In other words, the decline in the actual cost of building from the high point of 1920 is about the same as that in general wholesale prices. The price relationships among various commodities and groups of commodities are now, after the price upheaval accompanying the war and the drastic declines of 1920-21, strikingly different from those of 1913 and other pre-war years. Grain, live stock, meat products, hides, leather, and metals are relatively cheap compared with textiles, coal, and building materials. This dislocation seriously curtails the purchasing power of important groups of consumers. Unusual or abnormal as the present situation seems on the surface, similar situations have, nevertheless, been recurrent in the past. The price situation of the present period of business depression differs from that of similar periods of the past in degree rather than in kind, while the relatively low price at present of many raw materials and of other articles used in production is a favorable circumstance for manufacturing activity. Two types of changes are always taking place in the price movement of individual commodities. The first is the long-time change, which means that a single commodity is becoming cheaper or dearer during a number of years. The long-time trends of the prices of different commodities differ greatly; some tend to rise rapidly, others slowly, some to decrease. The result of these differences, over a number of years, is to change radically price relationships; certain commodities, for instance, growing dearer, command in exchange larger and larger amounts of those growing cheaper. The second type of change is the fluctuation accompanying the business cycle, that is, low prices for most commodities in times of depression, and high prices in times of prosperity. This, likewise, affects commodities unequally; certain of them fluctuate violently, others only slightly, from times of prosperity to times of depression. Like depressions of the past, today's depression has created great disparities in commodity price relationships when compared with those of a period of business expansion. Thus, many raw materials are relatively cheap compared with finished products; whereas during the months of prosperity preceding the crisis of 1920 the reverse relationship generally obtained. The extent of the price decline which occurred in 1920-21 was unparalleled; the irregularity of the decline, however, in which certain basic commodities reached very much lower points than did commodities in general, is "normal" for a period of business recession. Only the degree of the irregularity is unusual. The price situation in which we now find ourselves in 1921, therefore, is not unprecedented. Rather, it is a situation to be expected in the present phase of the business cycle. Price changes are in prospect, as they always are in prospect; it is probable that the prices of certain groups of commodities will advance very much more than will the prices of other groups, as always occurs when business is rising from the trough of depression. Our analysis leads us to the conclusion, consequently, that although many considerable price changes have occurred and others are in prospect, the present maladjustment of prices is merely the result of a somewhat greater disturbance than is usual in the present phase of the business cycle.1 WAGES AND COST OF LIVING During 1919-20 wage rates increased as promptly and largely as the cost of living. Between May, 1919, and May, 1920, the rates of union wages per hour increased from 155 to 199, relative to rates in May, 1913, as 100; the rates of wages per full time week increased from 148 to 189. During the same interval the retail prices of 22 articles of food increased from 185 to 215 relative to the average for 1913 as 100. The cost of living figures compiled by the United States Bureau of Labor Statistics increased from 177 in June 1919, to 217 in June, 1920. That is to say, during the year of expansion from the spring of 1919 to the spring of 1920 union wage rates increased nearly 30 per cent, retail food prices 16 per cent, and the cost of living about 23 per cent. In September, 1921, (the last month for which figures are available at this writing) the Bureau's index of the cost of living in the United States was precisely the same as that of June, 1919, namely 177. Among the five items of the budget (food, clothing, housing, fuel and light, furniture and furnishings, and miscella'Special Letter (November 8, 1921) of the Harvard University Committee on Economic Research on "The Commodity Price Situation," pp. 1 and 7. 'Monthly Labor Review, March 1921, p. 64. neous) food shows the greatest decline from the peak of June, 1920, now being 53 per cent above the figure for December, 1914. Housing, fuel and light, and miscellaneous items have been stable for the past year while food, clothing, and furniture have declined in price. The retail prices of food declined from the maximum of 219 in June, 1920, to the minimum of 144 in June, 1921, a figure slightly below the average (146) for 1917, representing a decrease from the peak of nearly 35 per cent. The index of union wage rates per hour actually increased during the year ending May, 1921 (see Table I). It is probable, I.-RELATIVE UNION WAGE SCALES, RETAIL PRICES OF FOOD AND COST OF LIVING however, that rates have declined since last spring, that non-union rates have declined more than union rates, and that an index of general wage rates would not be above 180 at the present time. In other words real wage rates are probably at about their 1913 level. THE VOLUME OF PRODUCTION The total physical production in 1919 in the United States of twelve leading crops, constituting more than four-fifths of the total value of all crops, was greater than for any previous year Ibid., p. 71. The American Telephone and Telegraph Co.'s compilations show a reduction in earnings of about 25 per cent for the U. S. Bureau's figures and 15 per cent for those of the New York Department of Labor. except 1915 and 1912. The figure for the volume of crops produced in 1919 is 109.1 per cent of the average for 1909-13. If allowance be made for growth, an estimate be made of a "normal" crop for 1919, and the actual production be expressed relative to the estimated normal, we get an "adjusted index” of 96.5 per cent.' In other words, the physical volume of crops produced in 1919 was about 3.5 per cent below normal. In 1920 the total physical production of the twelve leading crops reached a new high record. The index for that year was 119.4 compared with the aver III-ANNUAL INDICES OF THE PHYSICAL VOLUME OF PRODUCTION age for 1909-13 as 100. The adjusted index was 103.0. In1921 the unadjusted index for agriculture was 99.1 and the adjusted index, 86.5. During the past three years, therefore, the crop output was 96.5, 103.0, and 86.5, respectively, of estimated normal for those years. In 1921 there is a very large corn crop, but the leading cash crops, cotton and wheat, are much below estimated normal. It is not the output of agriculture, however, but of mining and manufacture that changes with the business cycle. The total output of ten leading minerals in 1919 was 110.8 of the average production for 1909-13, compared with the record figure of 135.6 in 1918. In 1920 there was a recovery to 123.9, a figure which exceeds that of every previous year except the three war years 1916, 1917, and 1918. Compared with estimated normal the production of 1919 and 1920, respectively, was 85.2 per cent and 93.2 per cent. In the upward swing of 1919-20 the production of minerals in general did not reach maximum until the 'See an "Index of the Physical Volume of Production," E. E. Day, Review of Economic Statistics, September 1920, p. 10. 'Ibid., p. 14. 'See the Review of Economic Statistics for February 1921, pp. 37-39, for estimates of the volume production for 1920. second half of 1920. Since the autumn of 1920 the monthly production of coal, iron, copper, and other minerals has declined greatly. The production in the first ten months of 1921 of the most important minerals, bituminous coal and pig iron, constituting together more than half of the value of all minerals included 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1919 1920 1921 Chart II.-The Index of the Volume of Manufacture for Eight Industrial Groups Combined (iron and steel, lumber, paper, petroleum, textiles, leather, food and tobacco), Monthly, 1919-21. in the index, was 85 per cent and 53 per cent, respectively, of the production for the first ten months of 1919. The mineral output of the United States in 1921, therefore, will probably reach a new low record relative to estimated normal. Much more significant than annual indices of the volume of manufacture are the monthly indices which have been constructed by Professor E. E. Day. Chart II shows his combined index based upon figures for the iron and steel, lumber, paper, petroleum, textile, leather, food, and tobacco industries. "The index discloses clearly the extent, as well as the timing, of the fluctuations of manufacturing output since January, 1919. The slump following the Armistice reduced production nearly 15 per cent below the 1919 average. The succeeding boom carried |