Mr. HENDERSON. Then I did not understand you.

I think there

is quite a bit of difference between a commodity and labor; I mean what is paid for a man's hire.

Mr. WOLCOTT. I agree with you. I am satisfied it follows if you stabilize prices you stabilize labor and wages.

(At this point it was suggested that the committee take a recess and, after informal discussion, the committee adjourned until tomorrow August 9, 1941, at 10 a. m.)

THE WORLD WAR INFLATION

The United States suffered a serious inflation of prices before we entered the war in April 1917. However, that price movement did not begin with the outbreak of war in Europe. For a full year following the beginning of hostilities, no increase in the average level of prices occurred in this country. But between the middle of 1915 and our entry into the war, the average level of prices advanced 60 percent from the unusually stable level of the previous 4 years. Before we entered the war bituminous coal prices had advanced more than 200 percent, the metals group almost 150 percent, chemicals and drugs more than 100 percent, hides and leather products 90 percent, and textile prices almost 60 percent. (See charts 44, 45, and 46.) During the month of our entry into the war the entire index jumped a further 10 points and thereafter prices rose precipitously until, at public demand, the Government began formally to control prices late in the summer of 1917. An analysis of the 1,366 typical commodities at wholesale, which were included in the War Industries Board index, shows that only 3.66 percent of them were controlled in September 1917. By the time of the armistice 41.95 percent were controlled. It should be remembered in studying the World War price figures that they might have been much higher but for extensive controls.

The index for the metals group rose from 247 to 333 in the 4 months from March to July 1917. Pig iron climbed from the already high price of $32.25 to $52.50; steel plates jumped from $4.33 to $9, almost 800 percent above the prewar level. In the same 4 months wheat rose from $1.98 to $2.58.

The basic reasons for the catapulting of prices before our entry into the war were the heavy demands of the Allied nations upon American production, the loss of shipping facilities, and the breakdown of railroad transportation. Coupled with these basic factors was the development of speculation and hoarding which are inevitable during violent price upheavals.

Prices fairly leaped upward immediately after the declaration of war. But, as is shown on chart 47, there was a leveling off during the latter half of 1917. This resulted almost entirely from the price controls that were belatedly undertaken. But these controls were successful in bringing the average level of prices down only temporarily. While controlled prices were reduced some, uncontrolled prices continued their upward trend with only a leveling off in the latter half of the year marking our entry into the war. In 1918 prices again started upward, reaching an index of about 200 before the end of the year. Inflation was not over, however, with the Armistice in November 1918; in fact, the worst was yet to come. The controls were taken off too soon and the index of prices spiraled up another 40 points to 240 in 1920. From that point we had severe deflation with bankruptcy and all the losses that deflation entails.

Average prices, however, conceal the most inflationary prices. The index price of caustic potash went up to 2,423, benzoic acid to 2,275, coal tar dve to 833, ferromanganese to 560, steel plates to 376, and dried beans to 345. Chart 21 shows what the averages cover up and indicates the wide disparity in price behavior during a period of rapid and violent change.

A few further examples of heights attained by specific commodity indexes are: potatoes 435 in 1920, kid leather 429, wheat flour 312, woolen overcoating 256, sole leather 191, sugar 297, common brick 279, and white pine 277.

EFFICACY OF PRICE CONTROLS

Skepticism regarding the efficacy of price control is not justified by the World War experience even though it was undertaken too late. Chart 48 shows that uncontrolled prices rose almost continuously during the period of price control beginning in September 1917 and ending soon after the Armistice in 1918. The number of commodities in the uncontrolled group fell from 1,366 to 793 during this period.

At the same time, the number of commodities in the controlled group increased from 0 to 573. The controlled series fell sharply in the autumn of 1917 and

1 See chart 21, facing p. 41.

CHART 45

PRICES OF CHEMICALS & DRUGS BUILDING MATERIALS IN THE WAR PERIOD

1913100

US. BUREAU OF LABOR STATISTICS

US BUREAU OF LABOR STATISTICS

CHART 46

IN THE WAR PERIOD

1913=100

HIDES & LEATHER

INDEX 340

320

300

280

260

240

220

200

INDEX 340

320

moderately in the middle of 1918. The first 2 months of serious Government effort brought prices in the controlled group down 8 and 15 percent, respectively. Clearly, uncontrolled prices continued to go up while controlled prices went down. Actually the rise of the uncontrolled and the fall of the controlled prices was greater than is indicated by this chart which is based on a weighted chain index to show the percentage rise or fall from preceding months. This chain index has a moving base. There is probably no more accurate way to show the effect of price control because, by reason of the moving base, it is possible to transfor commodities from the uncontrolled to the controlled list from month to month, precisely at the time that they were brought under control.

According to the War Industries Board

The behavior of the food group chain index, significantly, is very like that of "all commodities" in which it has a large weighting. The clothing group chain index shows that the eontrolled series went somewhat higher in their monthly rises between May and September 1918 than those not under control, and then fell below. The outstanding features of the chain index for the metals group are the extent to which prices were scaled from previous heights and the strength with which they were held afterward. Metal prices, in September 1917, were brought 9.32 percent below their August level; in October they were brought 24.82 percent below their September level; and in November they were brought 9.68 percent below their October level. Metal prices, once reduced to this lower level, show scarcely the variation of 1 percent up to the signing of the Armistice. The fuels group chain index shows a fairly stable price movement except for the enormous increase of 20.9 percent in April 1918, the beginning of the new "coal year" when the annual contracts, under which a very large proportion of all coal mined is sold, were reversed.2

PRICE AND FRODUCTION

The price of a commodity is, of course, related to the supply of and demand for it. If rising demand can be balanced with a corresponding increase in supply, then, naturally, the price is held down. But one of the most significant aspects

War Industries Board, Government Control Over Prices, by Paul Willard Garrett, pp. 493, 494.