Hat size is roughly equivalent to the diameter of your head, not the circumference.

circumference = pi x diameter (or 2 x pi x radius):
So, a hat size of 7 3/8, translates into a circumference of ~23.17 inches.

Do a google search on "hat size" and you will see that it works out pretty close to the above calculations. Just like clothing sizes, not all manufacturers stick to the same guidelines, so it's best to check the manufacturer's sizing charts.