disastrous results to agriculture and to industry (barring another war), as a result of our agricultural neglect, as we did in the early 1930's.

What we saw then is well known. Six additional years (from 1926 to 1931) showed another and more disastrous drop in farm prices after 4 years of leveling off. The interim leveling-off process seems presently to have begun with last year, as it did during the second 6-year period following World War I. During the last 2 years of the second 6-year period following World War I, farm income dropped to 52 percent of the 1925 level; and this disastrous slump in agriculture was accompanied by a 16-percent drop in nonfarm income. (See table I in the appendix.) In other words, during this period farm income was reduced $3.5 billion and nonfarm income was reduced $12.0 billion.

I would like to supplement that with the statistics I just got in a publication of the Department of Agriculture, which indicates that for the past 2 years net farm income dropped 1.6 million which is 11 and 2 percent under the farm income of 1952.

The CHAIRMAN. You mean 11.2 percent?

Mr. SANDERS. 11.2 percent, yes, sir, which indicates that the process certainly has been going on and I believe will continue.

Although during the last 8 months there has been a stable price and cost situation, the April issue of the Farm Income Situation of the Department of Agriculture makes the following significant state

ment:

Cash receipts from farm marketing in the first quarter of 1955 were 5 percent smaller than in the same period last year. The total volume of marketing was the same, but prices averaged 5 percent lower.

Looking ahead into next year with the current wage raising pressures resulting in considerable wage increases for a 3-year period, with a certainty of consequent price rises, farm costs most certainly will resume an upward course in the next 3 years. With 2 years of extreme droughts seemingly checked by recent heavy rains and with resulting improved production prospects there is every reason to expect both a price drop for next year's crops and livestock products that will equal, if not be greater than that of this year. If the drought is being abated, which after a series of dry years seems reasonable, volume of output will likely increase on our farms in years to come, costs will rise and nonagricultural income will be rising to new and unprecedented heights. Relatively there is no basis whatever for the optimism which recent speeches of officials of the Department of Agriculture have expressed, unless optimism can be gleaned from a steady but certain slipping downward of the income of farmers, when that of the rest of the Nation is rising to unprecedented heights of prosperity.

There are those now who say that even though agriculture is allowed to level off at its present level of disparity the second stage of the postWorld War I slump cannot happen during the second 6 years following World War II. They say we have too many built-in antidepression devices in our economy now. We were told this, also, in 1926–28. I am convinced that we cannot maintain a prosperous nonfarm economy with agriculture getting a per capita income that is a half to a third that of nonfarm people. The most recent figures indicate that the percapita income of all farm people was $658 in 1954 com

64440-55-pt. 1-13

pared with $1,836 for nonfarm population. If the present disparity is allowed to continue we shall surely repeat the unbalance of the late twenties which in turn will bring us trouble that will require full use of all available built-in antidepression measures. These will be palliatives only. We should be today working out measures to restore a reasonable level of parity of income to farmers which gets, at least, at one of the basic roots of depression. This Congress should be seeking a more adequate solution to the farm surplus and low-income problems than we now have.

THE ESSENTIALS OF A SOLUTION OF THE FARM PROBLEM

Why have we debated and legislated on the farm problem during 312 decades without arriving at a satisfactory solution? I certainly do not know all the reasons, but two of the more important reasons seem to stand out.

First, we have misunderstood the true nature of our farm surpluses and, in the second place, have not realized to the full extent that farmers do not and cannot receive an equitable return for their contribution to the Nation where free competition is allowed to set their prices and income. We have not realized that farmers must have a rising income equal to that of the rest of the Nation if we are to have steady expanding prosperity that the Nation has a right to expect. When we are able to cope with these two phases of the farm problemthe surplus phase and the low-income phase-most of the other aspects of the farm problem will fall into their proper places. The protection of the family farm, the problems of the "too small" or "too large" farms, the problem of conservation, of credit and other problems, are separate problems that are essentially not a part of the problems of farm surpluses and low-farm income. To tie these and other farm problems to the solution of the two basic aspects of the problem is a mistake that has brought interminable complications during the past 35 years a mistake that has played a very important role in the failure of the Congress to find a solution to farm surpluses and low income.

When we come to the full realization that overall surpluses are inevitable for years to come, that we cannot solve the problem by attempts at elimination of surpluses but only shift the surpluses from one product to another; when we come to realize that we must separate our primary markets for farm products from our surplus markets, we shall deal with surpluses in the only way they can be dealt with-by finding the best use and markets for them and not, by a futile effort to prevent them, or by a false claim that flexible prices will prevent them.

Once we have realized that we must wisely manage our surpluses and not fruitlessly try to prevent them, we shall find ourselves in a better position to deal with the low-income phase of the farm problem. I would like to briefly state what I think is the proper and sound way to deal with these two basic phases of the farm problem-first, the surplus problem, and then the low-income phase.

WHY WE HAVE NOT SOLVED OUR FARM SURPLUS PROBLEM

We have not solved the surplus phase of our farm problem because in the first place we have tried to prevent a thing which is largely

unpreventable and because we have tried to correct an overall surplus of farm products by attempting to reduce specific surpluses separately. Since we are really dealing with the combined surpluses of several products all clearly related and tied together, by intercompetition of crops and livestock products, it is obvious that when we reduce a single crop or product surplus we do not thereby get rid of the problem but merely shift the surplus to another crop or livestock product.

The full output nature of the farm business, and the unprecedented advances in research, make our surplus practically inevitable and unpreventable for many years to come. This means that our surplus producing capacity is likely to outstrip our population growth and demand for the foreseeable future.

To undertake to prevent a single crop surplus by a Governmentcontrolled lower price, is to shift to the Government the burden of a task that farmers will do themselves if left alone. But the shift will not necessarily be made if the price is simply lowered, but only if it is lowered more than the price of other crops or products the farmer can produce. It is a relatively lower or higher price, not an absolute lower or higher price that determines whether or not farmers will shift from one crop to another.

These corrective shifts from the lowest price alternative to a highpriced one are constantly being made by farmers; and it does not take a high order of competency on the part of a farmer to induce him to make them. Such shifts in nearly all cases require no overall reduction in size of the operations of a farm, and of all farms, and no idleness of labor, of machines or of land. These changes are constantly being made by farmers, because the individual farmer can make them, and can see a financial advantage or a smaller disadvantage from making them. They are made at times regardless of Government price-support policies or at other times as a result of such policies.

On the other hand, when a farmer is confronted with a general or an overall surplus of all his products or most of them, there is nowhere that he can turn to meet his problem. If he reduces his total output of all products in surplus supply he wastes his idle labor land and machinery, and loses more by such a reduction than he would if he did not make it. Presumably, if he knows how and is able to reduce his costs, he will have done so before he is confronted with overall surpluses and low prices. It is almost literally true that any farmer can meet and deal with a single product surplus, but any and all farmers are practically helpless to correct the woes of a general farm surplus, such as we are now confronted with.

Since single product surpluses have little or no effect on the aggregate output of a given farm, or the output of all farms in the land, overall surpluses cannot and will not be corrected by the aggregate of the action of individual farmers. Indeed, I seriously doubt if any Government policy, any possible organized efforts of farmers, or effort of farmers acting individually, can do much by way of reducing the overall farm surpluses confronting us now.

Even though farmers readily shift crops due to price differences one can find no valid evidence that farmers can or do reduce overall output following years of general drop in farm prices.

For the past 24 years the indexes of farm prices have risen or declined by as much as 5 points during 21 of these years and did not change as much as 5 points the other 3 years. During 6 of the 21

years prices dropped and on years following these price declines farmers increased their planted acres for 3 years and decreased planted acres on 3 years with increases almost exactly balancing the years of decreases. For 15 out of the 21 years prices rose by 5 percent or more. Following these 15 years farmers increased planted acres in 11 years and decreased it in 4 years with total decreases exactly balancing increases.

The CHAIRMAN. When you say that the farmers did it, it was not on a voluntary basis then? That is, it was then under existing laws. Mr. SANDERS. Yes, but this is total acres, Senator. What I am trying to show you here, is when prices drop in general, farmers cannot and do not reduce their total acreage and volume. When they rise in general, they do not and cannot increase total acreage.

The CHAIRMAN. They find ways and means to use our acres?
Mr. SANDERS. That is right.

The CHAIRMAN. That is what you are saying.

Mr. SANDERS. And, therefore, probably add to the surplus regardless of actions of the Government.

The CHAIRMAN. Well, I am anxiously awaiting your solution. That is what we are here to listen to now.

Mr. SANDERS. After 1936, notwithstanding the tremendous stimulus of war, by 1954 farmers had expanded total acreage planted by less than 1 percent.

Senator AIKEN. You mean 1946, not 1936?

Mr. SANDERS. I am talking about the farmer in 1936 after the conditions of the world were stimulating

Senator AIKEN. After World War II began?

Mr. SANDERS. Well, really, before the war began. The war began in 1939, did it not?

Senator AIKEN. Yes, but you go back to 1936. There was no stimulus of war from 1936 to 1939.

Mr. SANDERS. There was, Senator, because the conditions of war were mounting and Germany was demanding more products, and the whole market situation was improving from 1936 on. That is, 1937, 1938, and 1939.

Senator AIKEN. The wheat price in late 1939 was not. Wasn't that around 75 cents a bushel then?

Mr. SANDERS. Well, I do not know about individual products.

Senator AIKEN. All right. It is immaterial anyway. I just thought that maybe you had made a mistake and meant 1946 instead of 1936.

Mr. SANDERS, No, sir.

Senator AIKEN. I realize that you meant 1936 now, although the stimulus of war did not really begin until about 1940.

Mr. SANDERS. Yes, actual war, but not approaching war.

Senator AIKEN. We had a tremendous supply of wheat. You may recall we were selling some of it for 5 cents a bushel for experimental work in making alcohol.

Mr. SANDERS. I realize that we had accumulated great surpluses but from about 1936, 1937 on, there was quite an expanding price in the market situation, and especially from 1939 on.

The CHAIRMAN. That was because of the impending war?

Mr. SANDERS. Impending war and preparation for war on the part of Hitler and everybody else, even ourselves. We were begining to

have lend-lease then, and things like that. I am not sure about the exact history of it, though.

There is no basis whatever for the claim that farmers went on a wild splurge of expansion as a result of war stimulus, unless the tremendous impact of technical progress can be called such a splurge. This is the kind of an increase in output that would come in good times and bad times, the kind from which there is no retreating even by Government edict or law.

Business or industry does not respond to lowering prices in the full output fashion of the farmer, nor in utter disregard of good and bad times with a full output as does agriculture. Why does the farmer do this? In the first place his fixed costs normally are in excess of 75 percent of all costs; with industry fixed cost generally run around 25 percent. Industry can reduce volume of output and cut costs clear down to or near the 25 percent fixed cost level and reduce losses thereby. Farmers, on the other hand, increase their losses, as a rule, by cutting volume of output in a depression.

Today American farmers plant each and every year almost the same number of crop acres they planted 20 or even 30 years ago, about 360 million acres. They have more than 50 percent more field power to tend this same amount of land than they had 15 years ago. This rapid increase in power and increased use of machines have greatly increased the farmers' ability to supply his own labor for farm operation. His and his family's labor self-sufficiency has probably risen from 80 percent 15 years ago to probably around 90 percent of all the labor required to operate his farm today.

With high fixed cost, with a set amount of land and labor that he cannot afford to idle, with an abundance of available power which he must use on a fixed amount of land, can any sensible farmer afford to turn out anything less than a full output of his farm's capacity regardless of prices of what he sells? Obviously not; and no control exercised by the Government is likely to restrict his total output, and hence the surpluses he produces; but is only likely to shift it to another than the controlled products. Shifting land from major crops to minor crops means that quite often a small percentage cut in major crops can double the production of several minor crops.

Since the splurge of increased output is almost entirely the results of increased efficiency and improved technique, from which there is no return, even no check against advance; since the internal structure of the farm business makes a reduced use of farm output capacity almost impossible; since as the Department of Agriculture in a study made a few years ago concluded, that farmers could, if they applied all the present know-how of research results, increase output by as much as from 30 to 75 percent and even more, depending on the crop, the conclusion seems almost indisputable that surpluses will continue to be produced for many years into the foreseeable future.

If this is a valid conclusion our fussing and stewing about 90 percent support causing our surpluses, or that these surpluses can be blamed on the stimulus of war (unless war's destruction of our markets are considered), all these are beside the point. Likewise the claim of flexible support advocates that it will remedy the surplus problem has no foundation in fact, unless they aim to flex prices downward until general farm bankruptcy results. Even this will not stop surpluses as is evidenced by the situation in the early 1930's when de