A PRACTICAL NATIONAL MARKETED ORGANIZATION AND RURAL-CREDITS SYSTEM FOR THE UNITED STATES ADDENDA TO A HEARING BEFORE THE STATE DEPARTMENT JUNE 21, 1915 \ JAN 1 5 1938 V? WASHINGTON GOVERNMENT PRINTING OFFICE 1915 A PRACTICAL NATIONAL MARKETING ORGANIZATION AND RURAL CREDITS SYSTEM FOR THE UNITED STATES. ADDENDA TO A HEARING BEFORE THE STATE DEPARTMENT JUNE 21, 1915. [Presented to the Secretary of State, October 19, 1015, by Mr. David Lubin, delegate of the United States, International Institute of Agriculture, Rome.] Mr. David Lubin to the Secretary of State. NEW YORK, K Y., October 19, 1915. SIR : On June 21, 1915, there was a hearing before the State Depart- ment on "a practical national marketing organization and rural credits system for the United States." I inclose herewith an additional statement on each of these sub- jects, and respectfully request that they be received as an addenda to the hearing above indicated. I have, etc., DAVID LUBIN, Delegate of the United States, International Institute of Agriculture. 3 I COOPERATIVE RURAL CREDITS FOR FARMERS BY FARMERS. THE LANDSCHAFT SYSTEM. In a letter to Senator Fletcher, commenting on the rural-credits situation, Mr. James Anderson, master of Portage Grange, Curtice, Mich., has this to say on the Landschaft bonds : It occurs to me that it will be hard to sell these bonds on the open market for the reason that money lenders would hesitate to buy them because they would not draw interest enough (3, 3^, 4 per cent). They could invest their money in other securities that would bring them more profit. As a rule, a statement may either be right or it may be wrong, but in this instance Mr. Anderson seems to be partly right and partly wrong at the same time. He is right so far as the money lenders, the savings banks, are concerned. These pay their depositors 3, 3-J, or 4 per cent and make their profits by lending these deposits out at higher rates, largely to farmers on mortgages. Such money lenders, savings banks, could not afford to buy bonds at the same interest as they pay their depositors. They could, therefore, have no use for the Landschaft bonds. To this extent Mr. Anderson is right. But if Mr. Anderson intends to convey the idea that "it will be hard to sell these bonds on the open market," he is decidedly wrong, as will be seen from the following. If the security behind the pro- posed Landschaft bonds would render them as safe in the United States as they are in Germany, there would then be no more diffi- culty in selling them here on the open market, and on long time, than there is in Germany. Let us see if this can be made plain. Usually when "money lenders " are spoken of we are under the impression that they consist of wealthy capitalists or savings banks. But there is another kind of money lender that we now wish to bring to view ; money lenders who are so modest in their financial bearing that we hardly realize that they are money lenders at all. In reality, and in the aggregate, however, they hold a primary position among lenders, for they are the money lenders to the savings banks. WHO ARE THE REAL MONEY LENDERS? Who, then, are these money lenders? Well, for instance, here is Mr. Johnson, the blacksmith; he has, say, $830; over there is Miss Brown, the servant girl, with $150; yonder is Miss Jones, the school- teacher, she has $85; then comes Mr. Thompson, the carpenter, lie has $210; and then we have Mrs. Smith, the widow, with her $1,500. What are these people to do with their money? Are they to leave it home in the trunk, or hide it in a stocking? That would be dan- gerous, for it might be stolen. Are they to invest it in the open market ? That would be too risky. Thus it follows that the logic of 5 6 PRACTICAL NATIONAL MARKETING ORGANIZATION. the situation drives thorn to the savings banks, and compels the acceptance of the rate of interest tendered them. These people, in depositing, are thus lending their money to (lie savings hanks, and are, therefore, money lenders. Now a few of thc-e depositor, may be insignificant factor.^ in a hank's capital, but supposing these few are multiplied up to several 1 1-.. liquid -'. In that event they arc no longer insignificant; they have become important. Now, then, assuming that we have Lamlschaft. bonds of. say. $10, $20, $50. and $100 denominations, at the same rate of interest that the hanks pay; that these bonds are as safe as United States Govern- ment bonds; that we give the people the choice of either lending their money to the banks or investing it in these Landschaft bonds; which of these two, then, would they prefer? Clearly these bonds. Why? Because savings hanks sometimes fail, but a bond equal to a United States Government bond could not fail. Now, then, if it can be shown that a long-time Landschaft bond can be made as safe as a United States Government bond, it would show that Mr. Anderson was mistaken when he said "such bonds would not sell in the open market." It is now in order to show how long-time Landschaft bonds can be made as safe as United States Government bonds. This is indisputably shown by the fact that 50 and 75 year Land- schaft bonds have held their own with Government bonds in Ger- many during the past 152 years, and are holding their own to-day. In fact, they are more than holding their own, for, according to the testimony of Prof. Brodnitz, of the Halle University, these Land- schaft bonds are even now holding their own in Germany in the face of the great war going on. Why is this the case ? For several reasons : THE BOND, ITS SECURITY. First. Because a Landschaft bond, say, for $100 has behind it the security of the entire Landschaft; of property that may be worth $5,000,000 or more. Second. The title of the borrower's land must be unquestioned, as unquestioned as a United States land warrant would be. Third. The borrower, in signing his mortgage and receiving the bond, has given the Landschaft directory the power of a judgment in the event of a foreclosure. Fourth. There are three several appraisements in which the qual- ity of the land, its character and incidence, its mode of cultivation, and its earning power are minutely entered into. Fifth. The borrower cedes to the Landschaft directory the right of maintaining the same status of its cultivation throughout the life of the bond. Sixth. The loan by the Landschaft is always made upon the aver- age earning power of the land, never upon its speculative value. Is it not. therefore, obviously clear that a bond on this basis, of that kind, would be as safe as a Government bond ? "* Well," says the objector, " all this may be good enough in Ger- many, but it could never be expected to work here." Why not, pray ? PRACTICAL NATIONAL MARKETING ORGANIZATION. 7 " Because the statements from one to six show that it would be unconstitutional; because Farmer Thompson would not care to lump his property with Farmers Johnson, Brown, and Smith or be re- sponsible for them; because it would be contrary to our legal pro- cedure by depriving the individual of his rights in the courts; be- cause it would be tyrannical and undemocratic, consequently opposed to the traditions and mode of procedure of the American people." But are these objections conclusive? By no means, as will be seen when we take up the statements seriatim. So let us begin with the first and see whether " Farmer Thompson would be responsible for Farmers Johnson, Brown, and Smith." How, may we ask, is it in the case 01 a bond of, say, the Pennsyl- vania Kailroad Co. ? Is one bond issued upon the security of one of its sheds, another upon a freight car. and still another upon a fence? Are not its bonds upon all the company's property ? We must not forget that under the Landschaft all the loans are made on half the value of the property, and this value is arrived at from the average earning power of the same; there is, therefore, margin enough in each member's equity to cover the responsibility and solvency of each separately. It will thus be seen that farmer Thompson need never be held to cover any deficiency that may occur on the property of farmers Johnson, or Brown, or Smith. BONDS WITH " IPS." To issue long-time bonds on each piece of property separately would, of course, jeopardize their sales, whether singly or collectively. The injury would be caused by the many "ifs" that such a method would bring forth, all of which would nullify the purpose of the Landschaft. Such issuance would render these bonds speculative in character, therefore of no determinate value or stability in the open market. Such bonds could by no means be classed as on a par with Government bonds. .^ .' Now for the second statement, the question of title. We c,an all understand that there is nothing to-day to prevent savings banks in any State from lending money on individual farm mortgages. But how would the matter stand if such savings banks were to issue long- time bonds on these mortgages and, under the prestige of United States law, under the quasi sanction of the Government, sell thou- sands of these bonds of one State to people living in the various States of the Union? What would then happen? Who, for in- stance, would do the adjudicating in any questions of law or equity that such bonds might give rise to? Who would adjudicate between A (the farmer) and B (the savings bank), both in the same State, and C (the bondholder) in any of the other States? Where and how would the adjudicating be done? Say a bond were offered on the mortgage of a certain farm in the State of Virginia, would the prospective buyer of the bond, for in- stance, in Oregon or Vermont, have no " ifs " present themselves to his mind's eye in relation to all this, and in relation to the bond's value and stability? There surely would be "ifs," pertinent, ma- terial, and relevant ones, too. And all or any such " ifs " would render the bond of speculative value, hence far removed from classi- 8 PRACTICAL NATIONAL MARKETING ORGANIZATION 1 . fication as on a pur with Government bonds. A bond uith an "if" in the open market ran no more be considered as on a par with a Government bond than a broken-down donkey can be classified as the peer of a blooded hoi A TAIL TO Til Kill K ITK. It may be true that under prestige of Government sanction, under quasi Government patronage, such bonds would at first find numer- ous buyers. But the more numerous, the greater the ultimate griev- ances that would be likely to full on the farmer and on the bond- holder. Such bonds would quite likely be as mischievous as was the paper money issued by State banks before the war. No wonder, therefore, that the proposers of such rural-credits measures demand, as a tail to their kite, that the Government buy or guarantee such bonds, all with the end in view of more readily liud- ing the way to open the purses of the general public. But there is no danger. The Government is too rational, too wide awake to be caught in any such trap. "But," says the objector, "how about State bonds, municipal bonds, or county road bonds, are they not issued in one State and sold in other States?" Yes. But there is a vast difference between the titles and the validity status of this class of security and the thousand and one questions affecting the title and the exigencies which go to make up the value of a farm, or a part of that farm, or that of thousands of other farms. "But," continues the objector, "if we were to take up the Land- schaft would that not necessitate either a constitutional amendment or the adoption of a uniform title law in every State in the Union '. " Not necessarily. The United States may, under the present Con- stitution, have the right to pass a bill authorizing the Landschaft under national charter, and under regulation and direction of the Secretary of the Treasury. The Secretary of the Treasury could then submit applications for such charters to the Attorney General for his opinion as to whether the applicants could carry out the pro- visions under the law. If there were no legal obstacles in the State laws of the applicants, if the provisions as set forth in the charter could be carried out, the charter would be granted. If such ob- stacles did exist, however, the charter would be refused; refused until the State had altered its laws so as to permit compliance with the national law. Any State desiring the Landschaft would, of course, willingly modify its laws to permit it. In substance, since, under the Landschaft, there is to be permission give to cooperative groups of farmers in one State to issue mortgages to themselves and to convert these mortgages into bonds which are to be sold in all the other States, and since these bonds are to be mainly bought by working people and by widows and orphans, and since the United States is asked to pass the laws permitting all this, and since the United States is to act as the umpire between the or- ganization of farmer borrowers on the one hand and the people lenders on the other, it is therefore rendered an imperative neces- sity that the United States be given the legal power to assume the functions of this umpireship. PRACTICAL NATIONAL MARKETING ORGANIZATION. 9 IN TIME OF STRESS. And now for the third statement, where the farmer "in signing his mortgage and receiving the bond has given the Landschaft the power of a judgment in the event of a foreclosure." This seems harsh and drastic. But is it ? Let us see : In the first place, were the borrower, under the charter, allowed any recourse to law, that recourse would operate prejudicially on the bond. The bond would then no longer be without any "ifs;" on the contrary, it would be subject to many " ifs," and, as has been shown, a bond with an " if " has a speculative value, hence would no longer be as secure as a Government bond, all of which, of course, would neutralize the intent of the Landschaft. But let us see whether the case is really as harsh and as drastic as it seems to be. In the case of the Landschaft, the farmer in time of stress would have his fellow members of the Landschaft take up his case and act upon it. While they could not vary from the regu- lations as laid down for them by their charter, they could, of course, personally subscribe to aid such a farmer in his difficulty. This is almost always the way such cases are handled where this system is operated in Germany. It is only in very rare instances that fore- closures occur under a Landschaft, and even then every dollar realized through public sale of the foreclosed property above the amount of the mortgage and unpaid interest must be handed over to the borrower. But the same man, however, in the hands of the money lender, even with all the recourse to law, in time of stress meets, as we see, with but scant courtesy. And, as a rule, there is precious little left for anyone after the property has passed through the storm of the law courts. It will thus be seen that instead of the Landschaft being "harsh ynd drastic," it is nothing of the kind. It is rather the present system that is harsh and drastic. " ITS " ARE COSTLY LUXURIES. Now let us proceed to statements fourth and fifth, wherein the borrower is to give testimony as to facts relating to his land, and where he cedes to the Landschaft, during the life of the mortgage, the right of maintaining the same status of cultivation as that main- tained previous to his becoming a member of that organization. These two statements also seem "harsh and drastic." It will be found upon analysis, however, that they are no more so than was statement three, for unless this power were ceded to the Landschaft there would be left room for many " ifs " in the bond, and, as has been said before, the presence of an " if " would neutralize the intent of the Landschaft. In short, as everyone knows, there is no necessity for anyone to canvass around piling up heaps of arguments to show why a $20 Treasury note is worth $20. No one needs to be convinced of that fact, not even the illiterate of the immigrant. The same reasoning will apply to a bond. If it is a Government bond there is no necessity to argue the case, for everyone knows its value. The very same thing applies to a land-mortgage bond. Whenever the people would have 10 PRACTICAL NATIONAL MARKETING ORGANIZATION. faith that a gi\en long-time mortgage bond is as safe as a Government iMdid. tin-re would be no trouble in disposing of it in the open market as readily as a (Jovernment bond. The Landschaft would thus en- able the Farmer to borrow money in the open market from the public nt the same rate, or for less than the savings banks now pay to their depositors. Or, in other words, the farmers would then get their money on long time at 3, 3-J, or 4 per cent. And right here it will be in order to take up the statement of Congressman Moss in his address before the Farmer*' National Congress at Omaha. Congressman Moss is reported as saying: I can see no objection to giving the Landschaft n trial by nny Stato in the United States. I will even go so far as to express the wish that this may l>e done * * *. It is perhaps the best form of organization of mortgage cn-dlt under a pure cooperative plan. I do not believe that it can be authorized as ;>. national institution. I do not understand either Mr. Lubin or Mr. Herrick to indorse and recommend it in that sense. I would respectfully suggest to Congressman Moss that he go over my statements on the Landschaft (which I believe he will find on file at the State Department and at the Department of Agriculture), and he will see that I not alone did not " indorse and recommend " this system as a "State" institution, but, on the contrary, that I always opposed it as such. I opposed it because it could not be made to work as a State institution. UNQUESTIONED SECURITY. Why not? Because no sensible buyers of bonds in, say, State X would care to invest in long-time bonds on farm mortgages in, say, State B under the limitations of State B's laws. Such bonds would have a speculative value and the moment they became speculative they would cease to bring a price above par, at par, or even anywhere near par. Long-time bonds on farm-loan mortgages with fixed low rates of interest may only maintain their value in the open market whenever their security is unquestioned. But is not farm land unquestioned security ? Under present conditions, no, by no means, as may be seen from the following: First of all, there are the thousand and one perplexing and technical questions affecting the titles; there are the intricacies and variations of the State laws in each of the States their inter- pretations, decisions, and their precedents. Then come the questions of local appraisement and questions of the standing of the appraisers, their methods, and motives. Last, but by no means least in impor- tance, come the questions of the probable decisions of 'the courts in, say, State B between the proposed farmer borrowers in State B and the bondholders in States X, Y. or Z. Furthermore, Congressman Moss admits that the Landschaft is "the best form of organization of mortgage credit under a pure cooperative plan." I think that the facts in the case will warrant an amendment to this statement. In fact, not merely an amendment, but a substitution, as follows : " The Landschaft is the only form of organization of mortgage credit under a pure cooperative plan." Before proceeding further, I deem it in order to take up the words "rural credits." What do these words mean? They simply mean lending and borrowing money on farm mortgages, and since there PRACTICAL NATIONAL MARKETING ORGANIZATION. 11 is lending and borrowing of money on farm mortgages to-day we, therefore, have rural credits at the present time ; in fact, have had it right along. We thus see that the question before us is not one of merely " rural credits " without qualifications, but a question of " rural credits " with qualifications. A DECIDED DIFFERENCE. Now, at the present time we have rural credits as follows: Unor- ganized farmers borrow money on mortgages from organized money lenders, the banks. The banks obtain the money from the people at from 3 to 4 per cent, in the form of deposits, and lend it out to the farmers at the highest rate of interest that it is possible to obtain from them. That is the present system, and the same would be the case with any and all of the ' ; rural credits " measures for banks that have so far been introduced in Congress. The same would be the case whether the Government purchased bonds, whether the Government guaranteed the bonds, or, in short, under any plan so long as the system meant " the bank." That the interest under such banks would be low at the start would be no criterion as to what it would be as time went along. We all know that profit-earning banks are not benevolent institutions, and that they sometimes learn to collect " all that the traffic will bear." But how would the case be if we were to have the Landschaft? There would then be a decided difference; there would then be unions or groups of farmers, Landschaften. These farmer groups, under charter of the national laws and under guidance and direction of the Secretary of the Treasury, would accept the mortgages on the farms of their own members ; its board of directors would convert these mortgages into Landschaft bonds. Its bonds would then be bought by the people, the very same people who now deposit with the money lenders. These Landschaft bonds would, under national law, under guid- ance and control of the Secretary of the Treasury, afford such security that the people who now deposit their money in savings banks at from 3 to 4 per cent would be very willing to buy these bonds at the same rate of interest. The farmers would thus, as groups of organ- ized borrowers, be rendered independent of the banks. This is the story and the whole story. IT IS HIGH TIME. It is high time for the farmers of this country to master this story thoroughly, as talk of any other kind of cooperative land-mortgage credit is sheer nonsense. The cooperative is the Landschaft, so far as farm mortgage credit is concerned. As soon as the American farmers will understand this they will know what to ask for from Congress, and they will be likely to get what they ask for. If they do not understand it, they will be likely to reach out their hands for something else, something that they really do not want and some- thing that they should not have; in fact, something that is dangerous. Some are screaming in the direction of anarchistic and socialistic de- mands for Government money and Government guarantee, and- on what? On lands that have crazy titles; on lands that the keenest 12 PRACTICAL NATIONAL MARKETING ORGANIZATION. exports in the country are required to determine on hair-sj points; on lands that can he inflated in artificial value ad innnitum; on lands where the titles are so various, abstract, abstruse; on lands that support a larger number of lawyers on questions of \\hal the law is and what the law \>n'(. perhaps double or treble in strength of numbers to all of our standing Army, and yet the Government is to hand out the public money for bonds on mortgages on this legal mess. And in all this cry of Government purchase of bonds or guaranteeing of the same was there an equal cry for the unification throughout the United States of the laws on land titles? Now the Landschaft is the first rational step in that direction, for you can't have a Landschaft on muddley titles; the titles must be made clean and healthy, as they are in Germany, and that will be a irreat step toward lightening the abominable load upon the shoulders of American agriculture, as frightfully uncomfortable and uncanny to pack around as was the pack on Christian's back in the Pilgrims' Progress. So let us have a beginning, let us have the Landschaft. But in Germany, where the Landschaft is in operation, are there not also mortgage banks? Yes ; both are there, side by side, as it were. And both are needed side by side. Why? Because under the Landschaft loans may only be made on a valuation of the earning power of the land, not upon its speculative value. Now it sometimes happens that certain lands, especially those near growing cities, are held at much higher rates than their earning power. Where the regulations of the Land- schaft could only permit the acceptance of a mortgage of say $25 an acre on the productive value of the land, the bank may be willing to lend double or treble or more per acre on its speculative value. This is the reason why there is room for banks alongside the Land- schaft. AN OVERFLOW. These banks in Germany serve, as it were, as an overflow for the business which the Landschaft will not take. But banks of this kind should not be permitted to convert their mortgages into bonds to be sold on the open market. Such bonds, as has before been shown, would be dangerous for the farmers and for the buyers of the bonds. Such banks should merely do their money lending on mortgages as they do it now with this difference: To-day such banks have no competitors, but with the Landschaft in operation there would be effective competition the Landschaft would be the competitor. From all the foregoing it will be seen that there is but one practi- cable mode of cooperative mortgage credit, and that mode is the Landschaft. Before dismissing the subject, however, there is still one phase which has not yet been discussed. Assuming that the questions of title under the Landschaft would be set right, would this in itself be sufficient to convert the mortgage into a gilt-edged bond? Where is the appraisement? How do we know that this and the other duties of the Landschaft will be performed properly? The answer is the following: First of all. there should be followed here about the same routine that is followed in Germany. Secondly, the proposed modi- fication, giving the national supervision to the Secretary of the PRACTICAL NATIONAL MARKETING ORGANIZATION. 13 Treasury, with a national commission of, say, five under him. with office room in Washington, in which will be depositories for the mortgages of the various Landschafts, the blank bonds to be partly filled out by this national commission and sent to the Landschafts iri return for their mortgages, all of which will key up and check the routine. PUBLIC HEARINGS. As to the appraisementSj after the regular appraising values have been gone through with they are to be listed and copies hung up in the front of public buildings, the courthouse, post office, etc., with a printed notice underneath to the effect that public hearings on the appraisements will be held at the county courthouse at a stated time and the public are invited to attend. At these hearings it can be ex- pected that the attorney for the widows' and orphans' funds, the agents of the life insurance companies, and others would give in their testimony, giving their version of each and all of the appraisements. A report of this hearing is to be sent on to the subtreasury commis- sion, on the strength of which they would give the Landschafts their rating or standing, the same as is done by Dun's and. by Bradstreet's Mercantile Agencies. A rating of "A-A-1 " would probably sell the bonds a number of points above par; if the rating were lower, the bonds would probably be some below par; if still lower, they prob- ably Avould not sell at all; there would then be something wrong somewhere, either with the Landschaft or the testimony of the wit- nesses at the hearing. A rehearing would probably set the matter straight for all concerned. The farmers of America have now an opportunity to get a good, sound, rational rural-credits system. They owe it as a duty to them- selves, a duty to their children, and a duty to the American people to consider this matter seriously and thoroughly ; to act as intelligently toward carrying it as if the Landschaft were a banker's or a mer- chant's proposal with the bankers and merchants behind it... Let the American farmers understand that they are now on trial. . With the President in favor of a sound rural-credit system, with the three national political parties pledged on the same line, there seems nothing in the way. So there is nothing else for the farmer to do but to " right about face " and go to work. THE NATIONAL MARKETING ORGANIZATION WHO SHALL PIONEER THE WAT ? Mr. H. Blodgett, of Clayton, Wash., in a letter to Senator Fletcher, says: Beyond a doubt rural credits and marketing would be of the greatest Interest to the farmer, but beyond a doubt these measures would be killed by the " powers that be " unless you, and they that have the power, " get busy." Mr. Blodgett is right, but only to a very limited extent that is, if he limits the " getting busy " to Senator Fletcher and to his col- leagues in Congress. Such limitations may be sufficient in countries ruled by autocratic power, countries where government sways and directs the people. The United States, however, is not an autocracy, it is a democracy a country where the people tell the Government what they want done. If, for instance, monetary legislation, commercial legislation, or legislation on labor are wanted, it is the financiers, the merchants, or the workingmen that " get busy," and if there is to be legislation on agriculture it is the farmers who will have to "get busy." Such being the case, Mr. Blodgett would have been nearer the mark had he given his " get busy " advice to the American farmers instead of limiting it to Senator Fletcher and to his colleagues in Congress. And now, it may be asked, since the proposal before us on rural credits and on marketing are adaptations of systems in operation in Germany, how does it happen that the German farmers in pioneering the way were so much brighter than the American farmers? The fact is, that the German farmers, originally, were not brighter than the American farmers; in fact, they were not nearly as bright. It is only now when they are operating under their effective economic systems that the German farmers have become bright, as bright as the American farmers, and very much brighter. In fact, they have become the brightest farmers in all the world, and because this hap- pens to be the case, let it be noted, it has rendered Germany the strongest among the great powers of the world. But we have not yet been told how the potential brightness of the German farmers became materialized into actual brightness. Was it then the German farmers who invented and devised these effective economic systems and obtained their legislative enactment? 14 PRACTICAL NATIONAL MARKETING ORGANIZATION. 15 WHO PIONEERED THE WAT? No, it was not. They were devised and given legislative enactment by the Government. Why by the Government? Because it is a well known fact that farmers, as a result of their environment, are too conservative to devise systems or to pioneer the way for the adoption of changes in mode or method. The farmers the world over are the last to make changes in their style of garments, their mode of speech, or their opinions. No, the German farmers devised no such systems, nor did they pioneer the way for their adoption. They were devised and adopted for them by the power and far- seeing wisdom of their autocratic Government. The rulers of Ger- many foresaw the tendency which the rising tide of socialism prom- ised to lead up to; the socialism which 'was confined mainly to the urban population to its cities; the socialism that threatened the destruction of their political status quo. The Government, there- fore, sought a method for the control or eradication of this socialism, and it believed that that method could be found in the strengthening of its conservative element its farming population. Under the belief that with the reinforcement of sufficient strength the conservative farmers would prove more than a match for the control of the socialist radical of the cities, the ruling power of Germany devised and enacted into law the economic systems of rural credits and marketing now operating there. Experience has since proven that the rulers of Germany were in the right ; for notr alone does the present advantageous economic status of the German farmer, under these systems, hold in check the socialism and radicalism of the German cities, but it has also so strengthened Germany as to render her almost invulnerable and invincible. The economic and political advantages of the German systems of rural credits and marketing are so evident as to justify the prompt and well-directed efforts of the American farmers for their realiza- tion. PARADOXICAL ? But is there not a break in the logic of these statements? We are told that these systems were devised and put into operation by gov- ernments; that farmers are too conservative to devise effective eco- nomic systems or pioneer them in these stages for their enactment. But we have also been told that the farmers rather than the legis- lators will have to devise them and pioneer the way, " get busy " for their adoption. So, then, we seem to travel in a vicious circle of con- traries. The Government can act but should not or will not; the farmers can not but should. The designation "vicious circle of contraries" holds good if we are to judge from the economic history of nations. It is these 16 PRACTICAL NATIONAL MARKETING ORGANIZATION. "contraries" which have l>een, and doubtless will continue to be, the melancholy cause of the disintegration of nations. For, be it ob- served, the two chief forces constituting the nation are the progres- sive and the conservative forces tin- first, the urbans, the city people; the j-eeoiul. the farmers, the people of the country. Whenever and wherever these two forces in a nation are about equally matched in political power and where this power is equally exerted, there is then and there the greatest amount of national strength. The undue strengthening of the one at the expense of the other must ultimately weaken both, as this tends to weaken the nation. As the undue transfer of political power is mainly effected by the persistent operation of inequities in the economic status be- tween the city and the country, it may be of interest to ascertain the cause which makes for inequity between the two. What, then, is this cause? The farmers seem to think that the cause is " Wall Street," and they hope some way, some duy, to eliminate the inequity. Just how they do not know, but in the absence of a plan they seem to derive some sort of satisfaction from denunciations of anything and every- thing' 1 Wall Street/' But is this answer the answer ? CHANGES IN ECONOMIC METHODS. r>y no means. Wall Street is not the cause at all; it is rather one of th$,effects. It seems to me that the party at fault is the farmer himself in his inertia. Not alone is this true of the farmers of this country, but it is true of all the farmers of all the other countries and in alii the ages. Let us see if the fault is not to be traced to this ' thatjfthe farmers, as a result of their environment, are too con- servatiye to devise effective economic systems or pioneer them in the stage&ior their enactment." ' Well," says the farmer, " do you expect me to sit down and think out systems? Don't you think I have something else to do?" And there you are ! That is just about what the farmers every- where all have said and what they may be expected to say for per- haps centuries to come, and that is the reason why nations come, live awhile, and then die. It is high time for such farmers to look about them and see what changes in economic methods have taken place since the last half of the nineteenth century. There is the telephone and the telegraph. In the sale of his annual 10-billion-dollar production how much use does the farmer make of them in comparison with other merchants who sell an equal amount of goods? "What are you talking about!" exclaims the farmer. "Do you take me for a merchant?" PEACTICAL NATIONAL MAEKETING ORGANIZATION. 17 Well, if you are not sufficient of a merchant to sell your production then you must rest satisfied if others do the selling for you and, of course, in their own way. But to return for a moment to the telephone and telegraph, to the modern inventions for the transaction of business. There are the stenographer, the typewriter, the card index, the board of trade, the chamber of commerce, the clearing house, the mercantile agency, and the thousand and one other devices and methods for the economic transaction of modern business. Do the farmers use these to the extent that other business men do? But above all, does the farmer realize that since these inventions came along there has been a com- plete change in the method of employing capital and in the method of employing mental energy? Beforetime business was transacted by individuals or firms, but in our day business is transacted through corporations, many of them with business ramifications as wide as this country and some of them to a wider extent some world-wide. A COMMERCIAL CUL-DE-SAC. With what mechanism does the farmer commercially speak, com- mercially hear, commercially go, and commercially see? Only with the organs of his own body, consequently the farmer is, as it were, a commercial cul-de-sac. He is commercially dumb, commercially deaf, commercially lame, and commercially blind. " Well," says the farmer, " I will prefer all this to blindly rushing into some wild socialistic scheme. I do not wish to give up my inde- pendence by lumping my property into some rattletrap cooperation or corporation." The farmer that would make such a statement would clearly be uninformed, for neither under the Landschaft method of rural credits or under the Landwirtschaftsrat system of marketing would it be necessary for him to give up one iota of his independence or to " lump his property into some rattletrap cooperation or corporation." nor can either of the two proposals be classed as " wild socialistic schemes." Under the Landschaft rural-credit systems he gives, say, $20,000 worth of property, properly appraised, for a $10,000 bond, and so do all his neighbors. While the bond of a Landschaft is not given on any special piece of property of that Landschaft, each bond issued may only be upon the limit of the mortgage as permitted by the Landschaft. It therefore follows that each farmer under the Land- schaft law is in reality only responsible for his own indebtedness. This has proven to be the case in Germany, where the Landschaft has been in operation during the past 152 years. As for the market- ing or distributing system, that is in nowise a corporation. It is simply an organized semiofficial nation-wide bureau, which embraces 12672 15 2 18 PRACTICAL NATIONAL MAKK! I INC OKliA XI/ATION. the- services for agriculture (hat commerce receives through its boards of trade, chambers of commerce. clearing houses, etc. In other words, where (lie farmer now sees with his own two eyes, he will have added to his commercial vision (he commercial sight of millions of his eoworkers. If we were to strip merchants and financial men of this kind of knowledge, we would make commerce and finance as incoherent, as disjointed, as illogical, and as uncertain as is the commerce of agriculture to-day in the hands of the American farmers. The business and commercial world would not tolerate for a moment the abrogation of their sources of wide range com- mercial knowledge and its resultant activities, and it can be safely said that once adopted neither would the American farmer abrogate it. And the first step toward the materialization of the proposals before us is the awakening of the American farmers from their dor- mancy. They must rise, gather themselves together, put on the har- ness, and exert their power by pulling the car of progress forward whether uphill or downhill ever forward. If they pull hard enough, and each one does his share, they are sure to reach the goal. "Must"! Why "must"? ARISTOCRACY ? DEMOCRACY ? Because unless the farmers change their economic conditions by means of sound and sensible methods they must expect others to step in and manage their affairs for them. This after a fashion is being done now and has been done right along. And as it continues it is quite likely to develop and accentuate present grievances. But in what must it all end? It must end in converting this American democracy into a full-fledged autocracy as surely as the present de- mocratized power of Germany's farmers must in the end convert the German autocracy into a full-fledged democracy. " Eternal vigilance is the price of liberty." And, pray, what does that mean? Does "vigilance" mean that the citizen is to be on the constant lookout for foreign dreadnaughts and submarines? No; that is the function of the Secretary of the Navy. Does liberty mean the right to shout " Scoundrel " or " Villain" at any and all in public life ? No ; that is license. Liberty means freedom free equi- table action and free equitable reaction within the body politic, espe- cially so in the economic life of the people. What now may be said of the " vigilance " of the farmers ? How is it made manifest in the field of economics? Shall it merely be limited to shouting " Wall Street "? Shall it not rather be in effective economic work? It certainly should, but hardly on the lines limited by Mr. Blodgett's suggestion. PRACTICAL NATIONAL MARKETING ORGANIZATION. 19 Each farmer not Mr. Blodgett alone should make it his business to start the ball rolling by sending on petitions and letters to Mem- bers of both Houses of Congress, and there should be thousands upon thousands of such petitions and letters from every section of the United States demanding, first, the passage of House joint resolu- tion No. 344 for the national marketing organization, and, second, the adoption of the Landschaft system of rural credits. Sending on petitions and letters to Congress, however, is only a beginning. The farmers, though, of course, perennially busy, need not expect " Wall Street " to do this work for them. They must do it themselves. It is true that in Germany this work was done for the farmer by his autocratic Government. But in this country, in this democracy, the American farmers will have to take the leading stand themselves if this work is to be done at all. And, be it understood, the duty to proceed should not merely be prompted by the desire for economic betterment, but also by the higher one of political betterment. THE BALANCE OF POWER. Political betterment? How so? Because, as has been shown, the perpetuity of this Nation, the per- petuity of aii} r nation, is dependent upon the balance of power be- tween the two integrant elements composing it the progressive element of its cities on the one hand and its conservative element of the country on the other. Hence, it is clear that if the Nation is to persist, is to prosper, there must be a conservation of the Nation's conservative, the farmer. The farmer must, once for all, take his place in the Nation as a commercial entity and rank as a commercial peer alongside the business man of the commercial cities. This, and this alone, will bring about that economic equilibrium so essential to the life of a progressive nation. This, and this alone, will make the American people the great and mighty Nation that the founders of this Republic intended it to be, the great and mighty Nation whose mission it should be to give politi- cal light and political healing to all the world. This is the mission that is to give political utterance to the politically dumb; to give political hearing to the politically deaf; to remove the political crutches from the politically lame; and to give political sight to the politically blind this the world over and for all time. And this mission, the mission of the American Republic, may by no means be designated as purely secular ; it is in reality sacred. It should be part of the religion of every American farmer., of every American citizen. It stands for the constant striving for nation-wide equity in exchange, equity that shall make for national and individ- ual righteousness between man and man, -the righteousness that in- 20 rilACTICAI. XAIIONAI. M A I; K I. I I N < , <>!'.( \.\ MXATION. spired the utterances of those great tribunes of the people, the |>r<>l>lu-ts of old. And is it not vividly indi<-;'tcd in the revered \\onU. " Thy will he done in earth us it is in heaven"? Once let the American fanner start out on this work in earnest. and it can be safely predicted that he will presently have eoworl. not merely his fellow fanners, but from among the potent forces of the cities. His eil'orts will likely be supplemented by those of the great rail- road corporations, who are beginning to see that railroad values may only be promoted and stabilized to the extent of the earning power on each side of their railway tracks. It can be expected that he would be seconded by the great capi- talists, whose chief desire it is that their securities, bonds, and properties be stabilized at the higher value. He will undoubtedly be aided by the workingmen, who will see in the prosperity of agriculture a guarantee for higher wages and shorter hours, and an increase in the purchasing power of every dollar he may earn. He will be sure to be aided by the growing political power and influence of the women of this country, who will not be slow to see that the prosperity of the farmers of the nation means the prosperity of the family. It may safely be predicted that he will be aided in this effort by all right-minded, patriotic citizens, and that even "Wall Street" may find it to its interest to come to his aid. So then, there is nothing else for the American farmer to do but take off his coat, roll up his sleeves, and go to work, and continue working until he becomes the commercial peer of the commercial cities of this great nation. o A PRACTICAL NATIONAL MARKETING ORGANIZATION AND RURAL CREDITS SYSTEM FOR THE UNITED STATES A HEARING BEFORE THE STATE DEPARTMENT JUNE 21, 1915 WASHINGTON GOVERNMENT PRINTING OFFICE 1915 A PRACTICAL NATIONAL MARKETING ORGANIZATION AND RURAL CREDITS SYSTEM FOR THE UNITED STATES. A HEARING BEFORE THE STATE DEPARTMENT JUNE 21, 1015. PRESENT AT THE HEARING: MR. SYDNEY Y. SMITH, CHIEF OF THE DIPLOMATIC BUREAU OF THE STATE DEPARTMENT; MR. DAVID LUBIN, DELEGATE OF THE UNITED STATES, INTERNATIONAL INSTI- TUTE OF AGRICULTURE, ROME. THE HEARING. Mr. SMITH. As I understand it, you are to make a statement on a proposal for a national marketing organization, also for a rural credits system, for adaptation and adoption in the United States. I would like to ask you whether the subjects you will speak about this morning are not covered in the report made oy the national com- mission and State commissions sent to Europe in 1912, to inquire into the European rural credits systems ? Mr. LUBIN. They are and they are not. The report of the Ameri- can commission (S. Doc. No. 214) consists of some 916 pages. It con- tains perhaps the most valuable information on rural credits in print anywhere. The presentation, however, is not in the form where it can be availed of off-hand, for there are all shades and phases of rural credit information in it with statements, questions, answers, and opinions, all in part relevant and part irrelevant mixture. A para- graph or two may be relevant and a paragraph or two following may not be. It requires a guide competent to pick out the relevant from the irrelevant. It is much the same in get-up as the Congressional Record. The report needs competent editing and all irrelevant material eliminated. It will then oe in available form for all to use. Mr. SMITH. Mr. Lubin, please proceed with your presentation. Mr. LUBIN. The presentation is to be divided into two divisions; the first, the Landwirtschaftsrat, the system of Germany, her national marketing organization, and its adaptation and adoption in the United States; and, second, the Landschaft rural credits system of Germany and its adaptation and adoption in the United States. I will begin my presentation with the first. The Landwirtschaftsrat of Germany begins with the township organization. Every farmer who owns land has a portion of his tax assessment set aside for the support of the Landwirtschafsrat. This gives him the right to vote for a chamber of agriculture in his township. The township organi- zation elects its representative to the county organization. The county organization elects the members to the State organization, and the members of the 24 State organizations of the German Empire elect then* National Landwirtschaftsrat, consisting of 72 2 99122 15 PRACTICAL NATIONAL MARKETING ORGANIZATION. 3 members. Thus we have an organization something on the order of a pyramid, the broad base is composed of the township organizations, the layer above forms the county organizations, and the smaller layer above that composes the State organizations, and all these are capped by the apex, the Natonal Landwirtschaftsrat. To begin with, the 72 members of the Landwirtschaftsrat have their seat in Berlin. They, in substance, have the right of initiative and referendum touching all laws that directly or indirectly concern agriculture. The imperial laws of Germany direct that the Reichs- tag must submit these laws to the Landwirtschaftsrat for its opinion. But this is by no means all or the most important of its functions. The township, county, State, and national organization is, hi sub- stance, a semiofficial information bureau for the purpose of the scientific marketing of agricultural products. The membership of this organization consists of several million units. Its semiofficial status gives it the power to swing the dis- tributive end of German agriculture, and thus renders trusts in food products in Germany an absolute impossibility. This is an invaluable service not merely to the farmers but likewise to the consumers of Germany as well. In my opinion, this, system is the corner stone, the secret, the the reason of the strength, the transcendent strength, of the German Empire. Let us not be mistaken; the great strength of the German Empire does not come from the "goose step" of her soldiers nor from her Krupp guns ; it comes as a direct and indirect result of her Landwirt- schaftsrat system for the scientific distribution of her agricultural products, of the food products of Germany, all of which is reinforced by her effective and efficient rural-credits system. I have observed all this going on during the past ten and a half years that I have been the American delegate at Rome at the Inter- national Institute of Agriculture. The scope and labors of the German Landwirtschaftsrat have also been set forth from time to time in the monthly publications of the International Institute. I have on many occasions urged in my reports to the Secretary of State and in my communications to the Department of Agriculture and to the former Department of Commerce and Labor the needs and desirability of having due consideration given to the Landwirtschafts- rat system of Germany. This with a view of its adaptation and adop- tion m the United States, to the end that this would meet the economic needs of the American people, especially so of the American farmer. The economic advantage of this system is so manifest that it does not require any great depth of mind to find out its utility, its adapta- bility as a means toward economic ends. Nor is it merely economic benefits which result from it; it is even more important as a political factor, a factor for strengthening the political life of the Nation. And on this head let me say that President Wilson in his book, The New Freedom, indicates the ideal political status by a figure. He points to the overhead and underneath shafting of a factory, to the pulleys, to the belting, to the journals, and to the bearings. If the shafts be sprung or the bearings too tight or too loose, or the pulleys out of line, or the belts awry, there is trouble, confusion, and loss. But if all these be true and taut and in alignment all is well with the factory; and he points out that if the State, like the factory, adapts 4 PRACTICAL NATIONAL MARKETING ORGANIZATION. the proper means toward its highest ultimate ends and conforms itself thereto its progress must tend toward the higher ideal. There is yet another figure that may be introduced to help bring out what is intended. Let us imagine a tug of war between A and B. On the side of A there are 10 men at the rope, and on the side of B there are 10. If A offers 50 per cent resistance and B offers 50 per cent resistance, the tug is equal, but if A puts forth 20 per cent resistance and B puts forth 80 per cent resistance the tug must soon end with A defeated. And now let us apply that figure in the political life of a nation. Let us say that the nation consists of A, tne city man, the urban, and B, the countryman, the farmer. A, as a rule, is the progressive, the radical; B, the nonradical, the conservative. When these two forces are about equal in action and reaction we have stability, political strength. But whenever A, the radical, has his own way is not sufficiently restrained by the conservative B, the political pulse is so rapid as to produce political fever, national illness, and ultimately national death. When, on the other hand, B, the con- servative farmer, is sole director, sole governor, then there is stagna- tion and decay and ultimate national death. This was clearly perceived in the early history of the American Republic by one of America's greatest statesmen, Alexander Hamil- ton. He pointed out that we nad a vast domain and a still vaster prospective domain to the west. There was the almost unlimited possibility of the upspringing of a vast agricultural population, but this was not to his liking. A purely agricultural population would have made a stagnant country. The Republic, to live, persist, and develop, required an additional factor, an additional power. It required a radical or progressive power to equal the nonradical or conservative power. And this radical and progressive power has its life in cities, a power which requires manufactories for its upspringing, and where was that power to come from since we had at that time no skilled labor and no means of educating such labor ? It was then that Mr. Hamilton advocated protection by a tariff on imports of manufactures, a tariff the cost of which would fall upon agriculture and serve as a bounty to the manufacturer and his pro- tected labor. This protective system he desired toput into operation in order to build up the "infant industries." We have long since changed that cry into "protection for American labor," but that is another matter. Now, to return to the needs for the adaptation of the Landwirt- schaftsrat system in the United "States. On the one hand we hear that the economic system of the American farmer is injuriously affected through defective marketing of his products. On the other hand we hear that there is perhaps no time in the history of this country when the American farmer was better off, when he had more money in the bank and then look at his automobiles, and his wife all dressed up in city clothes and Paris hats which she never had before. As for the country as a whole, why look at our cities with their miles and miles of skyscrapers and palaces, the wonder of the world; and when we behold all these things there should seem to be no hurry to catch up some foreign system with an unpronounceable name and try to force it upon the American people. PRACTICAL NATIONAL MARKETING ORGANIZATION. 5 There is a strange similarity between these arguments of to-day and those used in old Home in the time of Tiberius Gracchus, in the days of the Roman Republic, when Tiberius cried, "Rome is dying." "Restore the landowning farmer or the Republic will perish." And what was the response? The Romans showed him miles and miles of streets with marble palaces. Pointing to them they said: "See, before time these buildings were of adobe, of clay and brick, now they are marble palaces; how is Rome dying?" And yet he insisted that Rome was dying and clamored for the Freeing from destruction of the farmers, the freeing of the conservative portion of the Roman Republic. He predicted that the vast number of foreclosures of the landowning farmers of Rome would soon convert the free conserva- tives of the Republic into destructive radicals. And what he pre- dicted came to pass. After Rome had conquered Carthage, Egypt, and Syria the con- quering lords brought the cheap corn of those countries into Italy. This forced the Roman farmer into debt, to borrow money of these lords. As a result of all this the Roman farmer was eventually driven from his land. And what happened ? This, Rome perished and crumbled to dust and ruin, and we of the twentieth century go to Rome to see these ruins. And so will it be in the case of the American Republic if we stolidly permit the operation of a system which must cause the conservative, the landowning farmer of the Nation, to be replaced by the renter. Let us now return to the alleged prosperity of the American farmer. While there should not at this time in American history have been more than a trifling percentage of American farming lands in the hands of renters, what do we find ? We find from the census report that 37 per cent of the agricultural land in the United States is now in the hands of renters; 16 per cent of these renters sprung up during the last 10 years of the census. The census was taken up to 1910. This is now 1915, and with the same ratio of increase it will be very nearly up to 50 per cent. And what of the next census and the one after that ? Shall it rise to 60 per cent, to 70 per cent, and so on ? If so, the American Republic is surely groping its way toward the downward incline of old Rome. Let us not deceive ourselves. There is a force at work, a destruc- tive force. It works silently and incessantly. It is a toll-gathering force, a scientific toll-gathering force. Its ingathering tentacles are not merely the traditional 8 of the octopus, but these multiplied from 8 to 80, and from 80 to 800, and from 800 to 8,000. In time this destructive force will sap the political strength of the Nation and leave it a wreck. Some of the onlookers try to frighten these giants, these octopuses, these trusts, away. Some pelt them with rhetorical bombast, some swear at them, some threaten them at law, and some shout at them from the housetops, but, of course, all this is nonsense. Wlio would not be a trust man if he could, say, make a million, two millions, ten millions, twenty millions, or more, or, in fact, for very much less ? Let us have some horse sense in this matter as well as in other matters; it is not the trust man that is the evil, but the foolish, wicked, and criminal conditions which permit practices that make the trust possible. They have done away with that sort of thing in Germany, and why should we not do away with it here in the United States ? We can do away with it if we want to. We can do away 6 PRACTICAL NATIONAL MABKETINO ORGANIZATION. with it by adapting and adopting the Landwirtschafterat system in the United States. Mr. SMITH. What has preceded. Mr. Lubin, seems to be in the way of preliminary, of argument. What, then, is this system, how does it work, and in what way has it become the bulwark of Germany ? Mr. LUBIN. Well, I will try to give you a detailed description ; you to appreciate the explanation in detail that I will give further on. Some 50 years ago the commerce of this country was carried on about in this manner: There were three people to the transaction. There was the manufacturer, the jobber, and the retailer. Substan- tially the only man that had access to money that could be dynami- cally employed was the jobber. The retailer at that time, could get little or no accommodation at the banks, and neither could the manu- facturer. As a result, it was impossible for the retailer to do business with the manufacturer direct, for the manufacturer had no money that he could use dynamically. In fact even in cases where the retailer had cash and desired to buy of the manufacturer he was not permitted to do so. He was plainly told that to do so would cause nim the loss of his business head, and, again, if he went to the manufacturer he was told plainly, " I can't sell goods to you. Go to the jobber." Now, what was the outcome of that system ? This : That 50 years ago we had the poorest manufactures in the world, we made shoddy clothes and paper-soled shoes, and at the highest price in all the world. Toward the end of the seventies a change took place. Department stores and mail-order concerns jumped up, as it were, overnight. That meant a boycott of the jobber and a straight run of the retailer direct to the manufacturer, ail of which resulted in war without quar- ter. In the end the jobber went down, and is down and out to-day. What is the result of all this ? Labor is much higher, the manufac- tures of the United States stand to-day as the best in the world and, substantially, at the lowest price in the world. Now, what the jobber was in those days to commerce and industry, that the trust in food products is to-day to the farmer and to the consumer. I will now take up the details of the Landwirtschaftsrat and its adaptation in the United States. There is to be a series of organiza- tions of various degrees, all federated into one great organization semiofficial in character. Like in a pyramid, it will consist, as it were, of different layers. Beginning with the apex there will be the national commission; then the wider layer below that, the State com- missions; on the still wider layer below that, the county commissions; with the widest layer at the base, the township commissions. There is, first of all, to be a national commission, say, of 15 able representative fanners and 14 other men not necessarily farmers, but leading men. Let us say that one is an eminent carrier, the president of a railway company; then, say, an eminent financier, a well-known banker; then, an eminent man having r knowledge of interstate- commerce relations, an Interstate Commerce Commission man; then, an ex-Postmaster General, say, with a knowledge of parcels post ; and others, captains of industry, men who deal in large matters of business. PRACTICAL NATIONAL MARKETING ORGANIZATION. 7 Thus the 15 farmers and these 14 business men would compose a national commission of 29. This commission, say, with headquarters in Washington, would meet hi session for a few days, say, once or twice a year, passing upon all measures and by-laws necessary to govern the national organ- ization. Under this commission there is to be a secretary general with his staff, who are to constitute the working bureau. This bureau is to have its headquarters in which to carry on the work the year round. It is this secretary, with his staff of assistants, these oureaus, who are to do the work. A similar commission to this national commission, with its secre- tary and working force, is to be constituted for each State in the Union; that would be the wider or second layer of the pyramid. The third and still wider layer is a similar commission for each county in each of the States of the Union. And, finally, the last and widest layer is a similar commission for each of the townships in each of the counties of the State in the various States of the Union. The National, State, county, and township organizations, when con- federated, would consist of several million units. The collective organizations would properly be designated the "national marketing organization." Such an organization would be to industry and agriculture what the chambers of commerce, boards of trade, mercantile agencies, and clearance houses are to commerce and finance. Remove all these from commerce and finance and you will soon produce decay, failure, and revolution. All these are absent so far as the industry of agriculture is concerned. The proposed National marketing organization would supply them. Once put the national marketing organization in operation and there will be no need to grope in the dark or to guess where to sell and when to sell and how to sell. Toward this end the working bureaus oould bring into play all the modern means of up-to-date business facilities. They could employ the telephone, the night-letter telegram, and card-indexing system. The communications could be regulated to come from the township to the county organization, from the county organization to the State organization, from the State organization to the national organization. The national organization could be in touch with the local markets, with the markets throughout the States, and with the market centers of the world. Each producer would thus be enabled to see, not merely with his own eyes, as at present, but with the help of four or five millions of his fellow workers' eyes. Where now there is commercial ignorance and darkness, there would then be commer- cial knowledge and light. At the present tune each producer's lack of knowledge oauses nun to grope around in a limited territory full of cul-de-sacs, but under the proposed national marketing organiza- tion the farmers evervwhere would have the same light and intelli- gence in the commercial end of agriculture as merchants and finan- ciers have in the business of commerce and finance. Mr. SMITH. It might be contended that this system would create an organization so powerful as to become a dangerous political factor. Mr. LUBIN. You would be quite right if the contemplated organi- zation were a Government institution, but this should not be. Mr. SMITH. You would have the proposed organization to be free from any governmental action ? 8 PRACTICAL NATIONAL MARKETING ORGANIZATION. Mr. LUBIN. No; not that, either. If this were a governmental institution it would lead to political centralization, when, presently. the Government would become autocratic to an extent that wouM nullify its republican and democratic status. If, on the other hum!. it were absolutely disconnected from any Government infliicn <-. it would then not be possible to materialize itself. There would thru !><> nothing to prevent any number of competingorganizations from springing up with like powers and functions. Were such to be tho case it would soon neutralize the power and effectiveness of all these organizations, the same as it does now in the United States and as it formerly did in Germany. The chief merit of the German system consists in the fact that the Landwirtschaftsrat is a semiofficial organization. I wish to empha- size the word "semiofficial." While the German Landwirtschaftsrat exists under the imperial laws of Germany, and while its operations must conform to those laws, there is no jurisdiction between this organization and any cabinet ministries of Germany. The Landwirt- schaftsrat, while under Government law, is not a servant or adjunct of the Government. Apart from obeying the few fundamental and simple by-laws inscribed on its charter by the Government, it is in all other respects autonomous. In the place of being subject to a department of the Government, it is, on the contrary, a critic of the Government; in other words, it is semiofficial. Being composed of a membership of millions of units, units com- posed of all poli tical shades, there would then be no danger of wielding this organization as a special political party machine, not any more so than it would be possible to politically utilize the members of the chambers of commerce or boards of trade. Mr. SMITH. I do not think you have covered this, Mr. Lubin: For what purpose would this organization be established and in what way would it benefit the farmer ? Mr. LUBIN. Let me give you some concrete examples. Last fall I had occasion to travel around in a portion of Massachusetts in an auto- mobile. On the road I saw in the fields heaps of apples on the ground. I said to the lady sitting next to me: "Let's stop and buy some ap- ples." The automobile stopped and the lady got out and brought back a good lot of them. I said: "Where is the man to pay for the apples r' She said there was nothing to pay; that there was no mar- ket for the apples; that anyone might take them; that they were lying around on the ground rotting; that we might take away all the apples we wished. Out in California, at Lodi, I had a talk with the owner of a large vineyard. He gave me to understand that, so far production was concerned, thanks to the scientific information from the Department of Agriculture, there was nothing to complain of; that by skillful pruning and cultivating he had increased production a ton to a ton and a half an acre; but when asked about distribution, with regard to the sale of his wine grapes, that was a different story. The wine grapes from which the " V inordinaire " is made are worth about $30 a ton in Italy, France, or Spain. They used to be worth from $30 to $40 a ton in California, out the organization of wine makers, through combination, have brought the price down to $25, then to $20, then to $15, then to $10, and just now to $7.50 a ton. Now, multiply these instances as they occur on the farms of the North, and of the South, and of the East, and of the West, and what PRACTICAL NATIONAL MABKETING ORGANIZATION. 9 are we doing ? We are squeezing out the life and the spirit of this Nation, the better things that go to make a republic, thatgo to make a great and mighty nation. And what else do we do ? Why, we try- to even it up oy bombastic political speeches, by Fourth of July orations, by rhetorical rhapsodies on the Stars and Stripes. Were the founders of the Republic here, the fathers of the Revolu- tion, were they to see our conduct in this respect, they would not hesitate to denominate this as political hypocrisy. We are simply selling our birthright for a mess of pottage. Before we may make our country a strong and enduring political entity we must make strong the conservative element in the United States, the producer, so that he may be a match, an equal match, in the political tug of war with the city progressive, the consumer, the city radical. This, and this alone, will make a strong and enduring Republic. If we leave this undone, then all the warships and all the Navy and all the Army, however grand and strong, will not save the Republic. But if we balance equa^y the strength of the country conservative with the city progressive we make a great Nation, not great in bombast, but great in reality. That is the secret of the strength of Germany. Mr. SMITH. As I understand it, then, the object is to procure an equitable distribution of agricultural products through well-directed intelligence to employ the best means for the placing of the surplus crops in the localities where they are needed. Mr. LUBIN. Yesj intelligent and equitable distribution. Mr. SMITH. I think I now understand what you mean. Mr. LUBIN. Very good. I will now take up the rural credits matter. RURAL CREDITS. The origin of the rural-credits propaganda in the United States can be traced to the labors of the International Institute of Agriculture at Rome. The importance of rural credits is now beginning to be understood, but the difficulty comes in centering the mind on what would be likely to prove the best system for adoption. During the many years' observation in the institute I have come to the conclusion that an adaptation of the Landschaft system would be of the most advantage to the American farmer. Mr. SMITH. Will you please explain what this rural credits system is? Mr. LUBIN. There are several kinds of rural credits systems. There is the personal credit and the mortgage credit. I wish to limit my remarks to mortgage credit, to the adaptation of the Landschaft. The Landschaft rural credits system has been in operation in Ger- many for 151 years. It was proposed by a man by the name of Buring. It was rejected by the Reichstag, but it was taken up by Frederick the Great and adopted. It has been in operation for 151 years, with a record that during that tune there has not been a single failure. From figures given by the International Institute of Agriculture I find that the Landschaften of Germany have outstanding 420,000,000 marks in 3 per cent bonds, 2,000,000,000 marks in 3 per cent bonds, and 500,000,000 marks in 4 per cent bonds. (A mark is 25 cents.) Mr. SMITH. How is the Landschaft formed and how does it operate ? 10 PRACTICAL NATIONAL MARKETING ORGANIZATION. Mr. LUBIN. The Landschaft is formed under tin- I'ru.-Man law much the same as a national bank is formed in the United Si A group of landowners ask for a charter to form a Landschaft. Now, supposing the collective value of the farming land in this Landschaft to oe worth $5,000.000, if there is a bond of $1,000 floating in the open market of tnis Landschaft what is the security of this $1,000 b9nd? The security is the $5,000,000 value of the Landschaft. This being the case, it becomes the reason why the Landschaft bond sells in the open market at about the same rate as a Government bond. In fact, it has a merit far above a Government bond. A couple of months ago I wrote on to Prof. Brodnitz, of the Halle University, who is in a position to make an authoritative state- ment on the subject. I asked him the question: "How about the Landschaft bonds ? How are they standing during the present war ? Are i 1 ey holding their own or have they fallen like other securities ?" And he replied: "They are holding their own as they did in panics and wars before now. The Bourse, as you know, is at present closed, but the Landschaft bonds in passing from hand to hand maintain their values as before the war." Mr. SMITH. How does the farmer get hold of one of these bonds ? Mr. LUBIN. The farmer gets them from his own Landschaft, from his board of directors. Mr. SMITH. What security does he give ? Mr. LUBIN. The mortgage on his land. Mr. SMITH. That seems to be a simple thing. Could we do the same thing here ? Mr. LUBIN. Yes, we could; but something has to be done before we can do what the German farmer can do under the Landschaft. Unless we can do that "something" the bond would not float. It would fall flat to the ground. It would prove of no value whatever. Mr. SMITH. What is that "something? ' Mr. LUBIN. That "something" really consists of two "some- things." The first relates to the tenure of land. Under the Land- schaft there can be no question raised as to title. A mortgage on a piece of land within that Landschaft is in fact equivalent to a judg- ment, and foreclosures may be effected by the Landschaft without any further recourse to lawsuit. And then there is no doubt as to the correct valuation of the land and for processes to maintain its profit-earning value. Mr. SMITH. That would be a matter requiring special laws, not only by the United States but also by the States. Mr. LUBIN. Certainly. There would have to be laws governing the question of titles and the waiver of foreclosure suits. And then, as to valuation, that has to be provided for. It has to be determined what is the depth of the soil, whether it is subject to overflow or atmospheric troubles, what it produces, what its net earning power is, and there must be a method for the maintenance of that earning power during the life of the mortgage. These things must be settled; settled to the satisfaction of the Government; settled to the satisfaction of the borrower; settled to the satisfaction of the expert ; and settled to the satisfaction of the novice. And there will be no trouble to sell the bonds in the open market at the same rate as Government bonds. PRACTICAL NATIONAL MARKETING ORGANIZATION. 11 In fact, they will be better than Government bonds, for Govern- ment bonds fall during political troubles or wars, but Landschaft bonds of the character aoove set forth maintain then* value for a 50-year or 75-year term, as they do hi Germany. Mr. SMITH. This bond, then, is really a mortgage given by the bor- rower to the bank? Mr. LUBIN. There is no bank. The Landschaft does not require a bank. There is simply an organization of borrowers, an organization of farmers who borrow, an organization called the Landschaft, with its board of directors, and the public bourse or exchange, and that is all. The bonds are sold the same as shares of stock of the United States Steel Corporation, the copper corporation, shares of Erie, or Lake Shore, or Pennsylvania Railways. Mr. SMITH. The farmer who borrows pays interest, does he not ? Mr. LUBIN. Yes; certainly he does. Mr. SMITH. What advantage over the present system would it be to the farmer who borrowed from this organization ? Is the interest less? Mr. LUBIN. It is decidedly less. In Germany it is 3, 3, or 4 per cent. The farmer has the choice of either one of the three rates of interest with amortization. The bonds run from 50 to 75 years. The mortgage may run all that time, but it may be canceled at any moment by the farmer buying the bonds in the open market. He may then bring them to the Landschaft directors, when he can receive back his mortgage on the land on demand. Mr. SMITH. Am I to understand that when a farmer goes to the Landschaft to borrow that he is given a bond rather than money, and that he negotiates this bond in the open market ? Mr. LUBIN. Yes; because the Landschaft has no money. It is no bank. There is simply a board of directors. Mr. SMITH. Say he goes to borrow $1,000 from the Landschaft at 3 per cent interest. He is given a bond which he negotiates in the open market at 92. Does he not obtain his money at a discount and pay interest on the face value of the bond? What would be the advantage to a man to borrow from this organization at less than par when he could go to an outsider and get the full amount of his note at the same rate of interest ? Mr. LUBIN. That would all depend upon a question of land tenure, and a question of the character of the valuation. Your question is tentatively correct but hardly coincides with the facts as they are. In the first place, there is not a farmer anywhere in the world that can get money on an ordinary farm mortgage at 3 per cent or 4 per cent nor for 5 per cent, and very rarely for 6 per cent. Normally the rate is from 8 per cent to 12 per cent, and sometimes higher than that when the cost of record searching, legal requirements, commis- sions, and other incidentals are considered. The few cases in the United States where mortgage loans on farms can be had for less than 7 per cent are cases where there are special reasons for it the bor- rower has considerable wealth outside of the piece of land he may mortgage. In other words, he is considered "good" independent of the mortgage. Even then he may only obtain a loan for a few years, and he must go to the expense and trouble from time to time to renew. 12 PRACTICAL NATIONAL MARKETING ORGANIZATION. In a hearing on the Hollis-Bulkley bill one of die malingers of the Prudential Life Insurance Co. testified that his company had I sums of money out for which they received something over 5 per rent . That seems low enough, but on cross-questioning this witness it was found that there was a middleman between the Prudential Co. and the fanner. The Prudential received this low rate from the middle- man, but the fanner paid his 8, or 8, or 9, or 10 per cent, as the case might be. The middleman, in fact, served as a sort of Landschaft for his own benefit. Let it be understood once for all that the farmer at present can not have a mortgage loan in the United States from 50 to 75 years at any rate of interest, nor can he get any money on a mortgage of his farm at any such rate as 3, 3, or 4 per cent with or without amortization. He would find it a hard job to get it to-day at double that amount. He would find it no hardship to get it at all at 3, 3 , or 4 per cent, as he would elect, under the Landschaft, provided, of course, that the Landschaft is properly constituted, as in Germany. And then take the matter of cancellation, if he takes out a mortgage to-day for 10 years he can not cancel that mortgage until the 10 years are up. Under the Landschaft, even if the oond reads for 75 years, he can cancel it a day or two after he has mortgaged his land. All he needs to do is to buy the bonds back in the open market, bring them to the directors, and he receives his mortgage back on demand, and is free from debt right then and there. Now, as for the selling of the bond at 92 in the open market, if he sells it for 92 he can in all likelihood buy it back for 92. If his Land- schaft stands high, it will sell for above par and not at 92. It is the Landschaft that can do all that, provided the underlying laws of the Landschaft are made to apply here as in Germany. It would be well to understand first of all that we should carefully avoid adopting some plan simply because of some inspiration that may find its way into the heads of those who are looking for inspira- tions in the financial line. A plan may seem to be logical, may seem to be plausibly put, a plan may even be eloquently advocated, but which might in the end prove to be a serious loss to borrower and lender. It is no more practical to play finance from a written plan than it would be to produce symphony music by handing a novice a violin and a written symphony and expect him to play. In matters of finance, especially so in a case where speculation is almost entirely eliminated, it is the safest course to go down to the bedrock of experience. We have had experience in the case of the Landschaft. It has operated for 151 years. It is operating now during this great war in Europe. And during these 151 years there has not been a single failure and the Landschaft bonds have maintained their value. Mr. SMITH. I wish to ask, Mr. Lubin, does the German Government have generai supervision over the Landschaft system ? Mr. LUBIN. Yes. Mr. SMITH. If adopted in the United States the United States Government would then have general supervision ? Mr. LUBIN. Supervision, yes; but no guarantee, nor would the Government be called upon to buy any 01 the bonds. Mr. SMITH. Who gets the benefit of this system ? Mr. LUBIN. The farmers who are members of the Landschaft, but this is by no means all, for the public, the lenders, are also benefited. PRACTICAL NATIONAL MARKETING ORGANIZATION. 13 Under the laws of Germany the Landschaft bonds are considered so safe that the German Government directs that the trust funds of widows and orphans must be invested in these Landschaft bonds. Then there are a great many merchants and others who may have a surplus which they would very much like to invest in bonds that are as mobile and as safe as the Landschaft bonds are and as easily con- vertible into cash. Where is the avenue at the present time for the investment of widows' and orphans' funds in the United States? Where is the opportunity for investments to run from 50 to 75 years that would be as safe as the Landschaft bonds are in Germany ? Then, again, there are the great life insurance companies who have hundreds of mil- lions of dollars to invest in farm mortgages. Would they not be better off to invest their money in Landschaft bonds if we could have them in the United States of as safe a character as they are in Germany. In other words, what the ordinary money lender does on a small retail scale of searching records, of diving down into the real value of a piece of land, is all done, as it were, at wholesale under the Land- schait system. So long as the money lender does all this in detail he alone knows the character of the risk. This knowledge is his monopoly and he charges for it accordingly. Mr. SMITH. As a matter of fact, the Landschaft becomes a finan- cial institution from which some people derive profit ? Mr. LUBIN. No; the Landschaft is not a financial institution. It is simply an agent between borrower and lender. The Landschaft is not a bank. It never has any money, excepting it be a few dollars for paying rent of a room or to buy a tew office chairs, a desk, or a safe. Otherwise it has no money. Mr. SMITH. I understand that there are bonds, and that these bonds draw 3 per cent interest ? Mr. LUBIN. Yes. The Landschaft issues these bonds, gives them to the borrower in exchange for his mortgage. The Landschaft collects from the borrower the 3 per cent interest on that bond and immediately pays it over to the holder of the bond. Mr. SMITH. I do not see where they get the 3 per cent from to pay. Mr. LUBIN. They get it from Johnson and Thompson, from the farmers, the members of the Landschaft who have deposited then* mortgages and received their bonds and sold them. Mr. SMITH. Then the Landschaft becomes a financial institution for gain ? Mr. LUBIN. No. The Landschaft is not a financial institution for gain. The Landschaft merely acts as a medium or agent between the borrower and lender for the collection of the interest from the borrowers and the distribution of it among the holders of the bonds. Mr. SMITH. If such a system were established in the United States, to what extent would the financial institutions here be opposed to it ? Who would benefit by the 3 per cent interest ? Mr. LUBIN. As for the first question, I can understand that there are a certain number of farm-mortgage money lenders who are at present receiving high interest rates who would be likely to oppose the Landschaft. In contradistinction to these there are the great railroad corpora- tions who may quite likely favor the Landschaft, for the railroads are 14 PRACTICAL NATIONAL MARKETING ORGANIZATION. beginning to understand that the values of their roads are determine! by the economic status of the farmers on both sides of their railroad track. Then there are the great capitalists of the country, those wlm have a fortune already amassed. These would be inclined to favor the Landschaf t because any system or condition that would work for the economic welfare of trie farmers of this country would at the same time stabilize their values and securities. I think hi answering the first of your questions I have answered the second. Let me repeat it: Who will benefit by the 3 per cent inter- est? The whole country will benefit by it, the farmers, the widows and orphans' trust funds, the railroad companies, the great financial concerns, the capitalists, and, necessarily, though indirectly, the workingmen of the United States, for you can not improve the con- dition of the farmers throughout the country without bettering and advancing the wage rate. Mr. SMITH. Is it not possible for us to start other kinds of rural- credits systems that wiD do the same thing as it is proposed to do under the Landschaf t and without any such changes in the law? If so, why should we make such changes in the land laws and in the land titles when we can do the same thing in another way? What is the matter with those other proposals ? Mr. LUBIN. I am rather glad that you asked that question. I wish to say the same question has been asked by many other inquirers. The answer is this: There are other systems, such as, for instance, personal credit, not on land mortgages. These personal rural-credits systems are not under our consideration now. The matter before us is solely confined to the subject of farm-land mortgage credit; and when we confine the matter to this alone we will find the Landschait to be by far the best and safest rural-credit system of any in the world. It should be understood that interest on money borrowed on a farm mortgage must, under present conditions, necessarily be high, for the money lender, say, has paid out $5,000 on a mortgage, and he deposits the mortgage in his safe, and that's the end of his $5,000 until the mortgage is redeemed; but, in the case of converting the mortgage into a pond, this same $5,000 handed over to the farmer is reproduced again by the sale of the bond. If private banks could do business of that kind, they could, with a very nominal amount of money, do an enormous business. They could lend out the same $5,000, receive their mortgage, convert it into a bond, get back the $5,000, lend it on another piece of property, receive a mortgage, .con- vert it into a bond, and they have got their $5,000 back again ready for another loan. They could do this indefinitely, if it were safe, but it is not safe. It is dangerous, dangerous to all concerned. As was pointed out under our present laws each State, each county, each township, and each tract of land is, as it were, a law to itself, the bearing and sig- nificance of which would have to be taken on the faith of statements in a ''prospectus" or the representation of the bank. The bank, in turn, would have to take their information from their agents. The public would then have to have faith that all was right and that all would continue to be right. It can be safely predicted that a bond of that character would not be brought by such a concern as J. P. Morgan & Co., Kuhn, Loeb & Co., or the New York Life Insurance Co. None of these concerns PRACTICAL NATIONAL MARKETING ORGANIZATION. 15 would buy a bond of that kind for 10 cents on the dollar, certainly not on long time, at 97, and at 3| per cent interest. But it is safe to predict that the same concerns would buy a Landschaft bond if they were as safely devised in the United States as in Germany. They would then buy them as freely as they would Government bonds. That all this is more or less vividly present in the minds of those with rural credit bills in Congress wno ask that the bonds be guar- anteed or purchased by the Government is evident. It must seem obvious that any such propositions, propositions whereby the Gov- ernment must guarantee the bonds, or must buy them, should be looked upon with suspicion. If the bond is good, it will float and keep floating without Government aid. If it can not float of its own accord, it ought not to be made to float with Government aid. Gov- ernment aid applied to a bond that will not float on its own merits is doomed to fall, is doomed to cause disaster and loss. And if we are to have bonds of a character to float without Govern- ment guarantee or Government purchase, then we would have to have the same legislation that would be required for the Landschaft system. And if we are to change the laws at all, why should it be done for a system of banks when farmers know nothing about running banks? But, say these others, the farmers need not run the banks; the banks can be run by bankers. Well, and what would we then have ? We would have a rural-credits system run by bankers, whereas the Landsohaft is a rural-credits system run by the farmers. In the one case we have the money lenders united in the bank the united money lenders but in the Landschaft we have the united farmers, the cooperation of borrowers, with the public at large as the lender. This would make available to the farmers the widows' and orphans' funds, the surplus cash of the merchant, the savings of the working people, the millions of the life insurance companies, the reserve of the capitalists, anyone, the public. All these compose the primary source for money everywhere the world over. It is from this source that money can be had at from 3, 3, and 4 per cent. Yes, and at 2 per cent, as witness the postal savings banks. But does anyone believe that this money can be had at 3, 3, and 4 per cent on bonds of a doubtful value ? It certainly can not. Even if it could, would it not be criminal to permit it ? Widows' and orphans' funds should be considered a sacred trust and guarded securely against fraud or loss. A sound Landschaft, a Landschaft no less sound than in Germany, would provide a safe investment, and thus not alone procure the farmer money on long terms at the lowest rate of interest in the world, but at the same time provide a safe investment for widows' and orphans' funds. But why lay such stress upon widows' and orphans' funds? Because it is deserving of it. Here in this Nation of, say, 100,000,000 are the millions of husbands working early and late, working with all their might. Why? To "lay by" something for wife and children. Very good. Now, what becomes of the "lay oy" ? Well, it goes to the widow and orphan. Supposing the same foots up to $1,000, $5,000, or $50,000. What is the widow to do with it? Invest it? How? When? Where? Here, for instance, is a woman who is 16 PRACTICAL NATIONAL MARKETING OKUAN1ZAT1< hardly able to manage her account in the grocery store, who never before invested a dollar, is asked on the spur of tne moment to invest the savings of a lifetime. If the Landschaft could be rendered as safe in the United States as it is in Germany, it would provide the safest investment in the world for the widows' and orphans' funds, as well as provide the American farmer with long-time loans at 3, 34, and 4 per cent, with amort i/at ion. There are, so far as I am aware, but three objections offered against the Landschaf t. These are: First. It has a foreign name; that we need not go to foreigners when we can think out a plan by ourselves. This objection is, of course, foolish. Second. That the conditions governing financial transactions are different in Germany from what they are nere. This is absurd. We may just as well assert that the law of gravitation works differently there than it does here. Third. But right here comes another objector who cries: "This proposal is nonsensical. It could never be put into practical opera- tion. Take, for instance, the required National and State legislation to make it operative; would it be possible to coerce each State in the Union to change its laws?" In the first place, if we are to have a bond that will float and be "good" and remain "good," whether on the Landschaft or whether on the mortgage bank plan, we may only have it by changes in the law. And, in the second place, there is no need to coerce at all. Let Con- gress pass the law, providing in the by-laws of its charters what must or must not be done. Let it offer these charters to such States whose laws enable them to comply. The States who will desire them will find ways how to comply. I suspect that much of the opposition comes from the camp of the interested mortgage credit money lenders. To get at the facts in the case, to leave no room for doubt, I would suggest that there be held, under the auspices of the Government, a public debate when farmers and financiers, after going over the matter, could then bring in their report upon the merits of the case. Air. SMITH. There is one thing, Mr. Lubin, that is not clear to me. There must be some expense attached to the issuing of these Land- schaft bonds and to the auditing and liquidation of the same. How are these expenses met ? Mr. LUBIN. The expense is quite nominal and is provided by the Landschaft. Mr. SMITH. I have listened to your statements, Mr. Lubin, with interest, and I shall take pleasure in submitting them. o