Of course, that threw the whole economy out of balance. Since that time we have tried to get it back into a more harmonious relationship. We have tried to take value from the dollar and to put value in commodities, which means all kinds of commodities, so that today the conditions are much better than they were back in 1933 and 1934. At the present time, if I may put one or two other figures in the record, the dollar has a value of 1081/2 cents. Notwithstanding the reports and the declaration we see in the newspapers and hear, the dollar today has a buying power or value of 10812 cents. That means that the price level is not at 100; it means that it is 92.2. So, it is my contention that until we get the price level up to 100 and the dollar down to 100, we will be in deflation. Then when we get the price level up to 100 and the dollar down to 100 we will be back where we were in 1926 when we had the so-called era of "Coolidge prosperity." Whether or not that is a correct designation of that era I do not know, but suffice it to say that the Government adopted that year and it has been the goal of a good many people ever since. (The explanation of suggested formula referred to and submitted by the witness is as follows:) EXPLANATION OF SUGGESTED FORMULA PROVIDED IN S. 1955 FOR DETERMINING PARITY PRICES ON FARM COMMODITIES DEFINITION OF PARITY PRICE The parity price of any farm commodity is that price which will give to such commodity a value or purchasing power with respect to articles that farmers buy, equivalent to the purchasing power of such commodity in the base period. BASE PERIOD The base period is the 10-year period from 1919 to 1929. This period is suggested because it is the most recent period of a free farm economy. The depression came in October 1929 and since that time our farm economy has been controlled. The period now being used (1909-14) is considered too remote as conditions and prices have changed materially since that time. That period, 1909-14, has been designated by responsible authorities as the "horse-and-buggy" era. BASE PRICE The base price for any farm product is the average price of such product during the 10-year base period, 1919-29. The average price of cotton during the base period as defined in the formula was 22.7 cents per pound. During that period the average price of No. 1 wheat was $1.57 per bushel, the average price for corn was 92 cents per bushel, and the average price of petroleum (crude oil) was $1.82 per barrel. PARITY PRICE To arrive at the parity price of any farm product we must determine the relationship of such price to the prices of the things which farmers must purchase. Under the suggested formula the parity price of any given farm commodity is determined by the relationship existing between the base price of such product and the all-commodity index number prepared and issued each week by the Department of Labor. During the base period (1919-29) this index number was the most stable in our entire history, and during such period the average of such index number was 103. In 1926 such index number stood at 100, indicating that during said year all groups of commodities that farmers have to buy, such as foods, hides and leather, textiles, fuel and lighting, metals and metal products, building materials and chemicals, house furnishings, farm products, and miscellaneous items, were on a 100-percent relationship with each other. By using the all-commodity index number of 100, we conclude that when such number is below 100, prices are lower than they were in 1926, and, conversely, when such number is above 100, then prices are higher than they were in said year. On December 6, 1941, the said index number was 92.2; hence, prices at that time were 7.8 percent lower than they were in 1926. Under the suggested formula the parity price of any farm product may be determined at any time by two simple calculations as follows: First, from the statistics in the Agricultural Department the average price of farm products may be arrived at and such average price will be the base price for any such product; and Second, by multiplying such base or average price by the all-commodity index number, which is announced weekly by the Department of Labor, the product of such calculation will be the parity price at any given time for such product. EXAMPLES Cotton. Under the formula the parity price for cotton is determined as follows: If the base or average price for cotton is 22.7 cents per pound, then by multiplying 22.7 by 92.2, the latest index number, we find the present parity price to be 20.9. Wheat.-The parity price for wheat is determined as follows: If the base or average price for wheat is $1.57 per bushel, then by multiplying $1.57 by 92.2, the latest index number, we find the present parity price at $1.44. Corn. The parity price for corn is determined as follows: If the base or average price for corn is $0.92 per bushel, then by multiplying .92 by 92.2, the latest index number, we find the present parity price at $0.84. [NOTE. At the present time prices are rising and as they rise the all-commodity index number will rise, so that when such number reaches 100 the parity price for any farm commodity will be the average price of such product during the base period (1919-29). It should be conceded by all that farmers are entitled to have full parity prices for all agricultural products and that when full parity is attained then it should be the policy of the Government to maintain such full parity prices for farm products as nearly as is humanly possible.] Senator THOMAS of Oklahoma. At the present time the dollar is not falling in value and prices are not increasing. I will give you just a few figures to sustain that contention. In the last month prices have remained in status quo. The price level has not changed perceptibly in the last 30 days. For example, on November 8 of this year, 1941, the dollar had a value of 1.09. At that time the price level was 91.7. On November 15 the dollar had a value of 1.08. The price level was 92.3. On November 22 the dollar had a value of 1.085, and the price level was 92.2. On November 29 the dollar had a value of 1.083, and the price level was 92.3. On December 6, last Thursday, the dollar value was 1.085, and the price level was 92.2. So, the managers of our money, and also Mr. Henderson, have held the price level practically in status quo. It has not changed more than one-tenth of 1 percent in the past month, and today it is the same as it was on November 15, a month ago. Senator BANKHEAD. How much has it risen this year? Senator Thomas of Oklahoma. The value of the dollar has fallen from about 1.32 down to 1.08. The price level has gone up from the late 70's to where it is now, 92.2. That has been due to the reaction of the spending program and the money in circulation during the past 12 months. Twelve months ago money in circulation was about eight billion dollars; now it is almost eleven billion dollars. Of course, credit money has increased very materially. The amount of money in circulation plus turn-over, of course, affects our price level. It is my contention, gentlemen, that we will be in deflation until the dollar value falls to 100 cents and the price level rises to 100. The managers of our economic system, as far as they could before this war broke a year ago, were trying to keep the dollar at a value of 130 cents and the price level down in the 80's. Senator TOBEY. Whom do you mean by the "managers of our economic system"? Senator THOMAS of Oklahoma. The managers of our money-the Federal Reserve Board, the Treasury, and the President. Senator TOBEY. The Federal Reserve Board and the Treasury are not in complete accord. Senator Thomas of Oklahoma. That is correct. Senator TOBEY. There is a wide gulf between them. Senator THOMAS of Oklahoma. Yes; there is, and at another time I will make a suggestion. I might make it here: that I should favor a program to delegate all the power that Congress has to one monetary authority. Then give that authority a definite mandate. We can do that under our power to delegate. Give that board a definite mandate to fix the value of the dollar at a given point, at a certain point, in terms of property, and then to keep it there as nearly as it is humanly possible. Senator BANKHEAD. That was done in the so-called Goldsborough resolution that passed the House. Senator THOMAS of Oklahoma. That is correct. It never got out of this committee. I do not want to go too much into this matter, Mr. Chairman. Now, if I may, I want to give you very briefly an explanation of how this formula will work in arriving at parity prices. I will take cotton, for example. In order to get a parity price of any commodity, two things must be ascertained: First, the base price of the commodity at some period and the index number, at the same period. If you can fix the base price of a commodity in a period and then can get its relation to the value of the index number at the same period, and you carry those right along, you keep them at parity. I have placed in the record data showing that for tobacco the base period was from 1920 to 1929. I think that should be made the base period for all commodities, and I recommend specifically that this bill be so amended as to change the base period from 1909-14 to 1919-29. Senator BROWN. That roughly is what the Brown amendment does-that is, Congressman Brown. Senator THOMAS of Oklahoma. It in effect does that, but it is not self-executing. The Administrator could do nothing or could do anything under the Brown amendment. Senator BANKHEAD. How do those years compare with 1926? Senator THOMAS of Oklahoma. 1926 was 100, so far as the index number is concerned. Those 10 years I can give you very briefly. My amendment provides that the base period shall be from July 15, 1919, to June 30, 1929. That is a 10-year period. That was the last 10-year period or the last period of any kind when we had a free economy in the United States. The depression broke in October 1929. From then on, things went bad, and we have had a controlled, a managed, and a subsidized economy from that time on to this. So, there is nothing since 1929 that is natural; and for my part I would not agree to make a base period of any year or years since 1929. Since that time we have had controlled production of practically everything, especially of cotton, wheat, corn, and, to a large extent, livestock. Of course, we killed off our cattle and killed off our pigs. So, I am taking the last 10 years of a free economy. During that period every man could do what he wanted to. A farmer could plant all the corn or cotton or raise all the cattle he wanted to, and he sold his products in the markets of the world and was not restricted. So, the law of supply and demand controlled the price in that 10-year period. I am going to show for the record just how this matter works. I am taking first, now, the base period. I have gone to the 10 cencentration points for cotton. I am taking cotton because that is the largest single crop. I say it is the largest single crop: It is in 11 States. I have found the average price for the cotton sold during that 10-year period. I have sent to Augusta, Ga., one of the great concentration points; to Houston, Tex., to Montgomery, Ala., to Galveston, Tex., to Memphis, Tenn., to Charleston, S. C., to Dallas, Tex., to New Orleans, La., and to Savannah, Ga. There is one more that has not reported. I sent to the clearing houses at those points and had them fill out questionnaires giving me the prices at which seven-eighths inch middling cotton sold for on the 1st day of each month and the 15th dav of each month in that 10-year period. In Augusta, Ga., the average price at which cotton sold during the 10-year period was 22.68. At Houston, Tex., the average price for the 10-year period was 22.86. At Montgomery, Ala., the average price was 22.44. At Galveston, Tex., the average price was 23.15. That shows the average prices. By striking the average of the nine places, we get the general average at which the then standard grade of cotton sold for during the base period. Senator BANKHEAD. Those prices were at what market? What difference was there, if any, between them and the farm_prices? Senator THOMAS of Oklahoma. The farm prices were lower than these; but these are the prices which the mills had to pay for their cotton. I contend that this is the price cotton sold for. The farmer did not get this much money for his cotton on the farm. The amount of freight and the commissions were taken out of his selling price. He paid the freight and he paid the commissions. This is the amount that the mill had to pay for the cotton, 22.7 cents per pound. That is the average price at which cotton actually sold in those nine concentration points during that 10-year period. Now, to show that my figures are correct, I sent the same questionnaire to the Bureau of Agricultural Economics, and the figures that were sent back to me tallied and did not vary as much as one-tenth of 1 percent. The average price, as cataloged by the Bureau of Agricultural Economics of the Department of Agriculture, is exactly 22.7 cents a pound. So the figures from my research and the figures of the Department are exactly the same, and the average price or the base price of cotton during the 10-year period was 22.7 cents. If the index number was 100, the parity price would be 22.7. Senator TOBEY. The farmer was not getting 22 cents for his cotton. I hate to have it appear that the farmer got 22 cents for his cotton when he did not. Senator THOMAS of Oklahoma. I agree with you, he did not; but I will show you why I use this as a formula. It is arbitrary, but if we can arrive at an arbitrary mathematical formula that will do exact justice to the farmer, to the wage earner, then the formula, although arbitrary, is fair and certainly merits consideration. That is the base price. At the present time the farmer can buy the things he has to buy at a less price than he could have bought them for in 1926, because the price level instead of being 100 is 92.22. So to get the present parity price of cotton under this formula you multiply 22.7 by 92.22. That gives the present parity price of cotton under this formula. It was 20.9 cents on last Thursday. The exact figures for wheat and the exact figures for corn under this formula are as follows: The average price of corn during the 10-year period was 92.32 and the average price of wheat during this 10-year period-No. 1 wheat-was 1.57. Mr. Chairman, unless we do define what is parity and how to arrive at it, we will simply be groping in the dark. The Bureau of Agricultural Economics has worked out a system. Its system is not written into law. It would take a Philadelphia lawyer a long while to understand how they arrive at their index number for their parity prices. My suggestion is very simple and, if adopted, the base price never changes; and as the index number changes the parity price changes. Mr. Chairman and gentlemen, I think that is all that I have to suggest at this time. Senator BROWN. Thank you very much, Senator Thomas. (Tables showing the average prices of cotton, wheat, and corn, as submitted by Senator Thomas, of Oklahoma, are as follows:) TABLE 15 Cotton. General average for the 10-year period 1919 to 1929: Average price (cents) Augusta, Ga--- Houston, Tex Montgomery, Ala-. 22.68 22.86 Galveston, Tex Memphis, Tenn. Charleston, S. C____ Dallas, Tex___. New Orleans, La--- Savannah, Ga_____ Total General average------ 22.44 23. 15 22.82 22.67 22.35 22.79 22.57 204.33 22.7 |