Herbert Hoover to Woodrow Wilson
Title
Herbert Hoover to Woodrow Wilson
Creator
Hoover, Herbert, 1874-1964
Identifier
WWP19503
Date
1919 April 18
Description
Herbert Hoover writes to Woodrow Wilson about William C. Redfield’s letter regarding wheat prices.
Source
Hoover-Wilson Correspondence, Hoover Institution, Hoover Institution Archives, Stanford, California
Publisher
Woodrow Wilson Presidential Library & Museum
Subject
Wilson, Woodrow, 1856-1924--Correspondence
Hoover, Herbert, 1874-1964--Correspondence
Language
English
Text
D R A FT
Dear Mr. President
I have received from you Mr. Redfield's letter with regard to the price of wheat.
This problem divides itself into two distinct stages. The first is with regard to the balance of the 1918 harvest year, that is until the new harvest is available in quantity, say September 1st, 1919.; the second is the 1919 harvest year.
Mr. Redfield's proposition is, I understand, that wheat should be allowed to take its normal course in the market, that is at its “world price.”
With regard to the first stage, that is, up to the 1st of July, the “world value price” is probably $3.00 or $4.00 per bushel as we are now plunged into an effective world shortage by inability to send enough tonnage to the Argentine and Australia to secure supplies from that quarters, and if the control of prices were removed in the United States and if all buyers were allowed to enter that market, the price will go to extremely high levels. We have, in fact, a shortage of thirty million bushels of wheat to supply the demands on us to July 1st. And this, after refusing to make further supplies to Neutrals (in order to forfce them to the Southern Hemisphere). Despite every effort to keep the price down as only 20 cents above the guarantee
You will perhaps recollect that six weeks ago, when Mr. Redfield and his associates demanded that we remove the price control on wheat, pork and cottonseed products, I and my entire staff protested that this was fraught with extreme danger in view of the world situation and the speculative activities that would follow and that prices would rise. The control of pork products hwas removed and the price of hogs has ascended from $17.50 to $21.00, and although I have not purchased any pork products for Relief purposes or for Germany since the control was removed, and I am sure an even worse situation would arise if wle lremoved the fixed price on wheat.
As to the harvest of 1919, as Mr. Redfield points out, there can be only one seller or wheat in the United States, and there will probably be a continuation of colnsolidated buying abroad. There can, therefore, be no national flow of supply and demand on which to base any “world” price of wheat. One could only might approach it the problems in two or three ways ; —none very effective first a A guess might be made at the world supplies available and the probable world demand. To present appearances the world supply of wheat next harvest will be again insufficient to take care of the world demand assuming always that Europe doews not fall into complete anarchy and is able by its products to pay for its bread. On such a basis the proper price might be one, two, orthree or five dollars, I don't know which. At the same time, Europe might sit down and say that they will buy no wheat from the United States until they have eaten exhausted up all of their own wheat and exhausted all the other world wheat, say for six months, and during such and therefore under a their temporary cessation in demands, and if the market were turned loose, the price might go drop $1.00 and sixty cents cents a bushel to the enormous loss of our Treasury if we did not ourselves carry the surplus in the meantime. Even on this assumption of a shortage it is impossible to tell what the price would be - In the hands of speculators a shortage of 5% might mean $3.00 wheat as in 1917. In the hands of governments it might mean $1 or $4 depending upon the predilections of the controllers. Another basis of approach to the problem mightAnother factor that enters into the price of wheat and which has been much overlooked is the factor of currency inflation. Wheat is practically the only commodity under price control today in the United States, and yet all pricews are very high and, in fact, although I have not calculated it accurately, I think that is is probable that the ten or twelve principal staples would prove on investigation to be higher on comparative levels to wheat itself. It would not appear, therefore, that the price of wheat can be influencing the price level of other commodities so much as depreciated currency and world shortage. Another method by which the problem might be approached is to make an economic determination from time to time as to what the price level is of say some ten other principal food staples and ajdjust the price of wheat downward to such level, should they fall indicate a level below the guaranteed price. Such a procedure would be based on the assumption that there is a free pflow of supply and demand in the other staples and as the world controls of these other staples have been largely liquidated this might be possible. On the other hand, the trechnical difficulties of adjusting the price of wheat downward to the consumer and yet maintain it at the guaranteed price for the producer will require the utmost ingenuity, with the assumption of a uniform high integrity on the part of some hundreds of thousands of people. The wheat of the United States physically cannot come all into the market in one day and placed in the possession of the Government and be resold on the next day at a lower price, but it must naturally flow into the market fevery day for the whole 365 days, and as near as I can recollect there are about 44,000 wheat buyers in the United States. Each of these buyers would need become a Government agent paying the guaranteed price and reselling at some lower price with a great bureaucracy of watchmen against fraud. A great number of methods have been suggested for handling this technical problem, but none of which have yet appealed to me. There is another broad problem involved that even assuming the guaranteed price of wheat is higher next year than the world price or the economic price would indicate that it should be, two factors enter into it from a public point of view. The first is that out of probably 1,100,000,000 bushels we shall want to export 500,000,000 bushels. If we take a dollar off of the entire crop, it will cost the Government a billion one hundred million dollars, and of this money we shall have conferred upon the rest of the World five hundred million and I doubt whether the rest of the world would give thanks.
The second point is that the price of flour on the guaranteed price of wheat should be about $11.00 a barrel wholesale, Atlantic seaboard. The pre-War average price was approximately $6.00, but if we are able to maintain our present wage level and present increased railway rates a reduction in the price of wheat so as to absorb the entire one hundred million dollars would probably not reduce the price of flour below $3.50 $8.50 a barrel, and at the consumption of the American public this wouold be a saving to the United States consumer of approximately $350,000,000. at a cost to the Government of $1,100,000,000.
To sum up this very confused and problematical statement, I would say that the same policy would need to be pursued with regard to next years wheat that has been pursued in regard to all food emergencies, and that is a consultation between yourself and those whom you can best depend upon for advice from time to time and an adjustment from time to time based on the economic, political and social outlook without any pledges to a definite course of policy.
Yours faithfully,
Herbert C. Hoover
His Excellency,
The President of the United States,
P A R I S.
HH:RAK
Dear Mr. President
I have received from you Mr. Redfield's letter with regard to the price of wheat.
This problem divides itself into two distinct stages. The first is with regard to the balance of the 1918 harvest year, that is until the new harvest is available in quantity, say September 1st, 1919.; the second is the 1919 harvest year.
Mr. Redfield's proposition is, I understand, that wheat should be allowed to take its normal course in the market, that is at its “world price.”
With regard to the first stage, that is, up to the 1st of July, the “world value price” is probably $3.00 or $4.00 per bushel as we are now plunged into an effective world shortage by inability to send enough tonnage to the Argentine and Australia to secure supplies from that quarters, and if the control of prices were removed in the United States and if all buyers were allowed to enter that market, the price will go to extremely high levels. We have, in fact, a shortage of thirty million bushels of wheat to supply the demands on us to July 1st. And this, after refusing to make further supplies to Neutrals (in order to forfce them to the Southern Hemisphere). Despite every effort to keep the price down as only 20 cents above the guarantee
You will perhaps recollect that six weeks ago, when Mr. Redfield and his associates demanded that we remove the price control on wheat, pork and cottonseed products, I and my entire staff protested that this was fraught with extreme danger in view of the world situation and the speculative activities that would follow and that prices would rise. The control of pork products hwas removed and the price of hogs has ascended from $17.50 to $21.00, and although I have not purchased any pork products for Relief purposes or for Germany since the control was removed, and I am sure an even worse situation would arise if wle lremoved the fixed price on wheat.
As to the harvest of 1919, as Mr. Redfield points out, there can be only one seller or wheat in the United States, and there will probably be a continuation of colnsolidated buying abroad. There can, therefore, be no national flow of supply and demand on which to base any “world” price of wheat. One could only might approach it the problems in two or three ways ; —none very effective first a A guess might be made at the world supplies available and the probable world demand. To present appearances the world supply of wheat next harvest will be again insufficient to take care of the world demand assuming always that Europe doews not fall into complete anarchy and is able by its products to pay for its bread. On such a basis the proper price might be one, two, orthree or five dollars, I don't know which. At the same time, Europe might sit down and say that they will buy no wheat from the United States until they have eaten exhausted up all of their own wheat and exhausted all the other world wheat, say for six months, and during such and therefore under a their temporary cessation in demands, and if the market were turned loose, the price might go drop $1.00 and sixty cents cents a bushel to the enormous loss of our Treasury if we did not ourselves carry the surplus in the meantime. Even on this assumption of a shortage it is impossible to tell what the price would be - In the hands of speculators a shortage of 5% might mean $3.00 wheat as in 1917. In the hands of governments it might mean $1 or $4 depending upon the predilections of the controllers. Another basis of approach to the problem mightAnother factor that enters into the price of wheat and which has been much overlooked is the factor of currency inflation. Wheat is practically the only commodity under price control today in the United States, and yet all pricews are very high and, in fact, although I have not calculated it accurately, I think that is is probable that the ten or twelve principal staples would prove on investigation to be higher on comparative levels to wheat itself. It would not appear, therefore, that the price of wheat can be influencing the price level of other commodities so much as depreciated currency and world shortage. Another method by which the problem might be approached is to make an economic determination from time to time as to what the price level is of say some ten other principal food staples and ajdjust the price of wheat downward to such level, should they fall indicate a level below the guaranteed price. Such a procedure would be based on the assumption that there is a free pflow of supply and demand in the other staples and as the world controls of these other staples have been largely liquidated this might be possible. On the other hand, the trechnical difficulties of adjusting the price of wheat downward to the consumer and yet maintain it at the guaranteed price for the producer will require the utmost ingenuity, with the assumption of a uniform high integrity on the part of some hundreds of thousands of people. The wheat of the United States physically cannot come all into the market in one day and placed in the possession of the Government and be resold on the next day at a lower price, but it must naturally flow into the market fevery day for the whole 365 days, and as near as I can recollect there are about 44,000 wheat buyers in the United States. Each of these buyers would need become a Government agent paying the guaranteed price and reselling at some lower price with a great bureaucracy of watchmen against fraud. A great number of methods have been suggested for handling this technical problem, but none of which have yet appealed to me. There is another broad problem involved that even assuming the guaranteed price of wheat is higher next year than the world price or the economic price would indicate that it should be, two factors enter into it from a public point of view. The first is that out of probably 1,100,000,000 bushels we shall want to export 500,000,000 bushels. If we take a dollar off of the entire crop, it will cost the Government a billion one hundred million dollars, and of this money we shall have conferred upon the rest of the World five hundred million and I doubt whether the rest of the world would give thanks.
The second point is that the price of flour on the guaranteed price of wheat should be about $11.00 a barrel wholesale, Atlantic seaboard. The pre-War average price was approximately $6.00, but if we are able to maintain our present wage level and present increased railway rates a reduction in the price of wheat so as to absorb the entire one hundred million dollars would probably not reduce the price of flour below $3.50 $8.50 a barrel, and at the consumption of the American public this wouold be a saving to the United States consumer of approximately $350,000,000. at a cost to the Government of $1,100,000,000.
To sum up this very confused and problematical statement, I would say that the same policy would need to be pursued with regard to next years wheat that has been pursued in regard to all food emergencies, and that is a consultation between yourself and those whom you can best depend upon for advice from time to time and an adjustment from time to time based on the economic, political and social outlook without any pledges to a definite course of policy.
Yours faithfully,
Herbert C. Hoover
His Excellency,
The President of the United States,
P A R I S.
HH:RAK
Original Format
Letter
To
Wilson, Woodrow, 1856-1924
Files
Citation
Hoover, Herbert, 1874-1964, “Herbert Hoover to Woodrow Wilson,” 1919 April 18, WWP19503, Hoover Institute at Stanford University Collection, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.