Regional President Speech

J-'UmH /W*rvj I aa glad to be the guest of your association glad guest and to be able to acoept your invitation to address accept this meeting. But you realize that a New York banker realize probably knows precious little about farming* His precious opportunity to learn of farming conditions is much opportunity restricted restricted, and most of the information which comes to him in regard to the farmer's problems is second-hand. second-hand So you will not expect me to discuss intimately and intimately familiarly the difficult problems of farm economy. familiarly On the other hand, I suppose the average farmer likewise average fanner knows quite as little about the many perplexing problems perplexing of the New York banker, which largely have to do with the financing of the vast trade and industry of our trade industry country; and in these difficult days the even more perplexing task of financing the country's foreign trade. foreign New York does, however, produce a breed of breed farmer with which you are little familiar. Many of them are to be found in and about Wall Street. We call Wall Street them agriculturists. - The difference between a farmer agriculturist and an agriculturist is this: - A farmer works hard works hard on his farm all the year in order to make enough money country to enable him to go to the city and have a good time; good time an agriculturist works hard in the city all the year works hard city in order to make enough money to run a farm where he can go and have a good time. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis —2~ no experience Having had no experience with either kind of farming, I must content myself with a few observations observations which have some bearing, I believe, upon the problems with which you are now very much perplexed and by which ^ perplexed ~ I __A- many farmers are very much distressed. Jt'l hVtfl distressed A few years ago when poor health'TMUUtSuiUllBll “ abandoning work for a period, I made a trip through the Far East. During some months of travel in Japan, China, Japan etc Malaya, Burma, India, and the Dutch Indies, a large part of my time was spent in farming districts. One thing farm districts that struck me most, I think, was the great similarity similarity in much that we saw. Consider Java, which is probably Consider Java the richest of all of the Eastern fariaing countries, bath richest in fertility of soil and in the natural advantages of an equable climate with abundant rainfall* There for climate rainfall hundreds of miles one sees the Javanese farmer, his wife hundreds miles and his children working in the paddy fields where rice paddy is grown by irrigation* What one describes as a field irrigation is really a series of patches of land, frequently but a patches fraction of the size of this room, often running up the slope of a volcano, each patch carefully banked by hand to volcano retain the water which is supplied by irrigation; - it banked is little more than a basin of mud. When one sees a basin of mud plough, it is being drawn with leisurely dignity by a water buffalo huge water buffalo- The work in fact is done almost entirely by bare-footed Javanese, both nen and women, who bare-foot Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -3- ankleB in mud work over their ankles in oud and water with simple hand iatpletwnts. As you know, their principal cereal hand tools crop is rice, which starts its growth in a seed bed and crop rice is transplanted from there - every plant - by hand into transplanted the paddy. That operation alone, where for hours on end operation the farmer and his wife and children stand with bentback bent back in a pool of wid, poking these little sprouts into the poking ground, is a species of toil that would try the soul of toil hardiest the hardiest American farmer. harvest When the harvest cosies, these people go into the knives fields with small knives and cut simply the tops of the stalks by hand, bind them up in little sheaves and carrj^ sheaves them horas on their heads. Their clothing consists of one or two light cotton garments. The man frequently 1- 2 garments works dressed only in a loin cloth, and the woman dressed loin cloth in a short skirt, or earong, and loose jacket. The homes sarong where they raise and support large families of children, houses consist of one or at the most two room huts. The walls are built of loosely woven mats made of strips of bamboo mats thatched or palm fibre, and the roofs are thatched with palm leaves or rice straw. The doors and windows are simply openings aoors without glass or shutters. There is no furniture, no furniture frequently no stove, and no oooking utensils to speak of. The family equipment usually consists of but little more pot than an earthenware or copper pot in whioh the food is boiled. The cooking is frequently done out in the road cooking Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis in front of the house, where the fanily gathers around road the fire, and the meal, consisting of rice nixed with meal sons vegetables ;uid possibly some chicken and eggs, is prepared in a sort of dbew or pilaf. Not infrequently pilaf I have seen the family meal served by the simple method of each member pulling a broad leaf from a banana palm, banana leaf scooping out his share of the meal from the pot and eating it with his fingers, sitting on the ground. During the planting and harvest season when the village is working• planting harvest in the fields, the asal is quite possibly furnished from one or more travelling restaurants, and is cooked alongside travelling restaurant of the road, where one sees a good part of the farming community gathered in groups, eating this simple meal such as I have described,. About a hundred years ago, this Island of Jai 100 years was an almost impenetrable jungle. Under one of the jungle early Governors - Daendels - a rather brutal system of Daendals enforced native labor brought about the clearing of the roads jungle and the building of a great system of roads. At that time I believe the Island had a native population in the neighborhood of four millions. To-day, the Island 4 million has a population of 36 millions, and practically all are engaged in agriculture, principally the raising of rice, rice, tea sugar, tea and coffes. Now the conditions are not unlike coffee, sugar this in other parts of the East. India with its population Rot unlike India of 3E0 millions is engaged largely in just such agriculture. 320 million Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -5- Indian peasant The life of the Indian peasant fanner so far as I could observe was not unlike that of the Javanese peasant farmer, with possibly a slightly higher standard of living* standard living I have not been in Russia, but from what I have read, one conceives that conditions there are not unlike those in India, China and Java. Practically the whole of the agricultural East is irrigated. With the most painstaking East irrigated toil the peasant faraer in India irrigates his little fara painstaking toil with water dram from a deep well in a bucket or the skin draw water of a buffalo, drawn by a windlass operated by a bullock. Although 25 5/4 million acre as of land in the hill country 25 3/4 million are irrigated by the Indian Govemmant irrigation works, vast plains the vast plains of India are cultivated by small peasant farmers, and the success of his crop depends largely upon the seasonal rainfall, called the monsoon, and upon this monsoon primitive method of irrigation. primitive This I hope will give soma picture of those less give picture fortunate farmsrs in other lands with whom the Amei'ican leee fortunate faraer does and must coape^g^. When I say compete, I u compete the word in the broadest term because the work of the broadept term area limited farmer is principally to feed the world. The area of \ distribution of what he produces is limited by a great variety of factors. His frontiers may expand and contract frontiers according to relative costs of production and transportation, but broadly spdafclng, any nation with a surplus of fara surplus production is in competition with every other nation with a Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -6- surplus of farm production* While the surplus rice of Bursa assists in feeding the hundreds of millions in Burma India, the surplus wheat from India and Southern Russia India competes in Mediterranean ports with American wheat. / Mediterranean Later on I shall refer to the importance of the refer later competitive markets; but now let us compare what I have competition described with our own situation. I have been deeply puzzled puzzled to explain the meaning of some of the figures figures published by our Government in regard to our farming industry. Acoording to the Year Book of the Department Yeer Book of Agriculture, I find that the value of all of our farm crops, excluding animal products, in the last two years before the war was "as follows: 1915 - $6,155 millions 1914 - $6,112 millions If roughly the same values were produced in 1911 and 1912, the total value of the crops of the four 1911 - 1912 years immediately preceding the war was about 25 billions. 25 billion From the saas source, and again excluding animals, I find that the value of all the crops of the country for the four years 1917 to 1920, inclusive, was in round figures 1917 - 1920 $55 billions; that is to say, in the four years subsequent &55 billions to our entering the war the total value of all the crops in the United States was 50 billions in excess of the 50 billions value of all of the crops in the four years immediately prior to the outbreak of the war. What became of this What became great treasure? Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis We can roughly assume that this enlarged value could principally have been disposed of in three ways: 1. For payment of debts. 2. For increased oost of production and for improvements. 3. In a better standard of living for the farnrs. Now as to payment of debts. I find further in the bulletins of the Department of Agriculture that the bank loans total of bank loans to farmers as of December 30, 1920, was estimated at over $5,900 millions, and the total of $3,800 mortgage loans exceeded $8,500 millions, and that notwith­ mortgage $8,500 standing the enormous enhancement in the value of the crops enormous enhancement of the four preceding years, these figures represent the largest amount largest amount of credit ever employed by the American farmer, and in fact the census shows that between 1910 and 1920, doubled the debts of American farmers were about doubled. 1910 - 1920 As to increased production cost. Our investigations would indicate that only a part of this could have been absorbed in increased cost of labor, fertilizer, and other operating supplies. I shall not attempt to enlarge upon what is not capable of more exact estimate, beyond saying that the experience of each farmer can be relied upon to indicate what his farm and his labor is capable of producing at any given price level. And finally as to the farmer’s standard of living. standard of living I cannot help but believe from theee figures and from what cannot help I have personally observed that for provident farmers it provident farmer has generally and greatly improved throughout the years. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -8- Without burdening you with a further statistical Without discussion of this matter, which 1 confess puzzles me a statistical good deal, may it not be safe to as suns that this great &8BUBH9 value produced from the American farms is, in fact, expressive expressive in large degree of the possibilities of improved possibilities standards of living in this country. We note - as Mr. Julius H. Barnes has recently explained - that while in Julius Barnes the first 20 years of this century the population of the 20 years United States has increased 40 per cent., the number of 40 per cent. persons engaged in agriculture has increased only 4 per cent., 4 per cent. whereas the farm production during this period increased from 55 per cent, in the case of corn, to as high as 68 per cent, com 55 per cent, hogs 68 per cent. in the case of hogs. In other words, in this country, where we get possibly the smallest production per acre planted, smallest per acre planted and the largest production per capita of farm population, largest, per capita farm population we are in fact developing agriculture under conditions which developing egric. do promote the highest standards of living that are possible] promote for farmers in any part of the world. And this standard of living must be the produot of a higher efficiency applied to must be product efficiency our abundant natural resources. Some of these questions I think are often approached questions approached without an appreciation of the fundaasntal facts as to what makes prosperity, wealth and happiness. For instance, prosperity, wealth happiness consider only that such a thing as famine is unknown in this famine country to-day, nor has it been since our Republic was founded. Yet there was a time when famine was not only not not uncommon uncommon but was almost the normal condition in North America normal Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -9- 200 - 500 years every winter. Only two or three hundred years ago, our ago oountry possessed natural resources vastly in excess of natural resources what we now have, because since it has become settled we have drawn heavily upon the stores of our fertile soil, drawn heavily our coal, iron, oil, timber, another things that we have taken out of the ground; and yet but two or three centuries ago, the few hundred thousand Indians living in this country few hundred thousand Indians in the midst of this vast abundance, often suffered and died died from lack of food* It is not, therefore, simply the natural resources of a country that make wealth and economic contentment and a high standard of wellbeing* Nor can it be population alone in conjunction with population elone natural resources which makes wealth, for we have seen in the densely populated regions of the East the farmer extract­ densely populated ing by exhausting and back-breaking toil only a miserable exhausting back-breaking and precarious living from lands as rich in natural resources natural resources as our own. What makes wealth is the application of the energies What make6 wealth and ingenuity of a people of higher intelligence to the development development and use of these natural resources, to their exploitation by methods devised by inventive genius and exploitation inventive through the conversion of the things produced into the means increasing prod­ of again increasing production* That alone is what raises uction the standard of living, and no country is capable of attain­ raises standard no country ing a high standard of living no matter what its population or its natural resources unless its people are willing to work and save work and to save. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -10- apprehend Now I apprehend that it is precisely this whioh precisely has provided for the American farmer the advantages of advantages education, and the enjoyment of association with his fellowbeings to a degree unattainable in any other degree agricultural country in the world. Be assured that the Be assured Javanese farmer, like the Chinese or the Hindu, has no Javanese automobile; his house garden usually consists of a few banana and cocoanut palms; his clothing a couple of simple banana and coooanut couple garments linen garments; he wears no shoes; he has no Victrola, no shoes no radio equipment, no movies; his opportunities for auto, radio Victrola, phone education are small. movieB,education But in this oountry, and I fear in like degree in setback the East, agriculture has had a temporary setback. It i ‘ ~ can scarcely be, it oust not be allowed to be, permanent. scarcely be must not The8e things that the American farmer enjoys, including things enjoys possibly more important than any other, the opportunity to educate his children, are the things to which he is entitled education entitled and in the enjoyment of which he oust be assured so far as assured so far the laws of nature under which we live in this country are capable of assuring them to him. There are momentary difficulties. I would like momentary V-6 ^ Or difficulties to speak of one of the greatest difficulties with which the speak farmer has been confronted, by quoting a few very simple quoting figures: In the Survey of Current Business issued by the Department of Comae roe for November, you will find on page 111, a tabulation of cereal exports which includes barley, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis corn, oats, rye and wheat* Flour and neal are converted into equivalent bushels of the grains* The monthly average exports of these grains for the year 1913 was 20 3/4 Billion bushels* Froa 1913 to 1921 the aonthly average varied froa 14 aillions in 1914 - the low figure - to 46 millions in 1921 - the high figure - and I imagine the record high figure* In the last three years, the figure has been 1920 - 35 million bushels 1921 - 46 million bushels and so far for the year 1922 - 43 Billion bushels* The months of August and September of this year were 60 and 61 aillion bushels respectively, and those figures have only twice been exceeded in the last three years, being 90 Billion bushels in August 1921 and 68 aillion bushels in September 1921* Now compare these monthly average figures of quantities of exports of the five cereals naasd, with the figures of values of exports of grain and grain products for the sante periods as reported by the Department of Commerce* I believe they closely relate to the quantities I have quoted* 1913 1920 1921 1922 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -12- obvious It is obvious that while exports have been pretty well maintained in quantity, the varying return quantity upon these farm exports has been caused by the price* price Now let me refer to another figure. On page six of the another figure same publication, you will find that throughout the years 1916 to 1921, down in fact to February of 1922, the chart of prices shows a very close correspondence in the index numbers of the prices of "all commodities" and of "wholesale food prices". In February of 1922, for the first time, however, a considerable divergence began to appear; the prices of "all commodities" advancing some 15 points in the index number above "wholesale food prices". In other words, prices of articles the farmer had to buy advanced out of proportion to prices of articles he had to sell. But this is a situation which never has, and I believe q/^ inherently cannot long continue. We now have in this country a tremendous urban and industrial population - \ 4 twice that now of the farm population. It seems to O ' inconceivable that this vast army of urban and factory workers can be prosperous and the farmer not share this prosperity in the fullest degree. Now to sum up, it seems clear that: FIRST - We seem able to compete with farmers in other countries where standards of living are far below our own. SECOND - The quantities of our food exports are not declining. Last year, one of great depression, they were, I believe, the highest on record. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis THIRD - The enormous increase in the crop values of recent years has been unprecedented and could scarcely long continue, & FOURTH - That increase did not result in a / y N * reduction of the total of the farm debt. ^ FIFTH - That the farmer needs stable prioes and a proper relation of prices between what he consumes and what he produces. The fanner The farmer like every other member of our industrial organization is, in an economic sense, two individuals. As two individuals a consumer he is interested in having prices low; as a consumer producer producer he is interested in having prices high. During tha planting season when the farmer is employing labor to planting plough and plant his fields, when he is buying fertilizer, repairing his fences and his buildings, than he is, in currant phrase, a deflationist; that is, he would like to current phrase deflationist see prioee low. In the fall whan his crop is harvested prices low and moving to the elevator or the concentration point, he harvest is an inflationist; ha would lika to see prices high. inflationist prices high Now obviously any system which attempted to insure that the System farmer or any other man in his capaoity as a consumer should get the advantage of low prices, while at the sane time in his capacity as^producer getting the advantage of high prices, futile would be futile and fantastic. No such system is possible. fantastic I think you will agree with me without the slightest farmer needs reservation that what the farmer needs as well as every capitalist other business man, whether he be a capitalist or a common laborer Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -14- large st attainable laborer, is the largest attainable measure of stable prices. When I say this I mean not only that, in general, prices stable prices shall not be subject to violent fluctuation but that the violent fluctuation price8 of different things so far as is possible in this imperfect world, run in their normal and natural relation relation with each other. If the farmer knows with reasonable reasonable certainty certainty what his cost for the season is to be in labor and labor etc fertilizer, in supplies, in the gasoline for his tractor or car, in the wire for his fenoes, in the cattle that he may buy to fatten, and he can be reasonably assured also that reasonably there will be no violent fall in the price of the crop that violent fall he produces, whether it be cattle, hogs, corn, wheat or cotton, he can then bring into play the two elements which bring into play two elements are essential to success in business, whether farming or manufacturing or what not. He can work with the incentive incentive of a reasonably certain rewardj-that is, margin of profit and he can apply his intelligence to the determination of intelligence what kind of a crop to grow with due- regard to the advantages kind crop due regard or limitations of the soil, the climate, of accessibility to market, and all of the other factors which should influence his judgment on this important point. It is a reasonable assurance as to stability of prices in both of his capacities as a consumer and producer which he requires in order to be assured of just reward for his toil and for the ingenuity with which he plane his work. great problem Now this great problem of prices must be approached approached fairly fairly if we are to discuss it with any profit, with a clear understanding that there are many elements which enter into many elements the making of the prices of things. Obviously, one of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -15- quantity most important is the quantity of a crop in relation to the demand. Hardly less in importance is the state of demand mind of the public generally, whether it is in the mood state of mind to buy, so to speak, or whether in a mood to sell; or as the economists describe it, whether it is a seller's market, or a buyer's market; and changing cost of production, seller’s buyer’s changing cost changing rates of transportation cost, and a great number of transportati on other factors must be taken into account in arriving at a judgment as to what it is that influences prices to move what influences either upward or downward. You will, however, agree with me that one of the important elements, although far from being the only controlling element, is credit, which can be expressed in various ways, but let us call it the purchasing power of money. By the purchasing power of money I include of course the relation between the quantity of money and the quantity of goods, which influences the purchasing power. By money I mean not only metal coins and paper currency which pass from hand to hand, but principally bank deposits upon which checks may be drawn; in other words, bank credit. If, therefore, stable prioes are desirable and if the quantity of credit exerts any influence upon prioes, as I believe it does, what should be the objective^ of a banking policy? It seems to me that it should be about as follows: On the one hand, it should insure that there is sufficient money and credit available to conduct the business of the nation and to finanoe not only the seasonal increases in demand but the annual or normal inorease in volume which throughout long periods is fairly constant. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -16- On the other hand, there should be no such excessive or artificial supplies of money and credit as will simply permit the marking up of prices when there is no increase in business or production to warrant an increase in the volume of money and credit. On this point I think I should state to you without reservation the views that I personally hold in regard to this important matter,and while I cannot speak for any member of the Federal Reserve System except the New York Reserve Bank, I may say that I have never heard views expressed that differ greatly from those which I now desire to express as my own. I believe that it should be the policy of the Federal Reserve System, by the employment of the various means at its command, to maintain the volume of credit and currency in this country at such a level so that, to the extent that the volume has any influence upon prices, it can not possibly become the means for either promoting speculative advances in prices, or of a depression of priceb. You oust not understand from what I say that I assume that the power of price fixing rests or should rest with any one* It does not. Price changes- result from a combination of many influences. So far as the influence of credit is a factor in prioes, I am frank to say that I think our policy should be to avoid any development which would promote or encourage simply price expansion or prioe contraction. We should aim to keep the credit volume equal to the country's needs, and not in excess of its needs, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -17- and then price readjustments, ae between the various classes of commodities, will take place with the least possible disturbance to agriculture or to any other industry. It seems to me that sons such polioy will permit of that readjustment of the values of the various classes of commodities to which we must look in order that the farmer may again enjoy that proper balance,between the cost of what he consumes and the prioe he realizes for what he produces* When that happy tine comes, and I believe confidently that it is coming, and when that margin of profit presents the opportunity of doing so, I sincerely need to trust that the American farmer, as a class, will feel less anxiety as to borrowing money, and better able to direct his efforts toward repaying what he owes.________ Now as to credit and the influences whioh directly bear upon its administration by the Federal Reserve System. One especial reason at this time why the relationship of credit and prices mst be particularly considered or is extremely important, is that one of the most important influences that normally restrains undue fluctuation of prices is not now in operation. Before the war when the oredit machinery of the world was working normally, if the price level of any country got out of line with world prices, in other words, if for one or another reason prices advanced to a point where that country became a good selling market, the balance of trade turned against it; its exohange became depressed, and if the development went far enough, that country would have heavy payments to make abroad and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -18- would likely lose gold. This loss of gold impaired bank reserves. The banks of the country then were naturally forced to raise their discount rates to protect their remaining reserves. The advance in the discount rate usually brought about two developments; it attracted funds to that market and it induced people who were carrying goods, possibly for speculation, or people who had swollen inventories, to sell them. This reduced the prices of goods, enabled the country to resuae exports in competition with the rest of the world, checked excessive imports, arrested the outflow of gold, and frequently caused gold to flow in. Under the conditions of to-day, caused entirely by the war, dollars are at a premium the world around. We could indulge in a riot of speculation in this country which would put prices to very high levels, and with a few exceptions, hardly any nation in the world would be in position to withdraw large amounts of our gold. And even then our gold holdings are so great that we could still lost a large amount without suffering serious impairment of reserves. With this situation as it is, and having regard to the interests of the whole country, there is every possible inducement for the Federal Reserve System to adopt and to execute, so far as it may, a policy of stabilization in every direction; to avoid encouragement to unhealthy speculation, on the one hand, and to encourage the return of stable values, on the other hand. There may indeed be little that we can do beyond what I have described and that is to keep the credit volume at a reasonably steady level, but sufficient to meet the seasonal needs of business, and its normal annual growth. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis / -19- A Now more specifically, as to farm credit specifically farm credit would like to refer in a very general way to various \ c projecte which are designed to assist the farming communniittyy N ^various projects in the production and orderly marketing of the crops. A ** production marketing great variety of measures have been proposed to the Congress, variety propos&Is and I have no doubt that they have been carefully examined by your organization and that you are fully familiar with all familiar 3 or 4 points of their details. There are three or four points in connection with these proposals that I would like to discuss candidly with you quite candidly and I shall ask you to give them special consideration*. First FIRST - In my opinion, any new legislation should be designed to very greatly enlarge the membership of the enlarged membership banks of the country in the Federal Reserve System. Let me say earnestly that I believe this to be a first essential first essential to the administration of credit in the interest of agriculture. The Reserve System is the conserving reservoir of credit. conserving reservoir That credit oust be applied throughout the various sections water or fertilizer of the country exactly as water or fertilizer, ie applied to the soil. No farmsr can expect to make a crop if his land pile in corner is fertilized by piling a heap of fertilizer on one comer of his field. It mist have a fairly even distribution, even distribution and so too with water. Now look at the conditions as to look at conditions membership in the System which exist to-day. In the great area known as the Mississippi Basin, with the exception of the States of Iowa, Illinois, Indiana, Alabama, Oklahoma and Texas, and extending east, south of the Mason-Dixon line to the Atlantic Seaboard, there is no State where more than Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -20- 25 per cent, of the banks are members of the Reserve System. Missouri and Mississippi have only 10 per cent, and the percentages vary as follows: North and South Dakota 22 per cent. • n Minnesota 24 • K N Wisconsin 19 Nebraska 17 II H N Kansas 20 II N Missouri 10 n Arkansas 24 it It !(o Louisiana 19 •t It N Mississippi 10 It n Tennessee 20 It Kentucky 24 n It North Carolina 16 it It South Carolina 22 if It Georgia 25 it It Florida 25 n n The exoeptions that I mention have the percentages: Iowa 27 per cent. Illinois SO it it L Indiana 50 it it Alabama 55 it it Oklahoma 59 tt it Texas 49 it it West of this section there is only one State which has more than 50 per cent, of its banks members of the System, and that is Idaho which has 60 per cent. The percentage of membership in these western States varies from 50 per cent, in the case of California to 50 per cent, in the oase of Arizona. Broadly speaking, therefore, in about one-half of the agricultural sections of this country, less than 25 per cent, of the banks are members of the Federal Reserve System, and as to the other one-thalf, between 25 and 50 per cent, are members. Now in the East, there is a very Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -21- different situation. In ny own State, New York, 72 per cent, of the banks are members of the Reserve System, and from this percentage, it runs to 51 per cent in Connecticut 62 " " " Pennsylvania 70 n n n jjew jer8ey 42 " ■ » Delaware 71 n B n Massachusetts 61 « » " Rhode Island 55 h «« « Maine 56 " " " Vermont 69 ' " " New Hampshire If distributirg If you were distributing liquid fertilizer on liquid fertilizer your farm, you would not consider that you were doing a 5p to 90 per cent. very effective operation if from 50 to 90 per cent, of the outlets of your sprinkler were clogged. One of the particular influences of the Federal Reserve System is noticeable to us influence noticeable now in this way. Since last year the great bulk of the loans of the Federal reserve banks have been repaid by their members. Most of the banks of the large cities which were City banks at one time heavy borrowers have almost entirely paid off what they owe. But do you realize that not many months ago there were still 2300 banks - nearly 25 per cent, of our 2300 country banks members - which were borrowing from the Reserve banks, and these were almost entirely banks in the rural comnunities? It has been so right in New York State. You may not N. Y. State realize that New York is the fourth or fifth largest agricultural 4th or 5th producer of all the States. The banks in our large cities have repaid most of what they owed to the Federal reserve bank. city repaid Until within the last month or two almost all that we were Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -22- lending was to the country bankers and largely to those in the farming communities. Might not the situation have been very different situation different twice ae many indeed had there been twice as many oountry banks in direct contact with the Federal reserve banks and thereby enjoying the security and protection they afford, not only for c themselves, but for the farmers and business men they serve.' One of the difficulties of our banking system, difficulty and one which I apprehend there will be great difficulty in remedying, is that there is not a sufficiently direct contact insufficient contact between the different elements in the banking system, so elements that the capital supplies in the richer communities can be drawn upon for credit by the less developed comunities where credit is needed. Of course, a system of branch banking branch banking might accomplish this, but a system of branch banking extending over an area so wide as that of our country would be most difficult to manage and would hardly be adaptable to our conditions. No one wishes to see a comparatively small number of banks extending a network of branches throughout network the entire United States. In default of that possibility default is it not reasonable to take some steps to bring a larger larger membership number of the country banks into the Federal Reserve System, and in part to remedy the difficulty by that means? But one-third of the banks of the country are now members of the two-thirde System. If we had two-thirds of the banks in the System, I believe this distribution of#credit would be sufficiently effective effective to meet all reasonable needs. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -23- SECOND - Now as to another point which I believe carefully consider you should consider with care. It is frequently proposed that the Federal Reserve Act be amended so that agricultural paper of longer maturity than six months might be eligible longer maturity for rediscount at Reserve banks. I would ask you to be sure sure that this proposal if adopted would accomplish what is desired. accomplish Personally, I cannot see that any very great injury, in fact possibly no injury at all, would result to the Reserve probably no injury System from extending the maturity of eligible agricultural paper say from six months to nine months; but I believe this proposal overlooks some important influences which overlooks influences control this type of credit. I must ask you to review such personal experience ae you may have had in borrowing money personal experience so as to judge whether there is not considerable basis for the following statement: There are two reasons why the president or cashier two reaeonB of a country bank does not like to lend money for nine months or a year or longer to hie farmer customer or for even two or three years to a cattle breeder. One reason is that he is simply the agent or middleman for receiving deposits middleman from one class of customers and lending them to another class. Host of those deposits can be withdrawn by check or upon thirty days notice. No prudent banker likes to check 30 daye commit himself beyond a moderate amount for loans that run 6 moe. 3 years from six months to as long as three years, when his own obligations are payable upon, demand. It is not prudent demand deposits Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -24- banking. The other influence is a simple one, known other simple to every banker. Farming is an industry in which certain hazards are inherent which are possibly greater than applying hazards inherent to many other industries. The cashier of the bank wishes to have the farmer's note mature at sufficiently frequent mature intervals so that he may be in position to meet changing conditions. Now personally I do not believe that simply do not believe a provision which will give the member bank the right to discount paper at the Reserve bank which has a maturity of inducement more than six months will be a sufficient inducement to him to make the longer time bank loans that the farmers, possibly with every justification, believe that they are entitled to justified expecting receive. Practically all commercial banks have the right to make loans now for any length of time that good judgment no legal permits. The reasons why they do not do so are those that reasons stated I have stated. But even if the country banker were induced to make longer time loans simply because he gained greater protection in doing so in the event of heavy deposit protection not withdrawals because he is able to discount this paper at the induce• Reserve Bank, he would not want to discount long time paper anyway. Banks as a rule do not borrow money nor should borrow profit they be induced to borrow money from the Reserve bank simply for profit or to permanently enlarge their business. The increase busiaees inducement to borrow is to take care of the needs of their customers, and when they do borrow they prefer to borrow for customers' needs the shortest possible time. To discount a note running for i i i Digitized for FRASER I http://fraser.stlouisfed.org/ j Federal Reserve Bank of St. Louis -25- nino months or more commits the borrowing bank to a long commit borrowing time borrowing which it would prefer as a rule not to make. And furthermore, you must bear in mind that this remedy, even if it were effective, would apply to only one-third of only l/5 anyway the banks of the country. My suggestion is that a certain proportion of these farm credits, especially those relating to the business of the stock men, should be furnished by attracting investment funds. You know that banks throughout investment funds the United States generally, and in the East particularly, banks buy securities are large investors in securities. They often prefer to hold securities of reasonably short maturity, and it is wise short maturity that they should- They are purchased by those banks which always have a surplus of funds over what their borrowing always surplus customers require. If by some method, the long time credit requirements of the fanner, and especially of the cattle man, can be met by some such method as thi6, it will in a measure read this avoid the difficulty which I have described as inherent in many country banks. THIRD - The third point is one with which every Third one of you is familiar. To the extent that it is possible, familiar it seems to me that the credit needs of the farmers should be met by the employment of existing agencies rather than existing agencies by creating new agencies which for many years would be too remote from the actual borrower to afford him the immediate close contact facilities and the close contact which present organizations can afford if properly organized. One of the principal character elements in credit is the character of the borrower. A mortgage loan of course requires time for negotiation and mortgage loans Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -26- the borrower is allowed a long time for repayment. He can time make an application and send it a considerable distance to some lending office, such as a Farm Loan Bank; it can then be investigated and after a lapse of time, after the farm is inspection inspected and the title examined, the loan may be made. title But when the farmer needs credit for his turnover, he cannot turnover credit wait In order to go through this elaborate operation. He should be able to go to the local institution where hie promptly character and credit and the general record of his farm is character, farm record known. In a word, the faraer, and especially the stock man, needs a type of credit which in maturity is interaediate intermediate between the loan which he now gets at his local bank and the bank credit long time mortgage loan which he obtains possibly through the farm loan system. For this type of credit I believe farm loan his interests will be better served by appealing to the investment market. I am wholly in sympathy with efforts investment market sympathy towards making this possible, but the point I wish to make is that existing agencies, - the commercial banks and the commercial banks farm loan system, - should be used so far as practicable farm loan system but facilities provided which will enable them to furnish services which heretofore have not been possible for then read to afford. FOURTH - And finally there comes the question of finally cost the cost of this credit. I am perfectly aware that in some sections of the country where the usury laws permit, familiar and possibly in some cases where the laws do not permit, the farmers are charged 3, 10 and 12 per cent, and sometimes Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -27- even store. My conception of a proper system of conception agricultural credit is that two elements are essential* One is that a sufficient and reasonable amount of credit sufficient and reasonable should be available when needed, and the other that the cost of the credit should not be excessive. • But, on the not excessive cost other hand, I do not think that it is always fair to charge not fair the country banks with too much responsibility for these country banks interest rates* Primarily they arise from the lack of lack credit adequate credit and a demand in excess of the supply. The demand best opinion I can express upon this subject is that any beet opinion means employed for developing agricultural credit facilities will go a long way gradually to eliminate some of these very read high interest rates, if the three points I have mentioned are adequately dealt with* Membership by more banks in the Federal Reserve System will help more than anything else to do it* But let as point out what would be the effect of point out drawing upon investment funds for these loans with intemsdiate effect drawing investment maturity* Every million dollars of such loans negotiated $1,000,000 in the form of debentures or other obligations running for a year or more which found lodgment with Eastern investors or banks which had surplus funds to invest, would place a fund of investment money at the disposal of the community where the relieve burden original loan was made, and would relieve the local banks of the burden of a million dollars of loans which they are now release carrying and would release that amount of credit for other employment* It would draw to the West and So&th the type West and South Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -28- of investment money which is needed for thiB intermediate agricultural financing; gradually this would effect a reduction of local rates* lower rates Now I have been discussing in a very general and diBcus8ing general informal way some of the things which it seems to as to be informal more important in dealing with this matter of farm credit* The question is how to reconcile all the various views, how reconcile to prevent foolish things being done and at the same time to foolish things transform the various discussions which you and others are transform having into some concrete action* Let no take the liberty of making a suggestion entirely upon my own responsibility. Joint Comm. You know that as a result of the Hearings of the Joint Commission of Agricultural Inquiry last sujmoer, certain legislation is proposed. I have been told that the officers of the War Finance Corporation are advocating certain measures. War Finance I believe that more than one Senator has introduced or is Senators proposing to introduce bills in the Senate to deal with this subject* The measures with which I am familiar bring machinery into play by one or another method, the machinery and resources of the Federal Reserve System and Farm Loan system. In one or two cases they provide for Federal appropriations. They Fed. appropriation have a direct bearing upon work and investigations of great importance being conducted by the Department of Agriculture* Dept.Agriculture, It seems to me, if I were a member of your organization, if a member that I would be inclined to take steps, possibly even going to President Harding with the proposal, to bring together the President Harding representatives ofv theBe various interests, including representatives representatives of your own organization and other similar Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -29- organizations, have all of these plans examined and discussed by competent men who are able to put forward each discuss his own point of view and that these men, all of whom in competent men my opinion are honestly seeking a wise solution of these wisdom matters, should in their wisdom be able to reconcile differences of view and produce a plan which will meet the need of the occasion and meet the views of people of sound judgment in the country. Once that plan is prepared then Bound judgment let's all get behind it, ask Congress to put it through and once prepared ask the President to approve it. After this most informal talk you may wish to ask after informal me with every justification in what way the Federal Reserve System proposes to assist in the solution of the problem what do of agricultural credit. I can express only my own opinion and that of my associates in New York. I think there are my own opinion two principal things that we can do. We can endeavor by our policies, as I have already described, to maintain $e stable credit conditions in this country as are possible, by employing such means as we command. Further than that we can, if means can be found to do so, enlarge the membership of the Federal Reserve System, as it should be, ta cover all parts of this country with the facilities of the System and bring about a more even and equable distribution of the A credit which we furnish. We can serve all of the banks of the country that are entitled to membership just as readily and efficiently as we can serve one-third of the banks of the country which are now members. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -50- In conclusion, I must^thank you for your thanke courteBy in inviting me to this meeting and for the patience Kith which you have listened to this talk. I can assure you that the members of this organization will always be welcome at our office in New York. Ve welcome will be glad to tell you all that we know about the tell about operation of the Federal Reserve Bank and of the System, and we will esteem it a privilege to make any contribution privilege that will promote a sound solution of the problems with which you are now dealing and the successful treatment contribution of which are essential to the welfare of the most responsible and important element in the economic life of this country. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Benjamin Strong (1922, December 12). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19221213_benjamin_strong

@misc{wtfs_regional_speeche_19221213_benjamin_strong,
  author = {Benjamin Strong},
  title = {Regional President Speech},
  year = {1922},
  month = {Dec},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19221213_benjamin_strong},
  note = {Retrieved via When the Fed Speaks corpus}
}