In the case of France the curves are together at the end of 1919, diverge in 1920, come together again in the middle of 1921, and keep together until a divergence occurred again in the latter part of 1922.
For Italy, rather unexpectedly perhaps, the relationship is extraordinarily steady, although here, as in the case of France and Great Britain, there are indications that the war may have resulted in a slight lowering of the equilibrium point, by (say) 10 per cent;[30]—the parity, calculated with 1913 as the base year, has been almost invariably somewhat above the actual rate of exchange. The Italian curve illustrates in a remarkable way the manner in which the external and internal purchasing powers of the currency fall together, when the main influence at work is a progressive depreciation due to currency inflation.
[30] The use of any of the other Italian index numbers would have accentuated this indication. The [table] of American prices given on p. 94 above confirms the suggestion that the “equation of exchange” between the U.S. and the rest of the world as a whole has moved, say, 10 per cent in favour of the former.
The broad effect of these curves and tables is to give substantial inductive support to the general theory outlined above, even under such abnormal conditions as have existed since the Armistice. During this period the movements of the relative price level in France and Italy due to monetary inflation have been so much larger than any shifting in the “equation of exchange” (a movement of more than 10 or 20 per cent in which would be startling) that their foreign exchanges have been much more influenced by their internal price policy in relation to the internal price policies of other countries than by any other factor; with the result that the Purchasing Power Parity Theory, even in its crude form, has worked passably well.
Great Britain and the United States
| Per cent of 1913 Parity. | Price Index Number. | Purchasing Power Parity.[33] | Actual Exchange (Monthly Average). | ||
| Great Britain[31] | United States[32] | ||||
| 1919 | Aug. | 242 | 216 | 89.3 | 87.6 |
| Sept. | 245 | 210 | 85.7 | 85.8 | |
| Oct. | 252 | 211 | 83.7 | 85.9 | |
| Nov. | 259 | 217 | 83.8 | 84.3 | |
| Dec. | 273 | 223 | 81.7 | 78.4 | |
| 1920 | Jan. | 289 | 233 | 81.0 | 75.6 |
| Feb. | 303 | 232 | 76.6 | 69.5 | |
| March | 310 | 234 | 75.6 | 76.2 | |
| April | 306 | 245 | 80.1 | 80.6 | |
| May | 305 | 247 | 81.0 | 79.0 | |
| June | 291 | 243 | 83.5 | 81.1 | |
| July | 293 | 241 | 82.3 | 74.2 | |
| Sept. | 284 | 226 | 79.6 | 72.2 | |
| Oct. | 266 | 211 | 79.3 | 71.4 | |
| Nov. | 246 | 196 | 79.7 | 70.7 | |
| Dec. | 220 | 179 | 81.4 | 71.4 | |
| 1921 | Jan. | 209 | 170 | 81.4 | 76.7 |
| Feb. | 192 | 160 | 83.3 | 79.6 | |
| March | 189 | 155 | 82.0 | 80.3 | |
| April | 183 | 148 | 80.9 | 80.7 | |
| May | 182 | 145 | 79.7 | 81.5 | |
| June | 179 | 142 | 79.3 | 78.0 | |
| July | 178 | 141 | 79.2 | 74.8 | |
| Aug. | 179 | 142 | 79.3 | 75.1 | |
| Sept. | 183 | 141 | 77.0 | 76.5 | |
| Oct. | 170 | 142 | 83.5 | 79.5 | |
| Nov. | 166 | 141 | 84.9 | 81.5 | |
| Dec. | 162 | 140 | 86.4 | 85.3 | |
| 1922 | Jan. | 159 | 138 | 86.8 | 86.8 |
| Feb. | 158 | 141 | 89.1 | 89.6 | |
| March | 160 | 142 | 88.7 | 89.9 | |
| April | 159 | 143 | 89.9 | 90.7 | |
| May | 162 | 148 | 91.4 | 91.4 | |
| June | 163 | 150 | 92.0 | 91.5 | |
| July | 163 | 155 | 95.1 | 91.4 | |
| Aug. | 158 | 155 | 98.1 | 91.7 | |
| Sept. | 158 | 154 | 97.4 | 91.2 | |
| Nov. | 159 | 156 | 98.1 | 92.0 | |
| Dec. | 158 | 156 | 98.7 | 94.6 | |
| 1923 | Jan. | 160 | 156 | 97.5 | 95.7 |
| Feb. | 163 | 157 | 96.3 | 96.2 | |
| March | 163 | 159 | 97.5 | 96.5 | |
| April | 165 | 159 | 96.4 | 95.7 | |
| May | 164 | 156 | 95.1 | 95.0 | |
| June | 160 | 153 | 95.6 | 94.8 | |
[31] Economist Index Number.
[32] U.S. Bureau of Labour Index Number, as revised.
[33] The U.S. Bureau of Labour Index Number divided by the Economist Index Number.
