Then, too, it should be noted, prices did not start to go up vigorously until a year and a half after the outbreak of hostilities but, once started, the advance continued almost without interruption until the disastrous collapse of 1920.

The same chart shows that in the first World War the advance in the cost of living lagged appreciably behind that in wholesale prices during the first stages of the boom. By the end of 1916 living costs were up less than 20 percent, as against an advance of about 50 percent in wholesale markets. Eventually, however, living costs caught up with wholesale prices and by the middle of 1920 they had gone up about 110 percent, as against the wholesale rise of somewhat more than 140 percent. Consequently, the fact that living costs so far have advanced only about 51⁄2 percent since August 1939 should be recognized as merely indicating the usual lag between retail and wholesale markets. In the absence of stringent controls, there is every reason to expect that in this war, as in the last, the rise in living costs will eventually attain about the same proportions as that in wholesale markets.

Since the invasion of Poland at the end of August 1939 the general level of wholesale prices has advanced about 161⁄2 percent, whereas for the corresponding period 25 years ago, the rise was about 23 percent. In view of the far better position in which the United States finds itself as regards raw materials, supplies, and manufacturing facilities, this difference in the speed with which prices are rising is surprisingly small.

CHART 72

WHOLESALE PRICES

FARM, FOODS AND ALL COMMODITIES

INDEN 120

1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941

UNITED STATES BUREAU OF LABOR STATISTIC

THE FIRST YEAR OF WAR

In the late summer of 1939 the general wholesale price level was lower than it had been at any time in the preceding 5 years. Average wholesale prices of farm products in particular were almost 40 percent lower than they had been in 1926 and only 25 percent higher than in the depression year 1932. Retail prices of food had dropped as much as 12 percent from 1937 to the summer of 1939. It was believed by economists that prices of farm products and foods generally were then too low in relation to industrial prices to be consistent with national well-being (chart 72).

The day war was declared the picture changed abruptly. A violent wave of speculation swept through most commodity markets. Within a single week after the outbreak of war, the average price of 28 basic commodities-such as wheat, cotton, steel scrap, and copper-jumped about 20 percent (chart 73). The sharpest advances occurred in materials normally obtained from overseas, but many domestic commodities. of which there was no shortage at the time, were bid up frantically in a speculative wave. This extended to retail markets, as housewives hurried to buy sugar and other foods that had been scarce in the last war,

By the end of September 1939, however, markets quieted down, as the public paused to take a calmer view of the situation. The price advance leveled off, and by the beginning of 1940 markets generally turned definitely downward. By August 1940 the general wholesale price level as measured by the comprehensive "all commodities" Bureau of Labor Statistics index was only 2 percent higher than in the last peacetime month in 1939.

There were, of course, a few notable exceptions, largely involving imported goods whose supply had been cut off in whole or in part. Thus chart 74 shows the sharp jumps which occurred in the prices of manganese ore as the Russian Caucasus was cut off by the war in the Mediterranean and in the price of mercury as the Italo-Spanish cartel diverted its product to the Axis Powers. Chart 75 shows the even sharper advances which occurred for botanical drugs and essential oils from central Europe as imports were cut off almost entirely. Shortages of this kind continued to accumulate during 1940.