OF THE ACADEMY OF POLITICAL SCIENCE IN THE CITY OF NEW YORK Volume XI 1924-1926 EDITED BY WILLIAM L. RANSOM THE ACADEMY OF POLITICAL SCIENCE COLUMBIA UNIVERSITY NEW YORK AGRICULTURAL POOLS IN RELATION TO WILLIAM R. CAMP Associate Professor of Rural Institutions, University of California W 2 I ITH tobacco pools marketing approximately 48% of the tobacco crop in the United States, with cotton pools marketing 8% of the cotton, with wheat pools of Canada and the United States marketing 10% of this year's crop, and with this form of organization either already a large factor or becoming important in the distribution of milk, butter, eggs, potatoes, citrus fruit, cranberries, raisins and prunes, the development of the agricultural pool constitutes one of the great changes that are taking place in the system of distribution and financing. Some, however, believe that the cooperative movement which has been growing so rapidly is already encountering disintegrating elements which preclude a realization of its theoretical possibilities. This article will give a critical examination of the agricultural pool, to differentiate it from the manufacturers' pool, to show its evolution and precise nature as it has been applied to different farm products, its relation to the processes of distribution and of banking, and its limitations in regulating the flow of products to different markets, in stabilizing prices, in coordinating the changes of cost and selling prices, and in maintaining a balance between the grower-seller and manufacturer-buyer of farm products. 1 This study of agricultural pools is included in the present volume as a supplement to the papers read at the Conference, because the methods of regulating the price and movement of agricultural products present significant analogies with, as well as contrasts to, the methods of combinations in industry. -ED. 2 Much of the material for this article was obtained through personal interviews and correspondence with representatives of cooperative marketing associations. A discussion of certain phases of the subject was published in Wallace's Farmer, February, 1922. 607246 Manifestly, if the organization of any group of producers as important as that of agriculture does not proceed at a rate and possess an effectiveness equal to that of other groups, its purchasing power will be decreased and the power to move goods to this class of consumers will be decreased. Any lack of balance between the buying and selling prices of any given group of producers is likely to cause a greater disturbance in the business world during a period of rapidly changing price levels such as have been prevalent since the beginning of the World War. Legal Status of Pooling Agreements in Agriculture and Manufacturing The enactment by Congress and by a majority of the state legislatures of cooperative marketing acts has given the pooling of farm products a more definite legal status than that of manufactured products. The law generally has been so unfavorable to all pooling agreements that business concerns in industries outside of agriculture and the export trade have frequently been forced to follow other methods of organization.1 The pooling agreements of manufacturers have included provisions for the realization of economies through the employment of a common sales agency and in some cases provisions for controlling destructive competition through zoning of sales territory and through an allotment of output. Whether such agreements involve illegal price-fixing or not, they are likely to influence output and prices, and to bring about that greater stabilization in prices which is fundamental to business activity. If such agreements do not have the support of the law, they are likely to be of short duration. Manufacturers who have entered pooling agreements to establish joint sales agencies for the marketing of their products 2 1 Slichter, S. H., "The Legality of the Combination of Competitors under the Sherman Act," Journal of Political Economy, vol. xxv, 1917, pp. 761-804; Jones, Elliot, The Trust Problem in the United States (The Macmillan Co., New York, 1921), ch. ii; Warford, L. E. and May, Richard A., Trade Association Activities (Department of Commerce, 1923), p. 171; Haney, Lewis, Business Organization and Combination, chs. x and xi. 2 Cf. Sakolski, A. M., “Price Making and Price Stability," Harvard Business Review, January, 1925; Eddy, Arthur J., The New Competition, pp. 94, 146, 201. V have been able to hold together during periods of prosperity, but they have not been generally able to abide by any agreement for allotting production and for determining prices during periods of depression. When demand is decreased or uncertain, during a period of depression, the concerns which are financially weak are not able to wait, but are obliged to unload and cut prices. To secure a share in a restricted demand, manufacturers generally may be led to cut prices. After such demoralizing experiences, the pooling agreements between manufacturers in many cases have been given up for the plant owning and operating combination, the stock trustee device, or the security holding company. The movement in the United States for the organization of the trusts was greatly accelerated after the depression of the nineties. This movement involved a substitution of cooperation for destructive competition, not only between the units which comprised the trust, but also between the trust and the independent competitors who remained on the outside. In the larger organizations of business, the individual producer or manufacturer lost ownership of his individual plant, and surrendered control over its operation; and finally he lost interest in the output of his individual plant through giving up the right to income from his own plant in return for a share in the income of the controlled property which had been consolidated. This was sometimes accomplished through an allotment of shares of stock in the consolidated company, in the proportion that the output of his plant bore to that of the other plants. Thus the early opposition of the law to the pooling agreements of individual manufacturers has resulted in the development of a stronger form of organization than was possible under the pooling contracts, and, in consequence, in a more effective control of distribution and production. In organizing a cooperative marketing pool, farmers do not give up the ownership of their individual farms. Their crop contracts are not agreements to control the rate of production of farm products, but rather to cooperate in directing the distribution of members' farm products. The general motive for organization has been the same as for other business men, namely, improvement of unfavorable conditions. The methods of procedure of both producing groups |