anniversary of our political independence. Within less than one-tenth of the time that has elapsed since the names of the signers of the Declaration of Independence went upon that famous document, in less than one-tenth of that time, unless something is done to correct the effect of these Federal policies to which I have referred, you will find that our food independence will be a thing of the past; and I submit to you that if we can stave that off for 10 years, for 20 years, until perhaps we shall have a peace in the world that is less experimental than the peace which we have now, if we can stave that off so that the United States will not be the first of the great food exporting countries to plunge into a position of food dependence, if we can stave that off for a quarter century or even for 10 years, perhaps then we can sacrifice our food independence with a little more safety. I thank the committee.

Senator HEFLIN. Do you think if we do not do something to make the farmers more prosperous we will produce that result?

Mr. STEWART. I think there is no question about that. It can be illustrated in respect to wheat, in respect to the acreage of wheat, which has been cut down because of the high cost, by nearly $20,000,000 in this country since the peak of 1920.

Senator HARRELD. Would you encourage production of surpluses? Senator SMITH. Just one minute. What was the question that Senator Harreld asked?

Senator HARRELD. I asked him if he would encourage the production of surpluses.

Mr. STEWART. The answer to that question is this, that surpluses of agricultural products are just as economically natural in a country like the United States as are surpluses of manufactured products natural to the United Kingdom.

In other words, we have here the elements of climate, soil, and other resources such that we do not need to think of our agricultural surplus as something which is unnatural.

Senator SMITH. That raises the question of what is a surplus. Is a surplus merely that above which we consume? Is it merely that which we produce above that which we consume, or is a surplus that which we produce above the world's consumption?

Mr. STEWART. I am glad you asked that question as to how the word "surplus" should be defined. I have used it constantly, I think, in the sense of exportable surplus; that is to say, the amount in excess of the consumption in the United States. However, the word "surplus" is used in three other senses. In the first place, it is used to cover the annual carry-over. That is sometimes called a surplus. Again it is used to cover that surplus which seems to exist as a seasonal factor. Naturally that is highest just after harvest. Senator HARRELD. Because of the glutting of the market?

Mr. STEWART. Yes. Then there is a fourth sense in which the word "surplus" is used, and that is the sense which, I think, for lack of a better term, is called the world production cost surplus. That is to say, there is more wheat being borne from the North and South Temperate Zones into the European markets than can be sold in those markets under the present circumstances without submerging a large proportion of the producers of that wheat, subjecting them to prices below their cost of production. That is a world proposition instead of a national proposition, and that kind of a surplus we have had since

the war. We expect that condition to fade out. According to the leading authority on this subject, who is Dr. Max Sering, of the University of Berlin, the main reason for that is found in the falling off of the consumptive capacity of Germany and of other countries of Europe. It does not stop with Germany by any means, but the capacity of Germany and all other countries of Europe to consume imports purchased at full prices has been greatly reduced as the result of the war. It is becoming stronger, to be sure, but that has been one of the main reasons for the depression.

Senator HARRELD. And the industrial structure in Europe is in worse condition than it was before the war?

Mr. STEWART. That is naturally to be expected. To be sure our own import duties are making it difficult for industrial reconstruction to proceed in Europe as rapidly as might otherwise be the case, because we do not become the customers of those persons who should have their purchasing power for our agricultural products strengthened. I offer that not as an argument against an import duty. I offer it as a suggestion that in addition to our import duties we should have some corrective premium established upon our exports.

Senator SMITH. May I ask you this question? We very often, in my opinion, get this term surplus from a production standpoint confused with the question of a surplus from a consuming manufacturer's standpoint. Our agricultural production here is subject to the exigencies of periodic changes of world consumption, and the manufacturing world is subject to no such exigencies. The spindles go on regardless of any such exigencies, and the consuming world consumes on. They have no periodic changes such as are characteristic of agricultural production. So that a good crop one year as the result of the seasonal exigencies may be followed by a small crop the next year, but the manufacturing world goes on continually. Now the problem that we are attempting to meet is, how can we take the socalled surplus of the productive year and so distribute it over a uniform and continuous consuming element so that we will not have these sharp and disastrous breaks in the market?

Mr. STEWART. Senator, it seems to me that you have struck upon another kind of surplus, perhaps, and I am not saying that it is not of corresponding importance.

Senator SMITH. It is one of the important elements in connection with the handling of the crop that I represent. Now, to illustrate what I am talking about, we have nearly every year a carry-over of cotton. The average carry over has been about 3,000,000 bales. That is the carry over from one production year into the following production year. Now it is natural to suppose that the question would be asked if that be true that the excess of production over consumption is an average of 3,000,000 bales a year-now get that point-if that were true, at the end of 30 years you ought to have 90,000,000 bales of accumulated surplus, and yet you pick up the bulletin of the department, and it would appear that you would not find a year in which there did not appear to be from two and a half to as high as 6,000,000 bales to carry over into the next production year to add to that production, and we have been taking those figures for 30 years, and to-day perhaps we have a less surplus, so-called, a less carry over than we ever had.

Now what became of that? It shows that the consumption capacity of the world, moving along, took the excess from one year and consumed it in another, so that there was not any overproduction. So that it is a misnomer to call it a surplus. It is a necessary carry-over to take care of the exigencies of natural production. And yet this year, with a production of 16,000,000 bales and with the world consuming 14,500,000 bales, that excess, so-called, has absolutely ruined, destroyed the price of cotton on the market, whereas if we had a system by which the world would know that that surplus would be carried by the producers and distributed as the consuming world needed it in place of your sharp angle in destruction of producers you would have a gradual decline under the law of supply and demand, and then a gradual raise that would not be a periodical annual depression. It would mean rather a gradual decline and gradual raise, and a stable market.

We have not got any surplus of wheat. Where is all the big crop we have made? We have not any surplus of meat. We have not any surplus of cotton or of wool. They have all been consumed. Now the question is, how are we going to adjust the natural exigencies of production to the present consumption that goes on unabated and increasingly.

Mr. STEWART. Now, Senator, it seems to me that that is a problem of the first order.

Senator HARRELD. Orderly marketing.

Mr. STEWART. It is a problem which, in my opinion, can be very properly handled in an experimental way, building up, to find out what is possible in that case, under the auspices of some sort of a Federal board which would be set up for that purpose. However, the point that I am wishing to emphasize is this: It is possible to expect too much of the Government in the handling of annual surpluses. I refer to a bulletin published by

Senator SMITH. Now, wait a minute. I do not want you to get the impression from what I have said that I am asking the Government to step in and control the purchase or sale of these surpluses. What I am attempting to show is that on account of the peculiar unchangeable nature of the methods of producing our raw material we have got to accommodate some financial system to meet that. We have 30-day, 60-day, and 90-day paper that is predicated upon the rapid turnover of our manufacturing production, and our whole financial system has been built on the idea of the rapid exchange in the marketing of manufactured goods, whereas the farmers and producers need 12 months to 24 months, yet we have no system of credit directly available by issue in which the terms accommodate them to the period between production and sale, which sometimes covers as much as 36 months. You see, if we have that kind of credit in our commercial banks we have what are called frozen assets and we have frozen agriculture, therefore it destroys the liquidity of the commercial bank to become entangled with agricultural paper and livestock producing paper, which has 30 days to 6 months to run, and until you provide the agricultural producer with a banking system that will accommodate itself to him, with a rate of interest that he can live under, you are never going to solve this problem. You can not mix the two things, as it is attempted to do now.

Mr. STEWART. The information to which I was going to refer is that contained in the bulletin of the United States Department of Agriculture entitled "What Makes the Price of Oats?" There you will find that a statistical study was made covering a period of time from 1895 to 1914 in the case of oats. A mathematical method was discovered in the study by which the following results could be obtained. They could compute what would have been the maximum value of the oat crop if it had been most wisely held. That is, if the surplus of the fat years had been trimmed off at just the right point, held up for consumption during a subsequent lean year, if that had been done in the wisest possible fashion, the result would have been the addition of an average of 9 cents a bushel to the price of the oats carried over. Now, the length of time that the oats would have had to be carried over averaged, according to my estimate, in excess of two years. The question naturally arises whether you should carry a bushel of oats two years for 9 cents. People in the grain trade have indicated that you would have difficulty in carrying oats one year for 9 cents. So there is one of the problems which

we encounter.

Senator SMITH. That is necessarily an arbitrary proposition. You take coffee, for instance, they have a stabilized price. Every purchaser of coffee knows he is going to get his coffee at a definite price, and that his competitor will have to pay the same. The question then will be how many consumers will he get-not how can he manipulate the market to get an advantage in price, but how many consumers can he get, and you stabilize the price of farm products and you will be doing the same thing here. Take as an illustration, cotton. The spinners of the world in 1910 and again in 1923 were running on half time because of the fluctuations that were so violent in the market, by virtue of the uncertainty of the supply and what might be available the following year. Those fluctuations are what retard consumption. The problem is stabilization of your prices so that every purchaser will know that he will buy to-day and to-morrow on the same general level, as long as that supply is in existence, that his competitor does. But cotton broke yesterday $1 a bale. It may go up to-morrow $1.50 a bale, and every manufacturer has got to buy as close as possible, for fear his competitor will buy the raw material so much cheaper than he bought it that he stands to lose on every contract that he makes. The problem with us is how are we going to stabilize the price and supply during the time that it takes to consume it. That is what you are confronted with.

Mr. STEWART. Senator, it seems to me that that problem is not to be considered as of anything like subordinate importance. The only thing that I am trying to emphasize is that under a policy of export premiums it will be possible, as experience has demonstrated in other countries, by a relatively simple device to raise the average. You will still have your fluctuations to contend with. If you can find, through a Government mechanism or through any other kind of mechanism, a way to work out that stability, it seems to me that that would be highly desirable.

The CHAIRMAN. Now, Doctor, take cotton, with the food products, wheat and beef. All of these can be stored. The question raised by the Senator was if we had some device, perhaps with governmental assistance, by which these products that are not consumed could be

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stored over a sufficient length of time so that they could be orderly marketed-in other words, of all of these products, as a matter of fact, one year with another, there is no surplus. Take the average as it runs along, and the world consumes all that is produced. The difficulty is it is produced a whole lot one year and not much the next year. Now, would the problem be met on these fluctuations in grains, like wheat, if they could be stored by some legal method that would take the ownership or the control of the product out of the hands of the speculators, and then who would determine just how much and at just what price at any given time that should be taken out of storage and put on the market. The McKinley bill that you are talking for does not attempt to meet that problem, does it? Mr. STEWART. The McKinley bill attempts to meet another problem.

The CHAIRMAN. Yes; I so understand.

Senator HARRELD. To encourage exportation.

Mr. STEWART. To encourage exportation and to bring about a higher price level in this country. The problem to which your attention has been called is that of the fluctuation, which would be found under either system, the existing system or the new system suggested.

With respect to that matter of fluctuation, it seems to me that we should have this in mind, that we are likely to have even wider fluctuations in the future, as we approach that net import basis. We are likely to have, as the English did, wider fluctuations from year to year as time proceeds, until we reach a permanent import basis. Up until now it has not been convincing that a Government agency which has carrying charges to contend with, the same as private speculators have to contend with, would be able to handle the surpluses with any greatly improved results. On the other hand, it would seem to me to be a fitting time in the history of our export trade for experiments of that sort to be set into motion, and for the Federal Government to take some action, selecting the crop, perhaps wheat, which would be best suited to that end, apply a basis of financing that, and work the problem out there so as to reduce the element of fluctuation. It would seem to me that it would not be illogical for the same board to administer this kind of a debenture plan for the sake of raising the general average prices and to administer also a series of experiments in connection with Government storage of annual surpluses.

The CHAIRMAN. Now, Doctor, let us confine ourselves, merely for the purposes of illustration, to wheat. If we could take care of the surplus from one year to another, and to that extent stabilize the price of wheat, we would be benefitting not only the farmers who produce the wheat, but the consumer who ate the bread. I think everybody would concede that. That means everybody. So that we will be doing something for the benefit of all the people. Now those who are so bitterly opposed to the Government doing anything would have to admit, I think, that this could not be done if wheat were owned by private people, and without charging anything immoral or wrong about it, if it were owned by private people we could not prevent them from speculating. They are speculating in food. Everybody knows that. That must be avoided, I think. Now what other in.strument could be brought in? Under private ownership of the