Prices in the United States
No subject in the course of the war has been more eagerly discussed, whether by economists or by the masses of the people, than that of rising I)rices. There is a school of economists who have seen the whole cause of rising prices in the policy of the governments in borrowing instead of taxing, and in the policy of the banks in lending to the governments or to the holders of government war securities. This process, called "inflation," has been treated by many writers as all unmixed evil, and a very considerable part of the literature of war economics has consisted of invective against the stupidity of those whose policies led to "inflation." The economic problems of a great war would be beautifully simple if this sort of analysis were really fundamental!
To writers of this school, the terms "rising prices" and "depreciation of money" have been synonymous and the fundamental causation has been sought in monetary and banking phenomena.
To the present writer, it seems perfectly clear that the fundamental causation involved lies in the field of production and consumption and in the fields of public policy and social psychology, and that so far at least as the United States are concerned the phenomena of money and banking have been largely secondary and derived, adjusting themselves to, rather than causing, the more fundamental factors. This is not to deny that banking policy has had and has a considerable influence on the course of prices. It is rather to assert that the major influence is to be found in something more fundamental.
The fundamental explanation lies on the surface. Fifty to sixty million men, an enormous proportion of the labor force