§ 8. Gold depreciation and gold production. In explana tion of the changes in price levels in the various countries, a distinction should be made between gold depreciation and paper depreciation—or, otherwise expressed, between gold inflation and paper-money inflation. The one expression re fers to the value of gold in terms of goods, the other to paper prices expressed in gold. In the United States (except dur ing the embargo, to a slight degree) and several other coun tries gold has continued to be the standard money in in ternational trade, and the rising index number has reflected a real fall in the purchasing power of gold. The main reasons for this are: (1) the transfer of large amounts of gold from the countries where for the time being it has been in fact demonetized, to the coun tries still maintaining the gold standard; our own gold stock in two years increased by the amount of the world's total production for three years; (2) the increased use of banking credit under the Federal Reserve system has en abled an equal amount of gold to perform more monetary services; and (3) the world's production of gold, which reached its highest peak in 1915, continued, relative to the narrowed field of its monetary uses, to be larger until 1920 than it had ever before been in history. This is shown in Figure 6, chapter 6.
Higher prices in terms of gold mean higher wages, higher costs for machinery and supplies, in short, higher costs of every kind in gold-mining. Many mines formerly profitable must be abandoned, one after the other, until the costs of mining on the marginal mines are brought into accord with the value of the gold produced. The folly, at such a time, of proposals for governmental subsidies and bonuses to gold mining to keep up the quantity of gold ought to be apparent to any one with the most elemetary understanding of mone tary principles. Yet such a proposal was presented in a bill in Congress, and strongly supported, as it was said, "to aid us to maintain the gold standard." The increase of index numbers in countries with paper currencies is in every case greater than that in gold-stan dard countries. The diffetrenee measures, pretty exactly, reciprocally the depreciation of the paper in terms of gold, and the abnormal rise of foreign exchange rates.
§ 9. The high cost of living, 1919-1920. The curve of general wholesale prices that began to rise in the United States about July, 1915, reached its peak in May, 1920, at a point 172 per cent above the level maintained from 1913 to June, 1915. Retail prices (estimated as "cost of living" on a standard family budget) followed on the up-swing, but, as usual, lagged behind, reaching a maximum in the middle of 1920, a little more than 100 per cent above the 1913-15 level. A very large part of this increase both of wholesale and of retail prices occurred in the post-war period of great specu lation between March, 1919, and May, 1920. This movement was world-wide, as the result partly of great increases of paper money and bank credits, in the European countries, necessary because of the desperate state of their finances, and needlessly assisted in America by those having ultimate authority in the Federal Reserve system. Prices ran the usual course as a financial crisis approached, goods being bought and contracts made with borrowed funds in the hope of a further rise of prices. It was for many a veritable financial joy-ride.
Such a rapid rise affected different classes of persons in business and different classes of goods very unequally. Cases
of extravagant expenditures (relative to former standards) were conspicuous in working class circles, where wages rose faster than the cost of living, and among the newly-rich employers who had "profiteered" in the war and the post-war period of speculation. Less conspicuously, great numbers of wage-earners and salaried and professional workers felt keenly and suffered greatly from the higher cost of living (popularly denominated the H. C. L.). The different ele ments in the cost of living moved at various rates, as is shown in Figure 8, chapter 6.
Among the industries that profiteered most for the time were those engaged in producing clothing, furniture, and food, including nearly all agricultural products. Among those that were losers in the purchasing power of their incomes were many active enterprisers whose products rose in price more slowly than the average (or than their wage bills and other costs) and all public utilities fixed by charter or controlled by price-fixing commissions. Many railroads, trolley lines, gas and electric companies were brought to the verge of bankruptcy or beyond.
§ 10. Various ideal standards suggested. Price history since 1873, however varied, teaches one lesson clearly : that our "standard" unit of price has in fact been subject to great fluctuations in its value. We escape the evils of a as we have so fluctuating a standard these difficulties must arise again and again, continually repeated, causing unmerited gains and undeserved losses to individuals. But what stand ard would be better than that of gold? It may, perhaps, be agreed that the ideal standard of deferred payments is one that would insure justice between borrower and lender. Yet different views may be and have been taken as to what constitutes justice in this matter. The suggestion is attrac tive that repayment should involve the return of enjoyment equal to that which could be purchased with the sum at the time of the loan. Such a standard is impossible of perfect realization in any general way, for men's circumstances are constantly changing. To insure even to the average man the same amount of enjoyment is only roughly possible. The same goods do not afford the same enjoyment when conditions, either subjective or objective, have changed. Another sug gestion is that the goods returned should represent the same sacrifice as those lent. Here again the difficulty is in the lack of a standard applicable to all men. Whose sacrifice? That of the lender, who may be rich, or that of the borrower, who may be poor? Some have supposed that the condition of equal sacrifices was met by the labor standard, according to which the sum returned should purchase the same number of days of labor as when borrowed. But what kind of labor is to be taken, that of the lender, or that of the borrower, or that of some one else? Labor is of many different qualities, which can be exactly compared only through their objective value in terms of some one good.' It must be recognized that any possible concrete standard of deferred payments will sometimes work hardship in in dividual cases. The best average results for justice and social welfare will be secured by measuring debts in some standard that will change least often, and least rapidly, in relation to the great majority of people of all classes in the community.