New-York tribune., 1918-11-25
Price Decline Hinges on
Supply Of Gold and Credit
European Hunger for Raw Materials Should Keep
Americas Principal Staples at Scarcity Prices
for at Least Another Year, Writer Says


the war and not until after the gov
ernmcnt had adopted the policy of a
large issue of Treasury notes. Pro
fessor j. Shield Nicholson in notable
article has shown that each Jump in
prices has followed at lag of about
three months after new issue of this
paper currency.
We know that in Germany the issue
of paper currency has been even heav-
ier than in France, and as nearly as
can be ascertained, prices have risen
in something like the same proportion.
They are certainly much higher in
Germany than in France.
The classic instance, Of course. is
Russia. When the war started a.
paper ruble had back of it 100 per
cent of gold. Even before the revolu-
ton the issue of paper money had
been increased by eight or nine times,
reaching the almost fabulous sum of
$4,000, 100000 of rubles before the
kerensky government came into power.
What the total issue, of all kinds, has
been since that time, hardly any one
knows. What We do know is that
prices in this paper currency are
higher in Russia than anywhere else
in the world
There remains the very interesting
case of Sweden. In its proximity to
Germany and the consequent supply
of goods to that country, Sweden does
not materially differ from Holland.
Yet, according to the computations
made by the Commercial Gazette" Of
Stockholm, the average rise in the cost
of living in Sweden up to last Septem-
ber had been 1872 per cent, while the
rise in Holland was only about 80 per
cent If anything, the demand for
goods from Holland must have, been
more acute than in Sweden. But the
supply was not there. Sweden had
much to sell, and in consequence of the
huge balance Of trade set up the i'm
ports of gold into that country were
SO heavy that the Riksbank finally OBJ
tanned permission of the government
to refuse to accept gold imports. To
all lntents, gold was demonetized in
Sweden. But not before riot of
higher living, higher wages and wild
speculation had set in, the like oe
which Sweden has never known before
in its history. AS an illustration of
this rise. wood pulp, which sells in
Canada for $38 ton, costs in Swe-
den. one of the largest pulp producing
countries, S58.
In general way this corresponds to
the relative rise in prices, which in
Canada has amounted to only about 100
per cent. 1t is not without interest
that the increase in bank credits in
canada, which, as in the United States
are the main form of the "currency.".
is also just about 100 per cent
The Case of Japan
Still more interesting is the case of
Japan. These columns cited the fact
not long ago that the average rise of
prices, as computed by the government.
in Japan amounted to 81 per cent nm
to last summer, while the increase in
the total of money in circulation
amounted to almost dentically the
same figure. The increase in japan was
not, as many Imagine, due to the scar
city and great rise in the price of rice
Tor the simple reason that the rise in
rice Tor the same period was onIv
about 81 per cent.
The modern or orthodox theory of
prices holds that, in general, prices
represent a simple relation between
'ne existing volume of money, and the
rate at which it is turned over, and the
existing volume of trade. In other
words, prices are regarded as simnlv q
barometer or measure of the CHANGING
relations OF these two factors. If the
supply of money and credits of all
xmas, the total circulating medium of
the country, increases faster than the
volume of trade and business to be
handled, prices will inevitably rise. And
vice versa.
What is confusing to a great MANY
people is that prices of different ar
tlcles 40 not rise together. For ex-
ample, IN four years the rise in food
prices in this country has been over
2oo per cent, while that of forest prod
ucts has been only about 43 per cent
and metals only so per cent and so on.
NO one suggets that the fluctuations
in the price of individual articles is not
due simply to the supply and the de-
mana. But on the orthodox theory of
prices, If there is heavy rise in one
article, or any large groups of articles,
the prices Of other things must CORE
spondingly fall, SO long as the volume
OF business and of the "currency" re-
mains the same
This theory explains, as | have said
to quite remarkable degree the wide
and otherwise inexplicable variations of
the increase in prices in the different
nations of the world in the present war.
In fact, if we looked upon the war as q
kind of laboratory experiment in eco
nomlcs and hnance we should find that
the thing had worked out with almost
the precision of chemists experiment
with his test tubes. SO much dilution
OF the "currency," so much rise in
prices. In almost every instance known
; 10 the writer the explanation has been
e H. y