Speech

·. 354 (AN .ADDRESS BY W• "P • G. HARDING BEFORE THE CONVENTION X-lB97 OF THE AMERICAN COTTON ASSOCIATION AT . MONTGOMERY, .ALA., A"ORIL 14, 1920) THE MARKETING OF_QBQp.§ The crying ne~d of the hour eve~~~ere is more production. This a~lies with equal foroe to the product$ of the fartn, the forest, the mine and the factory. The factors which ·regulate 1!)roduetion on the farm are essentially different from those Which gover.n in other fields of activity~ The mine eoeratoi' the lumberman, and the manufacturer can in ordinary circ'Umst.ances 1 make good a dimitlished ou.tput covering certain periods by an aCceleration of anergy- at other times, but the fa.tmer tmist oj;>erate unde:t natural laws and his work in its variou.s stages mu.st be done at the -p~r season. Other 'Producers can. generally speaking, regulate their operationa and adjust the volume of their according to conditions which from time to ~tput de~elop time. "'ith an increasing demand the vol'Wll6 can oe augmented and it can be curtailed when the trend of .. the ma.rltet pointe to an oversupply• '):) Certain elements which ente1' into production, such as the s'troply of labor and the financial abilit~ to pay labor, apply to all classes of pro- ducers, but as the farmer's activities are seasonal he is unable to gauge as accurately and from as close a vie1'fi;'Oint as other producers can the con- ditions which will affect the market; for his product. Certain cte>po must be planted at certain seasons or not at all, and as the growing erO"Ds are cl.n tivated and 'brought to rm.turity, advantage must be taken of changing climatic conditions, otherwise the capital and energy eX"Oendedi.r.t>lanting \ 1 is lost .. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 355 -2- X-1?97 As the crons mature they must be harvested within the time limit :pres- cribed by nature or else :oermitted to e,o to tl\laste, When the crops are har vested farmers ""re confronted with sarious :?roblems which call for the exercise of ~~nergies totally diff3r.-~nt from thos3 which are brou2:ht into :?lay during the periods of planting, cultivation and harvesting. In the three stages :preliminar·y to marketing the farmer's probl·'3ms are largely physicDl in their character and the judegnent '!.rhich he must us/3 r'3lates to nhysical. conditions. In marketing. however, while he still has physical difficulties to ov~rcome ~n the matter of storage and trans"'?ortati on, th'3 successfUl farmer Il1!lSt develop the qualities of a m,erchant under conditions far more :?'3!'!)lexing th<m those which confront the av3rc..ge merch:!\Ilt, His 0'1\lll nroduct is but a small part of thf3 large volume of similar products grown by other farmers, all of ,.,.hic:h are ready for market at th-3 S3llle time. In the c~tsa of small crops and where transportation facilities aN available, the pr9blem is solved by making shi:P- wents to other sections '111here the season is later. but my rerr.arks this morning ';vill relate more particularly to the larger crops and esnecially to the ar3at stapl~ in which this bOdy·is int~rested. Tht3 cotton belt of the United States extends from the southern counti•::JS of Virginia throuQ'h the South Atlant~c and Gulf St2,t3s, T0nnessee. Arl:-snsas, and Oklahorn"'-, · thrOU?:h the st9.tes on the Mexican Border to the Imp3risl V.sllGy of California. Th2 cotton :oroduced in th3se states each year is ?"O''Vll not by a f:;1111 cornorations under centralized control with al'ITI)le ca'!>ital and 1111ith every facility for learning wh~t m11.rket conditions are and with the financial ability to toll:e th·3 best advanta2:~ of these conditions, but by sev~ral millions of individuals. Th.~ ..American crop has no lonh"''3r ~ monopoly·, it must compete with cotton ~own in other countries, more particularly Egypt and India.. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -3- X-1897 The av<;rage cotton farrr.er in this country has but a limited kno,vledge of market conditionsj his resources are small and his necessities usually gr3at. Those to whom he sells are comparatively few in number; they have the advantage of large financial resources and of f3llliliarity with all conditions affecting the market, not only in this cOWltry but throughtut. the world. The farmer has all the odds against him at every stage, and yet his existence and the continuation of his activities are essential, not only for the comfort but for the.life of every other class. It is therefore a matter of vital necessity that the efforts of the farmer be suuported and stimulated, that he be assured of preserving the full measure of his harvest, and that he be afforded a market for his uroduct on terms sufficiently remunerative to warrant his staying in th~ business of farming. Loss of a pot~tial crop because of drouth or storm is unavoidable; loss by insect damage partly so; but loss of any TlOrtion of a crop actually uro- duced and harvested can be avoided and §hould be avoided; its loss r~resents a reduction of the resources of the and in the th individu~ q shrinkag~ '~e31 of th~ world. In the present circumstances 'Vhen the world is suffering from the effects of rr.ore than four yeQrs of the most costly and wasteful war it has ev'9r ~xperienced, it is doubly inmortant that no 'Tlroduct of the fs.rm be wasted for lack of care. The great crop in which you are interestP.d furnishes the basic raw mat~rial for an industry which nroduces an irrroortant part of the worlU.' s clothing. It is also an irrl1?ortant element in th~ su"Dply of fovdstuffs an:i fats. The con- sumption of cotton and cotton se~d products is a 'Tlrocess which is ~oing on every day in the year, the manufacture of cotton seed products is continuous for a p~riod of seven or eight months while the manufacture ._,f cotton goods never ceas~s. The whir of the spindle ·.mu. the click of the l.oom are he::trd around the world, and there is not ·"'- minute in the course of the yePJ: when the machinery Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 357 -4~ X-1897 of the cotton mills, from a world-wide viewpoint, is still. The production of cotton involves about six months of the year, and as a rule a period of eight months is the extreme limit between the planting of the seed in the ground and the final picking~ In view of these facts, how many months of the year should be devoted to th~ marketing of cotton? Shall there be a mad rush, as was the crtse in bygone years, on the part of the cotton farmer to dispose of his entire crop by Chri~tmas, or shall the marketing of cotton, like its manufacture and consumption, extend throughout the entire year! If no facilities are provided for the physical care of cotton, for its nrotection frorr weather damage, from its loss by theft or fire, if the financial necessities of the producer are ur~ent and if there qr~ none to extend him a helping hand thAn, indeed, must h~ sell as his father did in 7 , the old days as soon as his cotton is ginned and baled at whatever price his customer in a narrow market is pleased to offer him. There are some steps which are essential for the salvation of the cotton farmer- Adequ.ate warehousing capacity must be 1:)rOVided at locations convenient to the farmer~,a syst~m of gooQ roads must be developed 8nd local transporta tion facilities provided to enable the farmer to convey his cotton to competi tive ~oints. It is important, too, that congestion at the local centers be avoided by means of adequate railroad transportation facilities. 11i1hatever may have be?n the sins of the railroads in other days they hgve been chastened and today mos.t of them are in need of larger net operating revenues. They are great arteries which are essential for the 1ife of the nation and they should be "'ermitted to live, to extend their activities and to afford the necessary Ocean transportation is another imoortant factor in the cotton facilities~ business, and th~ present is the first season since that of 1913 that anything like a normal amount 'of shi'Ol;)ing has be available. ~n Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 358 -5- X-1897 The cotton growing industry has experienced many vicissitudes du::-i.ng the past quarter of a century. Some of you may remember the days of fo\~ and -a half cent cotton in the mid.d.le nineties. Those were days when the shado,,rn of the ,~olf and the sheriff menaced many Of our farrnersj those were the days when stern necessity dominated the situation, when the crop movement was virtually over by Christmas. As the years progressed the pall of depression was gradually lifted, :md al thcro.gh for a long time cotton growing yielded no profit, yet by dint of hard work and close economy and by the application of the principles of crop diversification the farmers gradually became more independent and the crop ma:rlreting sea~on began to lengthen in a ~Or:r'e~;pr':ndtng degree. The years 1911, 1912 and 1913 were fairly good ones for the cotton farmer, and in 1914, as the season advanced and indications of an abundant yield, which was actually realized, became more in evidence, there was a particularly hopeful and confident feeling throughout the cotton belt until August, when without warning the European war broke out and ;,>aralyzed the commerce of the world. All of you. remember the fall of 1914. The season had been propitious, the largest crOJ) in history had be.~n produced - more than sixteen million bales - and yet for months because of the closing of the markets and the stGppage of'ocean transportation cotton could not be sold at any price. Quotations of five cents a poWld, which had been real quotations eij;h.teen or twenty years before, were merely nominal, and a cry of distress went up throughout the entire length and breadth of the cotton belt. There was a great demand for loans on cotton, but the need for a market was even greater. During these months the entire business of the country was affected, the Federal Reserve System had not begun to function,exchanges were closed,money was scarce and credit hard to obtain on any terms. Gradually;, however, the situation Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -6- X-1897 359 began to improve. A cotton l-oan ftmd of one hundred million dollars was provided during the autumn, and the S~~the1~ ~eople. should not forget that subscriptions to this fund were made by banks in other sections, many of which were in localities whose immediate interest seemed to lie in cheap cotton. It was realized then that cotton is not merely a sectional crop but that it is a great national asset. WhiJe the ftmd was not used to any appre'ciable extent) its establishment had a good mora:). effect for it estab lished a loan value for cotton, and as the ocean vesMls which ha.,. be<>.n tied UJ? for fear of destruction by enemy cruisers began once more to leave their havens of refuge and as the financial situation bec~ne easier the spinners began to buy and the crisis was passed~ Since th~ fall of 1915 there has been a steady and almost continuous adv:mce in the price of cotton; middling uplands, "Vhich sold at about eight cents a pound on July l, 1915, bring now, I believe, about forty-two cents. During this period, how,ver, there has be:m more holding of cotton on the farms and in the small towns than was ever known before.. This holding ha.r.o b0en d~ in larger part to the necessities of the case, to th~ inability of certain countries owing to the war to ~urchase their accustomeu ~~Flies, and to uriorities in the use of ocean shi~ping for the transnortation of food stuffs, war materials and troOps. We have had, therefore~ during the past two years a. continuous cotton season. The more gradual marl::eting of cotton has be "'n made -possible because of improved banKing facilities, but more -par ticularly because of the stronger fi~ancial position of the Froducers themselves. Yet the :price of a commodity is a relative tl'lrm. TIIITO htmdred dollars a bale for middling cotton would have se"med six years ago a fabulous price; today, when 'liTe consider the price of cotton good,s, the cost of labor, both on the farm and in th~ cities, the price of grains, meats, clothing> shoes, a~ricultural iinol~mentsj of mules and horses, and the enormous taxes which are imposed in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 360 -7- X-1897 consequence of the wart it is evident ·that r~latively the urice of cotton is not so high. There has been an advance in the market value of the lands unon ~ich the cotton is produced and a great advance in the price of ~ fertilizers, and it is clear that the cost of ~reduction has mounted in nre~ortion to the increased p~ice of the stanle. I have not titne this morning for a diSouasion of the causes and general effects of credit expansion, but I do wish to s~v that whil~ in terms of · com:rr.od.ities the purchasing power of the dollar is far less than it was in pre-war days, there has been no decline in its debt-paying ·power. While one cannot buy ,~lith the two hundred dollars which he receives for a bale of cotton today as much food and clothing or as much gasoline as could have been ~xchanged for one hundred dollars a few years ago, you can still ~ay off two hundred dollars of indebtedness with the proce~ds. There has never bP.en a time within the memory of the ~resent generation so favorable for the ~ayment of debts as the -:!)resen~, and I would strongly· advise those of you who have money in the bank or a sur;_:>lus of salable crO'?& and have at the same time some indebtedness which is not pressing not to yield to the temptation ~o 'buy something which you do not need but on the other hand to avail yourselt~lves of th~ extremely favorable conditions which nO\If exist and liqu.ide,te or reduce your old inde'btedness. A year ago we ,qere still in the midst of a period of hesitation and uncertainty which followed the armi~tice. Ade~te ocean trans~ortation was not available.for transports were being us·<>d in· bringing back the two million soldiers who had ber:m sent to France. It was thought that the • . great cotton using countries of Euro~e were financially exhausted and it was realized that if the normal amount of cotton was to be sent abroadi not only was the transportation problem to be solved put the still greater problem Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 361. X-1897 of credit facilitiesy the total value of our experts during t~e year 1919 exceeded inroorts by mare than fcut' b5.1lion dcllars. Of this amo1.1nt about a billion and three-quarters was taken care of out of advances made by th13 United States Treasury as authorized by war time legislation. The remainder has be .,n financed in various ways. It is probable in many casas that payment has be~n accepted by exoorters in the form of European bank credits,for not until quite recently has there been any movement of gold from Europe to America since 1916, and the imports thus far have been comparatively small in amount and totally inadequate for the financing of Europe•s lar~?e adverse trade balance~ Our own banking statistics would indicate that very sul)stantial credits have be~n giv~n by banks in this country to manufacturers and exoorters who have; s<ent goods to Europe. . From August 1, 1919 to April 2,1920, total e~orts of cotton from the Uriited States amounted to 5,134,822 bales, of which 2,672,3i2 bales went· to Great Britain, 489,400 to France, and 2,023,100 to other countries. This eoTpares with total exports for the entire season 1918...:.19 of 3, 514,269 and for the entire season 1917-18 of 3,356,142 bales. The cotton ~roducor is vitally interested in the continuation of ex~orts, at least in the ~resent volume. There is no question as to the .ne~d for cotton, but 'vhether or not this c onsu.m<>r- ~; will develop into an economic demand depends u:oon th-s ability of;- ne~d an th'3 other side to pay in cash,or failing that,to credits. It is secur~ difficult to secure accurate informatiqn as to conditions in Euro~e; re<;orts are conflicting. · The complications which within th'3 last davs arisen hav~ t~w are between France ahd Germany/ iisturbing factors as is the situation in Russia. Nevertheless when everything is considered, it se3m~ likely that the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 362 -9- X-1897 economic position of Europe as a whole is better than it was a year ago. Great Britain anpears to be making rapid headway towards regaining its old time position in world commerce and finance, and the marked advance in sterling which has taken "Place in the last sixty days is both an 'in- d,.ication that this .is true and an assurance .that' the·progress made will be sustained. Goods can be exported to Great Bri.hain more readily with sterling at a discount of 16% than when the rate of discOW'it was 33%.. The nroductive capacity of France and Belgium has increased during the past twelve months although the depreciation in the exchanges of both these COl.Ultries restricts their ability to im:9ort and emphasizes the necessity for .credit arrangements. Germany and Austria,. formerly imported a 18-!ge amount of cotton, and mills in both countries as well as in Czecho-Slovakiat 7 I which was formerly a part of the Austrian Empire and Poland also lack 1 order m/ only the raw mater.ials to resume o-oerations. The cu.rrenci% of these countries, however, are so greatly depreciated as to make iniports en usual terms impossible.· For some tim'!'} past .Americ;m business men have bee>n conside'ring means of sending .·raw materi:U s to Central Euronean countries for conversion into finished nroducts and have endeavored to work out a -olan whereby credit cculd be furnished in connection w-ith these ero·o:rts with reasonable 'safety and fair business nrofi t. All re-oorts frcm abroad agre ~ as to the necessity that· the variOlls countries of Eu:rone be su,.,plied with raw materials in order thl'\t the wheels of industry may once more be set in motion. It is highly essential that the United Ste.tes be able to continue to sell her raw rr:aterials and it is ~erative that EurCJ'"9e be able tt secure these rE£" rrat'3rials, for without them industries can not be established and a complete ecQOomic collanse avoided. It is imoort~t to the entire world that not Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 363 -10- X--1597 only the countries of the Entente but those of centr·al Europe be placed in a position to produce. It is needless to ex-oect recovery from tho economic disarrangement from which the world suffers today as long as J..OO, 000,000 people in central Europe remain in enforced idleness. I am informed that conferences have recently be.::n held for i;t1e :r.·u.:::--::J•)Ge of developing a plal'l whereby raw materials can be sent to c mmtrles whose currencies are most serio-.;_sly de-preciated for co:,we:.:sion into fin:1.shed manufactured products under contracts for exportation under a plan whereby title to the raw materiaJ.. s exported remains in the American shippers through. . out the "'rocess of manufact"rre into finished prod1.,.cts; when these prod<Jcts are sold the proce -:;ds are applied to the payment of am(:Ot.l.<!.ts d:..1.e for the raw materials, the arrangement t.o be sul)norted by :oro-.feT gJ:Lara.ntees given by the manufacturers receiving the raw mated.als, by the ex:oc:d;eJ:s &'1d imnortel'S selling the finished "'rod.ucts, and by foreign banks of good s-;-;a:nc".ing. I am told that for various reasons it se~ms desirable to atrply thj.s plan in the first instance to the manufacture of cotton goods a;.1d that it is proposed to organize a financing and trading cornoration with broad :po\vers m1de:l~ state or Federal laws to finfu~ce the :oroposition. The necessity for providing means of ex:oorting raw mat~rials to Euro~e has b::;"'n given much consideration during the past year by goverrtrnent authorities in Washington and by the Congress of the United States. An im"'ortant rn-erasure known as the 11Edge Act" has becorte a law. This a&.t -orovides f-or the Federal incorporation of association~ engaged -principally l.n international or foreign banking or other international or fo?eign fina;.1cial operations and permits National b~s as well as individuals, firms and other corporations, to invest in the c~ital stocl~ of sllch associations; the total investments of this character Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 364 X-1897 by National banks, however, being limited to 10% of their capital and surplus, The act provides further that the Federal Reserve Board shall issue regulations governing th9 organization and operations of co~orations organized under its provisions, and these rules have recently be3n formulated and made public. A copy of the regulations will be handed the Secretary of this convention. Many of the obstacles which have stood in the way of the cotton farmer have been ov-~rcome. I shall not undertal::e to predict the future course of prices, and in fact at the ri~ of meeting your disanproval I will say that I am not so much interested in the actual price of cotton as I am in the develonment of a steady and dependable market, for I believe that if such a marlret can. be established li ttl~ concern need be felt as to prices4 A good market is essential for the stimulation of production, and it is i~ortant also that the nrices of cotton and other farm products bear a ~roper relation- ship to the IJrices of commodities in general. The census figures which are now being publi.shed from day to day show a marked increase in the urban population and indicate a movem0nt from the farms to the towns and cities. This is not altogether a healthy condition- There should be no halt in the development of farms, but in order to assure this ,r ural life must be made more attractive. The comforts and advantages of city life must be extended as far as possible to the country and attention must l:>e paid to the betterment of . : living conditions on the farm. The rural communities must enjoy the of easy communication, of sanitation, b~nefits and cf education; schools must be open for far longer perioda of time ke~t than is now unfortunately the case in many localities and in order to secure competent teachers, living salaries must be Absentee landlordism has ~aid. b-e"ln the curse of many communi ti'3s and tenant farmers sbould be .e:o..couraged Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -12- X-1897 and a$siste.d to become l.and owners. Labor must be attracted to the farm, not necessaril7 by du~lieating the wages paid in the cities b~ by means of agreeable living conditions and the inducement of a net return after living costs are met. co~arable to that of the city wage earner. This program will involve higher production costs than hAve be?ll v.su.al but these c~ be count~racted to some extent at least by more scientific methods of !~min~ and by che~ening certain essentials, such as nitrates and eornmerciel fertilizers. Fewer dogs and more shMp on the farm would cheapen the cost of living and add to the income of the fartrers. There are many ~a,ys of stinlllating production on the farms but increased })reduction can not be maintained if haphazard methods of harvesting and marketing are "'ermitted to obtai~ Farm products are essential for fe~ding and clothing the world; these should be marketed in an orderly manner and not dumped in such volume · as to bring about price reactions which will be detrimental to producer th~ and rhe consumer a:l.ik.~;. But they should no-t be hoarded and held from the marl:et in the ho:9e of for~ing prices u:p to an artificial level. Such a pol icy is bound to result in disaster to those engaged in promoting it. The volume of our gre£,t etaple crops is so large and the value so enormous that all efforts to corner them will result in failure by the ooeration of economic law. Convsrsely, it is to the interest of the eon~er that farming be nrofit~ble in order that production may be adequate;in effecting this an O'l:len market in whtch the law of SU'T)"Dly and demand is given fre ~ pla;y and in which the buyer ~d the seller me;t on equal terms is the great desideratum,and tu. its attainment your best efforts may well be directed- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

W. P. G. Harding (1920, April 13). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19200414_harding

@misc{wtfs_speech_19200414_harding,
  author = {W. P. G. Harding},
  title = {Speech},
  year = {1920},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19200414_harding},
  note = {Retrieved via When the Fed Speaks corpus}
}