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State interference.

Short leases with no indemnification to the tenant for the improvements which he has made, lead to rack-renting, exhaustion of the soil, and class hatred between landlords and tenants. Long leases, on the other hand, afford insufficient protection to the landlord; because when prices are high the tenant thrives and pays his rent promptly, but when prices fall rents go unpaid and the landlord has no real redress. In England the situation has been met by a system of short time leases together with compensation to the tenant - a legal obligation which the landlord cannot escape by "contracting out" for any improvement made by the tenant whose value he has not exhausted. Neither party can abrogate a lease without a year's notice, although by mutual consent this may be reduced to six months. This system permits rentals to be adjusted frequently as prices change, rules out excessive competition, protects the landlord, and warrants the tenant in making any improvement required by good farming, since he knows that, if the landlord orders him out, he can collect on his departure the actual value of improvements made by him, whose benefits he has not had time to reap. In practice, the incoming tenant usually pays for the unexhausted improvements, and disputes are settled by arbitration. Under this system, "the relation between landlord and tenant is very satisfactorily arranged, the farmers are, as a rule, contented with the present system, and the fields of England prove that landownership on the part of farmers is not essential to good agriculture."

Marketing of Farm Products.

One of our most urgent needs

at the present time is the greater diversification of industry in general. The prices of the great staple crops such as wheat are largely dependent upon conditions of demand and supply in foreign markets; and the consequence is that a poor crop may coincide with a period of low prices, or an abnormally large crop with unusually high prices. This is almost impossible in the case of products whose value is fixed in a local market. With such products, the misfortune of a small yield is normally reduced by the advantage to the producer of a high price; the two compensating factors working to moderate those fluctuations of income which are the bane of the agricultural industry. The advantage is not all with the local market. Prices are apt to be steadier in a world market, because the latter reflects conditions over a wider area. For this reason it would be unwise to endanger our foreign markets by tariff wars or oppressive railway regulation. But such pressure as can legitimately be exerted at the present time

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1H. C. Taylor, The Decline of Landowning Farmers in England, p. 61.

should be employed to bring the miller, the brewer, the cotton manufacturer, the packer, and the consumer closer to the farm. If caution and expert knowledge are employed, this can be done without crippling those transportation agencies which have given the American farmer entry to the markets of Europe and the Orient, and which must be preserved in order to prevent too exclusive a reliance upon local demand. A local market as the regular outlet, and a foreign market as a potential outlet, is the condition of maximum safety.

Railway tariffs which favor through traffic at the expense of local traffic are largely if not mainly responsible for the concentration of manufactures and population in the large cities. For many years, Southern cotton mills reaped little or no advantage, so far as the price of cotton was concerned, from their proximity to the source of supply, but paid as much or even more for cotton than their competitors in New York. The railways are not wholly responsible for this condition of affairs. In England, particularly, representatives of the agricultural interests have criticised the railways for accepting lower rates from the seaboard to interior points, than on local traffic from intervening stations to the same destination, when the difference was fully explained by the larger size of the seaboard shipments, their more convenient package, and the great expense of picking up small consignments of freight at numerous local way stations. And competition forces railways frequently to accept lower rates for long than for short hauls over the same road. But there can be little doubt that American railways have charged the local traffic much more than their necessity compelled them to charge, particularly in the South; and there are few reforms on the side of marketing which American farmers could demand with more equity or secure with greater social profit than the rehabilitation and revitalization of the long and short haul clause of the Interstate Commerce Act, emasculated by the Supreme Court decision in the Alabama Midland Case (168 U.S. 144, 173). This might, however, involve certain pains of readjustment.

At present there is a great gap between the farmer and the consumer of his products which is bridged by a complicated trad

ing or distributive1 mechanism composed of railways, storage companies, commission merchants, brokers, and other middlemen. In the distribution of the great staple products, the commission merchant is rapidly being forced out, and fortunately so: he was unprogressive, uneconomical, and too often betrayed the interests of his client by systematic overcharges for insurance, hauling, and storage, by buying consignments on his own account when market conditions were unusually favorable, and selling at the loss of the owner when the market was particularly bad. In the marketing of perishable goods the commission system has a more tenacious hold, but even here it has been partly replaced by coöperative associations of farmers or growers such as the California Fruit Growers and Shippers' Association, which maintains auction rooms in eastern cities and sells its own products direct. The Southern California Fruit Exchange, to cite a single illustration, in a few years reduced the cost of marketing California fruits from 10 to 3 per cent of the sales value.

The coöperative marketing association and the intermediate trader who buys from the grower and sells to the consumer, have in common two points of superiority over the commission system; (a) they replace the zeal of an agent by the care and solicitude of an owner; (b) and by shipping in large quantities they are in position to obtain much better rates from the railways, to say nothing of the other economics affected by handling goods on a large scale.2 Whether the coöperative association will force the commission merchant out of business in the marketing of fruits and vegetables is a point which cannot be settled here. But there can be little doubt that the farmer has gained enormously by the substitution of the trader for the commission house in the marketing of the great staple products. The trader comes almost to the door of the farmer, with constant bids for his grain. He is an expert in railway rates, in constant telegraphic communication with the great markets of the world, and handles products in such large quantities

'The word "distributive” is used in the popular sense in this chapter.

2 The coöperative marketing associations have also effected great economies by watching prices in all markets carefully and distributing their consignments so as to get the highest prices obtaining at the time.

as to reduce intermediate expenses to a minimum. Occasionally, as has sometimes been the case with the great line elevator companies, he works in conjunction or in collusion with the railways, overbidding the small grain dealer, and forcing the railway to grant rebates on the large shipments which he commands. Even in this case, the farmer gains by the size and efficiency of the middleman (though the small dealer may suffer) because part of the economies effected even those effected by the discriminative railway rates will come to him in the long run. Cases of monopolistic oppression are theoretically possible when there is only one buyer and one railway who are in collusion, and the farmer is deprived because of high railway rates from shipping his products elsewhere. But the loss to the farmer through extortion of this kind has in general been much more than counterbalanced by the striking economies effected by the great trading companies; though this, of course, affords no justification either for monopoly or railway discrimination. Both should be suppressed, if possible; but in such a way as to save for the farmer the distributive economies effected by large-scale handling.

Speculation. The modern marketing or distributive mechanism not only relieves the producer of a large part of the speculative risk which attends the transmission of raw material from the farm to the consumer, and calls public attention to this speculative element by collecting or concentrating it, but it is responsible also for a large amount of unnecessary speculation which many persons believe to be particularly injurious to the farmer. We are not here concerned with the general evils of speculation but with the prevalent belief that dealing in options and futures tends to reduce prices. "What is generally urged is that the professional short seller, by his sales of fictitious wheat or cotton, creates a fictitious oversupply in the market, which is just as instrumental in depressing prices as would be an abnormally large supply of actual wheat thrown on the market by the farmer." This charge is frequently supplemented by the assertion that it requires less money in margins to "sell short " or gamble on a fall in

IN. I. Stone in the Report of the Industrial Commission, Vol. VI, p. 189 ff., from which the other quotations cited in this section are also taken.

prices than to "sell long" in anticipation of a rise, and that, in consequence, the weight of the speculative dealing in farm products is exerted in the direction of lower prices.

This particular charge against speculation is confirmed neither by a priori reasoning nor by inductive analysis. Every "fictitious "sale of wheat, to use that as an illustration, must be balanced by an equivalent " fictitious" purchase. The "bear" who sells October wheat in July, even though he may hope to depress the price of October "futures," exercises no harmful influence upon the actual July or " spot " price, which is controlled by the demand for and supply of actual wheat; and when October comes, "the short seller of July appears now as a buyer in order to cover his contracts, and if his trading has any effect on the market at all, it is to increase the demand, not the supply."

It is very plain that the fictitious market may be artificially influenced by speculative deals, but as a general thing the fictitious market is ruled by the actual market, not vice versa; and the only influence exerted by gambling in futures upon " spot " prices (with which alone the farmer is concerned) is a good influence. This influence arises out of the effect of future transactions in equalizing consumption and in modifying present use by anticipating future necessity. And the complaint that it requires less capital to "bear" the market than to "bull" it, as well as a great number of ingenious criticisms of a similar kind, would all be negatived if they were true by the inevitable consequence that any permanent factor of this kind would be quickly appreciated by speculators and fully discounted. In no market are influences of this kind so accurately detected and so quickly dissipated by competitive forces as on the produce and cotton exchanges.

Actual investigations of prices confirm the theoretical argument made above. The average prices of spot wheat in September, October, and November - just after harvest, when the ordinary farmer is compelled to sell have been nearer the average price for the entire year, since the wheat market has become highly speculative, than it was in the forties and fifties when wheat was sold like any other farm product. And there are reasons for the belief that speculation has not only equalized yearly fluctuations,

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