1939: Cost Of Living

Superficial Price Action.

It is an acknowledged psychological truism that the vividness of an item in memory varies inversely with the interval of time. It is for this reason that inflation and the high cost of living loom so conspicuously in men's minds when they think of the last war. In so thinking they recall the cost of living and price levels prevailing at the end of the struggle and during the brief but sensational post-war boom. At that time, living costs were approximately double the level prevailing at the beginning of the war. This peculiarity of the memory was strikingly demonstrated this fall by the rush of housewives to the corner grocery for sugar. It was reflected also in a short-lived stampede for materials and stocks by businessmen and speculators during the early days of the present war.

Moderate Changes.

It is only now being recognized that in the corresponding stage of the earlier conflict, the general price level and the cost of living acted very much as they are acting today. With the exception of certain commodities immediately and directly affected by the war, there has been no striking general change. If we take 1923 as our base, we find that at the end of the year our index stood at 85.8. In the middle of August, shortly before the outbreak of war, the same index was 84.5, and, during the next thirty days, increased 1.7 per cent to 85.9. The action of various items was not uniform — food prices rising 5.2 per cent, while housing, clothing, fuel, light and sundries showed only a slight upward movement.

Food Prices.

This movement continued through October with food prices again the most active group. However, by November the markets were already reflecting a more sober view of supply and demand factors and a part of the rise since the outbreak of the war was cancelled. After the excitement had subsided, it was found that living costs were still 14.2 per cent lower than in 1929. The purchasing power of the dollar was 16.4 per cent greater than in 1923.

Stocks on Hand.

This readjustment of the market should not be accepted as the market's final verdict on the price outlook during the war period. As hostilities broke out, the world found itself exceptionally well stocked with all the materials necessary, not only for normal living but also for the prosecution of the war itself. There were huge supplies of wheat, cotton, rubber, oil and copper on hand. In addition, world capacity to produce two other absolute essentials for war, namely, coal and iron, was considerably greater than in 1914. In general, the productive capacity of the belligerents and the principal neutrals was far greater than it was twenty-five years ago. With the exception of the totalitarian nations, there was also an ample supply of labor on hand.

Decrease in Cost.

Before the impact of the extraordinary forces of war can be felt in the market and in the housewife's budget, three things must occur: First, huge stocks of raw and partly finished materials must be reduced. Second, plant capacity, idle during the depression years, must be more fully utilized. Third, substantial inroads must be made upon the reservoirs of labor available in the neutral countries.

Some progress in this direction has already been made. This country shows striking evidence of increased utilization of plant capacity and less striking, though substantial, reduction in unemployment. Although stocks of raw materials, particularly agricultural commodities, are still ample, some inroads have already been made. How far and how fast these price-stimulating forces go depends on two developments. First, the rate of destruction caused by the war, and, second, the volume of consumption and capital goods construction generated by domestic recovery.