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The second thing is that relief payments are not included as part of the national income estimates.

Senator KING. There would be two or three billion dollars there.

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Work relief is included; sup

posedly those people are producing something. Direct relief is not included.

Senator KING. It occurred to me that if you were indicating the income of all government, Federal, State, and political subdivisions, you ought to include all that had been expended by it, but you say that is included by reason of the fact that some of the expenditures were for materials, and they might be included in some other category.

THE IMPACT OF INVENTION

Dr. THORP. That is correct. Now I wish to indicate briefly certain types of situations which play on the business community and disturb it or make necessary readjustments here and there.

A basic one is changes in technology, and for the purpose of indicating that I have a chart on applications and patents. The top line represents applications for patents filed with the United States Patent Office, the bottom line, patents issued. You can see that as time has gone on the applications for patents have increased. They were very large during the twenties and the patents issued have steadily increased.

(The chart referred to was marked "Exhibit No. 85" and appears on this page. The statistical data on which this chart is based are included in the appendix on p. 245.)

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1836 40 45 30 55 60 65 70 75 '80 85 90 95 1900 '05 '10 15 '20 25 '30

'35 1937

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Dr. THORP. Of course there always is some lag because there is a delay of several years, usually, between the time when applications are filed and the time when patents can be finally issued.

This continual impact of technical change has, of course, the power of building new industries and destroying old industries and changing processes. Much of it comes out of business itself, which has done the work, and yet its reaction is back on business, and perhaps on other parts of the business community. It creates problems of capital investment and problems of survival which are extremely important.

Here is another thing which Dr. Lubin talked about yesterday, "the increasing importance of durable goods.'

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(The chart referred to was marked "Exhibit No. 86" and appears on this page. The statistical data on which this chart is based are included in the appendix on p. 246.)

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Dr. THORP. That has not only importance from the point of view of the consumer but from the point of view of the producer, from the point of view of the businessman. It is goods of this sort, for instance, which give rise to the whole problem of installment selling.

Installment selling is essentially related to durable goods. It is mostly a matter of automobiles. At least 62 percent of installment

Supra, pp. 27 and 28.

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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?

EXHIBIT No. 87

PRODUCTION OF DURABLE AND NONDURABLE
MANUFACTURED PRODUCTS-1929-1938

(MONTHLY)

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INDEX NUMBERS-1929 = 100

120

110

INDEX NUMBERS ~ 1929 = 100

120

110

100

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90

1929 1930 1931 1932 1933 1934 1935 1936 1937 1938

SOURCE: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

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.

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