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selling last year was in the field of automobiles. But it is important in furniture and household appliances. That is related to the problem of durable goods, and of course it is true that many durable goods are high-priced items, large-priced items perhaps I should say, and therefore the purchaser has a problem of selling which is rather different from items on which there are small prices.

Also, there is a matter of making only one sale, and that raises a rather different problem for the businessman than on perishable items, consumers' goods of a kind in which he wishes to make frequent sales.

Here is another chart which shows the production of durable and nondurable goods since 1929. Durable goods tend to be postponable goods. Your purchase can wait, and once you have purchased it you don't have to come in the market again within a short time. The implication back of this it seems to me, is fairly clear when you think of the difference to an economy as between my buying 25 cents worth of ice every day, and my buying 20 tons of ice, or whatever it may be, in one purchase when I buy an electric refrigerator. That one purchase is equivalent to 20 years-if there is a manufacturer in the house we can get the right figure-or 30 years, or whatever it may be, of ice. I have done that in one purchase.

Of course, if I am buying ice every day, right on through, there is a steady employment and a steady economic activity, but the introduction of this durable item raises new problems. If many people buy all their ice at once in the form of electrical refrigerators, and do it when they have money, the net result is going to be, obviously, this kind of behavior with regard to purchases at some later date.

(The chart referred to was marked "Exhibit No. 87" and appears on p. 153. The statistical data on which this chart is based are included in the appendix on p. 247.)

Dr. THORP. There is another kind of change that I want just to cite, and that is the increased importance of selling. It used to be true that the businessman's major problem was to make the goods. Today his major problem is to sell them. That means a shift in interest and in importance and in the kind of problems away from production problems to merchandising problems, and that raises a whole series of questions.

FOREIGN TRADE

Dr. THORP. Here is the effect of foreign business. This is a chart on United States Foreign Trade. The exports and imports are presented here, and in this little insert chart is the ratio of exports to the total production of movable goods-that is, of goods that could be exported. You will notice that going through the period along in the twenties we were exporting about 10 percent of the available movable goods. Since then we have exported between 7.5 and 6.6 percent.

(The chart referred to was marked "Exhibit No. 88" and appears on p. 154. The statistical data on which this chart is based are included in the appendix on p. 248.)

Senator KING. That includes all exports?

Dr. THORP. This includes all exports and all imports. Foreign conditions, of course, affect us through our exports and imports; also through capital markets; also through the price structure, in that prices.

in other countries, even if goods do not flow to us, by their very threat to us, may affect our own price structure.

Senator KING. We lost nearly one-half, did we not, from the high peak to the low of our exports?

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Dr. THORP. More than that. Our total exports in 1920 were over $8,000,000,000; the low point is $1,000,600,000.

Senator KING. At one time we had $13,000,000,000 of foreign trade, imports and exports, in 1923.

Dr. THORP. That is in 1920, and if you add imports and exports in 1932, the total was 2.8 billion.

Senator KING. Obviously, the loss of that export market had serious repercussions upon our whole economy.

Dr. THORP. This had very serious repercussions. The sending of these goods abroad, of course, had very definite supporting effects on industrial activity; to the degree to which the payment for them was never collected there were repercussions on our financial circles as well.

Senator KING. We not only lost our goods but we loaned $2,000,000,000 one year for them to buy our goods, and lost that, did we not? Dr. THORP. We certainly did.

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1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937

SOURCE: BUREAU OF FOREIGN AND DOMESTIC COMMERCE

THE IMPACT OF WAR

Dr. THORP. I would like also to introduce as another disturbing factor the factor of war or the threat of war. When I showed you the construction charts you could see how in the twenties we were active making up for what had been the restrictions of the war period. While this chart is here I can show you the effects of the war, because this 1919-20 picture was very definitely a picture which was affected by that situation.

(The chart referred to was marked "Exhibit No. 89" and appears on p. 155. The statistical data on which this chart is based are included in the appendix on p. 249.)

Dr. THORP. Here is another way of picturing the effect of war, through its disturbing effect upon the general level of prices. We had the great peaks and great disturbances of 1815, 1865, and in the last war period. In other words, from the point of view of disturbance and of problems of adjustment, war, and to a considerable degree the threat of war, is an important factor in the whole economy.

Senator KING. Doctor, this is not quite germane. In your surveys you discovered, did you not, that we have had rather serious periods of depression; back in 1837, 1847, 1857, 1873, and 1893, and then the last few years.

Dr. THORP. Yes, sir.

Senator KING. So recessions or depressions are a part, at least have been a part, of our economy for many years.

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FLUCTUATIONS IN BUSINESS CONDITIONS

Dr. THORP. Yes, we have as far back as the record is available found fluctuations in business. That is the next topic which I would like to suggest as one of the disturbing elements in the operation of the individual businessman, the fact that while he is a part of it, nevertheless to him come these fluctuations in business and he is very closely related to all other businessmen.

I once made a study of the history of business conditions and in the early years of the nineteenth century we frequently would have to say that the country was prosperous in the South and depressed in the North or vice versa.

Nowadays the effect of general business conditions sweeps throughout all the country so that the pattern is apt to be very much the same, although I think just to take one illustration, it is worthy of note that the great State of Texas seems to have been able in the last few

months to have stood out decidedly above the general trend of the Nation with regard to its business conditions.

If you take indexes of various sections of the country, most of them are around 75 at the present time as compared with 1928, 1929, and 1930. But Texas is somewhere around the level of that earlier period. Florida is the same way, but basically the pattern is the same throughout the country and businessmen themselves find much of their problems of adjustment coming out of the general pattern.

THE NEED FOR CONTINUAL ADJUSTMENT

Dr. THORP. Finally, as an influence that is disturbing, there are changes in government policy. It is possible to make adjustments, of course, to any situation. One gets used to it, but any change in the situation is apt to be a disturbing factor, and uncertainty makes it even harder to plan. In this whole situation I think one has to feel that we need rather tremendous methods of keeping in balance. It is a very complicated machine. It has very different parts, but the parts are very closely related to each other, and so many different disturbing elements come into play that we need very fine forms of adjustments.

We need lots of valves that are working well, and I think one way of putting this whole problem is to find out at what points we are getting adjustments, where do we have flexibility and where do we not have flexibility in the process of keeping in balance.

There is no simple answer, as I think I have indicated here in this testimony. It is a complicated system, and its parts are very different, and without a pretty definite understanding of how these parts work and what kind of disturbing factors come in-and when I use the word "disturbing" they may be stimulating or retarding factors-it is difficult to appraise the structure.

We need to know more about how those various factors work, and the variations within the whole system. The parts are all here. I think one way of putting the problem is how to make the various parts work steadily at maximum efficiency.

Senator KING. A higher degree of civilization makes for the condition you just described, in contradistinction to primitive conditions or where you have dictatorship.

Dr. THORP. Complexity is very definitely a form of life which emerges as civilization advances and along with specialization of product and enterprise comes a specialized type of problem so that dealing with the problem becomes more difficult as well.

Senator KING. Mr. Chairman, I think Dr. Thorp deserves a vote of thanks.

The CHAIRMAN. We feel very grateful, Dr. Thorp, for a very excellent presentation.

The committee will stand in recess until tomorrow at 10:30 a. m., when Mr. Leon Henderson will make a brief summary.

(Whereupon, at 4:45 p. m., a recess was taken until Saturday, December 3, 1938, at 10:30 a. m.)

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