We need only glance at a newspaper today, or step into a corner grocery, or fall into conversation with our neighbor in the train to have this topic come out as foremost in interest. It is, I believe, responsible for much more of our present uncertainty and confusion than is usually realized. In its ramifications it is chiefly this phase of the war's effects which, as I suggested above, touches every one of us at every point of our lives. A member of the Federal Reserve Board has called the price level problem the central economic problem of reconstruction.
Professor William Graham Sumner, who has inspired so many to the scientific study of social conditions, used to say: "In taking up the study of any social situation, divide your study into four questions—(1) What is it? (2) Why is it? (3) What of it? (4) What are you going to do about it?"
Let us follow this outline, and look first at the facts of the case; secondly at their causes; thirdly at the evils involved; and lastly at the remedies.
MEASURING CHANGES IN PRICES
We now possess a device for measuring the average change in prices. This is what is known as an "index number."
Thus, if one commodity has risen 4 per cent. since last month and another, 10 per cent., the average rise of the two is midway between the sum of 4 per cent., and 10 per cent., or 7 per cent. It is
4 + 10
———— = 7
2
If we call the price level of the two articles last month 100 per cent., then 107 per cent. is the "index number" for the prices of the two articles this month. The same principle, of course, applies to any number of commodities.
The index number of the United States Bureau of Labor Statistics, the best index number we have, shows an average price level in 1918 of 196 for wholesale prices and 168 for retail prices of food on the basis of 100 per cent. for 1913, the year before the war; showing that wholesale prices, on the average, almost exactly doubled. The latest index number for wholesale prices (May, 1919) is 206, and for retail (July, 1919), 190.