of goods and services must be maintained if our form of government is to endure.

In order to implement the right of Congress to maintain proper dollar values, the first session of Congress, in its third act, provided for tariffs, not as a bar against imports, but as a means of revenue and at the same time a protection for domestic price, which in turn is dollar value for goods and services in the United States.

The matter of tariffs must be considered from the standpoint of the welfare of the people. Our standard of living is an example of its value. Tariffs can be compared to fire. Fire is one of the greatest blessings for our progress and well being. Yet it can be very destructive. We don't outlaw fire because of the destruction it might cause, but control it to serve our best interests.

In the same manner tariffs should be controlled for the best interests of our domestic economy and our form of government. To use tariffs to create monoply is an improper use. Tariffs, governed by arithmetic, should be used to protect our price level at a point where raw material prices, wages and finished goods prices can be stabilized at the point of a 100-cent dollar or parity. To reduce tariffs below that point undermines the economic security of our Nation. Maintaining a prosperous United States is the greatest service that we can render to ourselves and other nations. Under our form of economy our Nation outstripped the world in progress and living standards to the extent that we, a nation of 132 million people, were doing half of the dollar business of the world while the other 2,000,000,000 people were doing the other half.

In material things, for example, we were buying 70 percent of the automobiles the world produced, while the rest of the world. was buying the 30 percent. As you all know, it takes dollars to buy automobiles. The American people were able to buy them because they were paid wages and prices which permitted them to have a car as part of the living standard.

In comparing relative price levels, using the United States as a hundred, Great Britain is 50 percent and Japan less than 10 percent. Actual records from the Ministry of Labor in England give the average wage in 17 leading industries as $1,060 per year on the basis of a 52-hour week as compared to 27 leading industries in the United States paying an annual wage of $2,060 on the basis of an average of 43 hours per week.

Applying this ratio to our own Nation as a business we have the following result: In 1942 the United States had an income of approximately $120,000,000,000 with a price level of approximately 100, using the year 1926 as an index of 100. Simple arithmetic proves that with 50 percent of the price level in 1942, our income would have been only $60,000,000,000. This represents a difference of $444 annually for every man, woman, and child in the United States.

That is what I meant, Mr. Chairman, when I stated that the matter of trade agreements is of tremendous importance. Any legislation that might mean the loss of $60,000,000,000 a year to the people of the United States ought to be important, especially so with the Nation facing a $200,000,000,000 debt as a result of the war.

Quite recently, using the record of the Nation as a business, we projected the income of the United States to 1946. At that time, with

a price of 100 percent of the 1925-29 average, we can have a national income of $135,000,000,000, and with approximately the same taxes as prevailed in 1942 we can have a $10,000,000,000 surplus in the Federal Treasury with 5 billion for interest and 5 billion for amortization of the national debt.

On the other hand, however, with 50 percent of the 1925-29 price level we will have a national income of approximately 50 percent of 135 billion, a deficit in the Treasury and enough unemployment to throw the Nation into chaos. Yes, even to the point where the poor will be chasing the rich through the streets.

An example of gain or loss can be obtained from a comparison of the record of the Nation. In 1940 the Nation had a national income of $76,000,000,000. The price level at that time was at approximately 80 percent of par, due to too low a tariff on competitive imports of farm products. In 1942 our Nation had a national income of approximately $120,000,000,000 with the price level averaging approximately 100 as compared to 1926. Shortage of shipping in 1942 automatically shut out the competitive imports and our prices advanced to parity.

In the past 6 months we have heard a lot of discussions as regards the post-war era. The post-war era must not be one of theory, because economy is a cold-blooded exchange of goods and services at a price. The world cannot afford a program of social reform based on deficit financing. The only real social security is a steady job at parity

wages.

In the United States the point of parity, or a 100-cent dollar measure for our annual production of goods and services, is the point of solvency of the United States as a business. Without a solvent United States all domestic and international planning is based on a foundation of sand. Our thoughts in regard to foreign trade have been in reverse gear. Our maximum foreign trade, other than lend and give, takes place at a time when our price level is at par, the reason being that all goods imported in payment for goods exported must be consumed by the people of the United States. In other words, we will have more foreign trade in 1946, for example, with a national income of $135,000,000,000, than we will have with 67.5 billion of national income, if operating on the so-called world level.

Because of these simple facts, this committee should move with caution if it is to serve the welfare of our Nation. No one is opposed to trade agreements with other nations. In fact, agreements must be made with each nation with whom we trade, but in making these trade agreements Members of Congress must be careful to specify restrictions under which such agreements are to be made. There are three important restrictions that should be observed in protecting the welfare of the people of the United States:

1. All agreements should have the approval of the Congress of the United States.

2. No agreement should be entered into with any nation which will tend to break down the American parity price level for goods and services.

3. Differentials in price levels between various nations should be equalized by using the tariff collected on goods imported at the American parity to discount the price of goods exported to the other

nations.

In closing, I wish to point out again that the solvency of the United States must be the first consideration if we are to help the world rehabilitate itself after the war. If this Nation maintains its price level at parity, we cannot go bankrupt.

And, using our price level as a yardstick for an international monetary system, the world can have a permanent prosperity.

With a stable world monetary system providing equity instead of exploitation, we will have a foundation for a peaceful world. The depression was nothing more than a dislocation of commodity and dollar values.

You may say that is theory, but it is not. Our level of prices at parity in 1910-14 and again in 1925-29 were world prices. The American parity price can become the world price and with tariffs at our parity level trade can take place at a price level which will start the rest of the world on its way upward to our standard. Their rate of progress will depend upon their becoming more efficient as they obtain the income to buy the tools of production. This committee has before it the responsibility of helping, yes forcing, the world to reorganize its economy on a proper basis of commodity values in terms of dollars.

For the information of the committee, I refer you to an analysis of a post-war economy which I prepared and which was read in the Congressional Record by Congressman Karl Mundt on December 15, 1942. I will file it with the committee in addition to my testimony and for the information of the committee.

(The information above referred to is as follows:)

A PROPOSED POST-WAR WORLD ECONOMY AND MONETARY SYSTEM.

Extension of remarks of Hon. Karl E. Mundt, of South Dakota, in the House of Representatives, Tuesday, December 15, 1942

Mr. MUNDT. Mr. Speaker, after victory in this war, what next? That is the question which presents itself to America with ever-increasing emphasis, and it is well that all of us devote some serious thinking to the post-war economy of this Republic in order to assure the preservation of our American way of life here at home. Carl H. Wilkin, of Sioux City, Iowa, economic analyst, of the Raw Materials National Council, has developed an approach to our post-war problems which I take this means of calling to the attention of the Congress and the country, with the hope that it will stimulate further thinking and give rise to additional proposals which will enable us to begin planning now for an America after the war, in which free opportunity, individual initiative, and legislative independence will be again restored:

"In setting up a sound economy for the post-war era in the United States and the rest of the world, we must get away from orthodoxism and theoretical conclusions and base such a program on the record of the past.

"The survey or actuarial table used as a foundation for the program which I will present covers 30 years of the United States as a business from 1910-40, inclusive. During this period we can obtain a correct picture of the world stability that existed in the era before the First World War, we can obtain the picture of the inflation that took place during the war and the effect of the depression in 1920 and from 1930-40.

"This table, prepared by Charles B. Ray, of Chicago, for the Raw Materials National Council of Sioux City, Iowa, using the records of the United States Government, is, in our opinion, the most complete survey that has been made by any research group. At least none of similar scope has been brought to our atten

tion.

"MONETARY MEDIUMS

"In our analysis we will start with the period of 1910-14 preceding the World War. The monetary mediums in use at that time consisted of the gold standard

as a base for the monetary units of about 50 percent of the world and silver as the monetary base for the other 50 percent.

"The price of gold has been stabilized by the Government fiat at $20.67 per ounce for some years. Silver, the monetary medium for India, China, Mexico, and some other nations, fluctuated on the world market from day to day in the same manner as other commodities, such as corn, cotton, wheat, etc.

"During this period, 1910-14, the relative price established by trade under stable conditions and the law of supply and demand, was as follows: Gold had a price by Government fiat of $20.67 per ounce. Cotton averaged 12.4 cents a pound, corn average 57.4 cents per bushel, and silver averaged 57 cents per

ounce.

"The relative price was a natural point of equal exchange-in recent years called parity-between gold, cotton, corn, and silver. Other commodities, of course, can be averaged in a similar manner.

"WORLD-WAR INFLATION AND DEFLATION

"During the First World War we had inflation of commodity prices as compared to gold. Silver, receiving the same treatment as other commodities, also fluctuated in price. Gold, however, having no intrinsic value in war industries, and having a price fixed by fiat, remained at $20.67 per ounce. As a result gold would not buy as many pounds of cotton or corn in the war period as in the period from 1910-40.

"With the fixed value of gold based on the 1940-14 period, it was only natural that prices would decline after the war in an attempt to realine themselves with gold, which was the base for monetary values in much of the world's monetary system.

"In 1920 this decline took place and wiped out many inflated equities and prices. Had this deflation been allowed to continue until it reached the level of prices that existed in the 1910-14 period, it would have thrown the world into a state of complete bankruptcy and no country would have been able to pay the obligations of the World War.

"DEFLATION HALTED

"It was only natural that nations, in order to protect themselves, took steps to prevent the decline of commodity prices which, after all, determine the earning power of nations. The United States of America, because of its economic self sufficiency resulting from natural resources which make it 98 percent independent of world supplies, quickly emerged from the post-war depression and through tariff protection stabilized its price level during 1925-29 at a new period of normal, or 100, called parity.

"NEW NORMAL PRICE LEVEL

"As the result of this stabilization at a higher price level, the income of the United States rose from an average of 31 billion in the 1940-14 period to an average of 78 billion dollars in 1925-29, or an increase of 47 billions per year. With this increase in income the Nation was able to start retirement of its World War debt at a rapid pace; and if prices had remained at that level the Nation could have been debt free in a few years.

"During all these years from 1910-29, the price of gold remained at $20.67 and also remained the base for our monetary unit. This record proves that gold does not necessarily control commodity prices. For example, in the 1910-14 period, an ounce of gold could be exchanged for approximately 166 pounds of cotton, while in 1920-29 it would buy only 100 pounds of cotton.

"With inadequate tariff protection or the necessary flexibility to provide against fluctuating world prices, imports of farm products and other raw materials flowed into the United States which had become the only stable market in the world. The extent to which this took place can be ascertained from the records of the Department of Agriculture or the Department of Commerce. In the period 1925-29, because of relatively higher prices in the United States, we imported $1,750,000,000-foreign value-more farm products than we exported. This finally forced downward commodity prices, the foundation for the earnings of the people, and destroyed the only stable market left in the world at that time. "An indirect effect of these importations was to prevent other nations from having access to these raw materials, which we purchased in excess of our own products, thus causing unrest and poverty.

"DEPRESSION, 1930-40

"With the depression of 1929, the whole world was plunged into a condition of financial chaos. Few people realize that the price of raw materials, times the units produced, represents the basic income of all nations and that any depression of such prices below the normal level will always create a shortage of income which in turn results in a shortage of purchasing power to consume normal production.

"The record of the United States reveals the fact that the depression, or lower prices from 1930 to 1940 caused the people of the United States to suffer a loss of $255,000,000,000, ranging from a loss in the State of Iowa of $5,000,000,000 to a loss in New York State of $26,000,000,000.

"This loss of $255,000,000,000 in 11 years, from 1930 to 1940, is so huge and fantastic that it is well to explain how it came about. In our economy the records reveal that farm income, factory pay rolls, and total national income have a direct mathematical ratio to each other, with the farm income the governing factor. For each dollar of farm income we will have roughly a dollar of factory pay rolls and $7 of national income. As a result of this ratio a loss of $1,000,000,000 in farm income through lower prices will be followed by a loss in the national income of $7,000,000,000.

"With annual average farm income in the period, 1930-40, over $3,000,000,000 below the 1925-29 parity, the multiple of seven increased the loss to $225,000,000 000 in the 11-year period, without taking into consideration the added income that we should have had from the labor and consumption of our increase in population.

"ATTEMPTS TO RESTORE PROSPERITY

"The administration in 1929-1932 tried to devise ways and means to restore the price level. The farm board was established to peg the prices of cotton and wheat, but on too small a scale and without the proper economic safeguards for successful operation.

"Prices continued downward during 1930 and 1931, and in 1932 we had reached the point of financial collapse. We use the term 'financial collapse' to differentiate between a monetary collapse or price dislocation and economic collapse. In 1932 we still had our raw materials supply, our labor, factories, transportation, and potential consumption. All we lacked was the proper price ratio to create the necessary income to exchange the real wealth produced.

"Even though the price of an ounce of gold had not been changed, commodity prices hit a new low throughout the world, proving once again that gold alone as a monetary medium cannot stabilize commodity prices, the value of which it is supposed to measure as a monetary medium of exchange.

"As a result of the low prices, the American people elected a new administration pledged to restore the price level to the point at which it existed in the 1925-29 period. It was a New Deal with the same old economic fallacies as a guide.

"ADJUSTMENT OF GOLD PRICE

"One of the first moves of the new administration was to take the advice of a group of economists and monetary experts who still had the theory that the value of gold would regulate the price of commodities. This group was led by Dr. G. F. Warren and Dr. Frank Pearson of Cornell University. These two men unknowingly have indirectly performed a great service for the human race.

"Using their charts as a basis, the price of gold was finally advanced to $35.07 an ounce, a price which restored to gold approximately the same purchasing power in terms of cotton, 1925-29 level, for instance, that had existed in 1910-14. "But again, gold alone was not enough to restore the price level. A step of real value, however, in solving our economic problems was taken in the setting up of commodity loans as an aid to maintaining commodity prices. It offers a simple method of keeping basic commodity prices in balance with gold and silver as monetary standards.

"PROGRAM OF SCARCITY

"Even though the records reveal that in 1929, the year of the stock-market crash, our production was 99 percent of the average of the 1925-29 period and the price 99 percent of the same period, some of our economists, instead of realiz