The first computations of' this character in the United States were made under the direction of Dr. R. P. Falknei: for the Senate Committee on Finance in 1891. The computations went back to 1860 for a base, and for a large number of articles, prices were obtained from 1840. Tho not continued directly this investigation was the basis for subsequent official pub lications of this nature. A few years later Dr. Falk ner persuaded the Bureau of Labor Statistics to take up the matter again and, after an effort to complete the earlief figures under his direction, the Bureau established its own index number on the basis of the prices of years This has been continued to date.
Other index numbers have since been established. A full account of them is given in a recent.bulletin of the Bureau of Labor Statistics (No. 173, July, 1915). In connecting its investigations with those of the Senate Finance Committee, the Bureau of Labor Statistics has reduced all figures to a base of 1914. The figures for certain years before 1900 and annually thereafter with results of The Economist and Sauerbeck appear on page 217.
In the course of prices as revealed in this table the thoughtfil reader cannot fail to be struck by the co incidence of rising prices following the discovery of gold in California and Australia, and that which has followed later increases in the output of gold.
15. Effects of changing the changes in price are due to the changes in the value of money the economic effects which follow are very marked. Economists have pointed out that production and ex change are adjusted to the price level, that there is no peculiar merit in high prices and no special disad vantage in low prices. It is not the level of prices,
whether it be high or low, which causes either pros perity or distress. But changes in the price level bring out the need of many readjustments. They affect business chiefly thru the fact that money is a standard of deferred payments. Rising prices work to the advantage of the debtor, falling prices to that of the creditor.
In our analysis of credit it was seen that in the field of production the debtor is the active man of enter prise who is willing to take risks, and who expects from the return from his enterprise to cancel his obli gation. In periods of falling prices, interest pay ments and payments on account of principal absorb more and more of the product of his industry. In the long period of falling prices which preceded 1896 the public heard much of the plight of the farmer who had a mortgage on his farm. With every fall in the price of his wheat, a larger and larger number of bushels of wheat was necessary to meet his obligation. When, on the other hand, prices are rising the debtor finds it continually easier to meet his obligaticins.
Hence falling prices cause depression in bu.siness, and rising prices hopefulness and activity. Since business rests so largely upon credit, and credit rests upon confidence, it is easily understood how the gen eral state of the public mind finds a reflection in the dulness or activity of business affairs.