in the public mind, but conflict is the public exhibit of the greatest
mark of failure in industrial relations. The imminence of conflict is
evidence of failure to have discussion or to arrival at mutual
agreement. Therefore, under the plan of the Conference that mutual
agreement is the best basis for prevention of conflict, the second step
in the Conference proposals is that there should be a penalty for
failure to submit to such processes. That penalty is a public inquiry
into the causes of the dispute and the proper ventilation to public
opinion as to its rights and wrongs. The strength of the penalty is
based upon the conviction that neither side can afford to lose public
good will. Pressure to rectitude by government investigation is
distinctly an American institution. It is not an intervention of public
interest that is usually welcomed. In the plan of this Conference, this
general repugnance to investigation is depended upon as a persuasive
influence to the parties of the conflict to get together and settle
their own quarrels. They are given the alternative of investigation or
collective bargain under persuasive circumstances. In order to increase
the moral pressures surrounding the investigation, either one of the
parties to the conflict may become a member of the board of
investigation, provided he will have entered on an _a priori_
undertaking that he is prepared to submit his case to orderly and simple
processes of adjustment. Thus his opponent will be put at more than
usual disadvantage in the investigation. If both sides should agree to
submit to normal processes of settlement, the board of investigation
becomes at once the stage of a collective bargain and the investigation
ceases.
I will not trouble you with the elaborate details of the plan, for they
involved a great deal of consideration as to many difficult questions of
selection of representatives, provision for action by umpires, for
appeal to a board in certain contingencies, the character of questions
to be considered, methods of enforcement, standards of labor, and so on.
The point that I wish to make clear is that the Conference plan is
fundamentally the promotion of collective bargaining under fair
conditions of representation by both sides and the definite
organization of public opinion only as a pressure on the parties at
conflict to secure it. It is therefore basically not a plan of
arbitration, nor is it an industrial court. It is stimulation to
self-government in industry. The plan contains no essence of opposition
to organized labor or organized employers. It involves no dispute of the
right to strike or lock out, nor of the closed or open shop. It simply
proposes a sequence of steps that should lead to collective bargain
without imposing compulsions, courts, injunctions, fines, or jail. It is
at least a new step and worth careful consideration before employees and
employers subject themselves to the growth of public demands for the
other alternatives of wider governmental interference.
The Conference has set out the critical necessity of the development
within industry itself of a better basis of understanding as having the
great values that all prevention has over cures. There have been hopeful
developments in American industry during the past two or three years in
this direction. The first unit of employment relationship is each
industrial establishment, and if we would battle with misunderstanding
and secure mutual action it must be at this stage. It takes its visible
form in the organization in many establishments under various plans of
shop councils, shop committees, shop conference, all of which are based
on the democratic selection of representatives of employees who shall
remain in continuous open and frank relation and conference with the
employer in the interests of both. Where this development has had
success it has had one essential foundation; that is, that it must be
conceived in a spirit of cooeperation for mutual benefit and it has
invariably lost out where it has been conceived solely to bargain for
wages and conditions of labor. It does not necessarily involve
profit-sharing, but it does involve a human approach to the problems on
both sides and a mutual effort at betterment.
It is the organization of such contact between employer and employees
which distinguishes this advance from the previous drift in large
industry. This type of organization has met with success not only in
non-union shops but in unionized shops, and in the latter case it has
imported the spirit of mutuality in addition to sheer negotiation of
grievance as to conditions of labor. It cannot, in our view, succeed if
it is to be conceived in a spirit of antagonism either to employer or to
union organization.
The trade unions of the United States have conferred such essential
services upon their membership and upon the community that their real
values are not to be overlooked or destroyed. They can fairly claim
great credit for the abolition of sweat shops, for recognition of fairer
hours in industry, reduction of overstrain, employment under more
healthful conditions, and many other reforms. These gains have been made
through hard-fought collective bargains and part of the difficulties of
the labor situation today is the bitterness with which these gains were
accomplished. In my own experience in industry I have always found that
a frank and friendly acceptance of the unions' agreements, while still
maintaining the open shop, has led to constructive relationship and
mutual interest.
In the early days trade unionism was dominated mainly by the economic
theories of Adam Smith, and union labor at that time adopted as one of
its tenets that a decrease of productive effort by workers below their
physical necessities would result in more employment and better wage.
During the past twenty-five or thirty years, this economic error has
been steadily diminishing in American trade unions and while it may be
adhered to by some isolated cases today it is not the economic
conception of large parts of that body. The great majority have long
since realized that an increased standard of living of the whole nation
must depend upon a maximum production within the limits of proper
conservation of the human machine. We find, during the past few years,
many of the unions embracing the further principle of actual cooeperation
with the employer to increase production. I believe the development of
this latter theme opens avenues for the usefulness and growth of trade
unionism of greater promise than any hitherto tried. I am aware of the
current criticism in some union quarters of the development of the shop
council idea for this purpose, and there are perhaps isolated cases that
give merit to this opposition. The strongest argument of union labor
against the shop council system should lie in the fact that nation-wide
organization of labor is essential in order to cope with the unfair
employers, but I believe that if they embrace encouragement to shop
council organization they open for themselves not only this prevention
of unfairness but the whole new field of constructive cooeperation and
the further reduction of industrial conflict.
Attempts by governments to stop industrial war are not new. The public
interest in continuous production and operation is so great that
practically every civilized government has time and again ventured upon
an attempt at its reduction. There is a great background of experience
in this matter, for the world is strewn with failure of labor
conferences, conciliation boards, arbitration boards, and industrial
courts. This Conference, of course, had in front of it and in the
experience of its members this background of the past score of years. I
understand that recently you have had ably presented to you the
industrial solution that has been enacted into legislation by the State
of Kansas. I think some short discussion of this legislation may be of
interest in illuminating the difference in point of view between the
industrial conference and that legislation. The Kansas plan is, I
believe, the first large attempt at judicial settlement of labor
disputes in the United States. With the exception of one particular, it
is practically identical with the industrial acts of Australasia of
fifteen to twenty years ago. It comprises the erection of an industrial
court, the legal repression of the right to strike and lockout under
drastic penalties, the determination of minimum wage, and involves a
consideration of a fair profit to the employer. The Kansas machinery
goes one step further than any hitherto provided in this particular of
placing more emphasis on fair profits and it also provides for the right
of the State to take over and conduct the industry in last resort.
Under the enumerated industries in the Kansas law, probably two thirds
of Massachusetts industry would be involved. No man can say that this
legislation may not succeed in Kansas or under American conditions. The
experiment is valuable, and if it should prove a success to both
employees and employers Kansas will have again taken the initiative in
service to her sister states.
I will not be taken as a carping critic if I point out the difficulties
in its progress on the basis of Australasian experience. It may, as did
the Australasian acts, have a period of apparent success, and the
workers benefit by an initial service in planing out the worst
injustices. So far as I can see today, there is no reason why it will
not run the same course as in Australia, where the amount of strikes and
dislocation was ultimately as great under these laws as in countries
without them. In periods of industrial prosperity, the advancing wage
usually adjudicated by the industrial courts prevents strikes, but in
times of industrial depression decisions against the work people give
rise to the old form of resistance.
No one denies the right of the individual to cease work. The question
involved in this form of legislation is the right to combination in
common action by strike. Whatever the right may be, it is a certainty
that the working community of the civilized world adheres to this right
as an absolute fundamental to their protection. They believe that the
aggregation of capital into large units under single control places them
at an entire disadvantage if they cannot threaten to use their ultimate
weapon of combined cessation of labor. While it may be argued that the
State may intervene in such a manner as to substitute the protection of
justice for the right of strike and lockout, the belief in the right to
strike has become imbedded in the minds of the laboring community of the
world to an extent that it will not receive with confidence any
alternative in driving its own bargains.
There are other difficulties in compulsory adjudication of disputes. The
workings of such law necessarily result in ultimate determination of
minimum wage for all crafts and industries. Every different industrial
unit will claim a different minimum based upon its local economic
surroundings. Otherwise the competitive basis upon which industry is
established will be undermined. No court has ever yet adequately solved
these differentials and some dislocation of industry results. I would
expect to see develop out of this type of minimum wage the same
phenomenon that existed in some parts of Australia, where certificates
of inability to earn the minimum, and therefore permission to undertake
employment at less than this wage had to be issued in order that
employment might be found for the aged and disabled. The employers will
naturally in face of a minimum wage retain in employment that quality of
worker that can give the maximum effort. Another difficulty is the
tendency for wages of all workers, regardless of their ability, to fall
to the minimum, for the employer naturally reduces the good to average
with the poor worker. I would not want to be understood to necessarily
oppose the possibilities of a minimum wage for women over large areas,
as distinguished from craft minimums for men, because certain social
questions enter that problem to an important degree.
There is another feature of the Kansas Act that should be given a great
deal of consideration, and that is its essential provision that in the
determination of wage disputes it shall be based on a fair profit to the
employer. This must ultimately lead to a determination as to what a fair
profit consists of, just as minimum wage will need be found for every
craft and every establishment. I do not assume that any employer will
contend for an unfair profit, but the termination of what may be a fair
or unfair profit in respect to the hazards involved in the institution
of a business, in its conduct over a long term of years, its necessary
provisions for its replacement and future disasters, is a matter that
has not yet been satisfactorily determined by either theoretic
economics, legislation, or courts. In competitive industry the processes
of business determine this matter every day, and owners will only claim
such determination by the State when the competitive tide is against
them. We have long since recognized the rights of the State to determine
maximum profits in case of a monopoly, but the determination of minimum
profits (for fair profit is a minimum as well as maximum) may deliver
large burdens to the people. Moreover, I doubt whether labor will
ultimately welcome such determination, for an unsuccessful plant,
instead of abandoning its production to its competitors, will claim wage
reductions from the courts, and the general level of wages can thus be
driven down and the State, at least morally, becomes a guarantor of
profits in overdeveloped industry. This plan in the long run substitutes
government control of industry for competition.
As to whether such acts will not tend to crush out initiative, credit,
and curtail the proper development of industry, can only be determined
with time. Generally, it should be clearly understood that compulsory
settlement of employment at best only assures continuity of production
through just wages, hours and profits. It does not approach the problem
from the point of view of upbuilding a relation in industry that will,
if successful, not only eliminate strikes and lockouts, but make
constructively for greater production and cheaper costs.
The economic repercussions from such regulation do not all lie in favor
of either capital or labor. To curtail the activities in one is not
necessarily a favor to the other.
I am sure you would, upon consideration, view the entry of the
Government on a nation-wide scale into the determination of fair wage
and fair profit in industry, even if it could be accomplished without
force, with great apprehension. There are some things worse in the
development of democracy than strikes and lockouts, and whether by
legislative repression we do not set up economic and social
repercussions of worse character is by no means determined. They have
also the deficiency in that they undermine the real development of
self-government in industry and that, to me, is part of the growth of
democracy itself. Courts and litigation are necessary to the
preservation of life and property, but they are less stimulus to
improved relations among men than are discussion and disposal of their
own differences.
The whole world is groping for solution to this problem. If we cannot
solve it progressively, our civilization will go back to chaos. We
cannot stand still with the economic and social forces that surround us.
There has never been a complete panacea to all human relationships so
far in this world. The best we can do is to take short steps forward, to
align each step to the tried ideals that have carried us thus far. The
Conference has endeavored to find a plan for systematic organization of
the forces that are making for better relationships, to encourage the
growing acceptance of collective bargaining by providing a method that
should enable it to meet the objections of its critics and to aggregate
around this the forces of conciliation and arbitration now in such wide
use. It has sought to do this without legal repression but with the
organized pressure of public opinion.
To me there is no question that we should try the experiment of the
perhaps longer road proposed by the Industrial Conference for the
development of mutuality of relationship between employer and employee,
rather than to enter upon summary action of court decision that may both
stifle the delicate adjustment of industrial processes and cause
serious conflict over human rights. We must all agree that those
deficiencies in our social, economic and political structure which find
solution through education and voluntary action of our people themselves
are the solutions that endure. To me, the upbuilding of the sense of
responsibility and of intelligence in each individual unit in the United
States with the intervention of government only to promote the
development of these relations, the suppression of domination by any one
group over another, is the basis upon which democracy must progress.
Upon the solution of industrial peace and good will does the gradual
lift of the standard of life of our whole people rest by increase in the
material and intellectual output and its proper distribution among all
of us. To me the philosophic background of solution lies in rigorous
application to economic life of our tried national ideal--the equality
of opportunity and the preservation of industrial initiative; that is,
the stimulation of every individual by his own effort to take that
position in the community to which his abilities and character entitle
him and the protection to him to attain that end. In the earlier days of
our democracy, with its simpler economic life, we were concerned more
with the application of this ideal in its social and political phases.
It has been so long and firmly established there that it is no longer a
matter of discussion. With the growth of greater complexity in our
economic life, its practical application to the sharing in the material
and intellectual output in proportion to effort, ability, and character,
becomes more difficult. It must, nevertheless, be adhered to if the
ideal of our democracy is not to be abandoned.
I do not believe we can attain this equality of opportunity or maintain
initiative through crystallization of economic classes or groups
arraigned against each other, exerting their interest by economic and
political conflicts, nor can we attain it by transferring to
governmental bureaucracies the distribution of material and intellectual
products. I do believe that we can attain it by systematic prevention of
domination of the few over the many and stimulation of individual effort
in the whole mass.
It is well enough to hold a philosophic view, but the problems of day to
day that arise under it are very practical problems that require
concrete solution, and the employment relation is one of them.
APPENDIX IV
SOME NOTES ON AGRICULTURAL READJUSTMENT AND THE HIGH COST OF LIVING[2]
BY HERBERT HOOVER
The high cost of living is a temporary economic problem, surrounded by
high emotions. The agricultural industry is a permanent economic
problem, surrounded by many dangers. We are now entering into our
regular four-year period of large promises to sufferers of all kinds.
Except to demagogues and to the fellows who farm the farmer, there are
no easy formulas; nevertheless, there are constructive forces that can
be put in motion--and these are good times to get them talked about.
As bearing upon some suggestion of constructive solution, I wish to
establish and analyze certain propositions. Amongst other things they
involve a clear understanding of the bearings of different segments of
the total price of food between the different links in the chain of
production and distribution. These propositions are:
First: That the high cost of living is due largely to inflation and
shortage in world production; speculation is an incident of these
forces, not the cause.
Second: That the farmer's prices are fixed by the impact of world
wholesale prices; that such prices bear only a remote relation to his
costs of production.
Third: That any increase or decrease in the cost of placing the farmer's
products into the hands of the wholesaler is a deduction from or
addition to the farmer's prices; that is, an expansion or contraction of
the margin between the farm and wholesale prices makes an increase or
decrease in the farmer's return.
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