Arthur Lyon Bowley

“ The price of all goods rose to the extent that the wages affected were an element in their cost, with some exceptions, as in the case of railway services, in which the Government bore any loss. Prices of food which depended to a great extent on the world market prices were not directly affected to any great extent, being paid for by the realization of foreign securities, by the export of gold and by loans, but they nevertheless continued to rise. ”

“ The numbers in Table X must only be regarded as approximate both in respect of amount and of date, but they indicate the periods of increase and show in which countries it has been most rapid. In most countries there has been a shortage of houses and a legal restriction on rent; the figures are based in general on rents which have been hindered from rising. Whether the index number of food exhibited in the previous table or that of the cost of living has increased most depends mainly on a balance between rent and the cost of clothing, and the latter must have been uncertain in all countries. ”

“ In 1921 it was too early to trace the effect on wages of the fall of prices that began in the winter of 1920-1; apart from those cases where wages were bound to the cost-of-living figures by a formula, the first influence was felt in unemployment and consequently diminished average earnings, not on rates of wages. ”

“ On the other hand, whatever were the causes that brought about the general rise in prices that began about 1895, under the ordinary play of economic forces the rise, first apparent in wholesale prices, was followed after no long interval by increases in retail prices and in wages, and in general money wages may be expected to change in fairly close accordance with a gradual change in the price level. The immediate effect of rising prices in normal times is to stimulate commercial activity, increase employment (so that earnings rise before wages) , and then to increase wage rates. ”

“ If prices had not been controlled and wages had moved with the cost-of-living index number, an endless sequence would have been established, in which each increase of wages caused a rise of prices which was followed by a further enhancement of wages, the whole being financed by the issue of paper money, while the quantity of goods purchased was limited throughout to the same total, namely the goods available in the country. ”

“ The minimum of food was computed in relation to the quantity of calories, carbohydrates and protein calculated by Atwater and others as necessary for maintaining health and vigour under various conditions of life, and dietaries were drawn up which contained the necessary constituents at the minimum aggregate cost; to this cost was added the expenditure on clothing, fuel, cleansing materials, etc., and rent, which was found to be customary among persons in regular work at the lowest rates of wages of adult men. ”

“ On the other hand the high cost of labour and of materials (especially coal) stimulates employers to economize their use. In engineering especially many improvements in machinery were made during the war, the use of oil and petrol having replaced in some cases that of coal; in agriculture labour is saved by the use of oil-driven tractors. It is not possible to estimate the net influence of these factors, nor to state numerically in general how far the increase of wages has affected the cost of the product to the purchaser. ”

“ Fuel and Light present little difficulty when a general average for the country is in question since the retail prices of coal and of gas are ascertainable. The variation from north to south in price and consumption and that between winter and summer is not very important, since where coal is dear, gas is used for cooking, and in working-class households one fire is necessary throughout the year for cooking and this also provides heat.
The official index number allows only one-twelfth of the weekly expenditure for all items not already included, or about 1s. ”

“ The series of increases in the middle and latter period of the war had a more direct reaction on retail prices than the earlier changes, for two reasons. The cost of coal rose with miners' wages, and this, together with the increased wage cost of food manufacturing processes and of wholesale and retail distribution and the increase of the farmers' wage bill (especially dairy farmers') , raised the price of many of the commodities ordinarily purchased by the working classes. ”

“ Now if at one date purchases are made so as to maximize the satisfaction in the outlay of the week's housekeeping allowance, as we may reasonably assume, and prices rise irregularly, it is evident that somewhat less will be bought of the commodities which have risen most and more of those which have risen least if a maximum is still obtained, and that consequently the increase in the expenditure necessary to obtain the same satisfaction as before is less than the increase if exactly the same quantities had been purchased. ”

“ During 1915 it became apparent that retail prices had definitely risen and that there was no immediate prospect of a fall, and that real rates of wages had so far fallen that persons whose hours of work had not increased had suffered a serious fall in the standard of living, and that in the case of unskilled labourers wages were insufficient to purchase necessary food. ”

“ In some countries expenditure is not known, but only prices, and then the resulting calculation is generally valueless; and in others currency is so variable that the computation is meaningless. In nearly all cases there is no sufficient knowledge of expenditure on clothing either in total or in detail, and it is often difficult to obtain adequate data for fuel and light or for miscellaneous items. ”

“ A housewife purchasing in 1918 the same qualities and quantities of food as in 1914 would have increased her expenditure in the ratio 100:212, while if she had purchased in 1914 the same qualities and quantities as in 1918 the ratio of the earlier to the later expenditure would have been 100:202. Both these are possible measurements (the first being identical with case a above) , and where the difference between them is so moderate an intermediate number, such as the arithmetic or geometric mean (which are nearly coincident) , 100:207 makes a plausible measurement of the change. ”

“ If, however, we pay attention only to rates for nominally the same work, it is seen that prices rose before wages from 1914 for at least three years. If the view is accepted, as argued above, that the official index number tends to show too great a rate of increase, then by July 1918 wages had caught up with prices, and, while in 1919 and 1920 they had slightly passed the official measurement of prices, in fact real wages increased in these years. ”

“ On the one side it was generally alleged that the pace of work had been more or less intentionally reduced, though this is not substantiated by such figures for piece earnings as are available; and, though in factories there is some diminution of overhead expenses and waste time when the day's work is done in two instead of in three shifts, the general expense of salaries, interest on capital, rents, rates, etc., has to be met out of the diminished hours of work. ”

“ Both sets of figures in Table XV are computed from the XVIIth Abstract of Labour Statistics, except that the level of wages in 1914 is equated to that in 1913 on the ground of other information as to the absence of any important change. The basis of the computation of wages is not sufficiently wide to ensure minute accuracy, and since it depends only on changes of rates it does not allow for the slow but progressive increase of the average earnings of all workers due to the relative increase of the numbers in the better-paid occupations. ”

“ The result obtained (if the process were complete) would be the relative cost of maintaining a defined standard constant in every detail. It is generally expressed as a percentage; thus if the costs were 25s. and 30s. at the two dates, the ratio is 100: 120, the index number at the second date is 120 and the percentage increase 20.
This method cannot be carried out in its entirety for two reasons, namely, lack of information and change of quality of the commodities in the market. In most countries data of expenditure and prices are only obtained for principal commodities (meat, bread, etc.) ”

“ It is easily shown that I4 is always intermediate between I1 and I2, and by a more troublesome analysis that I4 is less than I1 when prices in general are rising and quantities consumed of individual goods have increased or diminished according as their prices have risen more or less than the average as measured by I1 ”

“ It is argued above that the true measure of the cost of living lies between the numbers in the second and third columns. It can be seen that considerable modifications of diet took place between 1914 and 1918-9, but that either they had been reversed or that their effect on cost was nil by 1920. [13]
(A similar computation of the budgets in 1914 and 1918 in the United Kingdom gives 100∑qp÷∑QP = 185, 100∑qp÷∑qP = 202 and 100∑Qp÷∑QP = 212, for food only, numbers corresponding in order to the three columns just discussed.) ”

“ There had been no information obtained, however, as to new arrangement of consumption up to the summer of 1921.
(b) Other Commodities.—Next in importance to food comes rent. The figure included in the index number allows for such increases for rates, repairs, etc., as are legally permissible and is accurate for persons who by remaining in the same house since 1914 have the benefit of the Rents Restriction Acts; the increase for those who have moved must have been very variable and for it no estimate is available. ”

“ For Hungary (Labour Gazette, April 1921) a statement is quoted that whole family expenditure was in Jan. 1921 47 times as great in currency as before the war; rent had only increased 67%. For Germany an estimate is given (International Financial Conference, Brussels, 1920, Paper vii., statistics of retail prices) that the index number for food, clothing, rent, fuel, etc., in 28 towns was 373 in April 1919 compared with 100 in Jan. ”

“ After the Armistice supplies tended to return to their pre-war level except in the cases of sugar, eggs, butter and cheese; margarine of an improved quality took the place of butter to a considerable extent. ”