Mr. STEWART. No, sir. That is the only exception. These other rates as included in the bill are the import tariff rates with the exception of cotton, which is not now on the dutiable list, but which would, under this plan as proposed, come in for benefits along with wheat and other products.

The CHAIRMAN. Now let me see if I understand you. In the first place I presume there is some machinery by which they must pay a price fixed on this side for what they export when they buy it on the market?

Mr. STEWART. No, sir. The experience in other countries has been that it is not necessary that any price be fixed. I think I can illustrate that, to answer your question in terms of experience, by reference to that which took place in Germany. As shown in a bulletin published by the Department of Commerce, known as Tariff Relations Between Russia and Germany, 1893 to 1915, it developed that the German farmers in the northeast Provinces desired to ship their wheat and other products out through the Baltic, have them brought in through the Rhine, through Holland, and landed on German soil. They preferred that to paying freight rates across the country. But they found themselves up against the necessity of paying import duties when they attempted to land their products at Cologne or other ports. Under those conditions they asked that they be given a certificate which would exempt them from the paying of import duties upon those particular shipments which they sent out merely from one part of their country to another. They were required, in the first instance, to prove the identity, to prove that the grain which they shipped out was the same as the grain which they brought back in, but some bright German saw that there was no necessity for proving that identity; that it would be just as logical to let that import certificate be applied in the case of wheat coming in from Argentina or the United States as to insist that it be the same grain that was sent out from a Baltic port. In the midst of a tariff struggle with Russia it developed that the farmers in the northeast Provinces refused to support the tariff measure unless they were granted a further concession with reference to these import certificates. That concession was this, that the import certificate should be receivable not only in paying the duty on wheat coming in from their own ports or coming in from other countries, but should be receivable also in the payment of duties on coffee, on petroleum, on various other products. Now, the effect that resulted from broadening that list of commodities on which there might be applied these export certificates or import certificates, whichever you want to call them, was that a bounty was granted to the farmers in the northeast Provinces. Under these conditions they supported the tariff, and the plan went through and worked.

The idea of bounty on exports of course did not originate in Germany. As a matter of fact one who wishes to pedigree the idea and the practice will find that it is a very old practice. We find, for example, that Alexander Hamilton, in his report on manufactures, placed before the Congress in 1791, recommended that there should be bounties, both production bounties and export bounties, for that matter, for the sake of stimulating manufactures, and he went so far as to make a suggestion which I see is included in one of the bills before this committee, and which is economically though not

fiscally the same as this, and that is, that the proceeds of the import duty should be used to pay an export bounty upon certain products-in the case which he had in mind upon agricultural products. In other words, it was his impression that we could develop our country along the lines of our preference better if we included not only import duties but export bounties as a part of the scheme.

The CHAIRMAN. Now is it part of the plan or is it your theory that if we would pay, for instance, a bounty on the export of wheat it would increase the price of wheat to the farmer in America?

Mr. STEWART. Senator, I failed to answer your question as I intended to when I started. The answer to that question is that when an export bounty is paid the exporters are able to compete, bidding prices as much higher than the world market quotations would otherwise permit as the amount of the bounty would indicate, and through their competition with the millers and other purchasers and handlers within the country the higher price is affected not only in the case of that portion of the crop which actually goes abroad, but that same higher price is effected with reference to the total crop.

The CHAIRMAN. If I understand, the whole theory of this bill is this, that by the law which in effect gives a bounty to the exporter of the grain you would increase, to the amount of that bounty, the price that the producer of that grain would receive.

Mr. STEWART. Yes, sir.

The CHAIRMAN. Instead of paying that bounty out of the Treasury you give to the exporter of the grain a certificate showing the amount of what would be a bounty, and when he imports some goods into the United States he can present that certificate and it is as good to him as the cash in paying an import duty.

Mr. STEWART. Yes, sir.

The CHAIRMAN. Now, that is the secret of this whole bill, is it not?

Mr. STEWART. That is the fundamental theory of the bill.

The CHAIRMAN. For instance, take wheat only as an illustration. How do you arrive at the amount of the certificate; that is, the amount per bushel?

Mr. STEWART. I will say this in answer to that question, that in the original draft which you have before you here you will find as the debenture rate the rate which you find in the tariff act of 1922, except in the case of wheat that the revised rate resulting from the President's proclamation of March 7, 1924, was incorporated. That same thing applied to flour.

The CHAIRMAN. Now then, for the purpose of illustration, suppose that the tariff on wheat was 40 cents a bushel.

Mr. STEWART. It is 42 cents.

The CHAIRMAN. I know that, but I am just taking figures that are easy to handle, only as a matter of illustration. Suppose the tariff on wheat were 40 cents a bushel. Now suppose I exported a million bushels of wheat. I would get a certificate of 40 cents a bushel, and then if I imported a lot of stuff from any place in the world that we had a tariff on, when I came to pay that import duty I would present this certificate and get credit on it?

Mr. STEWART. That is the theory, except that it does not take into account one thing which seemed to us very important, and that is that these certificates should be assignable, because most of our exporters

of wheat and of other agricultural products and they are not numerous-are not at the same time importers of goods.

The CHAIRMAN. For the purpose of illustration, that illustrates it, does it not?

Mr. STEWART. Yes. Of course, if you make them assignable they can be sold to anybody.

Senator MAYFIELD. If this bill were enacted into law one result of it would be to reduce the amount of revenue that the Government receives from the tax?

Mr. STEWART. That is true on any given scale of import duties. The CHAIRMAN. In other words, in effect, as I inderstand it, Senator Mayfield, this thing which amounts to a bounty would be paid for out of our receipts from imports.

Senator MAYFIELD. The receipts from imports would be less the amount of these certificates.

The CHAIRMAN. Exactly.

Mr. STEWART. That is true with regard to any given scale of duties. Senator SMITH. In other words, we simply evade the constitutional prohibition of an export duty. We transfer it. In effect it is the same. We take the certificate of whatever bounties we are going to put on, take the certificate that expresses that bounty, and relieve certain goods or take the import duty from certain goods that are equivalent in value, so that the effect is the same as if we paid an export duty at the port.

Mr. STEWART. That is true, if I may make one or two qualifying statements. In the first place, there is no constitutional prohibition of export bounties. There is a constitutional prohibition of export taxes. An export tax is the opposite of an export bounty. The Constitution says that there shall be no tax upon exports from any State. That was designed to keep New York, I presume, from placing an export tax upon goods going into New Jersey, because New York was not anxious to have New Jersey get those goods. It relates back to certain things in Colonial history. But there is no constitutional prohibition on export bounties indicated in those terms. However, after Alexander Hamilton had filed his report a period of 105 years elapsed, and in 1896 the Supreme Court of the United States in handling the case of the sugar bounty, which was in the McKinley tariff act, raised the presumption in many minds as to whether it was unconstitutional. Now it has been with reference to the unconstitutionality of a cash bounty that I have been endeavoring to do some thinking. I want to explain the ground on which this seeming evasion has been considered in my own mind. Perhaps it is not a proper way of thinking, but it is the thought that I have had. We have in the State of Illinois, as most of you have in your individual States, a provision of law under which it would be impossible to take the public tax funds and grant them as gifts to charitable associations. There may be some States that afford exceptions to that, but I think not.

Senator MAYFIELD. My State, Texas, has a similar law.

Mr. STEWART. You could not make a gift to a charitable association, but you can exempt a charitable association from the payment of a property tax. The difference there is, I think, sound in law. It is not from the purely economic point of view so very important, perhaps, but here we have the principle of import tax exemption

applied in such a way that it would amount to an export premium. For that reason I have been told by some outstanding authorities in the field of constitutional law that there is a saving grace about this procedure through the method of import tax exemption which corresponds to that which we have in the case of a property tax exemption afforded charitable associations. Of course we have income tax exemptions. I suppose that if this committee had been confronted, in connection with the farm loan act, with the proposition that every holder of a thousand dollar farm loan bond should be given a grant of $10 or $15 a year in cash out of the United States Treasury you gentlemen would have turned your thumbs down upon that proposition. It would not have been constitutional, we think. But you can grant the holder of farm loan bonds or of United Sates obligations an income tax exemption which stands the constitutional

test.

The CHAIRMAN. And which brings about the same result.

Mr. STEWART. It brings about the same result economically, but legally it is a horse of a different color.

Senator SMITH. It is just the old proposition of plus and minus. If I owed a man a thousand dollars and he just remitted the debt, I am better off by a thousand dollars, where as if I would pay him and he was to give the money back to me it would assume a different attitude.

Mr. STEWART. Yes, exactly. In other words, if these import tariff revenues are permitted to go into the Treasury and mingle there with the funds from all other sources and then you attempt to dip them out and apply those funds for granting bounties upon production or upon exports, there you run into legal difficulties.

The CHAIRMAN. I see your point, Doctor, very clearly, but in connection with the constitutionality perhaps I should ask you this question. Maybe I would not ask it if I had examined this bill more critically, but there have been so many of them that I have not been able to examine all of them in detail. This bill provides for a tariff on various articles, does it?

Mr. STEWART. No, sir. This accepts the tariff already provided under the tariff act.

The CHAIRMAN. There is not anything in there which would run counter to the constitutional provision which prohibits the Senate from initiating anything of a revenue nature, is there?

Mr. STEWART. I think not. That is to say, it has been our thought that the existing import tariff system is adequate, in general. The CHAIRMAN. Did you fix that in this bill?

Mr. STEWART. No, sir. This simply accepts-this states debenture rates, export premium rates, in the same figures as you have already stated the import tariff duties in the tariff act of 1922. The only exception which exists in that respect is in paragraph 8 on page 6, where cotton and cotton waste is included. here to receive a premium of 5 cents a pound. I will say to you that I did not incorporate that until after Senator McKinley expressed a personal desire that that be included.

Senator CAPPER. May I ask for information, to obtain the benefits that come from this bill must a company or individual be both an exporter and importer?

The CHAIRMAN. No; Senator. I think he explained that by telling us that the bill provides that these certificates are assignable. Senator CAPPER. Oh, they are?

The CHAIRMAN. Yes.

Mr. STEWART. It was our thought that there would be no reason for trying to force exporters into the import business.

Senator SMITH. I was not here when you began the origin of this bill. But who are the sponsors of it?

Mr. STEWART. Well, I will have to be personal in that respect.. This was an idea which was first expressed to me by a member of the Department of Agriculture who had returned from Germany where he had seen it working in the northeast Provinces. He was then on the point of returning to Germany. He asked me whether I did not think it was interesting. I said "Yes, and I want to get hold of any literature on it that I can find." Finally I located a report of the Department of Commerce in which the subject was explained, and it seems to me it has a peculiar applicability to our American conditions. Senator CAPPER. Does it work in a practical way in Germany? Mr. STEWART. Apparently it did in the opinion of this gentleman who was returning to Germany and in the opinion of the author of the bulletin of the Department of Commerce.

Senator CAPPER. Was it a real benefit to the producer?

Mr. STEWART. It amounted to a bounty on exports in the northeast Provinces of Germany and caused higher prices, to prevail there for farm products.

The CHAIRMAN. Senator Capper, before you came in I think Doctor Stewart made plain here if we were relieved of all constitutional inhibitions and had the right to pay out of the Treasury an export bounty and did it, if we paid an export bounty on any product, the domestic price would be increased by the amount of the export bounty. But because of constitutional inhibitions it is not called an export bounty, but anybody exporting is given certificates showing that they have exported from the United States such articles, and the bill provides how much per ton or per head or per pound that certificates shall show, and then these certificates are accepted by the officials of the United States in the payment of import duties on any article that may be imported into the United States, and they are made assignable, so that instead of paying money, when you import an article that is dutiable you present at the port the certificate showing either you or your assignor has exported some of these articles and is entitled to a credit on imports to the amount stated in the certificate.

That states it, does it not?

Mr. STEWART. That is exactly right.

Gentlemen of the committee, I have thus far tried to cover two points. The first one is, Will prices for agricultural products be advanced as the result of the operation of the export debenture plan? We have answered that in the affirmative. The second question is whether assignable tariff exemption certificates are the same as cash bounties, and we have had to answer that question both yes and no. We have had to say that from the standpoint of economic effect such a system might be the same as a cash bounty system; that from the standpoint of its legal status it has a saving advantage over a cash-bounty system. We have also raised the question and