Speech

BANKING AND AGRICULTURE IN MISSISSIPPI Address by Chester C« Davis President, Federal Reserve Bank of St. Louis Before the Mississippi Bankers Association Convention Buena Vista Hotel, Biloxi, Mississippi Tuesday morning, May 13, 1947 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis BANKING AND AGRICULTURE IN MISSISSIPPI Probably in no other state in the Union would my subject today - "Banking and Agriculture" - be more appropriate than for the state of Mississippi, The right use of the land is vital to the health and well-being of the people anywhere, but it has an especial significance in Mississippi right now, where radical changes are coming in the mechanics of producing and in the market for the state's leading crop. Another fact has impressed me, too. The soil in the rolling hill sections of Mississippi is extraordinarily responsive to the right conservation and re-building treatment, just as, on the other hand, it is extraordinarily quick to wash away under bad treatment, A friend in Oxford recently sent me the book "Mississippi's Wealth" published in 19U7 by the Bureau of Public Administration of the University of Mississippi* The author, Robert Baker Highsav;, used this keynote sentence - "It is not too much to say that the life of Mississippi depends on the use of it ssoil." That the bankers realize this has been proved to me by the warm and friendly welcome they have given to the meetings we have been holding, in cooperation with Mississippi State College and your own State Association, in the northern part of the state during the last two years. Their interest is shown, too, by the farm program which, as your progressive young secretary, Lei^h Catkins, informs me, the State Association is just launchin to give active, a^ressive, and steady assistance to 6 farmers and to the Federal and state agencies and the individuals who are supporting and encouraging Improved farming standards. I suppose many people think that my talks to country bankers over-emphasize the importance of sound farming to sound banking. I doubt if over-emphasis is possible. Let me take just a minute to tell you why the federal Reserve Bank is working with commercial bankers right here in Mississippi to encourage the fullest and best possible use of our agricultural resources. You can't, over the long run, have sound banks in a community whose economy is sick and failing. Te are interested Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2 - in a sound banking system; we want, as you do, to have safe, growing and useful banks, and they can only flourish in safe, rowing and productive communities* b The banks of Mississippi can hold tneir share of the future high level of bank deposits in this nation only if the volume and the value of the statefs production holds its own in relation to the volume and the value of the production of the country as a whole. And while we want to see decentralized and diversified in dustry grow in Mississippi, the nature of our resources is such that most of the volume and value oi our production must come from the land* That income will surely iail unless the soil is held in place, and its fertility restored and continually renewed by a system of farming that uses the great natural advantages of the South to the full, That!s the whole story. To point it up, let's take a look at what has been happening to our bank deposits since Hitler moved into Foland, and do a little guessing at what is likely to happen to them in the future. The growth in bank deposits over the war years was the most tremendous growth ever experienced in the financial history of this country. Over a six year period, total deposits of all insured State and National banks in this country more than doubled, rising from 3^6 billioh in December, 1939, to nearly $1^0 billion in December, 19U5. Bank deposits here in Mississippi multiplied even more, rising 26Ji per cent compared with 166 per cent for the country at large. Deposits of insured banks in Mississippi were ^20$ million at the end of 1939, $7U6 million at the end of 19U5* The reasons for this proportionately greater growth in deposits here in Mississippi are not difficult to find. As you know, it was due chiefly to these three factors: the higher farm income from increased farm production and higher prices for farm products; the reat money flow from military payrolls and de b pendency benefits; and the higher industrial payrolls of war industry and new industry developed durin the war. These three sources of revenue furnished an Digitized for FRASER & http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 3 - excess of income over spending which was reflected in bank deposits in the state. Looking a ain at these causes - increased agricultural income, war expendi b tures, and industrial growth - we see that the gains were due to what might be termed a "favorable balance of trade" for this state. As a result,, a relatively high share of the increased deposits which were created largely by government borrowing from banks, came to rest in the banks of iJississippi. So much by way of banking development durin the war years. Next, let us b take a quick look at what happened in 19U6. Bank deposits declined about $12 billion durin the past year due to the fe government debt-reduction program. This government retirement of debt resulted from repayment of most of the money that had been raised in the Victory Loan Drive. It actually cut $1$ billion from bank investments in government securities, but it was offset by the addition of some ^3 billion in new bank lendin to private b borrowers. That was the deposit trend for the nation - $>12 billion, or 8 per cent, de cline in 19U6* I do not have the fi ures at hand for all of Liississippi, but in b our Eighth tederal Reserve District part of Mississippi, the northern end of the state, year-end figures showed deposits had increased $lU million, instead of declining. In this area an expansion of loans more thctn offset the reduction in government deposits, which did not affect country banks as sharply as it did city banks. I see nothing in the near future that seems likely to reduce the volume of bank deposits materially for the country as a whole. A reduction could be accom plished by a net decrease in the amount owed to banks by government and private borrowers, but further reduction in the public debt will at best be slow and gradual, while private borrowings are likely to increase. The government debt from now on can be reduced only as we have Treasury surpluses, and they will come only when the government collects more in taxes than it spends. Your uess is as Digitized for FRASER b http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - U - good as mine on when that will happen, and how much it "will amount to. A shift in ownership of government securities from banks to private investors could cause a drop in deposits, but the trend is likely to be the other way, as you will realize if you examine in your minds the plans which you know your de positors are maki% for ihe use of their funds. They have building or improvement plans in mind, or purchases to make when prices suit them better, or when the things they want become more plentiful* Now, to catch up with some of you who have run ahead of me on this last point and are thinking that such purchases will draw some of the deposits out of the region, I agree with you. But this transfer of balances can be offset to the extent we create new wealth from the production of oods and services here B in Mississippi. The huge new war-debt-created volume of money - three times the amount we had in 1929 - is oing to be with us for a long tine to come, Under any realistic b definition, our money supply includes the bank deposits, not merely currency in circulation which appears to have reacned a peak* It looks like the $28 billion odd in currency and coin now being toted around, used in daily exchange and hidden in clocks, mattresses, and safe deposit boxes, has proved sufficient. There is a pretty good chance that some of those ^20 bills may even come right back through your teller's windows and add to your reserves* V,'hat about the longer-run factors? At what level will bank resources be in 1950? In 1955? I have indicated my belief that they will remain hi h for the b nation as a whole. There will be shifts from region to region, from bank to bank* T.e are concerned today with the question whetner the banks of this area, which have seen their bank deposits more tnan treble, will now see tnem slip back to the old levels. I, for one, do not expect that to nappen. I do expect that in spite of all we can do, the banks of the Mississippi valley will lose some deposits to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 5 - banks elsewhere, but the levels will still be very hi h compared with pre-war. B The future of these deposit levels can be influenced by what bankers do with their resources in these crucial years just ahead. That, of course, depends upon the men right here in this room. 1 realize you cannot personally or collectively hold back the rising floods of the "lather of Waters", and that tne sun does not appear from behind the clouds nor the heavens pour down rain at your beck an dcall. Decisions in Moscow, Paris or London, in the houses of Con ress, in the board rooms b of reat corporations or in labor union halls, will help determine whether Miss 6 issippi suffers or prospers in the years ahead. But communities that have attained a sound economic balance have a record of holding together through the tough years and making up for it in the years o ipros perity. This vast money supply can o into destructive uses, in bidding up the b price of land or oods in short supply, and in inventory speculation, Or it can be b used constructively to safe uard our resources and increase their productivity* b As bankers, we have a reat responsibility and a considerable influence in helping b determine how the money is used, We can look the other way while savings an dpro ceeds from loans move into speculation or are spent for non-productive, inadequate returns. Or we can help build up the surrounding lands and make them productive through investments which will pay for themselves and build a richer community. bankers as individuals and in rouP associations are a potent force for com b munity strength wherever they use the powerful influence which is theirs* Vie have in this state some outstanding country bankers who are leaders in making their com munities more productive. You know who they are better than I do* They exert indirect influence by their counsel and their example. They exert direct influence by the loans they make. Over the years their work will mean larger and sounder bank deposits for their own institutions. There will be need for many bankers like that in the agricultural sections of the United States in the years ahead. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 6 - tor the relation of agriculture to the rest of the economy is changin gradi cally, and further radical changes are ahead of us, In 19h3 and 19UU* only 15 per cent of the nation's labor force produced ohe all-time record crops which fed and clothed this nation and its own and allied vast war machines* This increasing productivity per worker in farmin has resulted because farmers, year by year, 6 command more and more capital per worker in the form of machines and land. As one pair of hands ets more and better tools to Vvork Kith, their owner manages b more land and works it better; his unit costs go down, and the farm yields higher returns and a better livin per worker. This trend is oin to continue; it is b b b inevitable. It means better homes and a better life for those who remain on the farms. It also raises the question whether the growth of decentralized industry throughout rural America will be rapid enough to absorb the workers who are re leased from the farms as mechanization proceeds. I do not think this development necessarily will be troublesome. It is a question of right human behavior * Think what it would mean if all our population at home became educated to want and demand a full, healthful, rich dietl You know we can keep 10 to 13 times as many people alive on an acre in cereals as can be fed on the livestock products from that acre, but we are not likely to do that in this country. The trend is the other way. 7,e could use our farm resources fully, with more workers than are now employed in agriculture, if all our people could buy and consume the dairy-and-livestock diet necessary to maximum health* And right here I want to speak of the splendid program to promote pastures and develop dairy and other livestock that is ^oin on in some areas of Mississippi. b During the past weeks I have driven over much of the northern half of this state. I have seen, as you nave, the damage done by row-cropping hills and slopes that should be covered by grass* there the soil is held in place, where its mineral richness has been restored, where adapted seeds and crop rotations are used, we have advanta es here for low-cost livestock production which we have been slow to b Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 7 - see* In this state v^e have natural conditions suitable for all-year-round pasture farmin with nutritious grass and legumes marketed as livestock products to supple- b ment the income from cotton of which Mississippi will continue to be a leading producer. In spite of these advanta es the fact challenges us that the South buys b year after year a lar e part of its dairy and livestock products from the colder b states up north where costly barns and indoor feedin are necessary a considerable b part of b-ach year, I could talk to you all night about the amazing opportunities all around us to build safer and more profitable farms on the ruins of the old ones simply by using the land right. Soil conservation and the kind of farming that oes with b it are not only right morally - they pay big dividends in dollars and cents, I don?t believe there is any place I have ever seen v.here the land is mor eres ponsive to good treatment - or to bad treatment, either - than right here in Mississippi, We can use a lot of the capital and labor we have here in putting complete soil-and-water-use programs in effect on individual farms. T/\e nave the capital, the tools, the "know-hew", the minerals, and the seeds and plants with which to work a farming revolution here. furthermore - and it has taken a long time for me to build up to this point - every dollar of new capital invested in completing a soundly-conceived conserva tion farming plan will repay the investor or lender well through increased yields and lower production costs. The farmer or land owner or mortgage lender will have a better farm 5> or 10 or 20 years hence than he has today to operate or to secure his loan, an assurance' now altogether lacking in American agriculture* I could give you many illustrations ranging from single cases to surveys that cover thousands of farms, all showing that farmers who do the best job of main taining their soils make the best incomes, nut I know that many of you here today are familiar to some extent with the individual case histories we have presented Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 8 - at the meetings such as those I mentioned earlier. Therefore I am oin to confine 6 fe my examples to four farms located in this state, one in the black Belt, one in the Brown Loam hills, one in the Coastal 1-lains area and one in the Mississippi delta,, In making these studies^ we were very conservative in the formula we used to convert the increased yields into dollars, V,e used average prices received by farmers for the period 1925-1939, wnich put cotton at 110, com at 73^, oats at UO0, alfalfa hay at $12,$0 and pasture at #1.50 per mature cow per month, to compare the value of production before and after the conservation plan was in effect* This gave a uniform and fair basis for comparison, although I hope you will not take the figures as our forecast of what prices are likely to be* first, let me tell you about a ten-year improvement pro ram on a lU5-acre b farm in the Black Belt. A total of #8,832 of new capital was required to install a sound land use and balanced system of farming. This outlay averaged $60*91 per acre on land that without treatment was valued at .$20 per acre, A high percentage of the cost went into the mineral program, with only #17.12 representin permanent 6 improvement to the land. Despite this unusually high investment, however, in the ten-year period, §12,u30 in new income could be traced to the ^8,832 investment, or nearly §1.50 for each #1.00 invested. Calculated on the same low average price basis, the income from the farm was increased by $1*711 with an annual maintenance cost of $600, Letfs contrast the heavy investment and relatively slow returns on the Black Belt farm with the record of a farm in the Brown Loam nills. Those of you who don!t live in the Brown Loam hills but have driven through that area of Northwest Mississippi will remember it as a badly ullied section that gives the appearance b of having been completely ruined* Actually, despite the scars of exploitive practices and the badly gullied condition of the land, the soils in this area are just as responsive to good treatment today as they have been to the abusive treat ment of the past. On a $8Ii-acre farm in the Drown Loam hills, a six-year pro ram 6 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 9 - of complete soil conservation and improvement was carried out at the total cost of $7,831;* or only $13.Ul per acre, of which #6,37 represented permanent improvements to the land* The returns during this six-year period in which trie program was being installed and which can be traced directly to the improvement investment amounted to #12,p27. Here a^ain is a ,$1.50 return for each &1.00 invested, but in this instance, the return was realized in only a six-}ear period. The annual increase in net income resulting from the improvement program on this farm exceeds ^2,'000 at the same low level of 15-year average prices we used throughout in making these comparisons. The Coastal plains area larm, one with which many of you are familiar, is the story of a 102-acre upland cotton farm located in Lee County, Cotton lields gave way to Jersey cows, pasture and supplemental feed crops. The annual value of production, calculated at average prices, more than doubled from 19UO-19U6, and the ^ross return from labor increased from #1.71* to $>U.72 per man-day of work. In the nine-year conservation pro ram, $10,617 of new capital was required 'for b pasture development and improvement, specialized dairy equipment, farm buildin s, b drainage and erosion control structures and for commercial fertilizers in the feed crop program. This, as in the previous cases, was a substantial investment per acre, but when calculated at those average prices, the increased value of feed crops, cotton and pasture produced as a direct result of the soil improvement and diversification program totaled <pl5jl|25e A&ain, approximately $1.50 was returned for each dollar invested. The farm was appraised at #27*00 per acre when the im provements were begun. Permanent Improvements totaling $52.82 per acre were added and the appraised value increased to $79.52 per acre. I am told the farm would easily sell for $125 per acre today, finally, I want to give you a record of sound land use and soil improvement on the Mississippi delta, i/iany of us have thought of the Delta area as just one Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 10 ~ vast expanse of level fertile soil of highly uniform capability. Actually, there is i/vide variation in soil type ana land use capability on Delta lands* The 6U0~acre farm which I v.ant to tell you about now is one of the most interesting of all the individual case farm records T/\»t, have analyzed, prior to 19U2, when the present owner assumed operation of this farm, it produced annually 200 acres of cotton, 60 acres of corn, and lesser acreage of other crops among which was I4.O acres of permanent pasture. One-hundred and eighty acres were idle. Under a proper land use pro ram, the idle land ana U0 acres of b wooded land have been brought into production. Today, the cotton acreage has been increased to 236 acres; corn acreage ftas been reduced; and oats and pasture acreages have been materially expanded. Per acre yields have increased tre mendously; cotton, for example, from l6l# to U5'6£ per acre. Under the right land use and with the proper balance of soil improvement and croppin practices, 6 the value of production has increased from an annual total oi #$,l5U prior to 19U2 to an avera e annual production during the period 19U2-19U6 oi #19,330. The b five-year improvement program required a total investment of ^17^625 oi new capi tal for fertilizers, cover crops, drainage, terracin and pasture improvement. b During that same five-year period, increased production calculated at average prices, has totaled 4i>70,880„ In other words, in the five-year period for every dollar invested in improvement practices, there has been in excess of tih in return* These case farms from the four major soil areas 01 Northern wdssissippi tell a striking story of the tremendous volume of new income that Mississippi can enjoy from increased farm earnin s if an intelligent program of soil management is fol b lowed. These studies and a pile of otfter evidence prove to me that, morals or etnics aside, from a cold business standpoint, the man who controls a farm cannot afford not to start now on a complete and inte rated program of conservation i"armin . fe b Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 11 - They prove to me that bankers can finance farm improvement plans on a sound basis that will enable the farmer to repay the borrowed money from increased income earned directly by the improvement investments, I have talked a great deal about banking and farming today but I do not want 3 to be accused of making a one-sided plea for an agricultural economy. Nothing is more Important to this region or to the nation than a sound balance betwee napi culture and industry* I repeat ~ and it cannot be repeated too often - we can make progress only by industry and agriculture developing and working together. This question of whether we get into trouble because farm income falls and farmers quit buying, or because factories lay off workers and quit making oods to trade for f^rm products, is a 6 good deal like the question of which comes first, the hen or the egg. I h a\,e quit arguing about it. It takes two healthy legs to walk far and fast, and we want them both to be strong. Each is essential to the other, Generally speaking, agriculture will fare better in an expanding economy, with other groups in our national life busy producing goods and services to the best of their ability and capacity, than if will under conditions of curtailment, unemployment, and falling non-agricultural production and purchasing power. Conversely, the rest of the economy is bitter off when agricultural production is high, and prosperous farmers are excnan in their abundance on a fair basis for b b the products of others. This concept of the beneficence of an expandin economy has just been con 6 firmed by a scientific study. Let me read you a sentence that introduces a 300,000 word report on the U. £• economy entitled "America's Needs and Resources" which was just completed two we^ks a o alter three and a half years of full-time b work by a staff of 27 economic experts of the Twentieth Century tund: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 12 "If we can continue to spread the benefits of a constantly increasing productivity in the U* L., we can o on to b economic and cultural heights as far - and farther ~ above those of today as those of 19U7 are beyond the ima inings b of our great-grandfathers back in l8U0.H Think of the tremendous meaning our support of full production on the farm and in the factory has for Mississippi - for AmericaI It is important that we take care of those who are displaced on the farms by providing jobs in stable rural industries. But it is also true in Mississippi that as we put increasing acres back into useful production and shift to crops that pay larger dividends per man hours of labor we can support more population on the farms. V.hile honoring and granting to industry Its ri htful place, let us b not forget the reat basic resources of this state - resources of which to be b proud - the friendly climate, millions of acres of tillable soil, and abundant rainfall and waterways, This problem of the development of our agriculture and of our other resources is as broad and. as deep as is the problem of improvin the character of human liie b itself. Time is running on and I nave not even mentioned tue nighly important 3 subject of timber which in 19q5 contributed Ik per cent of this state!s total revenue. It is bein demonstrated that high yields and safety both can be found 6 in intelligently managed pine and hard-wood timber lands. Nothing has been said about the fundamental importance of this program of land and water management to wild life, fish and game. J know that ;you are aware of it and in counting the dollars and cents value of jour loans you will not overlook these broader implica tions for human well-being. In conclusion: I have talked about the condition we find our banks in today and have reviewed some of the reasons for it. I have rambled a ood deal in trying b to bring you the picture of agriculture and industry working side by side for a full Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 13 - production as a means of keeping our tankin resources at their present levels, or b even expanding them in keeping with the sound balanced rowth of the community and b nation. Though prospects are that bank deposits in tne nation will continue t@ remain fairly near to their present hi h levels, I h_.ve pointed out tneir maintenance in 6 Mississippi is oin to depend, in the long run, upon the relative position of our b B economy compared v^ith that of the rest of the country - upon the decree of economic balance attained here - an economic balance uhich depends heavily upon the deve lopment of our agricultural assets, I am not afraid oi the future and its implications. Lut I know there is no substitute for efficient production, which can be secured by the intelligent use of plenty of capital pur man in the form of land, tools, buildings, lime and fertilizers, and livestock. Nothing can take the; plt-.ee of ood management of our b soil and water resources. Mississippi is a predominantly agricultural economy. More than ever a sound and expanding agriculture is the cornerstone for buildin ner future bright* I b have emphasized that our enormous money supply may be used destructively in bidding up land and equipment prices, or constructively in carryin out complete programs b of soil and v*ater management, and for equipment, electrification, homes and farm buildings which increase the efficiency and comfort of farming* The bankers, the men in this room, can exert a powerful influence to uide the flow of investment b into productive channels. Bankin and agriculture are inseparable in Mississippi. 6 In the long run your agricultural resources are your bank resources. You have done much, but there is still more to do* 0000OOOO0000 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Chester C. Davis (1947, May 12). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19470513_davis

@misc{wtfs_speech_19470513_davis,
  author = {Chester C. Davis},
  title = {Speech},
  year = {1947},
  month = {May},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19470513_davis},
  note = {Retrieved via When the Fed Speaks corpus}
}