How About the Farmer? A Commentary on 'Special Privilege'

I

‘The Menace of New Privilege,’ in the February Atlantic, voices an orderly protest against the further development of class-cleavages by the grant of class-privileges. In principle Mr. Alger will have the hearty support of thoughtful citizens, yet his choice of illustrative material, and his interpretation of motives and conditions, challenge much dissent. It is with intent to correct misapprehensions, while accepting and confirming principles, that this paper is written.

The major contention of the article is that farmers have been granted initial privilege by the Clayton Amendment of the Sherman Anti-trust Act, and that the motive actuating present efforts to clarify this rather obscure legislation is the desire to form coercive monopolies for price-fixing. It is repugnant to one of judicial training and experience that certain groups may do things under protection of the law, and other groups may do the same things only in violation of the law. Nor is it strange that the lawyer assumes the law to be the criterion and basis of analysis, even while appealing to principle rather than statute in the support of his argument.

The statement will hardly be challenged, that anti-trust legislation came as a result of abuses. Business groups were able to control sufficient amounts of certain commodities to create artificial price-levels. In some cases this was accomplished by the formation of overhead corporations, syndicates, or trusts; in others by the informal agreement of those in control of like enterprises. To curb this evil, the legislation directed against restraint of trade was developed.

That the evil existed, and that some correction was needed, requires no argument. It is necessary, however, to discover whether the resulting laws, and the Sherman Anti-trust Act in particular, are of such a nature that they can be equally enforced upon all; or whether in the enforcement certain groups are effectually curbed, while others may practice clandestine evasion with impunity. To the jurist the application of the law is a sacred duty; to the citizen, who, in the last analysis, is the sanction for the law, the all-important matter is whether the law is accomplishing, or is even capable of accomplishing, the purpose for which it was enacted.

The exempting clause of the Clayton Amendment first declares that labor is not a commodity within the intent of the law. Popular interpretation of the matter is that laborers and farmers have joined hands to secure special privilege. Analysis will discover a common reason for the exception of both from the restraints of anti-trust legislation.

If exemption were not granted to labor, could the statute be enforced equally upon all? The relatively small number of employers has always made conference possible — not to say conspiracy — as to the wages to be offered; while the extremely large number of laborers, together with their usual lack of means and education, has made secret agreement and conspiracy impossible for this group. The ordinary business luncheon offers adequate opportunity for a group of employers to reach agreement as to wages; in fact, a conspiracy by employers in restraint of the purchase of labor could be made by telephone, and with only the most remote probability of detection. The existence of business mens’ clubs and associations, often limited to those interested in a single type of industry, is too obvious to need more than passing comment. It must be recognized that such associations are vitally necessary, and serve a constructive purpose in the welfare of industry. The only matter pertinent to this discussion is that the Sherman Anti-trust Act, without the specific exemption of labor, could do no more than create an effective weapon to be used against those who sell their labor, while remaining quite ineffective against those who buy it. Equality of restraint could not exist in fact, although existent in statute. Under present conditions the specific exemption of labor from classification as a commodity enables equality both in law and in fact. Either group is able to achieve its ends only as an oversupply or under-supply of labor gives advantage through the interplay of demand and supply; the Anti-trust Act restrains neither party in the bargaining process.

Likewise, it would be impossible to enforce the Sherman Anti-trust legislation equally in the case of buyers and producers of farm-products. The number of wholesale buyers of all our larger crops is very small compared with the number of growers. Buyers are of necessity in touch with one another; conspiracy could not be effectively stopped. The growers are always widely scattered, and any collective effort could not escape detection. The geographical dispersion of farmers makes frequent getting together impossible, and effectively precludes clandestine agreements.

For instance, the greater part of the milk used in the city of Boston is distributed by three large corporations, and comes from thousands of farms scattered through more than forty thousand square miles of territory. Can it be maintained for a moment that the law, without the exemption of farmers, can be made equally effective in checking possible restraint of trade on the part of both buyers and sellers? Instead of creating a privileged class, the exemption of farmers ensures equality of opportunity.

II

Need for improvement of marketing methods is recognized in the Atlantic article by six distinct references. The field of distribution is described as a singularly inviting and undeveloped one. The progress made by farmers’ cooperative marketing movements is ignored, as is also the more important fact that, unless they were exempted from the operation of the present Antitrust legislation, farmers would attempt improvement of marketing conditions only at their peril.

With the assertion that marketing methods need improvement, all wellinformed persons must be in agreement. Productive processes have been vastly improved; experiment stations, research agencies, colleges of agriculture, and the great system of county agricultural agents are succeeding in establishing more efficient production practice and in eliminat ing production wastes. The same agencies recognize to-day that the major task is now to improve marketing methods. Students are agreed that gluts, shortages, and the resultant wastes are caused by lack of adequate information as to supplies on hand and shipments en route, and by lack of adequate storage facilities and credit to ensure an even flow during the normal consuming period. Farmers are unable individually to effect a steady flow of output, to protect themselves against losses through improper handling by common carriers, and against misrepresentations of buyers as to quality. They are most keenly alive to this situation, for they have improved their methods of production, only to find that their gains are swallowed up in the losses of distribution — losses which, up to the point of retailing, are usually passed back to them. They are eager to do their full part in effecting real improvement; and yet, if they were not granted legal exemption from anti-trust restrictions, every effort on their part to improve marketing conditions would invite prosecution as being in restraint of trade.

It is a calamity if a two-weeks’ supply of lettuce arrives in New York in a single day; yet, without the exemption contained in the Clayton Amendment, farmers who discuss the day’s market receipts and price-levels, with a view to planning an evenly distributed supply for the balance of the week, would be guilty of conspiracy. Likewise, it means loss for all concerned if a month’s supply of oranges reaches Boston in one day, and a part must be wasted or reshipped ; yet without legal sanction the producers who endeavor to effect a steady flow and to avoid the ruinously low prices of gluts, or the prohibitively high prices of short ages, would be in danger of the court s.

‘To try to understand marketing conditions and rules, to try to meet market demands with a corresponding supply, to avoid, wherever possible, the creation of glutted markets, and to try to organize a marketing system under which unnecessary losses are avoided and unnecessary costs eliminated, is a course which common sense imperatively demands . . . the cooperative trust movement has no such plans or purposes.’

It rests with Mr. Alger to define ‘the coöperative trust movement.’ If he means the few groups that are making futile efforts to ignore the forces of demand and supply, perhaps the charge can be supported. It cannot be supported against the great farmers’ coöperative marketing movement as a whole. The California Fruit-Growers Exchange could not function except under the exemption given by the Clayton Amendment, yet it has achieved a monumental success along the very lines which Mr. Alger indicates as necessary. It marketed $40,000,000 worth of product during the year 1919, yet without any effort to fix a monopoly price on its commodities. It estimates with remarkable accuracy the total output that it has to sell, and the normal consuming season for this output, in order to move the required amount toward the market each week. It effectively avoids gluts and shortages by securing steady arrivals at all markets. In many larger cities the output is sold at public auction; in Boston, for instance, the daily offerings include lots as small as eight boxes of oranges up to car-load lots; and numbered among the buyers are wholesalers, jobbers, hotel stewards, retailers, corner-fruit-stand owners, and hucksters. The price is fixed absolutely by the relation of demand and supply. Costs of marketing by the central organization have been reduced to 11/4 per cent of the sale price, this being accomplished by standardization, shipment supervision, and the creation of an effective information service. Yet it should not be forgotten that the old association of exchanges had to reorganize on the basis of the Clayton Amendment, or face prosecution, although its purpose and practices were precisely what Mr. Alger has indicated as most needed.

Nor is this an isolated example. The Iowa wheat-growers, in contrast to the Kansas wheat-growers, temporarily held back their wheat, only to effect a steady flow, and with full expectation of taking the auction prices on the boards of trade. The Southern Produce Exchange, various potato-growers’ exchanges, the fruit associations of the East and of the Northwest, the tobacco-growers of the Connecticut Valley, and scores of other smaller organizations have set a new mark in efficiency, to the benefit of both food-producing and consuming groups, and without the ruthless and purposeless destruction of necessary distributive agencies; yet all these would stand in peril without the legal sanction of the Clayton Amendment. Farmers are employing managerial brains in their marketing, though handicapped in some instances by the under-supply of properly trained managers. The great majority of farmers are convinced that the benefits of cooperation are to be secured along the lines of economy and effectiveness, and not of coercion.

I can agree heartily with Mr. Alger that coercive or arbitrary price-fixing in the interests of a single class or group is most pernicious. I am equally convinced that in the great majority of cases it cannot be made effective. Since the appearance of the February issue of the Atlantic, it is evident that the Kansas $3.00 wheat movement had little effect on the market. Even one of the most complete of the so-called monopolies — that of the prune-growers — found itself unable to ignore the equation of supply and demand. I cannot agree with the argument that the Lever Act was unjustly lenient to farmers and allowed any kind of gross profiteering by them. Costs of farm production cannot be measured with the same degree of accuracy as purchase costs in the case of middlemen, or as in factory production, where material, labor, overhead, and output are known, not only by averages, but by individual plants and machines. Nor could the Lever Act, by any stretch of imagination, be made to fit the conditions of the producer in the matter of hoarding. Crops mature on a seasonal schedule, and farmers who produced more than was required for their own use were of necessity in possession of a supply which, in any other hands, would have been excessive.

The exemption of farmers from the provisions of the Lever Act was not inspired by the intent to create classprivilege: it was a common-sense recognition of the fact that efforts to enforce it with regard to farmers could result only in a ridiculous failure, and would have been little short of calamitous, could it have succeeded.

With two of Mr. Alger’s minor contentions I am unable to agree. It is not customary to retail shoes at the usual jobbing price by the case, or to sell a pound of nails at the price of a car-load lot, or to sell coal in New England at the Pennsylvania mine price. What, then, is the grievous iniquity in establishing one price for milk to retail bottletrade, another to hotels, and still another to factories using car-load lots at the source of production? And if the producers of milk undertake to improve methods and conditions which the corporate distributers have been unable sufficiently to improve with years of opportunity, why make it unlawful for the producers even to try? Such, however, would be the deterrent effect of the Sherman Anti-Trust Act without the Clayton Amendment. Nor can I agree that in the appeal to the Federal Reserve Board for assistance, the farmers of the South were asking the use of ‘public funds,’ any more than the merchant patrons of the New York banks, who sought extended credit, based on Federal Reserve rediscounts, in order to postpone the evil day of liquidation and mark-downs. In both cases the basic funds were private deposits in national banks and trust companies; in both cases the borrowers sought to avoid loss; in both cases the government could do no more than sanction the extending of credit, the amount being limited by the amount of reserves; in both cases the ultimate consumer would have the bill to pay.

To summarize: the farmers’ coöperative movement offers more hope for improvement of marketing conditions than any other factor in our present marketing situation. Positive achievements to date are but prophetic of what the future holds. The American Farm Bureau Federation is employing the very best experts that money can secure, in its effort to get the data necessary for further constructive programmes. This huge organization recognizes the futility of attempting to evade the equation of demand and supply. The majority of farmers’ organizations seek to effect their results by eliminating waste and uncertainties caused by ignorance of market conditions.

The Clayton Amendment makes possible the positive results already gained by cooperative selling organizations. It equalizes a business relation in which the disadvantage would be wholly against the farmers, were there no such exemption. It is insurance against classstratification. Class-cleavage would inevitably result if the advantage were left wholly with the buyer, as was t he case in the Boston milk territory up to ten years ago; a cleavage which was begun by failure in the past to give the farmers equality in opportunity and in fact.

I hold no brief for the anti-trust legislation as a whole; perhaps it should all be relegated to the scrap-heap. I do insist, however, that, if it is advantageous to preserve the present law, the exemption contained in the Clayton Amendment, or a similar exemption, is vitally necessary to preserve equality of opportunity, to ensure justice, and to prevent the very social stratification that Mr. Alger deplores.