export trade without corresponding encouragement to agriculture, we will soon have more mouths in our country than we can feed on our own produce. We shall, like the European States which have devoted themselves to industrial development, ultimately become dependent upon overseas food supplies. If we examine their situation we find the very life of their people is thus dependent upon maintaining open free access to overseas markets. From this necessity have grown the great naval armaments of the world, and the burden they imply on all sections of the population. Such nations, of necessity, have engaged in fierce competition for markets for their industrial products. Thus they built up the background of world conflicts. The titanic struggles that have resulted have endangered the very lives of their people by starvation. Their war tactics have, in large degree, been directed to strangle food supplies. One other result of this development is the terrible congestion of populations in manufacturing areas with all the social and human difficulties that this implies.

There is a jeopardy in industrial over-development which has received too little attention because the world has only experienced it during the past eighteen months. In times of industrial depression, or great increase in the cost of living, whether brought about by war or by the ebb and flow of world prosperity, these populations, oppressed with misery, turn to political remedies for matters that are beyond human control. They naturally resent the lowering of their standards of living, and they inevitably resort to industrial strife, to strikes and disorder. Theirs is the breeding ground of radicalism—for all such phenomena belong to the towns and not to the country.

By and large, our industries are now in a high state of prosperity. More favorable hours, more favorable wages, are today offered in industry than in agriculture. The industries are drawing the workers from our farms. If this balance in relative returns is to continue, we face a gradual decrease in our agricultural productivity. If we should develop our industrial side during the next five years as rapidly as we have during the past five years, we shall by that time be faced with the necessity to import foodstuffs to supplement our own food supplies. Some economists will argue, of course, that if we can manufacture goods cheaper than the rest of the world and exchange them for foodstuffs abroad, we should do so. But such arguments again ignore certain fundamental social and broad political questions. These dangers have become more emphasized by experience of the war. From dependence on overseas supplies for food, we will, by the very concern that will grow in public mind as to the safety of these supplies, soon find ourselves discussing the question of dominating the seas. Our international relations will have become infinitely more complex and more difficult. Unless the League of Nations serves its ideal, we will need to burden ourselves with more taxation, to maintain great naval and military forces. But of far more importance than this is that social stability of our country, the development of our national life, rests in the spirit of our farms and surrounds our villages. These are the sources that have always supplied our country with its true Americanism, its new and fresh minds, its physical and its moral strength. Industry's real market is with the farmer by the constant increase of his standard of living. We want our exports to grow in exchange for commodities we need from abroad, but we want them to grow in tune with our social and political interests, and to do so they must grow in step with our agriculture.

In conclusion we are in a period of high inflation and shortage of world production, and consequent abnormal prices. The tide is likely to turn almost any time. Some of the outrageous margin between the farmer and consumer will be remedied by the turn in the tide itself, for it will eliminate the marking up of goods and the opportunity of vicious speculation. The dangers of the turn are twofold. First, unless we constructively remedy the unnecessary margin between the farmer and the wholesaler the farmer will receive the brunt of the fall long before the supplies he must buy and the labor he must employ will have fallen in step. It will bring to him the greatest suffering in the community.

The farmer's position can be remedied by better distribution of the tax load, by improvement in our transportation system, by getting our markets free of impediments to free flow of competition, and by constructive improvement in our whole distribution system. The consumer will get relief from deflation, improvement in world production, and by eliminating the same wastes and unnecessary costs in our distribution system.

The second danger is that deflation itself will take place without constructive consideration. Great wisdom will be required on the part of our government in its great control of credit that it shall take place progressively and with care, in order that there shall be no sudden breaks, with their resulting demoralization, unemployment and misery.

We require a careful balance of general industry to agriculture. We cannot afford to build this nation into an industrial state dependent upon other lands for its food supply. We want our industries to grow, but we want agriculture to grow in pace with them. Many of our farmers made great sacrifices in the war; they do not want to be coddled in peace; but they must have an equality of opportunity with all the other elements in the country.

[Footnote 2: Saturday Evening Post, Issue April 10, 1920.]

THE END