Year Per Cent Change in Production from 1913 Per Cent Change in Bank Deposits from 1913 Department of Labor Wholesale Index of All Commodities
1913 100.0 100.0 100.0
1914 94.2 105.1 99.3
1915 99.3 107.8 100.5
1916 107.5 135.2 120.5
1917 114.8 161.9 175.9
1918 115.4 179.3 196.6
1919 103.3 219.2 214.5

Two different extreme schools of economics will interpret these tables differently. One will

hold that the increase in credit and money must influence prices in exact ratio. The other will hold the rise of prices as due to shortage in production, either at home or abroad, and that rise in price necessitates an increase in credits and money to carry on commerce. Both are probably right, for short production and inflation probably alternatively serve as cause and effect. The first school has some claims upon the large volume of gold we imported the first three years of the war and multiplied into credits—as the cause prior to our coming into the war. They can also point out that our Treasury and banks deliberately inflated bank credits in order to place war loans and that if this form of credits was removed our expansion would be nothing like its present volume. As necessary as it may have been to use this method in securing quick money at a low rate during the war, there are the strongest objections to it since the armistice was signed. If our post-war finance at least had been secured from savings by offering sufficiently attractive terms, the inflation would be less although the market price of Liberty Bonds might be lower.

That short world production has been one of the causes of rising prices cannot be denied. The warring powers of Europe took 60,000,

000 men from production (nearly one third their productive man power) and put it to destruction. They have lived to a great degree by gain of commodities from the United States, and thus brought their shortage to our shores. They have not yet altogether recovered from the holidays of victory, the gloom of defeat, the persuasive "isms" that would find production without work, the destruction of their economic unity, transportation, credits, and other fundamentals necessary to maintain production. It will be some time before they do recover. In the meantime, they are perforce reducing their consumption—their standard of living—because they have largely exhausted their securities, commodities or credit to continue the borrowing of our commodities for their own short production, as during the war. The exchange barometer is today witness of the end of this procedure of living on borrowed money. In passing, it may be mentioned that exchange is no more a cause of their inability to buy from us than is the barometer the cause of blizzards. The storm is that they have mostly exhausted their credits and they have not recovered production so as to offer commodities to us in exchange for ours.

Our own industrial production, as distinguished from agricultural production, has

fallen rapidly since the armistice. Some of the fall is due to war weariness, some to "isms" that have infected us from Europe, some to the natural abandonment of high cost production brought into play during the war, some to strikes and a host of other wastes. Our consumption has greatly increased since the restraints of war. Decrease had not penetrated our agricultural community up to 1919 harvest, nor will such decrease arise from these causes, but as I will set out later, forces are entering that will decrease our agricultural production. Our production in nearly all important food commodities except sugar is in surplus of our own need. It only becomes a shortage affecting prices under the drain of exports. Therefore, it is the world shortage that is affecting our price levels, and not, so far, a deficiency for our needs.

So far as relief from price influence by shortage in production is concerned, it may arise in two ways. First, slowly through gradual recuperation in world production. Second, by compulsory reduction of consumption in Europe through their inability to pay us by commodities, gold or credits. This latter has been very evident through the drop in exchange and engagements for export during the past few weeks.

The Three Divisions of the Price