Miss NORTHROP. I would like to answer that in two parts. One is, they did not send it to Russia because Russia was not beginning industrialism at that time, because of, as I said before, a dead weight of cultural hold on that population. She began at a much later time. It was a very profitable investment for the United Kingdom and other persons, foreigners, who loaned to this country, to send money into this country, because our rapidly growing industries were profitable. Now, sir, as far as our ability to repay is concerned, we were able to repay out of the very profits of that industry that was being supported and developing all through the period of the nineteenth century. We made the transfers because we were always able to have something left over from the amount we bought abroad and the amount we sold abroad. We were able to build up a kind of foreign exchange which made it possible for us to make that payment.

The CHAIRMAN. All through that time we had protective tariffs, did we not?

Miss NORTHROP. With greater or lesser degree, we had protective tariffs throughout the period of our industrialism. When we did develop into a mature debtor country, and by "debtor country," I mean the kind of a country where we had to make payments in interest and dividends greater than the amount we were taking in foreign capital or new foreign capital, at that point it was essential and still is essential in international balances of payments to be able to have a position where you do sell abroad in greater amount than you buy abroad. Out of the surplus, you make a transfer of interest and dividend payments. When a country changes its position and becomes a creditor position, then, the terms of the international balance payments themselves change.

The CHAIRMAN. William McKinley, in his Buffalo speech, said that he believed in reciprocal tariffs, but such agreements should be confined to the things of which we have a surplus, an exportable surplus, and the things that we need and do not either supply in sufficient quantities or at all. Do you agree with that philosophy?

Miss NORTHROP. I think that there is a lot of error used in the words "exportable surplus." If you look at any of our big businesses in this country, what they want to do is to produce and sell.

Now, from the very beginning of planning their production or how much they are going to turn out, their foreign markets are a part of their production; and if you cut off their foreign markets, they do not think in terms of surplus. They think in terms of total markets.

Now, in the agricultural products, it is absolutely essential for us to sell our agricultural surpluses abroad, because we do not consume the full amount of our agricultural production.

The CHAIRMAN. Aside from the cotton, what agricultural products do we export in any quantity?

Miss NORTHROP. The largest exportable agricultural surpluses are cotton, wheat, tobacco, lard, apples, rice, those are the top six, I think. The CHAIRMAN. You are acquainted, of course, with the aim of the State Department at the forthcoming Geneva Conference? I believe they are in session now.

Miss NORTHROP. Yes, sir.

The CHAIRMAN. That is to negotiate 18 new trade agreements.
Miss NORTHROP. Yes, sir.

The CHAIRMAN. Will you please tell the committee how the American representatives can, not only act intelligently, but for our best

interests in the absence of any knowledge as to the production costs in other countries since 1938?

Miss NORTHROP. I think that they have accurate information as to the prices of products.

The CHAIRMAN. Mr. Clayton testified not, and the Tariff Commission tells us that they have nothing on that, and the Department of Commerce tells us that. Our trade adviser tells me it is true that

we have no information since 1938.

Miss NORTHROP. I should suppose that if we sit down around a conference table with 18 other producing nations, that they will have some estimate in their minds as to how much they want to sell abroad of a particular product, whether there is any accurate information in their minds as to what it costs them to produce, they will have to go back in time then, I should suppose, to whatever price history or cost history they had in the thirties.

Now, whether that is accurate, to start trade negotiations in the year 1946, would come down to a question as to how much they want to sell in other markets, knowing that they are going to have to determine the whole price pattern as they go along in relationship to

our own.

The CHAIRMAN. They all want to sell as much as they can.

Miss NORTHROP. We all want to sell as much as we can, if we are sensible economists, we want to buy in the cheapest market and sell in the widest market.

The CHAIRMAN. Do you believe in buying in the cheapest market? Miss NORTHROP. Yes, sir.

The CHAIRMAN. Japan could take over our glassware industry, pottery, and you believe we should get our glassware and pottery from Japan?

Miss NORTHROP. Insofar as the glassware and pottery industry of this country is not able to compete effectively, yes, sir.

The CHAIRMAN. Regardless of that fact that the prevailing wage in Japan is only about 48 cents a day, or was before Pearl Harbor, if we cannot compete with 48-cent labor, then we should let Japan take over the American market for glassware and pottery and toys, textiles and rubber goods? You think that would work out wonderfully well, do you?

Miss NORTHROP. No, sir.

The CHAIRMAN. You just said that we should buy where we could buy the cheapest.

Miss NORTHROP. May I go back to the beginning of your statement and work up from there?

The CHAIRMAN. You can work either up or down. I am anxious for an answer. You can answer me whether you think that that would promote our domestic economy.

Miss NORTHROP. My answer is no.

The CHAIRMAN. Would it promote our domestic economy to buy all of this stuff from Japan because it can be bought cheaper? It is not necessary to give a lecture in that. You can just say, "I think it would," or "I think it would not."

Miss NORTHROP. I think it would not.

The CHAIRMAN. You do not think it would?

Miss NORTHROP. No, sir.

The CHAIRMAN. But you just said that we should buy where we can buy the cheapest, did you not?

Miss NORTHROP. Insofar as a good businessman wants to make a profit, he would like to be able to buy in the cheapest market and sell in the widest and at the highest price.

The CHAIRMAN. That is right.

Miss NORTHROP. Now, if you assume that Japan can make everything in this whole world cheaper than the United States, I thoroughly disagree. I think the economy of the United States is one of the most magnificent economies that has ever been constructed.

We have an efficient labor supply. We have an ability to produce efficiently at low cost in so very many areas of the economy that I think it is a mistake to assume that any country anywhere can outproduce us or at lower costs.

The CHAIRMAN. If India could produce textiles, and can, using Indian cotton, and export the finished products to this country at a fraction of what it costs us, you think we should buy from her?

Miss NORTHROP. If it were possible to assume that other nations in the world could produce everything cheaper than the United States, then I should say that as far as the United States is concerned, if we wanted to keep our economy ticking, we had better look at that from beginning to end on all of the factors that go to make it up and begin to put in some protections somewhere. I do not believe that that is the assumption, however.

The CHAIRMAN. I think that you are gradually seeing the light. With our policy of paying $1 or $1.50 an hour, with 40 hours a week, time and a half for overtime and double time for Sundays, socialsecurity taxes, unemploymeet insurance, you will concede that we are badly handicapped in our pursuit of foreign markets?

Miss NORTHROP. No, sir; I would not generally concede that.
The CHAIRMAN. You would not?

Miss NORTHROP. No, I think American labor is the most efficient. labor in the world, and the productivity is higher here than any other place.

The CHAIRMAN. If we are so efficient, how is it that Japan was able to flood our markets with cheap textiles, electric-light bulbs and toys, innumerable pottery and glassware? Why is it that they can undersell us if we are so wonderfully superior in production methods, and so forth?

Miss NORTHROP. In some areas of production where a large amount of hand labor or of labor supply is a large element of total costs, certain countries with lower labor costs will be able to outsell us. In the areas where machinery has taken over and where labor supply is a small element of the total cost, the United States has proved in the past that it is more efficient than any other country in the world. I do not believe, sir, that it is possible to assume that one country can produce everything better than everybody else. Trade really does imply some kind of national specialization. We produce cotton and other countries produce cotton, but not all countries produce cotton. The CHAIRMAN. Well, Brazil can produce cotton cheaper than the United States, Mr. Clayton testified. Would you have us buy our

cotton in Brazil?

Miss NORTHRUP. The cotton problem of the United States is a problem which has many, many aspects.

The CHAIRMAN. I know that, but we are not concerned so much with all of the many aspects, many of which are theoretical, as we

are with the cause and effect. Now, will you answer this question: If Brazil could supply the world with cotton because she could produce it for 6 cents a pound, as I recall Mr. Clayton's testimony a year ago, should the world buy their cotton from Brazil, and more particularly the United States?

Miss NORTHROP. Whether or not the world will buy its cotton from Brazil if it is lower than the American price is in their determination. I think cotton is an important part of our own economy, and we should not take steps which would stamp out the cotton culture of the South.

The CHAIRMAN. Our foreign market for cotton is a thing of the past, just like our foreign wheat market, so where would the cotton grower and the wheat grower find his market? If you are going to permit Brazil to supply our cotton needs, and Argentina and Canada our wheat needs, where is their market? Those are only two items. Miss NORTHROP. People buy in foreign markets on the basis of price. If the American price of cotton is higher than the foreign price of cotton, American cotton will not be sold in foreign markets.

The CHAIRMAN. Well, do you not think, and of course you testified that we should buy it where we could get it the cheapest, but would you have the United States produce only those products which it could make cheaper than other countries can?

Miss NORTHROP. Within limits.

The CHAIRMAN. What limits?

Miss NORTHROP. And not necessarily absolute, but relative cheapness. In other words, we produce a great many things.

The CHAIRMAN. Now, when you say "absolute," you mean that you would very kindly permit American producers to make a small part of our requirements, but relatively speaking, we would get the majority of our needs supplied from other countries because we could buy it cheaper?

Miss NORTHROP. No. Let me say it this way: The American economy uses more material than any other single economy in the world. In many things we do not produce enough for our own needs. We produce some and we buy some abroad.

The CHAIRMAN. McKinley urged that we have reciprocity agreements in such instances. Now, would you favor buying anything from the other countries that we have plenty of here at home?

Miss NORTHROP. If you want a hard and fast answer to that statement, sir, I would favor looking at the supplies and total world demand situation in any commodity. Now, I have said earlier than I am not a complete free-trader, I would simply not say that we should let our own economy operate on the very basis of taking in world markets where it is cheapest and letting our own production suffer. I think that markets are not of that sort now, and we do have to take action to protect certain items of the economy, but the protective action does not have to be the kind of protective action which progressively stamps out our ability to sell abroad, which is a part of our economy.

The CHAIRMAN. You say that you are not a complete free-trader, but I should at least say that you have one foot in the door.

Miss NORTHROP. I think that I have one foot through the door. I think that as far as production and consumption is concerned, that it is to our advantage to enlarge our ability to sell in foreign markets which can only be done by enlarging our ability to buy in foreign markets.

The CHAIRMAN. I am afraid that if we followed your economic philosophy in this country to its logical conclusion, we would all be wearing breech clouts inside of 50 years.

That is all. Mr. Doughton, do you wish to interrogate the witness? Mr. DOUGHTON. I think the subject has been covered very fully and very intelligently. I have just one observation in respect to the question of the chairman, who asked if we would buy anything from the other countries of which we had sufficiency at home. Might that not depend upon how much we can sell to other countries of goods of which we have a surplus at home?

Miss NORTHROP. Yes, sir; I think that the hardest rule is that you cannot sell abroad unless you buy abroad.

Mr. DOUGHTON. If we did, we would be in a bad fix. I wonder if it would not depend upon what arrangements we could make in other countries to accept some of their products for some of our surpluses.

Miss NORTHROP. That is the whole basis of the Reciprocal Trade Agreements Act, to do just that.

Mr. DOUGHTON. Bearing in mind, of course, the interests and welfare of the American labor and the American producer, you have got to take the whole problem. You cannot take it one-sidedly.

Miss NORTHROP. Let me just say this: I think that to maintain full prosperity in the United States is the largest single job of all. If all countries asked what they wanted from us, they would not say, first of all, a lowered tariff, probably. They would say, "You maintain full employment in the United States, and you be prosperous," because when we are prosperous, we buy more abroad, and we sell more abroad; and the weight of the United States in the world economy is such that if we go down to depression, all of the rest of the world does, too.

Therefore, certainly in finding our way into reciprocal trade agreements, in what is the correct policy, everything must be judged in the light of the total welfare of the economy of the United States, and I think that that is where the buying and selling in wide areas comes in. The CHAIRMAN. Mr. Reed will inquire.

Mr. REED. I have been very much interested in the presentation of your views, and I just want to ask a few questions. First of all, I was wondering, Miss Northrop, if you had written any books on the subject of international economics?

Miss NORTHROP. No, sir. I have written one book which is called Control Policies of the Reichsbank. That is dated from 1924 to 1933, and is the detailed study of foreign finance and of the control of the central bank over an economy which was going slowly toward totalitarianism.

Mr. REED. It must have been an interesting subject.

Miss NORTHROP. It was, and it was interesting to work with.

Mr. REED. I think that you believe the reciprocal trade agreements program is connected more or less with the international loans and banks and all of the various other elements that we have in our international trade.

Miss NORTHROP. Yes, sir. In international affairs the problems of money, finance, and trade are like three balls in the bottom of a bowl. If you move one, the others are affected.

Mr. REED. Do you figure that the reciprocal trade agreements program is really a part of the good-neighbor policy?

Miss NORTHROP. Yes; I do. I think it is more than that, but I think it certainly is a part of the good-neighbor policy.