Banks were to be exempt from taxation. The purpose of this exemption was to make such bonds so attractive to the general investor as to compensate for a low rate of interest. This low rate of interest on the bonds would then enable the Farm Land Banks to accept farm mortgage notes, paying a low rate of interest, and thus the farmer would be able to borrow his money at a lower rate than would be necessary if the Farm Land Bonds were subject to taxation. Those issued prior to May 1, 1920, paid 4 per cent. Subsequent issues pay 5 per cent.

This provision was bitterly attacked on the ground that it was class legislation, or discrimination in favor of farmers as against other classes. The matter was under litigation for many months, but finally, in February, 1921, the Supreme Court decided in favor of the constitutionality of the act. Pending this decision, the Farm Land Banks had been unable to function. The effect of this decision will undoubtedly be to release them and permit such a development as was anticipated by the framers of the plan. It is the belief of the supporters of the plan that the Farm Land Bonds provided for under this act will prove a popular form of investment and become, in fact, one of the leading securities on the investors' markets of the country.

CHAPTER XXIX

MARKETING

One very important topic under the general subject of exchange is that of marketing. This has to do with the actual process of finding buyers for that which has been produced, or, in more abstract terms, with the bridging of the gap which separates producer and consumer.

Essentials of successful marketing. There are four essentials to the easy and successful marketing of any commodity. In the first place, it must be of good quality; that is, of the quality which is desired by the buyers. In the second place, the product must be so graded or standardized that the buyer can purchase it without inspection. The buyer of a farm product, for example, who must inspect it in order to test its quality, must necessarily waste a great deal of time and energy in the process. Time and energy are expensive. In order to save his time and do a large business at the minimum labor cost, he must insist on buying such products as have been graded and standardized so that he can order by grade and without inspection. In the third place, the product must be in some way stamped or branded, and the stamp or brand must be safeguarded as carefully as a banker would safeguard his signature or the government its seal. Any individual or association which permits inferior or ungraded products to go under its stamp or brand must eventually suffer loss, for the reputation of the stamp or brand will be destroyed, and buyers will thereafter place no confidence in it. In the fourth place, the public must be educated as to the meaning of the grades and standards and the stamps, brands, or trade-marks, in order that it may be aware of the desirability of buying without inspection and of the possibilities in that direction.

Unless the producer himself will undertake to do these four things the consumer will never consent to buy any large proportion of the product directly. The consumer will insist on saving his time, even at the loss of some money in the way of higher prices. The producer will not be able to get the advantage of these higher prices, and there will be a considerable spread between the price which the producer gets and that which the consumer pays. This spread will be absorbed by those middlemen who buy the ungraded, nondescript products directly from the producers, in a form in which the consumers do not generally want them, and then put these products into such forms as will satisfy the consumers.

Special difficulties in marketing farm produce. The marketing of farm products is the least organized and probably the least efficient part of our whole marketing system. This is probably inherent in the very nature of agricultural production. From the standpoint of production the advantages appear to be very definitely on the side of the small producer. A small farmer, being able to produce more economically than the large farmer, continues to hold the field. But he is at a peculiar disadvantage in the marketing of his own products. Even if he were able to grade and standardize his products, the difficulty of educating the public to the meaning of his brand would be insuperable. He has so little to sell that the cost of advertising would eat up the profits. To put it in another way, the public would soon become bewildered if every one of the millions of farmers of this country tried to create a special market for his own individual products.

From the standpoint of marketing, the bonanza farmer has a great advantage. In some cases (that is, in the production of certain agricultural specialties, such as fancy fruits and vegetables, breeding-animals, and race horses) this advantage in marketing is so great as to more than balance the disadvantage in production. This is probably due to the nature of an agricultural specialty. The great staple crops, on which the world must in the main be fed, are not so difficult to market as are

specialties. In the production of these great staple crops the advantage will remain probably on the side of those who can reduce the cost of production to the minimum rather than on the side of those who can market most effectively. But in the case of agricultural specialties, where marketing is more difficult, the advantage will remain probably on the side of those who can market effectively rather than on the side of those who can reduce the cost of production to the lowest point. The large producing unit can do its own grading and standardizing, can adopt its own trade-mark or brand, and can advertise more effectively than the small producing unit. This will probably keep the production of agricultural specialties in the hands of large producers, at least for some time to come. The only chance which the small farmer will have in the field of agricultural specialities will be secured through coöperation.

Coöperative marketing. It will be observed that there is very little coöperative farming in this country or anywhere else. There is a great deal of coöperation among farmers, especially in European countries; but this coöperation is really coöperative marketing. The farm as a productive unit is managed independently and separately, but the products of a great many farms are marketed coöperatively. This gives the double advantage of economic production in small units and efficient marketing in large units. On the whole, it looks like an ideal arrangement.

The superior bargaining power of the trust. This distinction between production and marketing will throw light on certain problems in business organization outside of agriculture. The so-called trust is primarily a marketing organization rather than a producing organization. A large number of independent companies, operating independent factories, join together for a common management. This may result in some reorganization of the work of production, but in the main it works a reorganization in the methods of selling the product, of buying the raw materials, of hiring labor, or of bargaining for transportation. It is probable that some economies are introduced into produc

tion, but even if no economies of production were secured, the trust might succeed by reason of its superior bargaining power. If by reason of its magnitude and the perfection of its organization it can bargain for better transportation rates than independent producers can get, it may defeat them through competition. In the earlier days of the trust movement this was an important factor in its success. Again, if the trust can get control of a source of raw material or, through its organization, can bargain more effectively for its raw materials, it likewise has an advantage over its independent competitors. Or if it can secure its labor on better terms it will have another advantage. In the main, however, its chief advantage lies in its superior facilities in marketing. Having its selling organization highly perfected and its agents everywhere, it can profit by every possible fluctuation in demand and thus secure a legitimate advantage. Unfortunately it is able also to manipulate the market, to discriminate in prices between localities as well as between persons, and thus to gain an illegitimate advantage over its independent rivals. The advantages of the huge department store are likewise in the field of bargaining rather than in the field of productive service.

Social advantages of a good marketing system. There is little danger that any farmers' association will ever reach a magnitude or a perfection of organization which will permit it to discriminate in prices against certain localities or individuals. There is, therefore, little danger that it will ever be able to secure an illegitimate advantage. It may, however, reach a magnitude and a perfection of organization which will enable it to take advantage of whatever fluctuations the market shows and thus gain a legitimate profit. If, for example, in an unorganized market too much of a certain kind of produce should be sent to one city, some of it would either go to waste or be very ineffectively consumed; that is, be used for unimportant purposes. If at the same time too little were sent to another locality, there its marginal utility would be high. The total supply of the commodity would yield more satisfaction if it