frsbog_mim_v20_0310.pdf

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—JU' •» • f

(Copied from

The

Saturday Evening Post)

April 12, 1924 , issue.

THAT PAIN IN OUR NORTHWEST

By

Garet Garrett.

OH, TTRETCHED abundance.' Ruin and plenty are as twin specters stalking t o

and fro in the land. The Department of Agriculture causes expensive color

posters to i$e displayed on the walls of the post o ff ic es , urging people to eat

more meat. This i s f or t h e sake of the ca tt le ra is er s. There i s propaganda

in the same spirit for the sake of the grain growers. Bread i s nan's perfect

food. Increase thereof

thy

morsel.

We eat what we can . Yet of precious sustenance there i s a surplus left.

American agriculture is at the verge of economic des pai r. Over gre at f e r t i l e

areas i t i s bankrupt, Tne Government i s called upon t o save i t , either

direc t ly oy grants of money from t h e United States Treasury, or indirect ly by

law, or both. I t i s believed to be unable to save i t s e l f . Also i t i s believed

that unless

i t i s

saved

th e

whole country w i l l sink under

t h e

calamity

of ex-r

cess ive abundance. Does i t l i e i n riddle between God and nan that you can have

ruin

and

plenty

at the

same time? Hath-

man

hims elf invented t h i s contradiction?

Or i s the omen of disaster a product perhaps of th e p ol it ic al inagina tion?

For the

dispa ssion ate answer consult s t a t i s t i c s . What

in t h e

broadest

out l ine i s t h e s ta t i s t i ca l h i s tory of American agriculture these last few years?

We

take

th e

Statist ical Abstract

of the

last census, turn

to

page

682, and see

that the value of farms an d farm property has increased i n twenty years a s

follows:

In 1900 i t was 20 b i l l i o ns .

In 1910 i t was 41 b i l l i o ns .

In 1920 i t was J8 b i l l i o ns .

Increase i n twenty years, 290 pe r cent, or at the rate of 14 1/2.per cent

a year.

However, this i s t h e Census Bureau talking. I t s word on agricultural

matters

i s

perhaps incomplete.

We

want

t o

know

i f the

value

of the

land's

produce has been increasing, and at what rate; f o r o f course th e value of the

land

i s

determined,

or

should

b e

determined,

b y t h e

value

of

what

i t

produces.

So we take down t h e latest yearbook of the Department of Agriculture; and

therein

i t

appears that

th e

annual value

of

farm products

h a s

been

a s

fol lows:

1900, 5 b i l l i on do l lars l y l6 , l j 1 / 2 billion dollars 1^20,18 l / j bi l l ion dol lars

1905, 6^ bi l l ion dol lars 1^17 ,.19 1 /3 bi l l ion dol lars Iy2l , l2 1 / 2 bi l l ion dol lars

1910, 9

bi l l io n doll ars 1915,22

l / 2

b il l i on dol lar s 1922,14

1 / 3

bi l l ion dol lars .

1915,10f billion dollars 1^19,23 3 / 4 bi l l ion dol lars

In f if te en years from 1900 to 1915 the aggregate value of the land's produce

more than doubled; i n t h e next four years, representing the war's demand, i t

more than doubled again. In 1920 and 1921 i t was roughly ha lved, owing to the

great postwar pr ic e d ef la tio n, but in 1922 i t somewhat recovered, and in 1923

i t was even a l i t t l e bet t er . The remarkable fact i s that af te r a l l t h e deflat ion

of prices the value of the land's produce i s nearly $0 per cent greater than i t

was in any

year preceding

the war.

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- 2 -

How

much

of

this increase

may

have come from

an

extension

of the

area

farmed? Let us regard that f actor . There must have been an increase in the

number of farms and in the number of acres t i l led. So i t i s , But the increase

has been unimportant* Only about 21 per cent i n twenty years against a n in -

crease

of 290 per ce ' t in th e

value

of

farms

and

farm property.

So now we

look for the value o f crops p er acr e. That w i l l be the final test. Finding

i t , in t h e yearbook, we see that this corresponds t o t h e increase in the ag -

gregate value of crops. In fifteen years from 1900 to 1915 the value of

crops

per

acre doubled; then

in the war

period

i t

doubled again.

In 192 0 and

1921 it was halved; in 1922 i t somewhat recovered and is s t i l l , a f ter a l l t h e

postwar pric e de fl at io n, very much higher than in any year before the war.

Clearly, th e value of the land*s produce h as enormously increased* But b e-

ware of s t a t i s t i c s . They have been known to b i te th e hand that made them.

You

would think

an

industry ought

not to be

ruined

and was

certainly

not

doomed

whose plant and equipment had been increasing i n value f o r twenty years at the

rate

of lU | per

cent

a

year,

and

whose product

in

that time

had

more than

twiee doubled in value, with a setback in the next three which, though it was

very severe, leaves

i t

s t i l l much higher than ever

it was

before

the war, con-

sideredeither

i n

gross

or in

value

per

acre.

You ar e

tempted

to say i f i t

i s ruined it has only i tse l f t o blame, even t o suspect that th e agricultural

c r i s i s

i s

perhaps greatly imagined*

You may be

r ight— s ta t i s t i c a l l y ,

rationally right— and everyone else may be emotional ly wrong* That w i l l not

dispose of the situation.

SOME STRIKING FIGURES.

For a si tu at io n does e x i s t . Everything about i t i s controversial . A l l i t s

premises a r e debatable* Even i t s geography i s vague. Generally i t i s r e -

ferred

to as the

s i tuat ion

in the

Northwest,

The

American Northwest

is no

precisely delimited area. Yet from certain phenomena a rough fa ct appears.

The fact i s that a situ atio n, i t se l f undefined, i s most acute i n what i s

called th e Ninth Federal Reserve Bank Dist r ic t , which comprises pr in ci pa ll y

Minnesota, North Dakota, South Dakota and Montana.

Having

so far a s

possible isolated

th e

situation,

i t i s

natural then

t o

ask,

What

i s i t ?

Stupid question As well ask a mathematician what one is * If you ins ist

on a

simple definition

and

w i l l

not

stay

for a

dissertat ion

on the

properties

of number, a l l he can say i s that one is one. Likewise, if you insist upon

a simple definition of what th e s i tuat ion in the Northwest i s , upon having

i t without a compendium of economic and s oci al theory since , Adam Smith, a l l

that anyone can do is to refer y o u t o i t . There i t i s * Look a t i t . Among

i t s

e f f e c t s

and

phenomena

are

these:

3* In January th e Department of Agriculture published th e f indings of

a

spteial survey touching 2,289,000 farmers i n fifteen wheat and corn growing

stateo.

In two

years—1921

and

1922—the number

of

them that went bankrupt

was 600,000. Of these, 108,000 lost their property by foreclosure or other

legal process; 122,000 lost their prpperty by default without legal process;

373,000, though bankrupt, r eta ine d phys ical possessi on of their property

through the leniency of cr ed it or s. Since th is survey was made the economic

mort&lit$; has continued„

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A . C

I t i s highest in the states of North Dakota, South Dakota and. Montana.

If the foreclosures, farm by farm, a r e laid upon a large-scale map certain

areas, whole counties,

are

seen

to be

solid black, with only here

and

there

a

l ittle white spot.

THE VICIOUS CIRCLE OF DEPRESSION.

Many lawyers specialize in foreclosure practice and make wholesale prices

to loan conpanies that have many cases in the neighborhood, One lawyer in

Montana has 1500 foreclosure cases in h i s office, current; he puts system into

th e work and uses mul tip le forms which h i s stenographers know how to f i l l up and

f i l e .

2* Practical ly a l l these bankrupt farmers, beside s having mortgaged their

land, borrowed money also on their notes at the loca l bank. They cannot pay

these not es. Therefore .the banks fail. In the four Northwestern states —

North Dakota, South Dakota, Montana an d Minnesota— nearly 550 banks have failed.

In Montana every third, bank has fa il ed . They are s t i l l closin g. There are

la rg e towns l ike Lewis town,

and

whele counties,

i n

which

a l l t h e

banks have

shut

up.

Business

i s on a

cash basis,

3 . Farmer and banker bankruptcy on such a scale creates a s ta te of gen-

eral anxiety. The elements of sympathetic danger a r e fairly obvious. No bank

stands alone like a so li ta ry cedar tree . Banks re s t up cm one another, A

country bank

in

South Dakota borrows from

a

Sioux Falls bank,

th e

Sioux Falls

bank borrows from a Minneapolis bank, t h e Minneapolis bank borrows from

a Chicago bank, and the Chicago bank borrows in New Yofk. Thus no bank can

f a l l anywhere without

in

some degree affecting other banks.

Nor

does

any one

section of the country stand alone and. self—contained. When an agricultural

section i s in dis tress i t wi l l buy fewer automobiles and l e s s of Alt the

products of industry, and if th is continues long there begins to be unem-

ployment in the i ndus tr ia l cen ter s, which causes t h e industrial population

to buy

l es s food, which rea cts

i n

turn upon agriculture,

and so on in a

c irc le .

4. The Government has declared that a grave emergency i s present. In a

message to Congress at the end of January the President described i t as aa

"economic situation in certain wheat-growing sections of the Northwest", and

said

i t had

reacned

a

stage requiring "organized cooperation

on the

part

of the

Federal Government and the local inst i tutions of that territory." He favore

th e prompt enactment of what i s known as the pig-and-chicken b i l l . This is a

bill which appropriates $50,000,000

out of the

United States Treasury

to e

loaned to wheat farmers for the purchase of milch cows, pigs and chickens i n

order that they may get started in the way of f e e d i n g themselves. This i s

called Federal a id toward diversified farming, in areas where agriculture has

consisted

in

mining

th e

soil year after year

for one

thing only

- to w it ,

wheat. Tne Pres ident recommended also that the l i f e of the War Finance

Corporation be extended i n order that i t might assist i n meeting th e emergency,

and this was done. „ ^ .

5 . In th e

first week

of

February,

at the

suggestion

of tne

President,

great conference

of

Northwest bankers, merchants, manufacturers,

r a ro m. ,

farmers

and

agric ultura l experts

was

held

in

Washington under

e c a i

of Mr, Hoover t o think up a way of saving banks tnat could not save themselves

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capital privately subscribed

and

$100,000,000 credit, partly

to be

supplied

by

th e

Government,

t h e

uses

of

which,

so f ar a s i t

functions, wi l l

be to

thaw

out the

frozen assets

of

Northwestern banks, especially real-estate assets,

which

at the

present time

are

l ike sol id

i c e .

Land that

was

thought only three

years ago to be the very best security f o r a bank loan new is almost unsalable.

This relief corporation, finding

a

bank otherwise solvent

b u t

unable

t o

real ize

o n i t s

assets because they

a r e

frozen, will take over those assets,

or

lend

upon them,

and

slowly warm them

in t h e

bosom

of

optimism, biding

a

better time.

STRANGE EXPERIMENTS.

6 .

Meanwhile

th e

imminence

of

some very strange le g is la t io n .

For

Example

One, a

bill which would oblige

th e

Government

to buy and

s e l l

a l l

basic agri-

cultural commodities, thereby substituting itself

f o r t h e

hated middleman

who

i s supposed to do away with th e farmer's profit. For Exanple Two, a b i l l

creating

a

commission with power

to

raise

th e

average price

of

basic agricultural

commodities to a parity with th e average price of industrial commodities, a c -

cording

to a

s tat i s t ical device cal led

an

index number,

an d

then

to

dvuq?

in

foreign markets a l l such food products a s cannot be eaten among u s a t that price.

This proposal, called

th e

McNary B i l l ,

has the

active support

of the

Secretary

of Agriculture, who i s said to have helped write i t ; i t h a s t h e support of

farmers generally; i t has the support also of a great many bankers and merchants

in t h e agricultural regions, who say they do not know whether i t will work or

n ot , b u t maybe i t w i l l , and if i t does the price of farm produce wi l l be im-

proved. A l l their prosperity i s bound up in tne price of farm produce,- toge ther

with t h e speculative value of farm land, in which they a r e a l l deeply involved.

7 . Lastly, in consequence of a l l t his economic disorder, there is a

state of mind i n which men delibe rately rejec t r ea li st ic modes o f thought, and

advocate experimental remedies, Jsnowing them by every rational test to be un -

sound. Even Mr. Hoover will say there comes a time when you are obliged to

bend your economics t o ends i n social welfare. And s t i l l you do no t know what

th e s i tuation i s .

Do you speak of tne causes, thinking perhaps to s talk th e ef fe c ts ? There

a l l controversy truly begins. The cause, did you say? I t i s that the Govern-

ment , having moved th e farmer dangerously to increase h i s production f or

reasons of patriotism, le f t him afterward to the mercy of bankers, who out-

rageously deflated him, the Federal Reserve System assisting; i t i s that big

business i s organized against th e farmer to exploit him; i t i s that industry

receives the benef i t s c f tariff protection while agriculture does n o t , s o that

th e farmer sells on the open market a t a world price and buys in a closed

market a t a protected price; o r i t i s that the American wheat grower is not

an agricul turis t , but a soil miner, a land gambler, a reckless borrower of

credi t , a pla nte r, without sla ve s wno pays th e I.W.W.'s s i x o r eight dollars

a day to reap h i s on e crop, buys h i s food in the c i t y , and charges h i s loss to

the Government. Any or a l l of this may be true in fac t t o some degree. But

a fac t i s n o t necessari ly a cause.

There i s n o doubt that th e radical explanation of agriculture's dilemma

h as been the excessive supply in the l as t three years of certain great staples,

principal ly cat t le and wneat, th e production of wnich was enormously stimulated

during the war. fh iph was the greater stimulus, t h e price or the patriotism,

i t would now be unseemly to consider. But certainly i t was the price alone f or

nearly two years after the Armistice that stimulated production t o i t s apex.

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INCREASING- WHEAT ACREAGE-

The high point or peak, both i n cattle production and wheat acreage, was

reached in 1919 , the year after th e Armistice. Pri ce s were s t i l l very high in

1915 and m t i l mid-year of 1920, higher than during the war; and then suddenly

the

demand slumped.

The

high price

f o r

wheat

—

$2-58

p e r

bushel

on the

farm

—

was touched in 1919# a f t er the Government had removed, i t s price control.

Similarly

th e

high price

f o r

beef cattle

— t e n

cents

a

pound

on the

farm

—

was touched in 1919•

In 19m , before the war, the number of beef cattle on th e farms was

6 ,000,000. I t increased steadily, as the price ros e, unt il i t touched

5.000,000 in 1919* The decrease since h as been much slower than th e increase

was. Last year, according to the yearbook of the Department of Agriculture,

th e number of beef cattlecon the farms was s t i l l 42,000,000 — that is to say ,

one-sixth more than in 1914, and only on e- fif te en th le ss than t h e highest

point touched

on the

peak

of the

postwar demand.

So also a s to wheat. The area i n wheat in 1914 was f i f t y - t h r e e and a

half million acres. I t increased steadily as the price of wheat advanced until

i t was seventy-f ive and a half mill ion in 1919- Not un til l as t year was the

acreage reduced t o somewhere near th e prewar level; and by that time the

world's production had so increased that th e total supply exceeded the prewar

demand. The Wheat Council of the United States, which is an organization formed

last year of farmers, millers, railroad men and bakers to take a world-wide

view of wheat, discovered that in 1923 the wheat exporting countries had pe r-

haps 350,000,000 more bushels

t o

sell than

had

been required

in any one

year

before the war by a l l the wheat-importing countries of the world. In view of

that fact, which

i s a

continuing

and not an

accidental fact ,

and

seeing, more-

over, that t h e cos t of producing wheat in t h e United States i s higher than i n

the

other surplus-wheat cou ntr ies , such

a s

Canada, Argentina, India

an d

Egypt,

i t appeared t o t h e TOaeat Council of the United fitatesto be pe r f e c t ly f u t i l e f o r

American farmers

to go on

raising wheat

f o r

export.

THE OBVIOUS REMEDY.

The

evidence

i s n o t

arguable. What a f f l i c t s basi c agr icu ltur e

i s

over-

production. But i f you say th i s to one of the farm lobby a t Washington, to a

member

of the

farm bloc

in

Congress,

to the

Secretary

of

Agriculture,

or to

anyone like that, you wi l l be regarded wearily, and with some abhorrence; a s

one who may be

expected

to

utter

a

terrible banality about

the law of

supply

and demand. Any one of them, speaking i n what i s believed to be the farmer ' s

point of view, will s a y : "Fell, suppose that i s i t . What ar e you proposing

to do about i t ?

If you say the obvious remedy i s t o curtail production, th e weariness

deepens, turning to di sg us t. Everybody says tha t. Now you say i t . Go on.

And i f you go on to sa y that when the farmer shall have produced an aoouuit of

wheat

on e

measure less than

t h e

domestic demand

he

will thereby automatically

ad d thirty cents a bushel to the price of h i s crop, since Were i s an inport

duty of thirty cents on wheat, t h e provocation become# great indeed.

"Yes," says one of the farm lobfey, a member of the farm b lo c , th e Secre-

tary o f Agriculture, o r anyone like that i n Washington. "There i s a duty of

thirty cents a bushel on wheat. What of i t ? Does th e farcer ge t t h e "benefit?

No. He s e l l s h i s whole product , a s before, at t h e world pr ic e. In the f i r s t

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place h e i s unorganized* I n t h e second place h i s output i s variable, according

t o t h e whims of Nature. He cannot Regulate h i s production exactly t o meet the

domestic demand. Nor can he , being unorganized, do as t he steel people d o. They

have tw o prices . One i s th e export price, t h e world price. The other i s d o -

mestic price, which i s t h e world price plus t h e ta r i f f . They f i l l th e American

demand a t t h e high, prote cted pri ce . Then they s e l l t he ir surplus product abroad

a t t h e world price. The farmer cannot do that t t him sel f. Therefore i n a l l

fa irness th e Government should either do it fo r him or remove th e t a r i f f o n a l l

those things which t h e farmer buys."

By such line of discourse you are brought to see two points of l i g h t . The

f i r s t

i s a n

idea.

The

second

i s a

conclusion.

The idea i s that i n spite of uncontrolled production t h e price of agr i -

cultural commodities

may be

raised

by act of

Congress.

The conclusion i s that th e ruin of agriculture i s owing not to overproduction

a s such, but to one of the e f f e c t s o f overproduction which comes to be regarded

a s a

cause

i n

i t se l f , mmely ,

th e

fact tba$ from

th e

high peak

of war

prices

cer tai n basic ag ri cu lt ur al commodities have fa l l e n much more than ind us tr ia l com-

modities. Hence t h e disparity that everyone i s talking about, meaning t h e d i s -

parity between th e purchasing power of what the farmer produces and the cost of

what he buys.

This conclusion i s widely, i n fac t genera lly accepted. The President says:

The great food staples do not s e l l en a parity wxth th e products o f industry.

Their average price i s l i t t le above th e prewar level while manufactures a r e about

50 per cent higher. The farmer i s n o t receiving h i s share. The resu l t has been

a decrease la,the value o f farm lands, th e choking of the avenues o f credit with

obligations which a r e doubtful or worthless, t h e foreclosure of mortgages and the

suspension of a large number of banks."

Ihere i s that disparity. And i t i s cruel, A bushel of wheat, worth i n

money what i t was worth before the war, will actually buy only two-thirds a s much

because those things/which

th e

farmer must exchange

h i s

wheat

are ^0 P©

r

cent

/ f or

higher than they were when wheat was at th is pri ce bef ore . Agri cultu re under

these conditions would b e ser iou sly depressed. Nevert heless, on r e f l e c t i o n the

fact of that disparity alone seems a n inadequate explanation of the s i tuat ion i n

th e Northwest.

SEARCHING- OCT CAUSES.

Contradictions appear. To instance: Tfhile i t i s true of wheat and cat t l e

that prices a r e l i t t l e above th e prewar l e v e l , other agr ic ul tu ra l commodities

whereof there

h as

been l e s s overproduction lav e fared very much be t ter . There-

fore you would expect th e s i tuat ion to be most acute i n those areas where wheat

and

cat t l e

a r e

produced

by the

one-crop system,

an d

very l i t t l e el se . Indeed,

advocates

of the

plan

t o

lend $50,000,000

out of the

Treasury among

th e

wheat

growers of the Northwest i n order that they may buy chickens, pigs an d Hows, find

then:selves in the way of saying that th e one-crop system was the great evil ,

that

th e

present situation

i s

very largely owing

to

that evi l ,

an d

that

the

solut ion l ies i n di ve rs if ie d farming. That w il l scan i n North Dakota, which i s

a l l

wheat,

and in

Montana, which

i s

either

a l l

wheat

c r a l l

c a t t l e ;

but

what

of

South Dakota with

i t s

panic

i n

land values,

i t s

progression

of

bank failures,

i t s

comparable plight,

i n

spite

o f t h e

fact that two-thirds

of i t s

agriculture

»1

ready

i s

highly divers i f ied?

I n i t s

survey

o f

farmer bankruptcy

th e

Department

cf Agriculture treated Montana, Forth Dakota an d South Dakota a l i k e , whereas i n

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:P

fact their agricultural conditions

s r e

extremely d i f ferent . Then conmenting

on

it® own data t h e department said that 43,000 farmers lost their property as a

result

o f

having bought land

i n t h e

boom

—

that

i s t o sa y ,

land speculation.

Then also

i n t h e

remedies applied

and

proposed

t o b e

applied there

are

amazing cont radi ct io ns . Through

t h e

w

a r

Finance Corporation

th e

Government

i s

extending credit

t o t h e

cattle raisers ,

who ar e

staggering under

th e

weight

o f

excessive production; a t t h e same time Congress i s voting money out of the

Treasury

t o

stock

t h e

Northwestern wheat farms with animals. Beyond th i s ,

i t

i s

proposed

by act of

Congress

t o

raise

th e

average price

of

agricultural

com-

modities t o a parity with industrial commodities and keep i t there, which would

tend

t o

stimulate production again,

and at th e

same time

t o

create

a

great

Fed-

eral machine t o monopolize th e export of our agricultural surplus an d dump i t

i n

foreign markets.

One begins t o b e seized with t h e thought that th e depression i n agriculture*

owing

t o t h e

great fall

in

catt le

an d

wheat

and the

s ituation

i n t h e

Northwest,

may be two

dist inct species

of

thing which various people,

f o r

p o l i t i c a l ,

m i s -

taken or other reasons, i ns i st upon tre ati ng as one pattern of woe.

The

thought suggests

a

method. Washington

i s

filled with soothsaying,

theories of healing, emotional quarreling, political anxieties; b u t ruins con-

tain their

own

history.

Let us

therefore

try the

archaeological method.

On

our way i t may be

well

t o

stop

a t

Chicago, which

i s

much nearer than Washington

t o what has happened. Chicago, be si de s, i s keeper of the wheat p i t , proprietor

of the

packing industry,

a n d i n a l l

these matters cool-minded

— so

cool-

minded that

i t i s

supposed

t o b e

cold-blooded

and

without springs

of

human

compassion.

Well,

i t

becomes very interesting.

You g et a

group

of

Chicago bankers

t o -

gether and say, writing i t down on a pencil pad as you think i t :

h

Let

u s

suppose

th e

five principal factors

in the

Northwest situation

are

these:

( l )

Acts

of

Providence, 2 )

bad

banking, 3 )

ba d

farming,

( 4 )

land

speculation, and 5 ) to o much credit. Now how should these be weighed? How

should

y o u se t

them down

i n t h e

order

of

their importance?

They reply,

a l l

with

one

voice," Leave Providence

o ut o f i t .

TOO

MANY

W E S

You say,

crossing

out

that factor,

A ll

r ight.

How

about

t h e

four

r e -

maining?"

They answer: "You've

g ot

them upside down.

Put the

la s t

one

f i r s t .

Too

much credit.

And yo u

can't cure what ails them

up

there

i n t h e

Northwest

b y

giving them more credit."

' %at is th e

right cure?"

For

everybody

t o

take

h i s

lo s s

an d

work

i t o u t .

That does sound cold-blooded even i n Chicago. In Washington i t would

sound reactionary.

And y e t , how

shall

i t b e

answered

7

Then you go over t o t h e Rookery Building f o r a word with John Clay — a

Scot, dean

of the

livestock business, very hard

in the

head, whose money?

loaned

out to

farmers

f o r

feeding purposes

was

probably what

put the fa t on

th e next beefsteak y o u w i l l ea t . He has written what he thinks of the s ituation.

He has

printed

i t i n

large type over

t h e

whole front page

o f h i s

private l ive-

stock bulletin.

I t i s

th is :

The Federal Reserve agent a t Minneapolis, i n h i s report to the

Federal Reserve Board

a t

Washington, brings

out

some remarkable facts

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a s t o t h e pos i t ion o f agriculture i n t h e Northwest states.

Bead

th e

following:

NUMBER

OF

PEOPLE

PER

BANK

In t h e whole United St at es 3i52 0

In Michigan . . 5 , 1 ) 0

In Wisconsin . ; 2 , 71 0

In

Minnesota

1 , 5 9 0

In Montana « 1 , 3 7 0

In South Dakota. . . » . $21

In North lakota * . . . 76 8

Fancy what madness seized

t h e

people

of

North Dakota. They

had a

bank

t o

every

768

people,

3 8 4

males, about

200

really earning

their bread and butter . So in this one-crop country there is a

deluge o f bankers, of storekeepers, of grafters l iving o f f one an-

other t i l l

th e

bubble bursts;

and

when

t h e

crash comes everybody

i s

wrong

but

themselves.

Banks a r e closing i n those last four states with tiresome

regularity. I t i s pathetic to think of those unfortuna te circum-

stances

, o f

homes made desolate

by

l o s s

of

deposits

or

forced

l iquidat ion. In this f lood of false , feckless f inancing the day of

re tr ib ut io n comes. Nothing can stop i t , f o r economic conditions

right an d equalize t h e vagaries of men who defy t h e just laws of

Nature,

o f

production

and

consumption.

I

talk special ly

of the

West

and Northwest. There more than at any time since the end of t he

Civil Tar we need courage, conservatism, honest co nv ic tion t o stem

t h e t ide of growing taxation, of mortgaged towns, c i t i e s , Counties

an d

s ta te s

— i n

faot ,

th e

whole country

—

against future generations.

The inheritance o f extravagance and fraud will be an awful load f o r

t h e children t o bear i n t h e long years to come.

Here i s Montana. One of th e famous disaster spots i s a va st three-cornered

area o f semiarid land, half t h e s i ze of Iowa, i n t h e north-central part o f

Montana, called t h e tri ang le. Until a few years ago th i s was public land,

covered with natural buffalo grass. A l l i t was supposed t o b e f i t f o r w a s

ca tt le grazing. Then i t was opened f o r settlement by homesteaders. Montana

decided that what i t needed was people. It got that idea first from t h e great

Northern Railway; t h e Chicago, Milwaukee & S t . Paul Railway, which had just ex -

tended i t s l i n e through Montana t o t h e Pacific Coast, supported i t . T he three

of

them together

— t h e

state, that

i s , and the two

railroads

— put on a

great advertising campaign f o r people . They spread col or po st er s a t country

f a i r s i n t h e East and Middle % s t t o exc i te the 6y@; these were followed by

paid criers t o exc i te th e ears. One of t h e posters represented th e farmer

plowing silver dollars

out of the

s o i l

o f

Montana.

The

criers said

i t was not

a t a l l exaggerated. And t h i s was free land. A ll you had to do *a s to go and

take

i t .

The rush began. Havre, at one corner of the tr iangle , was overwhelmed.

Every Great Northern tra in disgorged homesteaders. They s lept i n heaps a t

th e railroad station, because there w as nowhere else t o s leep, and vanished

a t

dawn with

t h e

pr of ess io nal lo ca to rs vHao knew where

t h e

free land

was and

charged fifty dollars f o r pointing i t out . So the triangle was s e t t l e d . No-

body knew what would come of i t . The natives, whose business had been cattle,

mining, merchandising and banking, with a l i t t l e o i l speculat ion asid e, looked

on

un ea si ly . They

did not

be li ev e th i s land would farm. They

had

heard

o f

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- 9 -

dry farming; b ut they could n ot imagine growing grain i n place of buffalo

grass

on

t h i s high semiarid bench. Moreover, th ese rash homesteaders were

n o t a l l

farmers. Nearly two-th irds

of

them wefe people

who

knew nothing

about farming; they were doctors, lawyers, miners, blacksmiths, bartenders,

o ld

maids, wrestlers, butchers, sailors

—.

thousands

o f

them

i n

t h i s

m i s -

cellaneous character.

And a s to the

one-third

who

were farmers, they were

from Iowa, I l l i n o i s and Missouri, and knew nothing whatever about dry farming

here or anywhere else.

Yet a miracle happened. A l l o f them planted wheat on that virgin soil;

nothing

but

wheat

— no

gardens,

no

trees ,

no

shrubs,

not

even feed ftir their

l ives tock.

And th e

wheat came

—

wonderful hard wheat, commanding

a

premium

i n a l l t h e markets of the world — prodigious wheat, twenty-thirty an d forty

bushels

t o t h e

acre, from merely throwing seed upon

th e

ground. This happened

in 1915; i t

happened again

in 1916; and

people abandoned themselves

t o

ecstasy. The poster was true. You could plow dollars out of Montana s o i l .

From land that cost them nothing but the trouble of taking i t , two-dollar

wheat, thirty bushels

t o t h e

acre

I ^ha t was

that land worth now? Figure

i t

f o r yo ur se lf . Lif e became very ex ci ti ng . You might have seen a t suridown on

a

harvest

day one

hundred wagons wa it in g s t i l l

a t t h e

elevator

t o

unload

the

fabulous wheat,

and the

owners flaying black jack

in the

village near

by . A

cigar

was a

quarter;

a

shave

was

f i f ty cents ;

and

food

was

dear because nobody

raised

any

food

to eat —

nothing

but

wheat

t o

s e l l . Everybody

w as

rich.

Everybody wished

to be

r icher s t i l l .

The way t o ge t

richer

was to get

more

land. Having g o t a l l t h e free land that was arable they began to buy i t . New-

comers bought

i t

from

t h e

lucky f i r s t comers; then they bought

i t

from

one

another.

PYRAMIDING MORTGAGES-

You

could have sold

th e top of

that mountain then," said

a

banker sadly.

A man

with

a

quarter section

he had got for

nothing mortgaged

i t a t 1 0

p e r cent to buy a whole sect io n, part cash and part mortgage. Then, t o farm

th e

section

he

needed

a

steam tractor,

and fo r

that

he

borrowed money

o n h i s

note

at 10 or 12 per

cent . Expectations were

so

great that nobody cared about

th e rate of interes t; and because t h e rate o f interest was unlimited, money,

especially mortgage money, came pouring

i n

from

th e

East , Loan companies sent

agents around

i n

automobiles soliciting farmers

to

mortgage the ir land. This

was another mirac le . Credit was like wheat. A ll you had to do was to wish

f o r i t , a n d

there

i t wa s . I t

came

t o t h e

door

in an

automobile.

Thus they built

an

enormous pyramid upside down, everybody gett ing richer

and

richer

on

credit .

You

didn't need

any

capita l .

You

could borrow

a t t h e

bank

on the

value

of

your land

f o r

anything

you

wanted, even

a

closed

car, and

pay out of the next crop. Once it was that th e first thing that opened in a

new

town

was the

saloon.

In the

tr iangle

i t was the

bank.

A

proper triangle

town consisted

o f s i x o r

eight little houses,

one

large garage,

and two

banks

i n shingle shanties. And th e a c t i v i t y of banking was somewhat like this:

Farmer:

I own a

half section

o f

land

up the

road worth f i f t y dol lar s

an

acre. That's $l o,0 00. There's

a

mortgage

on i t f o r

twenty-five

an

acre.

That's $8,0 00. Eight from si xt ee n leaves ei gh t. That's what I'm worth —

$8,000,

not

saying anything about what's

on the

land.

I

need some ready money

unti l

my

crop comes

o f f . Am I

good

f o r

$2000

on my

note?"

Banker:

I

guess

y o u a r e .

The

banker writes

i t

down

i n h i s

book that

t h e

farmer

i s

good

f o r

$2000

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i 9

T

io

T

on h i s note and may draw M s checks on the bank up to that amount. But he

has not got the money i n t h e safe . He has to ge t i t . So he sends th e farmer's

note t o t h e Federal Reserve Bank a t Minneapolis f o r rediscount . That means

he pledges the farmer's note there f o r a loan of $2000 in"bright clean currency,

which duly arrives in a nice package and is paid out over th e counter to people

who bring i n t h e farmer's checks an d want th e cash on them. The banker has

charged

th e

farmer,

sa y, 1 0 per

cent interest;

but he

himself pays only

Ujg

per cent interest a t Minneapolis. -The difference i s t h e bank's profit.

The

re-.son

why the

farmer needs this $2000

of

ready money

is not

that

he

i s poor. He needs i t because he i s getting rich so f a s t . He has bought more

land

and

more equipment

t o

farm

i t

with; then

he has to

hire labor because

he

h as more land than he can farm himself, and that means a pay r o l l t o meet; and

he has

naturally bought

an

automobile

to go

about

i n ,

having

so

many things

t o

oversee. The more land he can swing, th e more credit he can borrow t o increase

th e scale o f h i s operations, the more money he w i l l make i f nothing happens.

But i f h is crop fails he Will b e unable to pay his note; not only w il l he be

unable to pay that note but he wi l l be obliged t o borrow more on a second note

t o

bring

of f the

next year's crop;

and the

bank, having started with

him, i s

obliged to go on, fo r i f i t doesn't everything wi l l be lost .

•"HEN THE CRASH CAME

So i t comes that more notes go to Minneapolis to be rediscounted, and more

currency i s duly received i n nice packages and paid out over th e bank's counter

t o people who bring i n t h e farmer's checks and want th e cash; and everybody has

more a t hazard on the next crop. I f that fai ls , s o that t h e stakes have a l l t o

be doubled a second time, i t begins t o b e se ri ou s. Then i f a third crop fails

disaster begins. The value of land co ll ap se s. Mortgages beg in to be fore-

closed. The farmer cannot pay what he owes the triangle bank; an d h i s notes

which th e triangle bank h as hypothecated a t Minneapolis are worthless because

there i s now no equity in t h e farmer's land above th e mortgage.

The Minneapolis bank writes to the triangle bank, saying: "Those farmer

notes you pledged with us are overdue. Please redeem them a t once,"

But the triangle bank cannot redeem them. It has paid away the money on

th e farmers' checks an d there i s no way to get i t back. So i t answers the

Minneapolis bank, saying: All th e farmers hereabouts are bankrupt. Then we

ask

them

to pay

they

gay, ' A ll

we've

got i s

nothing.

If you

want that come

and get i t . ' And that i s a l l we can sa y. You have the ir not es, as we pledged

them with yo u. ~ e cannot redeem them. But i f you think there i s anything

around here you want, please come snd ge t i t ,

r

'e don't know what that could be .

Just then two or three depositors who had some real money wi th th e bank

came

i n .

They have heard

a

rumor. They want their money

ou t . The

banker

walks past them without speaking and st icks a piece of white paper on the glass

of the front doot. There he stands, looking ou t , with h i s hands i n h i s pockets.

The bank i s bust.

A l l

t h i s

has

been supposed,

f o r

uses

of

i l lus trat ion .

But i t

happened,

literally, throughout t h e triangle. The 1917 crop, out of which people meant

to pay for

th ei r automobiles, the ir tra cto rs, their extravagances th ei r

added land, f e l l t o seven bushels per acre. ITobody was dismayed. You h.cd t o

expect

th^t in dry

farming. They borrowed more money

and

planted more wheat

—

more, of course, than th e year before. The lgiS crop averaged less than five

bushels t o t h e acr e. S t i l l they were op tim is ti c. Credit seemed ine xha ust ibl e.

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Dae counties sold tax-exempt bonds t o Eastern investors and distributed the

money among farmers t o enable them to pl ant again* H i l l County alone did

this to th e tune of $800,000. The thing was to plant more wheat, more thaA

ever before; there could not be three failures i n succession. I f only they

planted enough and then i f they got another drop like 1 9 1 6 , everybody could

pay . Aft er that they would be a l i t t l e more conservative.

It was a desperate gamble - the last thrOw - a l l or nothing Resu lt:

Nothing. The 191 9 crop was just nothing. And th e whole triangle was bank-

rupt. Many of the people t o whom th e county loaned money just tip and moved

away You may drive through the tf iangla now for for ty or fifty miles along

the new, bonded Roosevelt Highway, and ssstfi t o s e e nothing but abandoned towns,

abandoned farms, banks along t h e road with pieties of white paper pasted on

their door panes and steam tractors sinking in t h e f ields l ike lost locomo-

t ives .

Kremlin i s a characteristic town - s i x or eight houses, an elevator, a

large garage and two banks. The garage i s closed; but in one year i t sold

1 2 ) automobiles. Both banks are closed. One has no t y et go t i t s receiver

i n . There i s a famine of receivers, owing to the unprecedented demands The

cashier i s s t i l l th er e. I t i s only decent, after having taken a snapshot of

the Dank a s i f i t were a public exhibit , to go i n and speak t o him . He i s

from South Dakota and smokes a corncob pipe.

DOMESTIC TRAGEDIES

The Government told us to raise wheat," he says . I t never told us to

stop. We raised i t , o r tried to r a i s e i t , unt i l we a l l went broke* That's

the end of th e story."

Do you speak a s a banker or as a farmer?"

"Both. I had 1000 acres in wheat this year. I t looked like a good

crop. Then

the

grasshoppers came. They were

so bad the

locomotive engineers

had to

sand

t h e

r a i l s

t o g e t

through her e. That's tru th.

You can s e e

what

happened. They a t e everything there wa s. I got 125 bushels from 1000 acres."

Now *ba.t are you going to do?

I'm going t o stick around here. I t ' s worse in South Dakota, from what

I hear. This wouldn't be s# bad if only we had raised eoaa corn. Did you

know corn would grow hare? We didn't know i t .

At

Havre

the

bank buildings

are #f

brick with ston e ce lu ms ,

and the

fatal pieces

of

white paper

ar e

read through pl at e g l as s.

I n one

plate-glass

window may be several notices, announcing n o t only th e insolvency of this bank

but

that also

o f a

number

of

shingle-shanty banks

out on the

bench,

or a

fore-

closure not ice li ke th is:

TO WHOM IT MAY CONCERN: The chattel mortgage o f Frank and Eloise

Robinson

f o r

$lbjpO being

now due and

unpaid

. . . the

following property

wil l be sold a t auction, to w i t : One red cow named Betty, one roazi heifer

named Irene,

on e

black gelding named Dick,

one

gray mare,

lU- y r s . ,

named Bell

-

(Signed) FIRST NATIONAL BANK OF FRESNO,

B y I t s Receiver.

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- 1 2 -

This receiver h as received not only t h e brick hank but a number of

l i t t le barks, including the one at Fresno, where Frank and Eloise mortgaged

Betty, Irene, Dick and B e l l . He i s within* E e i s glad t o s e e y o u . V i s i t -

in g breaks u p t h e gloomy echo es . There a r e some people i n town. He will

have them in - th e man who was governor when Montana thought what sh e needed

was

people ,

and the

president

of a

bank that ought

not to

have failed

and

perhaps would n o t have failed i f i t s depositors had not got themselves into a

sympathetic pa nic. These

and

ot he rs . They seem

a l l a

l i t t l e dazed.

N o-

body could have imagined what happened. I t seems unrea l, stra nger than

f a c t . Only three years ago the president of the bank that ought not to

have failed would n ot have taken a share f o r h i s bank stock. Now h e

w i l l pay an assessment if he can, or lose i t i f h e can't .

But

isnU this what happened?

You

overcapitalized

an d

overmortgaged

tw o freak years of plenty and put nothing b y . You believed your own color

poster a t l as t ."

"Yes," they s a y , "that's s o .

Too much credi t . That i s what ruined y o u really?"

I t d id ,

6

says the man who was governor, Not here in t h e triangle

only. Everywhere.

The

loan companies swamped

u s

with money.

I

know

a

man who had the finest 10,000-acre ranch in t h e state* Owed nobody a

penny.

He

thought

h e

would borrow *60,0C0.

The

loan agent said: *T0hy

not

take ninety?* He said, ' A l l right - ninety .

1

Now h e 's bankrupt. The

mortgage

i s

being foreclosed."

Why did he borrow $$0,000?"

I

asked

him

that qu estion.

I

said

d id you

borrow

th e

money?*

He said, *1% damned i f I know why. Everybody e l s e was branching ou t . I

thought

I ' d ge t me a few

tractors

an d

some fine stock.

1

"

"This i s Hill County?"

"Y@s."

•It's black with foreclosures?" '

"Almost solid black," they sigh.

Bat here and there i s a white spot . TRkat has happened i n those

White epots?*

"There a r e what you call white spots," says th e iran whose bank ought

not to

have f a i l e d . "That's

a

good

way to put i t .

"Tiite sp ot s.

1*11

t e l l you what happened in one of them. This l a s t year , yv.u know, we were

about'to g e t another crop when th e grasshoppers came. The sky was ve i led

with them, gleaming in t h e sunl ight . A pretty sig ht, i f you've never seen

i t . But what a sco urge They e a t everything down t o moisture. The land

they've been over i s a a i f i t were summer fallowed. You have seen i t . % 1 1 ,

there

was a

woman

out

there whose husband worked

oh the

rai lroad.

She di d

t h e farming. Sh e fought th e grasshoppers with h e r hands, and right there,

surrounded

b y

people

who got no

wheat

a t a l l , s he

brought through

a

crop

of

forty bushels t o t h e acre and paid o f f a $1200 mortgage. Last year I I

know because she paid it at my bank. I said, '"e l l , y ou ought t o b e mighty

glad t o ge t that paid SQaat seemed to h i t her in a place she'd forgotten

about. First

sh e

stared

at me,

then

she

began

t o sob .

That

was a

white

spot, wasnH i t ?

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:

- i j -

And Sadly as the cattle "business i s hurt, there a r e white spots i n that

picture t o o .

"There e r e , says th e nan who was governor, I knew a man who i s making

money i n catt le r ight now.

How does h e d o i t ? t h e others asked.

He doesn't rais e to o many, and they a re f in d . Up to 1600 pounds per

head. He always gets the top price."

What befell th e c at t l e industry o f Montana, i s a separate story* Fi rs t

i s the fact that cattle raising there had always "been an exciting gamble with

Nature-

I t d id not

have

tb be ;

people lik ed

i t t o b e .

Natural bu ff al o gra ss,

which cares

on the

s ta lk , makes ri ch grazing both winter

and

summer

-

winter

i n

the

va l leys

and

summer

on in the

mountains. Therefore

t h e

drudgery

of

rais ing

feed, may be avoided. There i s t h e s tory o f a ranchman A o on returning from an

errand to the c i t y was furious to find that a raw hand had plowed a patch of

ground f o r potatoes.

But pot ato es wi l l grow her e," said t h e culprit#

I know they will,

r t

said th e ranchman. But i f y ou start that t h e hunny-

akkers will come i n .

TROUBLES IN FLOCKS

That i s a contemptuous word, meaning farmers who work t h e s o i l . The

rancher's idea was both t o grow and fa t t en ca t t l e on the un ti ll ed bosom of

Nature. Now and then came a bad ye ar . Then h e l o s t . But the next year h e

began again, pyramided, h i s herd with each successive good year, and played f o r

sweepstakes.

They were doing this, as usual, in 1917 and 1918, only on a much larger

sc ale than us ua l, and went into 1919 with a clean-up i n sight such a s h i therto

they had dreamed o f . Never had the pyramid been s o enormous, never so danger-

ous , and the

pr ice

wa.s in the sky.

Then came

th e

drought,

th e

same that killed

th e

wheat growers

i n t h e

tr ia ng le . There

was not

enough buffale grass

t o

bring

t h e herds through another winter. And just a s they had made up their minds not

t o r i sk i t , b u t t o scale t h e pyramid b y s e l l i n g o f f a l o t o f c a t t l e , t h e outlaw

switchmen's strike began. For weeks livestock accumulated a t t h e shipping pens;

cattle cars couldn't b e moved, out . In October i t began to sn®w; and th e snow

that fe l l i n October was s t i l l on the ground th e next May. The winter was

t e r r i f i c . Without fe ed , never having raised, any , they had to import h a y from

other states, and it cost them up to for ty - f ive d o l lar s a t o n . They borrowed

money on their notes a t t h e bank t o p a y f $ r i t . B ut already they had borrowed

on

their catt le

a s

much

or

mora than

i t had

been safe

f o r

banks

t#

lend.

The

baiits were caught.

I f

they di dn't land more money

f o r

feed

th e

cattle would

b e

lo st , together with

a l l t h e

money already loaned upon

i t .

Take

a

concrete case.

In the

autumn

of 1919 tw#

banks

in. th e

Judith Basin

were lending $3>000,000

on

growing livestock which

a t t h e

very highes t pric es

was

worth $10,0 00 ,00 0. There was rear g i n enough i n that, provided nothing happened.

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- 14 -

In the

spring

of 1920

their loans

on

that same livestock

ha d

increased

t o

$6,000,000.

The

increase represented money loaned

f o r

bay* Then there

was

no calf crop t o speak o f , because t h e cows were weak and slunk their calves.

Finally,

i n 1 9 2 0 ,

came

t h e

great fall

i n

prices ,

aid the

disaster

was

complete.

A steer that had been thought worth $200 f e l l to actually $60;

a

cOw that had

been worth

$100

f e l l

to $30 . In the

f a l l

of 1920 the

l ive s tock

on

which those

two

banks

i n

Judith Basin

had

loaned $6,000,000 could

n o t b e

sold

f o r

$6,000,000.

Much of i t was carried over f o r another year , everybody despe rate ly hoping for

a

better price.

The

price

did not

improve;

the

l ives tock

did not

fa t ten .

I t

had not the

bone.

The

hard winter

had

hurt

i t , T he

banks

a t

last could

go

no fu rt her. They could not borrow any more money a t Minneapolis because they

had

nothing

to

pledge;

and

Minneapolis

was

calling upon them

to pay

what they

already owed.

The

ca t t l e

at

last were sold

o f f f o r

earners

and

cutters ,

and

brought less than the cost of the hay they had eaten in the winter o f 1919-20.

Never

had

there been

s o

great

a

cattle disaster

i n

Montana.

But

then,

never

had the

play

fo r

sweepstakes been

so

steep.

The banker who t e l l s yo u this story brings out some folders containing

the

cattlemen's notes.

You

shall

see how i t was .

Here,

f o r

example,

is a

man who i n 19 18

borrowed $8,000

on h i s

note

to buy

some cattle.

He had

sold

out and was

going

i n

again;

and h e

borrowed

the

money

to do so . At

that time

h i s n e t

worth

was

$30,000,

a

figure obtained

by

subtracting

h i s

debts from

the

estimated, value o f h i s la nd . That note was never paid. I t was renewed and

increased.

In 1921 , on

what survived

o f h i s o a t t i e , h e

owed

th e

bank $20,000,

and h i s ne t

worth

w a s n i l ,

because

the

estimated value

o f h i s

land

had

fa l len ,

h e owed more than he was worth. Wasn't i t amazing? And how could anyone

have foreseen

i t ?

WHEN NATURE FROWNED

One's amazement does

n o t

exactly follow

th e

banker's words.

The

ironic

way of

Nature with

th e man who

presses chance

- y e s , one may

wender

a t i t . B u t

the way of Montana, banks with credit is. a natter lower down. And that takes

away

th e

breath . Banking

was a

pyramided industry

to o. The

pyramiding

o f

land,

o f

wheat growing,

o f

ca tt le ra is ing ,

of

bank loans,

of

mortgages

- i t was a l l

one piece o f excitement, and had already gone so f a r that i t was no trouble a t

a l l f o r t h e

Lord

t o

upset

i t . One

frown

of

Nature,

and i t

crashed.

What

th e

rec ei ve rs found when they came

t o

take possession

of

that every

third bank i n Montana which failed was that everybody more o r l e s s had been

doing a l l these things together, with a kind o f wild, uncontrollable enthusiasm.

It was a.

pyramid

o f

pyramids. Bankers were involved

i n

land

and

catt le

and

wheat. The b ig speculators i n land and c a t t l e and wheat were involved in the

banks.

As

thejre were many

new

ufceat growers

and

cattle raisers

who

knew only

the

pro f i t s

and

none

of the

r i s ks ,

s o

also there were many

new

bankers

who

knew

only

how

easy

i t was to

increase their profits

anJ

thereby

th e

value

o f

their

bank stocks

by

increasing their loans

and

de pos its. They competed with

one

another

to

make loans. They loaned money

not

only

to one

another; they loaned

i t t o themselves and sometimes to people thsy knew nothing about except that

they owned

t h e

land, wore spurs

and

smelled

o f

c a t t l e . They ware known, when

business

was a

l i t t l e d u l l,

t o

swap notes with

one

another, almost

f o r n o

other

reason apparently than t o whoop i t u p .

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Or one

would

go out and

create business

i n

this fashion:

A man

owned some

cat t l e . The banker would s a y , I know somebody vifco wi l l buy those cattle at a

very good price, provided

y o u

wi ll leave

t h e

money

on

deposit with

th e

bank."

I f the

cattle owner

was

wi l l ing

th e

banker would

go to

another

man,

saying:

"Thare's a. fine herd o f cattle over hare fo r sa le . TShy no t buy i t ? Our bank

will lend

you the

money." Thus loans

and

deposits were both increased, with

no

increase

a t a l l i n t h e

wealth

of the

community;

and th e

rival bank

had

then

to

thitik up some way td increase i t s loans and deposits or seem t o b e falling behind.

Not

only

did

bankers finance

t h e

land

and

wheat

end

c a t t l e pyramids. They

took part

in

them.

And

then when

the

receivers began

t o

examine

t h e

paper

i n

th e

banks they found among

the

worthless assets

of the

banks' debtors

-

what would

you think? Why, bank st oc ks . That i s t o s a y , bankrupt borrowers were a l so

stockholders

i n

bankrupt banks. They

had

borrowed money

t o

buy bank stocks

a s

they

had

borrowed money

to buy

land.

Was i t

gambling? That

i s a

harsh word.

It was boosting. And what were they playing with? Deposi tors' money. Every-

body forgot

th e

depositor.

Most o f this rainbow banking got started, during th e war. The Government

encouraged

i t , n o t

d irec t ly ,

y e t

inevitably,

by

putting Unlimited credit

at the

disposal

of

bankers through

th e

Federal Reserve System

and

then exhotfting them

t o

finance a l l manner of production. Once i t g o t started, y o u almost could not

stop

i t

without

a

smash.

It was very prevalent. Yet i t was not universal . We must keep t h e perspect-

i v e . A

great majority

of the

banks

of

Montana were always sound

an d

always will

b e. And th e

strength

o f

Montana

i s

s t i l l

in the

sons

o f

those pioneers

who

vdien

Helena burned

up

held

a

meeting

to

decide what they should

do*

They

had no

cattle , no sheep, no agr icul ture . Placer mining was about played out* Quartz

mining

had not

begun.

A l l

th ei r merchandise came from

St*

Louis,

up the.

Missouri

t o

Fort Benton

and

then

by

wagon overland.

A

message

o f

commiseration

was re -

ceived from

t h e

merchants

of S t .

Louis,

who

said they

had

collected

a

large

sum

of

money which they wished

t o

contribute

to the

restoration

o f

Helena*

To

whom

should they send i t ? The men of Helena sent back word, saying: "Thanks. Pl ea se

return

t h e

money

t o

those from whom

y o u

received

i t . We

came here with nothing

but our

hands. Therefore

we are no

vrorse

o f f

than when

w

started.

And we

like

t e

think

we can

start

a l l

over again."

Now

North Dakota. Years

ago the

bonanza wheat miners with their monster

out f i t s passed slowly westward over thi s vir gi n s o i l . They were followed

by

settlers, mostly a t f i r s t Scandinavians imported by the railroads that had Federal

land-grant acreage

t o

s e l l . They

are a

strange, unaccountable people, both

credulous

and

suspicious

in

morbid degree, with

th e

brooding fatalism

of a one-

crop mentality,

a

Nordic belief

i n

imitative magic,

and no

sense

of

humor* They

began

to

grow wheat because

i t

vtes wheat land

and

that

was the

easiest crop* They

have been growing

i t

ever since,

and

r e l a t i v e l y l i t t l e

o f

anything el se * They

were urged to diversify their farming. The local bankers, th e county agents,

th e

agricultural colleges,

th e

rotary clubs

- a l l

preached diversification

of

crops

and

l ivestock.

B at

these people would grow wheat.

TEE ONLY REMEDY

I t i s a

habit very hard

t o

break.

For

wheat

a

farmer works ninety days;

i f he

has.general crops

and

l ivestock

he

works every

d a y .

Changing from wheat

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— 16 —

to

general farming means going hard

t o

work*

A

survey la s t year showed that

20 per

cent

o f

North Dakota farms

had no

sows; some

had no

chickens; many

had

no

cows. There were farms without barns, -vheat

i n

that case "being threshed

a t

harvest

and

hauled

t o t h e

elevator

h o t .

Such farmers

buy the

food they

e a t .

A

North Dakota farm self-contained

i n

swine, dairy, poultry attd garden products

i s exceptional.

Yet

these

are the

people

who

l o s t $70,000,000 with Townley

i n

five years.

The

same survey that revealed

the

scarcity

o f

milk cows, pigs

and

chickens

showed that among 6 l average farmers statistically sampled, 21 had tractors and

47 had

automobiles. Kiey were

n o t

poor. They were ob st in at e, unable

t o

give

up the fixed notion that wheat mist p a y . They mined th e f e r t i l i t y of the soil

unti l

t h e

earth groaned,

th e

growth, became thin

and

mean,

and the

yie ld

per

acre declined i n a di sa st ro us manner* There was only one way to save agri-

culture

i n

North Dakota. That

was to

change

i t

fundamentally,

as had

been

done,

f o r

example,

i n

Iowa.

B i t t h e farmers thought i t could be saved by law. They hated, farmyard

drudgery. There

was a

saying among them that they would

n o t

pu l l t ea t s . They

thought

the

trouble

was

that

t h e

railroads

and the

millers

and the

speculators

got a l l the "profit ; which, even i f i t ware true, had nothing to do with the

basic problem, They dramatized these ideas

and

took them

t o t h e

leg is la ture

a t

Bisma-rak* The legislators told them to go home and sl op th eir pi gs. This irafje

them very angry.

The

episode

h a s

always since been treated

as the

beginning

of the Non-

partisan League experiment under

th e

leadership

o f

Arthur

C.

Townley,

a man who

had

fa i led

a t

bonanza farming

On

rented land with borrowed money

i n

Golden Valley

and who then borrowed an automobile and went about telling the farmers that i f

they would take control

of the

s tat e they could make their

own

credit ,

be rid qf

their -taxes, have their

own

mi l l s

and

packing houses

and

s tore s ,

and be big

bus iness i tse l f .

He

appealed

t o

their fip4.th

i n

imitative magic.

To

become

a l l of til em ri ch l ike bankers they had only t o imitate bankers; to be millers

they

had

only

t o

have mills;

to be

packers they required only

a

packing plant;

to be statesmen they had only t o s i t a s statesmen s a t .

They went with him . He took their dues i n t h e form of post-dated checks.

The

first example.

No

money. Only

the

promise

t o p a y .

They

g o t

possession

of the s ta te by voti ng to ge th er . Then they changed the constitution i n order

to

create

a

state bank, which

was to

ma-ke thei r credi t .

. I t

offered bonds

t o

raise capital.

The

bonds would

n o t

s e l l . Thereupon

th e

bank itself bought

them. Then small cooperat ive banks were formed,

i n

imitation

o f

real batiks;

the

capital

was

supplied

by

post-dated checks which

t h e

state bank treated

as

money.

A l l t h e

real money there

was at any

time

was

state money, such

a s

school funds,

a l l o f

which

t h e

state bank required

to be

deposited with itself;

then

i t

spread this public money

out t o the

cooperative banks

to be

loaned

to

good league members. A tinsmith became state superintendent of banks. With

post-dated checks they founded chain stores

and

fifty-one newspapers

t o

te l l

only th e non-partis an trut h. They bu il t a t Fargo a pack qg pla nt that cost

$2,300,000.

I t

lost $1,300,000

i n

seven months' opera tions . Afraid

t o

refuse

to buy

cattle from

i t s

17,000 stockholders,

i t

bought

th e

ca t t l e

and

resold than

a t a

l o s s .

I t

sent away dressed

and

padced. meats

and

brought them back unsold

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to be

ground Into f e r t i l i z e r They star ted

a

$3,000,000 mill

and

elevator

a t

Grand Forks

and

l e f t

i t

unfi ni shed, State taxes tret>l3d

i n

five years;

and

when

th e

s truo twe fe l l

i t

was.not hollow,

as

everyone supposed;

i t was

alive

with white-eyed, mephitic things, h os t i l e to the light, that scattered and d i s -

appeared with amazing rapidity,

THREE CLASSES

OF

FARMERS

Sanity

haS

been sorrewhat res tor ed. There

a r e

many

who

perversely believe

the

scheme

w a s a l l

right

and

that

b i g

business killed

i t .

They

are the

irreduc-

ible minority. A great majority a r e ready to try a return to agriculture on

pr inc ipl es prev ious ly recommended.. They

a r e

wi l l ing

t o

take pigs from

the

rotary clubs, bees from th e bankers, cows and chickens from t h e United States

Government,

and

tend them

f o r

increase.

The

population f a l l s into three categorie s. One- fif th

o f i t i s

s i l en t ,

e f f i c i e n t

and

getting

on; i t

asks

f o r

nothing

bat a

rough parity

o f

buying

power

and to be let

alone. Three -fi fth s

of i t i s

badly

in

debt,

but not

bank-

rupt; i t can work itself o ut . The la s t f i f t h i s hopeless and s t i l l vocal.

These

are

they

who

forgot farming

and set out to

regulate government.

Meanwhile business, notwithstanding

the

wreck

of

banking,

i s

transa.cting

itself with less awkwardness than

you

vould imagine.

No t a l l t h e

banks that

were insolvent could

be

permitted

t o

shut their doors; there

had to be

places

to put money fo r safe-keeping and a way to ge t i t back when i t was needed. So

many

of

them, instead,

of

being shut

up

t ight , were chloroformed. That

is the

word they use fo r i t . The method was simple. I t was to draw a red line

across

th e

books

as of a

cer ta in da te . Everything prior

to

that date

was

moribund; and th e bank, having lost i t s capital, could n o t , o f course, make

loans.

But i t

could, subsequently

to the

date

of

that

red

l ine , receive

new

deposits, keep these separate, and permit them to be withdrawn or checked against

in the

ordinary

way of

bank de po si ts . This plan

h as

been adopted also

i n

South

Dakota.

When

the

sound bankers

a t

Fargo

who are

t e l l i n g

y ou

about Townleyism pause

f o r

breath

you can

st ar t le them

by

saying:

You ought t o build a monument t o h i m .

"Why?"

"Because h e saved North Dakota from having a land boom. Say tha t fo r him .

Outside capital shunned

y o u .

Eastern lean companies would

n o t

come

i n .

"That's r igh t ," they admit . "Like the monument down South to the boll

weevil,

you

mean.

Yes. No

evil without some blessing.

We

haven't

had e.ny

land boom he re.

We ar e

s t i l l close

t o t h e

s o i l . Much, be tt er

o f f i n

that

respect than South Dakota. And we' l l come back a l l t h e fa st er . Correct."

I f

farming vera anywhere safe

i t

ought

to be so in

South Dakota. Most

of

i t i s in te l l igent ly d iver s i f i ed . The la.nd i s tame and very desirable. The

farms

a re

l i k e

the

woodcuts

at the top of the

months

in the o ld

almanacs.

"What happened to South Dakota?" you ask a banker a t Sioux Falls.

He.answers mechaJiically• "Corn that

was two

dollars

i s

si xt y cent s. Oats

that were

a

dollar

a re

f orty ce nt s. Hogs tha t were twenty cents

a r e s i x .

Wheat

that was three dollars a bushel i s ninety cents."

Is that all?"

"Ain't that enough? Where are you from?"

You don't mention land."

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- 18 -

He moves a. l i t t l e u ne a si l y. No , be says. You don't mention land around

here if you can help i t . Land that w as three and four hundred dollars and acre i s

a

hundred

and

f i f t y

if you can

s e l l

i t at a l l - and

worth that

i f you can buy i t .

And you capi ta li zed two-dol lar corn, twenty-cent hogs and three-dollar wheat

in the value o f land."

"They went crazy," he sa ys , speaking slowly . "Take a case like this: A

man had 160 acres of fine land, owed nothing, $20,000 i n th e bank. What could

happen to him?"

*TOiat did?"

He l o s t h i s mind.. He bought the quarter section next to h im for $500 an

acre. That was <80,000, wasn* t i t ? He paid h i s $20,000 cash dcwn, and gave a

mortgage fo r $60,000. You might s e l l that land today fo r half th e face of the

mortgage.

I t ' s

being fo rec lo sed . That

man has

l o s t everything

he

owned.

He

has disappeared. And he was a good farmer t o o .

Too easy t o borrow money. That seems to have been true everywhere»"

"Yes," he answers, and to o much prosperity. A farmer with nothing to

borrow on was just i n here trying to get a loan. I said, * 'Tell me, do you

know what happened

to

you?'

He

said,

'Yes , I

know.

I

sold some hogs

a l l a t

one time f o r $3800 and i t made a fool of me.

1

It appears that i n th e year 1920 , when borrowing i n a l l forms wa s a t i t s

peak, South Dakota went

to the top of the

automobile l i s t .

She was

distinguished

fo r having more motor cars i n proportion to her population than any other state

in the Union."

H is

reply

to

that

is to

spit .

How did you come through? Why i s your bark, one of the four l e f t standing

in this neighborhood?"

GRANDPA'S ADVICE

I never forgot what scy grandfather told me, he answers. grand-

father sa id, 'Suppose everybody

to be

dishonest until

y ou

know be tt er ; tr us t

your own money a l l t h e time and the other fellow's money only half th e time;

never lend to a man while h e ' s lo s ing . ' I ' v e been running this bank on those

principles

f o r

many years,

and. you see i t ' s

s t i l l here ."

Although everybody will violently reject th e thought, nevertheless i t seems

true that South Dakota

had a

mild attack

of the

North Dakota disea se . There

was,

only i n less degree, th e same belief i n th e magic o f credi t; also t h e idea that

it was one of the state's functions to create and: dis tri ubt e credit*

The

annual report

of the

South Dakota Sural Credit Board beg ins wit h th is

thesis:

It appeared that a state ought t o u s e i t s credit t o help th e people of the

state . . . . This system.was organized fo r th e purpose of giving t o t h e farmers

cheap money

on

long time."

On that theory th e Rural Credit Board h a s sold $47,500,000 of tax-exempt

state bonds to Eastern investors, meaning to laid t h e money to the farmers; but

apparently also

i t

undertook

i n

time

of

s tress

to a id the

state banking system,

for by the last annual report i t had deposits in 27b state banks; and f o r these

deposits i t has no surety whatever, none being required, since a l l bank deposits

a r e

guaranteed

by law.

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- 19 -

This deposit-guaranty scheme has not the look of one of those three—horned

monsters that once prowled about, for God knows why, in viiat now is South Dakota.

I t s resources a re insuf f i c i ent to pay interest on the deposits that a r e l o s t , t o

think nothing o f t h e principal- Of th e four banks that have failed, i n Sioux

Fails one is a national bank, three are state banks. On each of th e three defunct

state banks on e reads th e rash and disproved legend, i n s i l ver and gold letters:

"Deposits Guaranteed»" Later truth in the form of a small typewritten notic e i s

pasted,

on the

door:

This bank suspended, business Jan* 24 , 19 24 , and i s now i n th e hands of

the Superintendent of Banks of South Dakota on account of constant with-

drawals, causing a depletion of reserve.

(Signed) JOHN HIRNING, Superintendent

of Banks of the State of South Dakota.

It was

never intended perhaps that politics should control banking

i n

South

Dakota, as was the case i n North Dakota] and ye t that po l i t i cs did touch bank-

in g

deeply

i n

South Dakota

is no t

easily denied.

And

their ideas

o f

wiiat banks

were fo r became very grand and soc ia l . The b ig credit machine was the Sioux

Falls Trust and Savings .uank. I t had four and a half mill ion dollars i n d e -

posi ts , o f which one—half million was state money and two millions represented

the reserves of nearly 200 small state banks, which seemed unJer some kind o f

psychic compulsion to keep their money in that place. The Sioux Falls Trust and

Savings Bank advertised on the billboards i t s own idea of what i t was f o r ; and

that

was to

bring

the sky and the

town rrnch nearer toge th er .

A

subsidiary

c o n -

cern, which

i t

owned, issued guaranteed gold bonds secured

by

unspecified coll at -

eral as to which unlimited rights of substitution were reserved.

Afterward th e people who had bought th e bonds seemed rather to enjoy the

excitement o f guess ing whether their securi ty was the garage> a new apartment

house, or th e hote l , and whether, in any case, i t began a t t h e f loor or at the

eaves*

A FAMILIAR AMERICAN MALADY

In the area o f ruin Montana, North Dakota and South Dakota a r e t h e hi^tx

spectacles .

I n

Montana, one-third

of the

banks have failed, representing

a

l i t t l e more than one-quarter of her entire banking capital, and involving o n e -

f i f t h of her to ta l bank de pos it s. In North Dakota one-quarter o f a l l t h e

banks have f a i l e d , r epresenting about on e- fi ft h

of her

entire banking capital,

and involving one-fifth of her total deposits.

In

South Dakota about one-tenth

o f t h e

banks have failed, representing

nearly one-fifth of her whole banking capital, and one-tenth of her bank d e -

posi ts . The fa i lures i n Minnesota, have been fewer than one bank i n twenty,

representing only 2 per cent of the s ta te 's banking ca pi ta l and 1- 1 / 2 p er cent

o f i t s

bank deposits.

Now l e t us demand th e lowest common denominator f o r t h e d i s t res s o f -

Montana., with i t s overturned wheat and cattle pyramids, that had a wild.

land boom;

North Dakota, with

i t s

one-crop obs ess ion, that

had no

land boom;

South Dakota> with

i t s

highly diversified farming, that

had a

land boom.

What i s i t i f n o t , i n a l l three cases, a de l ir ious way with credit?

There i s a basic depression o f agriculture, owing t o overproduction; to

th e fact that we produce a surplus of wheat i n competition with countries whose

costs

of

production

a r e

much lower than ours;

t o t h e

fact that

our

foreign

market f o r beef i s limited because Argentina can always undersell u s; and ,

7/17/2019 frsbog_mim_v20_0310.pdf


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las t ly , to the fact that th e products of agriculture are less protected from the

competition of low-cost countries and have been more deflated from war prices

than th e products of industry. These are grave problems. They complicate and

do touch the situation in the Northwest; but they touch a l l basic agriculture

at the same time in a certain way-.

They

do not

explain

why one

type

of

malady

i s

extremely acute

in

three states

whose agricultural conditions

are

structurally dissimilar.

I t i s a very familiar American malady - this delusion that credit i s

substance.

Documents

frsbog_mim_v20_0310.pdf