answered it as to whether negotiability of these exemption certificates would interfere with natural operations. We have pointed out that their negotiability is legally possible, and that it would have the economic effect of not driving established exporters out of busi

ness.

At this point I want to make a further statement in elucidation of that matter. Suppose, Mr. Chairman, that the cooperative marketing organizations in this country would become doubtful; suppose that they would think that through a Gulf price agreement or a Pacific price agreement between exporters of agricultural products the farmers were not getting the benefit of the operation of this plan. There would be two types of recourse. One type of recourse would be action on the part of the Federal Trade Commission to ascertain why competition is not having its natural effect under those circumstances.

The CHAIRMAN. Is that set out in the bill?

Mr. STEWART. That is not set out in the bill.

The CHAIRMAN. You think that would follow as a matter of law? Mr. STEWART. We take that to be within the organic law of the Federal Trade Commission. That point perhaps should be more carefully examined.

The second recourse, and perhaps the more important recourse, is that which the cooperative marketing organizations themselves would have of going into this business of exporting. The Indiana Wheat Producers Association operates in southern Illinois. Suppose that our southern Illinois farmers should become dissatisfied. They would say to the secretary, who is in Indianapolis, "Why, don't you make a direct contract to sell our wheat to a receiver in Hamburg or Paris or some other place in Europe, and then the association can take these debentures and do one of two things, either use them in the payment of import duties on something which might be imported from Europe to handle through the supply department of the organization, or sell the debentures to Marshall Field & Co. or to SearsRoebuck & Co. or some other company which has import duties to pay upon shipments of chemicals, oils, and paints, earthenware, glassware, or anything else that it might bring in." While there is little exportation of soft wheat such as the Indiana wheat pool handles, the illustration is, I believe, sufficiently clear.

Senator HEFLIN. What price would they pay for those certificates? Mr. STEWART. These certificates would carry a face value. Senator HEFLIN. Cash value?

Mr. STEWART. And that face value in the case of wheat, under the rate here proposed, would be 42 cents a bushel. If 200,000 bushels were loaded upon a vessel that would be $84,000 as the face value of the debenture.

Senator HEFLIN. What inducement would it be to Marshall Field & Co. to buy them if they had to pay the same amount of money on imports?

The CHAIRMAN. They would not pay face value.

Mr. STEWART. They would want to discount them somewhat. They would want to have enough to cover the bother in handling them.

The CHAIRMAN. In other words, they would not buy them unless they could make money on the transaction.

Senator HEFLIN. They would want a little advantage.

The CHAIRMAN. Yes. They would always be at a little discount, because it is like buying a dollar, almost.

Mr. STEWART. It might even happen that Marshall Field would receive such debentures from cooperative marketing organizations at par.

The CHAIRMAN. They might as an advertising proposition.

Mr. STEWART. For the sake of the advertising; yes.

The CHAIRMAN. The discount would be very small, because these debentures, say one of them, would be for $42,000. Now that is worth $42,000 in one place. When you come to pay an import duty it is worth the face of it. Of course, if you could get it at a discount, whatever the discount would be you get your tariff duty deducted that much, and make just that much money, and since it is worth its face value when it comes to paying tariff duties the discount, of course, would be very, very small.

Mr. STEWART. I wish to say at that point that while there would be a probability of a slight discount to take care of the handling charge, to take care also of interest, because these are noninterest bearing, for an average of one or two months that might have to elapse before these debentures could be used, nevertheless it would be a comparatively insignificant item. Certainly here you have a par value different from the old scrip which might have had any kind of value. Nevertheless we will concede that there would be a discount, which ordinarily would not be expected to exceed 2 per cent or 3 per cent of the amount issued. Now, to be sure if too many of these were issued then you would run into another kind of discount. If, for example, 1926 is going to repeat the experience of 1925 when $547,000,000 worth of duties were paid upon the imports of this country, and if we had these rates so high and had so wide a list of commodities included that debentures in excess of $547,000,000 were issued, then to be sure you run into another kind of discount.

The CHAIRMAN. Well, if you ever got to a position where there were in face value more debentures issued of this kind than there were tariff duties imposed, of course the discount would be heavy, but that is because they can only be used in one place, and that is to pay import duties.

Senator FERRIS. They would have to hold them.

The CHAIRMAN. They would have to hold them, yes.

Mr. STEWART. And the effect of that would be. the same as a horizontal reduction in the imports duties of this country.

Now we have aimed, in drawing this bill, specifically to avoid that. The fact is that it had not occurred to me to suggest the issuing of more than $100,000,000 or $200,000,000 of such debentures, and I had the first draft of this bill drawn up so that section 207 carried different language from that which it now carries. The suggestion is here offered that when three-fourths of the year has passed, that is to say, when April 1 of any fiscal year arrives, if the Secretary of the Treasury sees that more than 75 per cent as many debentures have been issued as there were import duties paid the year before, the department should call a halt and notify the Congress to that effect, insist that the following year the difference be taken care of, with the rates modified accordingly. However, as I originally proposed this, instead of having 75 per cent as the dead line at the end of three

quarters of the year, I had it 371⁄2 per cent, but when the Senator suggested that cotton and cotton waste should be put in at 5 cents per pound, I told him I would have to raise the ante from one-half as the maximum of the import revenues, to the full amount of the import revenues, and I am frank to say to you gentlemen that if I were in your place I would not consider attempting to use all of the import revenues in any such plan, but it might be considered possible

The CHAIRMAN. Of course we would, in that respect, run into, I should think, a very severe opposition in the Senate and in the House, because of the liability of cutting down the revenue of the Government.

Mr. STEWART. It is possible to handle this on the basis of such rates that the aggregate volume of debentures would be $50,000,000 or $100,000,000, so that the benefits would be very substantial.

The CHAIRMAN. If you limited it, then we would have to stop operations when we got to the limit.

Mr. STEWART. No. The proper place to put the limitation, I believe, Senator, is not with respect to the total volume to be issued but with respect to the rates themselves.

The CHAIRMAN. Oh, yes.

Mr. STEWART. Under this plan it is not necessary to use as high rates as you have in the import tariff system. Instead of 42 cents on wheat, if you desire you can make the rate 10 cents on wheat, or you can make it 22 cents on wheat or 30 cents on wheat.

The CHAIRMAN. But you would have to have an act of Congress to do it.

Mr. STEWART. No more than this act does, because you are not having to reduce the import tariff rate.

The CHAIRMAN. No; I understand that; but if we get into that kind of a predicament, to get relief out of it we would have to have action by Congress to change that rate in the tariff rate or the debenture rate.

Mr. STEWART. What I mean by changing it is that you, in reporting it out, would specify such figures as would seem to you to be consistent with

The CHAIRMAN. If we did that, taking wheat for illustration again, and cut it below the tariff rate, we would not be able to raise the price of wheat in this country to the producer to the tariff wall.

Mr. STEWART. No.

The CHAIRMAN. We would only raise it to the rate we put in the bill. We could not raise it any higher.

Mr. STEWART. Exactly.

The CHAIRMAN. So that if we did that we would not be giving, for instance, the farmer the full benefit even then of the tariff, would we?

Mr. STEWART. You would be giving him the benefit of an export action which ought to be considered, I think you will concede, as a matter of its own. The point I wish to make here is this: Here is a case in which we have an import duty set out of consideration of cértain grades of wheat.

The CHAIRMAN. Yes.

Mr. STEWART. Those grades of wheat are the very hard varieties of wheat, the varieties of wheat on which we are on an import basis,

as a rule, in this country. So we raised the tariff in 1924 from 30 cents to 42 cents, and yet the vast bulk of the wheat that goes into export is not the wheat from North Dakota, South Dakota, Minnesota, and Montana. It is the wheat, rather, from Oklahoma and from Nebraska and Kansas that is mainly going into export.

Senator HEFLIN. And from Texas, I suppose?

Mr. STEWART. And from Texas.

If you had set your import tariff rates out of consideration not of the wheat of Kansas, Nebraska, Oklahoma and Texas, which goes through the Gulf ports into export channels-if you had set your import rates in consideration of export. wheat, instead of the very hard variety of wheat from the northern spring-wheat belt, you would not have required 42 cents.. It would not have been necessary to revise the tariff upward to the extent to which it was revised. My point is this. It seems to me that this committee could well afford to consider that when you did a certain job of work, or when the other committees of the Congress did a certain job of work with reference to import duties that was one thing. When it comes to this matter of export premiums it should be another thing. Suppose you were to have a duty on cotton. You would want to set that duty out of consideration of premium staple cotton of the very highest order. Under those circumstances you would set a very high import tariff, which would amount practically to an embargo upon the poorer grades. That is the way the tariff legislation has been made. So it would seem a fair conclusion that you might need a different schedule of rates for export action from that which you would have in the case of import action. I think I can give you an illustration that will clinch it.

Take the case of lard substitutes. You put that import tariff duty high in order practically to embargo lard substitutes, we will say, but would you want to put your export premium high on lard substitutes in order to raise the price of lard substitutes within the United States? In other words, you have here to think in terms of sort of an obverse or converse tariff, and it requires not merely the automatic adoption of the import tariff duties but the selection of duties which will serve your purpose in this connection as clearly as the import duties in the tariff act of 1922 serve the purposes which were set at that time.

Senator HEFLIN. Suppose you export a bushel of wheat and the foreign market price is $1.25 and your export bounty is 25 cents. What would be the price of that wheat when it reached the foreign

market?

Mr. STEWART. The export bounty is to be how much?

Senator HEFLIN. 25 cents a bushel, and the price abroad is $1.25. Mr. STEWART. If the price abroad is $1.25 of course the price in the interior market of the United States

The CHAIRMAN. No, Doctor. He is not asking you that. It is not contended by those who are advocating this bill that it would change the world price. That is not contended. He is asking you about the world price and not the domestic price.

Mr. STEWART. I see your point. The point I thought he had in mind had to do with the cost, insurance, and freight in between the world market and the interior points in this country.

Let us take a

taken care of out of the pockets of the consumers. plan of that sort, and suppose that we start the action at 42 cents a bushel. I will point out that 42 cents is the only point at which, without changing the wheat duty, you can start that action under plans which provide for charging the losses on the foreign sales back to the consumer. In the case of wheat we will round our numbers and say that we have 600,000,000 bushels produced in the United States and consumed in the United States; that in addition to that we have 150,000,000 bushels that is produced in the United States and sold abroad. Under the type of plan under which the losses would not in any sense fall upon the United States Treasury but would fall upon the consumers of the country, the consumer would find his price advanced 42 cents a bushel above that which would prevail if the world market quotations were entirely uninterfered with. Now, 42 cents a bushel times 600,000,000 bushels is $252,000,000. That is the amount which the consumers would have to pay if you started your action at 42 cents gross basis. Now, on your 150,000,000 bushels there would be a loss of about $63,000,000. if I compute it correctly. That is to say, if your price were placed 42 cents higher within this country and your exportable surplus were to sell at that amount abroad, he would lose $63,000,000. Charging that back to your 600,000,000 bushels gives you an average of 10 cents a bushel that would have to come out of the pocket of some one. So the plan might take from the consumer's pocket to put into the producer's right-hand pocket 42 cents, and take out of the producer's left-hand pocket 10 cents, or whatever would cover the losses on that foreign sale, assuming that it was apportioned throughout the entire 750,000,000 bushels, or thereabouts. Under those circumstances it is clear, I think, that your consumers are being soaked, if I may use such dignified language, a second-floor price in order that your farmer may be able to come out with a first-floor price advantage of 32 cents net as the result of the operation of the plan.

Now, I want to raise this question with you. When you raise the price of wheat 42 cents a bushel, for example, letting that strike through the entire consuming public of the United States, are you not in effect imposing a kind of tax-and I am using that word "tax" with quotation marks are you not imposing a kind of tax which falls most heavily upon the poor man. We use a term in economics for that, and that term is "regressive." Whenever you impose a tax which falls heaviest, because it falls upon the necessaries of living, upon the budget of the poor man, and falls most lightly upon the pocketbook of the wealthy individual, we call that regressive, and when we are in a frank mood we call it something worse than that. We think that it is not generally in the public interest to cast the burden of Government action upon the pocketbook of the poor man or upon the masses, to use another type of language. We think that that is not good policy.

The CHAIRMAN. Now, Doctor, this regressive business makes me think that not long ago the Congress passed a tax bill which had a retroactive feature in it by which it paid $35,000,000 back to a number of wealthy who were already dead. Would you call that a regressive tax? We relieved the dead millionaires of $35,000,000 which they had already paid.