New-York tribune., 1918-03-13
The Causes of
"mfzQtion''
An Interesting Reply From
the Guaranty Trust
Company
o the Editor of The Tribune.

L o the Editor OF The Tribune
~ NE of the most valuable results Of
this war promises to be more gen.
eral and better understanding of the
fundamentals of economies and finance
The confusion, for instance, which seems
to exist in many quarters to the causes
underlying the precipitate rise in COM
modify prices, and particularly that which
enormously attributes the present pEice
level solely to the expansion of banking
credit, will probably be dispelled.
Price movements sum up in themselves
the results of the bewildering and i'm
mensely complex interplay of all economic
factors The attempt to analyze the causes
of price movements involves study of all
the various complex phenomena of our
economic life. Since price changes result
from many diverse economic factors, it has
come to be felt by many that any attempt
to explain such changes solely from the
standpoint of the increase decrease in
the circulating medium leaves out of con-
sideration many other important factors.
In the case of the increase of general
prices during the present war the most i'm
portant of these factors are greatly in
creased demands, the disruption of dis
tributing processes, shortage of labor and
the decrease in production of various
products.
The increase in wholesale prices of 81
per cent and the increase in retail prices
of 81 per cent for January, 1918, as COM
pared with July, 1914, create a serious
problem in our economic life In making
readjustments to the new level of prices
various classes of people have been differ
emily affected. During period Of falling
prices the debtor class and business men
feel the burden of the change, while the
creditor and those with fixed incomes are
benefited. During a period of increasing
prices the creditor and the fixed income
class feel the burden, while the debtor class
and business men are benefited.
From history of world prices it would
appear that our economic life is one
of constant change and that the problem of
a changing price level has ever been with
us. The measure Of this changing price
level consists of index numbers, which for
many purposes may be considered as an i'm
perfect test of change of price levels.
Various systems Of index numbers differ
between themselves in measuring the
changes in the price level. The following
table shows the periods of worldwide
changing price levels:
l7s9-lSo9 prices increased approximately $3.50
general prices decreased approximaey So
ls7slso6 general prices decreased approximaey 4oe
lS96-l94 general prices increased approximately 47rs
nation at war is an insistent buyer of
commodities At the outbreak of the Euro
market Their insistent buying power led
to an intensifcation of the market demand.
Industrial plants in laying plans for expan-
sion to take care of war contracts went into
the market, bidding for capital in the form
of buildings, machinery, raw materials and
also labor. In order to get this additional
supply and to shift it from other lines of
production it was necessary to pay higher
prices.
Other industries not working on war con.
tracts found that it was more difficult to
retain their skilled labor supply and to get
raw materials at usual prices, and as q re-
suit they were compelled to offer higher
prices or reduce their output. The outbreak
OF the war disrupted the normal distribu-
tive system, so that the supply of important
commodities in the countries at war wac ro-
strlcted The demands upon available shin
ping for troop movements. combined with
war losses, further disrupted the machinery
of distribution
"A short-slghted failure to provide rail-
roao transportation adequate to meet the
increasing commercial and industrial needs
of the country resulted in restricted snn.
plies and increased costs. This has greatly
curtalled the shifting of MANY commodities
from points OF production to places of most
lnslstent demand. AS an example, the sur
pius OF wheat at the end Of the present sea-
son IN Australia is estimated to be about
loo'ooo,ooo bushels. If shipping were avail
able the transfer Of this supply to centres
of demand would lower prices.
There has also been decrease in tho mo-
duction of certain important commodities
particularly agricultural. For instance. ao'
cent cotton in part is duo to decreased pro-
duction, rs indicated by the following fig-
urcs for the United States:
Year Mt,
16 100 000
4