Senator CLEMENTS. May I ask my friend from North Dakota a question?

The CHAIRMAN. Surely.

Senator CLEMENTS. Do I understand you are very much for the principle but the approach is not in keeping with your views?

Senator YOUNG. That is true. I think if I think if you follow the language in the bill as written, no support except in a very few instances would be above 75 percent of parity because even of the best quality wheat, there is, I understand, an ample supply, with the exception of durum wheat. So far as wheat is concerned you would have minimum support.

Senator CLEMENTS. You are very strong for the principle?

Senator YOUNG. I am.

To make it short and simple, any farmer who plants a variety of wheat that normally will produce a top quality wheat, should be given the top level support. Anyone who produces a wheat that never produces good quality should be given the minimum support, even if it is below 75 percent of quality.

Senator CLEMENTS. I take it that the chairman is not wedded to this formula.

The CHAIRMAN. No, none of it. I am saying that it is something to work with.

Senator Young, let me say this, the language that has been written in that draft of a bill, of course, would depend upon the definition of what quality commodities are.

Senator YOUNG. You have the right idea.

The CHAIRMAN. That is the point. We will have to have a Moses, maybe, to give us a definition, to tell us what that is. I have tried to get the millers to do that. Up to now there is "nobody home."

They have not, except in 1 or 2 cases, offered some suggestion but they realize there is the problem of defining "quality commodities,” that it is a pretty difficult one.

We have a witness this morning who might shed some light on it. Senator Capehart, we will be glad to hear from you, if there are no further questions.

STATEMENT OF HON. HOMER E. CAPEHART, A UNITED STATES SENATOR FROM THE STATE OF INDIANA

Senator CAPEHART. Mr. Chairman, thank you very much for the privilege of appearing before you today.

First, let me say this, I am vitally interested in this matter for two reasons: One is my responsibility as a Senator; and secondly, the fact that I am a farmer and believe I know a little bit about what I am talking about.

So it is from actual experience over my entire life that I am speaking.

The problem, as I see it gentlemen--and I want to say this-that you gentlemen have done a good job in your investigations this summer, in your hearings, and I congratulate you on all of the hard work that you put in.

You are much closer to the subject than I am because you are members of this committee and being members of the committee you, of

course, deal with the subject closer than we Senators who are not members of the committee.

So I want to congratulate you on the fine work that you have done and the effort that you put forth.

Before I start in on my statement, first, I would like to have the statement made a part of the record as prepared, because I shall not read it all but I will talk from it.

The CHAIRMAN. Without objection, it will be so ordered. (Senator Capehart's statement is as follows:)

I consider it a privilege, but nonetheless a grave responsibility, to have the opportunity to testify before your committee today in support of S. 2852, introduced by me, for myself and several other Senators, to create an International Food Community Board, and for other purposes.

This bill would provide for the creation of a board to dispose of surplus agricultural commodities, in an orderly manner, to needy people, in this and other free nations, and thereby relieve our agricultural economy of the disastrous effects on farm prices resulting from the existing Government surpluses.

We would give these commodities only to peoples who are not able to buy them and we would achieve the distribution in a manner so as not to in any way disturb existing markets and channels of distribution for agricultural products. Later in these remarks, I will explain in some detail the provisions of the bill. Now I want to show its need.

Certainly there is no occasion for me to call attention to this committee to the fact that the Unied States is now enjoying its greatest peacetime prosperity in history-with one important exception. Personal income exceeded $300 million in 1955. Dividends to stockholders were almost $11 billion in 1955. Our population increased to a new all-time high of 165 million. But farm income was at the disproportionately low level of $29 billion.

I am not here today to speak of the great general prosperity of the Nation, but rather to try to do something about the one important exception-the desperate plight of the American farmer. We must raise farm income to the levels of the general high prosperity of this Nation. This is not only essential to the millions of farmers in the United States, but it is good business for the United States, as well as good government.

Farmers are huge purchasers of farm implements, trucks, automobiles, building materials, clothes, and countless other basic items of our industrial economy. This Government has long recognized that the prosperity of our economy is in direct relation to the purchasing power of its consumers. Industry has just as great a stake in raising the level of the purchasing power of farmerconsumers as does anybody else.

Secondly, the fiscal obligations of this Government require large amounts of revenue in the form of taxes. Low farm incomes cost the Government staggering sums in the taxes farmers are not paying on the income they are not making.

It is elementary economics that price is based on supply and demand; but not on the total demand or the total supply; more usually it is based on the top 5 percent of supply or demand.

When supplies are only 95 percent of demand, we have a tight market with rising prices. But when supplies are 105 percent of demand, we have surpluses and a soft and declining market. It is the 5 percent at the top that regulates prices.

It is my firm conviction that the single most direct cause of the current unreasonably low farm prices is the huge inventories of Government owned or pledged farm surpluses that currently overhang the market. The $7.3 billion of Government owned or pledged farm surplus inventories hang over the farm commodity market like a sharp sword loosely hanging over the farmers' economic head, have depressed farm prices and are keeping them low.

Two points, Mr. Chairman, are essential to restoring normalcy in farm prices. (1) We must remove the existing farm surpluses from continuing to depress farm prices; and (2) we must adopt means to insure that for the future farm production will be kept at levels reasonably consistent with consumption of agricultural products.

I am certain that no one even remotely concerned with the desperate problem of the farmer will dispute this position. Many proposals are now being made

to limit production to the level of consumption, particularly the soil-bank proposal made by President Eisenhower in his state of the Union message. I am certain that the Nation's farmers were more than pleased with the President's fine farm program contained in his message to the Congress on January 9, 1956.

The President recognized the presence of these surpluses as the main farm problem, saying: "Of the many difficulties that aggravate the farm problem, mountainous surpluses overshadow everything else.'

The President went on to say: "Farmers, the intended beneficiaries of the support program, today find themselves in ever-growing danger from the mounting accumulations. Were it not for the Government's bulging stocks, farmers would be getting far more for their products today."

And I know we must all agree with the President's statement that: "The attack on the surplus must go forward in full recognition of the fact that farm products are not actually marketed when delivered to and held by the Government. A Government warehouse is not a market. Even the most storable commodities cannot be added forever to Government granaries, nor can they be indefinitely held. Ultimately the stockpiles must be used."

President Eisenhower wants to do something to dispose of these surpluses. He referred to a start being made by the Secretary of Agriculture, saying: "Because the problem continues to be so serious and stubborn, the Secretary of Agriculture is appointing an agricultural surplus disposal administrator who will report directly to the Secretary. The duties of the Administrator will relate to all activities of the Department associated with the utilization of Commodity Credit Corporation stocks and of our current abundant production. Existing laws limit the Secretary of Agriculture in the disposal of farm surpluses; but S. 2852 would give the President a truly effective means with which to dispose of surpluses that are not wanted and do no good to anyone. We must get rid of the surpluses now, if we are to increase farm prices.

But there still remains, Mr. Chairman, the equally important, and equally vital, need to do something about the existing surpluses. We cannot solve the problem merely by long-range programs to limit production. Most people interested in the farm economy agree on the depressing effect of these surpluses, but I am consistently told that there is just nothing further that we can do about it above existing disposal programs.

We are told that to sell these surpluses abroad at prices below existing market prices will divert trade from other countries and bring disaster to the farm economies of other friendly nations. This, of course, we must not do. And we are told that to seek to dispose of additional supplies on the domestic market would further depress prices, and, of course, this we will not do.

In the free world, however, there are millions of underfed and underclothed people who desperately need the surplus commodities that have created so unfortunate an economic problem for us. Those people are underfed and underclothed because they do not have the money to buy adequate food or clothing and, therefore, it would be necessary to give these commodities to them if we are to make use of them. This we are told would be a giveaway program.

Criticism of my program to create an International Food Community Board to feed and clothe needy people of this and other friendly nations, with our surplus agricultural commodities, is that we are giving something away. I propose to meet that criticism head on.

I have never considered it unwise, undesirable, or wrong to give something away when it was both good business as well as being a charitable Christian act. I can demonstrate to you now that my program is, in fact, good business for the United States.

First, although there has been criticism that this administration has not done enough to relieve the farm problem, the investment of this Government in programs primarily for the stabilization of farm prices and income, in the years 1954 and 1955, has been $2,263 million. This compares with a total expenditure for such programs in the prior 4 years of $1,747 million.

These farm surpluses are not something new.

They began to accumulate

in the fiscal year ending June 30, 1949, at which time the CCC inventory of wheat was over 227 million bushels. It is now about four times that amount. By June 30, 1950, the CCC inventory of corn was over 332 million bushels. It is now about double that amount.

The periods of greatest accumulation of these surplus inventories were the fiscal years ending June 30, 1949, 1950, and 1951 and again 1954 and 1955.

I say that it is not good business for the United States to continue to spend billions of dollars to inadequately and inefficiently support farm prices because we are unwilling to be realistic and give to needy peoples of this and other friendly nations that portion of our farm surplus that is depressing farm prices. Second, now, Mr. Chairman, there is nothing new about what I propose and some of my friends in industry who dislike giving away agricultural surpluses owned by the Government forget that just a few years ago the Government adopted a somewhat similar program for the benefit of industry.

At the end of World War II, the United States owned billions of dollars of surplus-and I emphasize that we then referred to them as surplus-industrial facilities. The cost to the Government of those facilities ran into the billions, and in the postwar period their replacement cost was even greater. Those facilities were referred to as surplus because it was then thought by some that the postwar demand for steel, aluminum, rubber, and many other industrial items would be substantially below their wartime demand and there would be no demand for the production of those facilities. This reasoning, of course, did not anticipate the great industrial expansion of the American economy in the postwar years.

In 1952 General Services Administration prepared a document entitled “Surplus Industrial Real Property and Related Property, Sales and Transfers as of September 30, 1952" listing surplus properties previously disposed of. This is very interesting reading. And, of course, we now have the benefit of hindsight to measure the extent of the giveaway in those transactions.

Let me give you a few examples. One aluminum company purchased four plants at Newark, Ohio, Troutdale, Oreg., Spokane, Wash., and Trentwood, Wash., for $41 million which had cost the Government $150 million. At the time of the sale the replacement cost was undoubtedly much higher. And the recent financial statements of the buyer make clear that the plants were really not surplus, but have been fully and profitably utilized ever since their purchase.

Another aluminum company purchased so-called surplus Government plants at Jones Mill, Ark.; Hurricane Creek, Ark.; Phoenix, Ariz.; and Chicago, Ill., for $48 million that had cost the Government $144 million. This company not only found that production from these plants was not surplus, but with the profits from full-scale operations in those plants it has since constructed new additional facilities on its own.

I might add that in virtually all of these sales the plants were sold on very liberal credit with but little, and sometimes even no, downpayment.

If we continue looking through this book, Mr. Chairman, we find an oil refinery at Cattlettsburg, Ky., sold for $2.3 million which had cost the Government $16.4 million; steel properties in Utah that cost the Government $191 million being sold for $47 million; and another steel mill in Utah that cost the Government $12 million being sold for $1 million.

We also find an aircraft factory in San Diego, Calif., that cost the Government $9.7 million being sold for $1 million; a chemical plant in Sterlington, La., that cost $17.6 million being sold for $5.8 million; a steel mill at Daingerfield, Tex., that cost the Government $24 million being sold for $5 million, and then the Government loaned the purchaser $73.5 million for expansion. The list of those sales is long and involves billions of dollars.

It would be an interesting, although perhaps an academic study, to compute the billions and billion of dollars of profits that have been made in the past 10 years on the purchase in 1945-48 of surplus steel mills, aluminum plants, synthetic rubber plants, airplane factories, chemical plants-and on down the list.

I am not prepared to be critical of that surplus disposal program, although I have previously expressed the view that the prices at which those plants were sold were too low. On the other hand, the acquisition of those plants by private enterprise has put thousands of people to work at good wages. Those people have bought homes, automobiles, clothing, food, and other commodities in excess of the quantities which we might expect would have been sold to them had they been less gainfully employed. This, in turn, has created additional employment in the construction industry, the automobile industry, the clothing industry, and so on down the line.

And those companies have paid income taxes on the profits they made out of those facilities.

I am not sure but what this Government and our people have not gained through having those plants operated by private enterprise more than the billions of dollars we lost in their disposal.

The point I am trying to make is that while I oppose giving something away for nothing as much as any Member of the Senate, we should not permit blind adherence to a principle to stop us from doing something that is good business for this Government.

Third, we might draw an analogy to what may possibly be referred to as the biggest giveaway program of all time. In the postwar years, the American taxpayers gave about $55 billion of military and economic aid to friendly foreign nations. This was properly justified largely on the premise that our help was needed to restore the economies of many friendly nations to that level of prosperity where seeds of communistic unrest necessarily die. And, in part, the program was justified because we could not expect continued prosperity in the United States if there was poverty throughout the rest of the world.

I have no doubt that substantial good came from those grants, but I have no less doubt that billions of our dollars were wasted in that $56 billion program. That program is now justifiable only on the basis that it was good business for the United States to give away $56 billion to friendly foreign nations because in the long run we would profit by our having done so.

I should like now also to remind industry in the United States that it received the major benefit flowing from the foreign economic and military aid program. Eleven billion of the $56 billion thus expended was spent for agricultural products, but the great bulk of the grants in that program were spent right here in the United States for manufactured goods. The foreign-aid program created a demand for manufactured goods in excess of that which industry could expect from normal consumption. It provided a stimulus to American industries which certainly accounted, to a significant extent, for the postwar stability and growth of many American industries. I know that industry will not want now to deny the farmer an opportunity to receive that same type of assistance toward needed economic stability.

Fourth, I have already referred, Mr. Chairman, to the fact that it is good business for this Government to restore a reasonable level of farm prices. We would thereby not only reduce the demands on the Treasury for funds required to maintain the farm-support program, but we would also create revenue for the Treasury in the taxes the farmers would pay on the profits they would earn on fair farm prices. Isn't it better to conserve the dollars in the Treasuryand to create a source of new dollars for the Treasury-than to conserve excess and unneeded surpluses of agricultural products in warehouses?

Lastly, I again call attention to the fact that we propose to give away only what we can't sell, and to give it only to people who cannot afford to buy; thus we will not disturb existing markets-we will be doing a Christian act that is, in fact, good business for us.

I would summarize my program thus: There is a portion of our existing agricultural surplus that is a necessary reserve against future emergencies. There is an additional portion of this surplus that can be disposed of under existing law at adequate prices. But above those quantities, existing agricultural surpluses are not an asset, but a liability. I propose only to dispose of that liability. On December 2, 1955, I released an 8-point farm program, the points of which

are:

1. Increase farm prices by eliminating the great agricultural surpluses now depressing food markets through furnishing food to hungry people throughout the world, this to be done in a manner that furnishes food to people who otherwise could not purchase those commodities. Every effort should be made to accomplish the purpose without displacing existing market demands for food commodities. It is time that we recognize the principle that providing food to the hungry, underprivileged people of the world by equitable distribution of our overabundance is more important than the maintenance of the present maladjusted distribution of food in the markets of the world.

2. The establishment of an international food community fund patterned after the community chest funds which are so effective throughout the United States. The purpose of this agency would be the distribution to needy peoples of the world, including those of the United States, of excess surplus food commodities of the United States until such time as supply and demand are in reasonable balance.

3. The establishment of rigid production controls to keep production within the reasonable limits of consumption until existing excess surpluses have been utilized; such production controls are necessary to achieve fair prices for farm commodities.