Mr. LAMKIN. If he had not made any advances to the pool, he would have had in that account $2,252,000 approximately.

Mr. CANNON. Does this money now in the Secretary's account represent profit on the pool, or does it represent the profits of an entirely separate transaction?

Mr. LAMKIN. The profit in there-of course, an analysis of those accounts might be required to say definitely where all the profit came from, but one of the sources of profit there was due to the increase in prices on this cotton. When we acquired that cotton in July

Mr. CANNON (interposing). We are getting a little away from the question. The question is, Was that a part of the pool transaction? Mr. LAMKIN. No.

Mr. CANNON. Or was that a separate transaction that was not a part of the pool?

Mr. LAMKIN. That was a part of the handling of the Secretary's

account.

Mr. CANNON. That was not a part of the pool assets at all?
Mr. LAMKIN. No; that was not.

Mr. CANNON. As a matter of fact the pool itself has not only liquidated every cent that it has received, has not only paid back to the producers every penny received from their cotton, but in addition to that the pool has also received a gift from the Government of the $452,000 which the Secretary paid out of his own account?

Mr. LAMKIN. They paid the producer all the proceeds from the sale of the pool cotton less the expenses of operating the pool, and this deficit there that is in the pool was due to decrease in cotton prices after March 1935.

Mr. CANNON. But it cannot be said that either the $572,000 now in the Secretary's account or the $1,300,000 which has been converted from the Secretary's account into the Treasury belonged to the pool? Mr. LAMKIN. No; that does not belong there.

Mr. CANNON. Or was a part of the profits of the pool?

Mr. LAMKIN. No.

Mr. CANNON. Now, that is all we want?

Mr. BACON. Yes; that is all I wanted.

Mr. TABER. How much of this 2,450,000 bales went into the pool? Mr. LAMKIN. 951,000 bales.

Mr. TABER. How do you get, then, this figure of $1,800,000 of a dollar a bale, involved? Where does the 151,000 evaporate?

Mr. LAMKIN. There were 342.600 bales for which pool members sold certificates, so that reduced the baleage in the pool to the remaining bales in the pool today. That is, the outstanding certificates in the pool amount to 1,609,000 bales. It was decreased you see by the sale of certificates.

Mr. TABER. The rest of the cotton; that is, the practically 500,000 bales, that was not in the pool, out of the 2,450,000 altogether, was Secretary's cotton, and that is where this profit of $1,800,000 came from; is that it?

Mr. LAMKIN. No. He developed profit out of all the cotton. For instance, none of this cotton was segregated-the pool members had a certain interest in 2,450,000 bales, according to the number of bales that were in the pool. Now the Secretary would sell or maybe the

pool would sell 100 bales of the cotton. Possibly it would be all inch and strict middling cotton. Well that would bring a premium say over seven-eighths middling cotton. The pool would be settled with on the basis of seven-eighths middling cotton, and the premium of course would go into the Secretary's account.

Mr. CANNON. It would be just as equitable to distribute this $1,800,000 to all the producers who entered into the contract as it would to those who remained in the pool, would it not? As a matter of fact, if you are going to distribute in proportion to their need it would be more reasonable to take care of those who were so hard pressed they could not wait for their money and had to take the cash price of their cotton, rather than those who stayed in the pool and got the top price.

Mr. LAMKIN. I see only this difference, that with every one except the holders of these C-5-I certificates they have come in and made a settlement and canceled the papers that they held with the Government. Their contract and everything is canceled. You settled definitely with all those fellows.

The CHAIRMAN. The fellows that did not come in did not help the Government, they were looking after themselves and paying no attention as to whether or not the market was glutted, were they not?

Mr. LAMKIN. They were coming in and getting their money on what they thought was the best market they could find and closing up their accounts on that market.

The CHAIRMAN. And regardless of what they did to the market? Mr. LAMKIN. Yes.

The CHAIRMAN. While the other fellows took a chance, took a gamble on the thing along at the invitation you might say of the Government?

Mr. CANNON. Who complied and who entered into the contract, and who destroyed every third row, who were not in the final windup of the pool-they complied with the Government program; they did what they could to make the A. A. A. plan a success?

Mr. LAMKIN. They settled with the Government.

Mr. CANNON. If it happened they were so pressed for money they had to cash in immediately instead of being able to wait, would they be as much entitled to participate in any gratuity the Government might give at this time, as those who remained in the pool? Mr. LUDLOW. What was the cost of operating the pool? Mr. LAMKIN. Approximately $9,000,000, total expenses.

Mr. MARCELLUS C. SHIELD,

FARM CREDIT ADMINISTRATION, Washington, D. C., March 15, 1938.

House Committee on Appropriations, House of Representatives. DEAR MR. SHIELD: In response to the request made of me over the telephone on yesterday, to furnish the Appropriations Committee with a statement showing the cost to the Government of the cotton delivered to the Secretary of Agriculture under the Agricultural Adjustment Act of 1933, I am enclosing a memorandum on this subject which I believe is self-explanatory.

If there is any further information which the committee may desire in connection with this matter, I shall be glad to furnish it.

Sincerely yours,

F. F. HILL, Acting Governor.

COST OF COTTON TRANSFERRED TO THE SECRETARY OF AGRICULTURE, THE PROCEEDS: RECEIVED FOR IT, AND ESTIMATED LOSSES

The following table shows the number of bales of spot and futures cotton delivered by the American Cotton Cooperative Association, the Staple Cotton Cooperative Association, and the Cotton Stabilization Corporation to the Farm Credit Administration, and transferred to the Secretary of Agriculture during 1933.

The revolving fund, established under the Agricultural Marketing Act, had loans on this cotton.

The following shows the cost of cotton, the credits applicable to it, and the amount charged off:

AGRICULTURAL MARKETING ACT REVOLVING FUND

Statement of determined loss as of June 30, 1937, on purchase and sale of cotton authorized by the Agricultural Adjustment Act

Seed and crop production loan cotton.-The Secretary of Agriculture, under the authority of specific acts of Congress, through the Farmers Seed Loan Office during the years of 1929, 1930, and 1931, and through the Crop Production Loan Office during the year 1932, hereinafter referred to as seed loan offices, made loans to farmers in the spring of each of these years for the purpose of producing crops. Usually these loans matured and were payable on a definite date, timed to follow immediately the harvesting of the crop to be produced and the marketing thereof. The security taken in each instance was a lien on the crops to be produced.

The functions of the seed-loan offices, which had heretofore been exercised and supervised by the Secretary of Agriculture, and the assets of these offices formerly held in the name of the Secretary of Agriculture, were transferred to the Farm Credit Administration under the authority of Executive Order

No. 6084 (dated March 27, 1933, effective May 27, 1933). Thereafter these offices and their assets were administered by the Farm Credit Administration. In 1929, 1930, and during the early part of the 1931 marketing season, the Secretary of Agriculture did not require borrowers from seed-loan offices to sell their cotton on which he held a lien. Instead, in lieu of payment in cash, borrowers were permitted to deliver such cotton to an approved cotton-storage warehouse and obtain therefor a negotiable warehouse receipt, which receipt was accepted as collateral for the borrower's loan at a value (according to staple and grade) based on the prevailing market price at the time of delivery to such warehouse.

After the early part of the 1931 cotton marketing season (namely, October 26, 1931) and during 1932, borrowers' cotton on which the Secretary of Agriculture held a lien was accepted at a fixed collateral value. The fixed price at which 1931 cotton was accepted as such collateral (after October 26, 1931) was 8 cents per pound, basis seven-eighths-inch Middling, with differentials up and down based on grade and staple. The fixed price at which 1932 seedloan cotton was accepted as collateral for borrowers' loans was 9 and 9% cents per pound, basis seven-eighths-inch Middling, with differentials up and down based on grade and staple, the higher price being allowed in States designated as being within a mill area.

If a borrower delivered to an approved warehouse sufficient cotton to fully collateralize his loan on the above basis, and deposited warehouse receipts therefor, a release was issued to the borrower, permitting him to use the remainder of the crop or the proceeds therefrom (insofar as the lien running to the Secretary of Agriculture was concerned) for the payment of second or subordinate liens, or in the absence of such liens, to use or dispose of the rest of his crop or proceeds as he saw fit.

Due to the fact that the foregoing plan provided that the notes of individual borrowers were either to be credited with the collateral value of the cotton at the time of delivery, or with the net proceeds of sale, whichever was the greater, it would be impossible to even estimate the loss, if any, on the seedloan cotton sold to the Secretary of Agriculture, unless we should go back and make an individual analysis of more than 150,000 accounts, and trace the bale numbers on approximately 797,000 bales of cotton delivered to the seed loan offices from 1929 through 1932. Although these offices have been audited by the General Accounting Office, and in some instances by Farm Credit Administration examiners, no record was made of the aggregate collateral value of the specific bales of cotton delivered to the Secretary of Agriculture.

STATEMENTS OF HON. JOHN H. BANKHEAD, UNITED STATES SENATOR FROM THE STATE OF ALABAMA, AND HON. ELLISON D. SMITH, UNITED STATES SENATOR FROM THE STATE OF SOUTH CAROLINA

The CHAIRMAN. Gentlemen, which one of you desires to proceed? Senator BANKHEAD. I will make a very brief statement.

The CHAIRMAN. I might say that we have before us the resolution introduced by Congressman Johnson, House Joint Resolution 616, on the 11th of March. That is very recent, and the resolution is for the purpose of carrying out the recommendations of the President and the Budget in House Document No. 535.

Senator BANKHEAD. Speaking generally and without refreshing my recollection of the details, when the Agricultural Adjustment Act was passed in 1933, we had about that time the biggest surplus of cotton carry-over that we had ever had in this country, 13,000,000 bales, and we were seeking to move or to bring about a reduction in that surplus that constituted about a 2-year surplus. Approximately 13,000,000 bales was the average annual consumption both in America and abroad. That included domestic consumption and exports. So

we were seeking some method of bringing about a reduction. Cotton was then down to about 6 cents a pound.

While that bill was pending before the Senate committee, Senator Smith, chairman of the committee, introduced an amendment which became title I of the Agricultural Adjustment Act, which authorized the cotton farmers to enter into contracts with the Government to buy a quantity of cotton, which the Government had taken over from the cooperatives and the Farm Board, the farmers to buy the cotton, I think, at 6 cents a pound, was it not, Senator?.

Senator SMITH. Yes; 6 cents.

Senator BANKHEAD. And in lieu thereof, instead of paying for it, to eliminate from their production a similar quantity of cotton. In other words, the plan was to take the cotton at 6 cents a pound, which approximately amounted to cost, and when this cotton was sold the Government would recover the 6 cents plus the carrying charges, and the farmers would get any profit that may be available from the sale. Well, as a result of that offer, something more than 3,000,000 bales of cotton were contracted for and eliminated from that year's production. The whole matter proceeded for several years, and Mr. Oscar Johnston, who was financial adviser of the A. A. A., was appointed as manager of the cotton pool, and as such manager he handled this entire pool transaction. This cotton was pooled without any specific ownership in any particular account. The farmer just had a certificate for so many bales in the pool and Mr. Johnston handled the pool from beginning to end.

The Government got all of its money back out of the transaction, and it had as a result of the entire transaction $1,800,000 left. The Secretary put that money into the Treasury.

I introduced a bill, which is the beginning of this transaction here, this legislation, to pay that money to the owners of the pool certificates, the cotton-pool certificates, which pool was made up almost entirely, originally entirely, of farmers.

I introduced it, I may say, gentlemen, because in going around over my State, in my State of Alabama, I was often asked "What equity have we in the cotton pool?" or "When can we get our profit out of it?" Cotton had gone up and they knew there was some profit in it, after paying off the Government charges. I was not only asked that by the farmers very frequently but by merchants who had taken transfer of these certificates from farmers that had them in payment of obligations and security for advances. These certificates were made transferable. There was no question about the right to transfer them. So, finally, I consulted with Mr. Johnston about it, and he ascertained the number of certificates and the amount of money, $1,800,000 profit from the pool transactions, according to his statement. At that time there was no legislation for it, no specific authority for it, and instead of that money being sent. out to the cotton owners, they just put it into the Treasury.

So, I introduced a bill in the Senate to pay that money to the certificate holders. I investigated, and there was some objection at first because they said that there had been a number of transfers of the pool certificates, and some speculative interests had developed. I testified before the House committee that only 12 percent of the entire amount had been transferred, and otherwise the balance of