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exported products on ships and vehicles leaving our ports of exit may be necessary. This can be accomplished without setting up a duplicate set of officers at our customhouses or in Washington.

No new Government boards, bureau, or commission is needed under this plan. In distributing high and low grades of products as between domestic and export consumption this plan has an advantage over some other plans. An export corporation seeking to show the smallest possible loss per $1,000,000 worth of products sold in foreign markets would naturally give preference to grades of grain commanding the higher prices, providing foreign demand would absorb the higher grades of product. The tendency, therefore, would be to push out of the country the higher grades to an extent beyond that now existing. Substitution of ad valorem for specific duties on grain would be necessary to prevent this tendency from developing, but such a substitution would involve a revision of import tariffs as now levied. Under the debenture plan no attempt is made to levy ad valorem rates, with the result that not the highest grades but the lowest grades of products would be expelled into the foreign market. This has been a well-recognized result of the operation of specific premiums in other countries, and usually brings satisfaction to consumers within the countries where the premiums are applied.

Exporters naturally prefer to apply their capital in a given period so as to turn over the largest number of bushels of grain, rather than the largest value of grain. Thus the poorer grades move into export channels first. This is a natural market tendency in the case of unmilled product anyway and the debenture plan merely gives it additional stimulus.

This does not mean that debenture benefits would not reach the high qualities of product, but that they would be not only less in relative amount per hundred dollars worth but less also in cents per bushel. This is not undesirable in the light of certain facts, illustrated in the case of wheat.

The wheat tariff of 30 cents was increased to 40 cents out of consideration of certain very high grades which could be raised in the United States near the prairie Provinces of Canada, from which they were being imported into this country. For many of the lower grades of wheat no contention would have been offered as to need of a higher import duty. These grades move into foreign trade from the United States more than do the high grades.

In so far as the debenture plan throws its wheat benefits more largely upon the lower grades it is likely to reach the mass of wheat producers more satisfactorily than an export corporation might be expected to do with its impulse toward showing smallest possible relative losses.

The debenture plan does not make cooperation between producers compulsory, a practice which could not go long without a court test as to its constitutionality. The debenture plan, through stimulating exporting individuals, partnerships, corporations, and cooperative associations to bid the prices of debenturable products to a level above world prices consistent with the debenture rates, would raise the level of prices for the unexported portion of the national production of any debenturable product as well as for the exported portion. A small amount of debentures actually issued would serve to raise for the entire commercial production of the products concerned. A small decrease in the net revenues of the tariff and debenture systems would result in large upward reactions in the prices received by American farmers.

The debenture plan works within the existing tariff rates as guides to the setting of the maximum debenture rates. To lower the price differential under the debenture plan would not require a reduction in corresponding import tariff duties. A reduction in the price differential under an export corporation plan would require a reduction in corresponding import tariff duties. In case it were desirable to lower the price differential under the export corporation plan, it might become necessary to put the import duties so low as to leave exposed to importation certain high grades of the product. To avoid this possibility recourse to an embargo would be necessary in the case of the exported corporation plan. Under the debenture plan the import tariff wall can be utilized for its purposes and rates can stand accordingly, while price differentials can be placed at points which considerations for grades of products other than the highest grades may dictate. Unto import tariffs is rendered that which belongs to import tariffs, whereas unto debentures is rendered that which is appropriate to debentures.

Cooperative associations of producers would be attracted into the exporting business under the debenture plan if their members were not satisfied that the full price differential possible under the debenture plan was actually reaching the

farmers. This requires no provisions for cooperative marketing beyond those to which the administration has already given assent.

Finally, the inclusion of the debenture plan as a subordinate feature of the import tariff system gives it an aspect of conservatism consistent with the temper of many farmers. To provide a cash bounty, disregarding constitutional considerations, would open the way for its expansion not only beyond the revenue capacity of the import tariff system but of the entire Treasury. The use of half the proceeds of the import duties in export premiums should confer benefits within the seasoned expectation of farmers in most parts of the country. While this would not make possible the full amount of Federal income tax reduction earnestly desired by many students of the problem, it would not prevent a substantial reduction in these tax rates, if reasonable debenture rates are put into effect on a well-selected list of agricultural products.

EXPORT DEBENTURES CAN RAISE FARM PRICES

[Excerpts from an address by Charles L. Stewart, University of Illinois, February 5, 1926]

(Farm advisers and others present requested that the McKinley-Adkins bills be explained by Doctor Stewart. It was understood that as a citizen of Shelby County the speaker had been called upon by the senior Senator from Illinois to frame a bill providing for substantial price reinforcement for American farm products on a net-export basis. This plan, outlined in lectures in Illinois as early as May, 1924, was accordingly introduced January 7 and 11, 1926, as S. 2289 and H. R. 7392. Although the author of the bills is a member of the University of Illinois faculty, responsibility is individual and not institutional. The policy of the University of Illinois is well established in such matters.)

To lay out plans for a lock in a canal is a job sometimes given to a civil engineer when the desire is to keep a higher water level at one end of the lock than gravity would allow without the lock. Price engineers have used the same principle in locking back the downpull of world market prices.

The job has been simple in cases where a few dozen ports around the edge of a country could be used to shut out products of which the country was undersupplied. Many countries requiring net imports of American wheat and other products have imposed import duties and brought their wheat producers prices which were lifted above those which world-price quotations alone would explain. For the ports of exit of exporting countries to be used with equal effectiveness to raise prices throughout the interior of exporting countries requires a different kind of machinery. When an economist is asked to serve as a price engineer, however, he need not shy away from the invitation, even if his country has been one noted for agricultural exports throughout 150 years of its political independence. If, without some price engineering, his country may cease to be a land of agricultural exports before another 15 years or another dozen years have passed, he may feel that the engineering job given him is a part of a program of national safety.

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If the price engineer turns to economic history for guidance he will not be disappointed. He will find that export bounties occupy altogether as respectable a place in history, though not so large a place, as do import tariffs. will find export bounties paid in cash in England, Germany, France, Japan, Venezuela, Argentina, Chile. He will find export bounties paid in due-bill form in Germany by a simple method which converted drawback certificates into lively bounties for the farmers of the northeast Provinces. He will find that the United States has had the drawback certificates and only needs to operate them again, this time with power of bounty added by act of Congress.

In operation, the export debenture plan would be simple. Exporters would have a chance to pay above world prices for the products which would be sold by them at world prices. The reason for this is that they could either apply the debentures in the payment of import duties on any dutiable goods which they might bring into the country or could sell the debentures to those engaged in the importing business. One feature of the plan is the limitation of bounties to such figures that the debentures would not fall below par. Kept at par in this way, the exporters would always be able to figure two incomes from the debenturable goods exported by them. One income would be derived from the foreign purchaser, the other from the use or sale of the debentures.

This plan assumes that competition among exporters would force them to bid for debenturable products prices as much above the world prices as the debentures rates indicate. One thing is certain. If farmers or others felt that exporters were not paying the highest possible prices for goods bought for export, they could themselves make contracts with receivers in foreign points. Wheat pools or other cooperative marketing associations could be expected to overlook no opportunities to force established exporters to pay the full price possible under debenture reinforcement. Exporters would merely be placed upon probation, the presumption being that the forces of competition would make it unnecessary for many direct contracts with foreign receivers to be made by farmers' organizations.

The result would be that reinforced prices would be reflected back into all interior points in this country. These higher prices would apply not only to all quantities of debenturable goods exported, but to the balance retained for consumption in this country.

A reason for preferring export debentures to export bounties paid as cash from the Federal treasury lies in the strictness of the wording of the United States Constitution. The payment of cash bounties on sugar production was declared to be unconstitutional in 1897. Debentures could be turned into cash after issuance from the Treasury, and would reduce the "net produce" of "duties and imports," to use the language of the Constitution, but would not require appropriations by Congress. The precedents show that special funds have been created in various Federal departments from which money could be checked out without having to come from the Treasury. These seem like wide detours, but there is a danger sign in front of the cash window of the Treasury. It is better to let the Treasury receive the "net produce" of port administration than to try to get bounty funds out of it which need never to have gone into it.

Should export bounty or debenture rates be exact duplicates of import duties in the case of wheat, corn, or other products? First, let us note what some of these rates are as now found in the dutiable list of the tariff act of 9122, or in the case of wheat, as revised by presidential proclamation, March 7, 1924: Corn, per bushel of 56 pounds, 15 cents.

Oats, per bushel of 32 pounds, 15 cents.
Wheat, per bushel of 60 pounds, 42 cents.

Cattle, under 1,050 pounds each, per pound, 11⁄2 cents; over 1,050 pounds each, per pound, 2 cents.

Swine, per pound, one-half of 1 cent; fresh pork, per pound, three-fourths of 1 cent; bacon, hams, and shoulders and other pork prepared or preserved, per pound, 2 cents.

Rates like these are specified without variation for difference in value or cost of production of the various grades within the individual product. A wheat rate adjusted to the cost of production of our nearest approach to Canadian No. 1 Dark Northern may be higher than is needed for an export grade of wheat moving from Kansas through a Gulf port. An import rate designed to shut out some substitute not in good graces in this country may be much higher than the bounty or debenture rate which should be paid, if indeed any bounty or debenture rate should be applied on such a product when exported from this country.

To adopt the import tariff rates as the gross rates for price raising under plans to charge foreign-sale losses back against the whole production or as the net rates under export bounty and debenture plans should not be regarded as the thing to be done in the end. Bills are more easily drafted with such provisions in their initial form, but neither house of Congress should conclude its deliberations without developing a sense of difference as to rates which are fitting in the case of import action and rates which are fitting in the case of export action.

Export bounty and debenture plans have marked freedom in differentiating their rates from the rates now used for import duties. This freedom gives them special value when final action is sought for the Federal encouragement of our agriculture.

Fortunately, the debenture plan avoids the use of excises. Whether excises levied upon the entire production of corn would be declared unconstitutional because of the clause which reads, "No tax or duty shall be laid on articles exported from any State," is not easily predicted. Excises levied upon the entire production of wheat would have difficulty because of the fact that export operations could not bring price advantages to our soft Illinois wheat or the hard North Dakota wheat which is already on a domestic or an import basis. Excises on chemicals, oils, and paints for the benefit of export grades of wheat would be as appropriate as excises on nonport grades of wheat.

Except for the nonexport grades of products, the charges for foreign sale losses would have their final resting place upon the domestic purchasers. Even though collected directly from farmers, a rather unpolitic precedure in the opinion of many, the excises would in reality be shifted to the purchasers and in varying degrees on back to the ultimate consumers.

Compare the situation under the debenture plan and either an excise bounty plan or a plan for using an equalization fee. Start with 33 cents a bushel on wheat under the debenture plan. The price of wheat received by producers and paid by purchasers would be 33 cents higher per bushel. For producers to obtain this much net raise in the price of wheat under plans charging back the foreignsale losses would require 42 cents a bushel as the gross differential. Purchasers of wheat of the export grades would pay 42 cents a bushel in order that the farmers get a 33 cent net raise. It is clear that the debenture plan spares consumers and makes necessary either more marked reductions in Federal expenditures or less marked reductions in Federal income from import duties, from income and surtaxes and from taxes on inheritance. It is probable that English consumers would not have submitted to cash bounties so long if the national taxpayers had not been required to share the load.

[graphic]

Farm income and expense figures for State of Illinois, 1909-10 to 1924-25

[Prepared in behalf of the University of Illinois, College of Agriculture, and the Illinois Agricultural Association cooperating, by Robert Cooke Ross, University of Illinois, and placed before the Interstate Commerce Commission in its rate structure investigation, Docket 17000, January, 1926]

[All figures in millions of dollars-6 ciphers dropped]

416

79.3

144,3

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