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"World Commodity Prices Working Stej, 
 
 W 
 
 By Richard F. Griffea 
 OBLD commodity prico 
 movements during the year 
 just closed have to a de- 
 gree been conflicting, but in the 
 main the trend has been cqiward 
 tither »s"a «IiMct extension (ff the 
 inflation initiated during the war or, 
 as in the United States, as a conse- 
 quence of the development of sec- 
 ondary inflation. 
 
 The coinei^enca of a etartling rise 
 
 of more titan 100 per cent in. German 
 
 'irices in a single month and the rela- 
 
 ^ve stability or actual decline of 
 
 rices in nearby countries has been 
 
 ossible because of the limitations im- 
 
 osed by abnormal foreign exchange 
 
 narket coiMitions upon the play of 
 
 f-ircei betveen international trading 
 
 enters that under more usual eircum- 
 
 tances operate toward a uniform price 
 
 ivel. • 
 
 •- tVo nenr yp^r o»«>ns the recovery 
 of sterling to Within 20 eenta of parity 
 , u^seu foi the first time the ex- 
 ;ctation that before many more 
 ir>nths have paiaed some measure of 
 oAsisteney unl) be achieved in the 
 -ice movements throughout the world. 
 ?ith sterling upon an equality with 
 Hilars and England in fact upon a 
 old basis there seems good reason to 
 believe that a considerable number of 
 the principal trading nations irill be 
 able to return to the gold afeandard. 
 ITTiat is the prerequisite to ttie estab- 
 lishment of the old relationship be- 
 tween markets when too wide a diapar- 
 ilT between commodHy nrSees in f^e 
 United States and England, for ex- 
 ample, was mpossible because of the 
 freedom with which gald shipments 
 were available as a corrective. 
 
 In Europe Swiss, BntSh and Swedish 
 currencies have slr^sidir attained- a 
 valuation of parity* In- the exchange 
 market and, in Ifce-'iipinion of many 
 leading financial ,lM|thoritieB, Spain. 
 Japan, Ai^entina inS possibly Czecho- 
 slovakia with these eountriea should ; 
 be able to follow England back to a : 
 strictly gold basis. Norway and Den- '. 
 mark with a little time should be in a 
 position to Join thJ* B^oup. Russia,; 
 Germany and the Central European 
 countries generally, excepting Czecho- 
 slovakia, may be figured out of it for 
 <fliB time, yfhlle the financial problems 
 to be met in France and Italy are con- 
 siderable and their progress back to a 
 pre-war basis gives pro»»i'''"> of "-"'"'- 
 ^rradiirf. But, even so, close to thraa- 
 fourths ot the commercial world would 
 be back on a gol' foo^-'n". t-'^'i- • -> 
 minimize the eo!ii;CiisloD la commodity 
 price flnctuations. «^ 
 
 Outlook Not Simple 
 
 It may not be said that restoration 
 of such a situation as outlined abovp 
 is assured, but that economically it 
 appears feasible. Political muddling 
 of poesible economic solutions has been 
 so marked a factotr in recent discus- 
 sions that the outlook cannot be char- 
 acterized as simple, the chief bases 
 for confidence being the admitted com- 
 inercial sanity of England and the evj- 
 lencc that at Washingtotn a more lib- 
 ■ral policy toward the European com- 
 ilex is slowly developing. Sterline s 
 ftunched upon a noteworthy endeavor 
 o achieve parity, and the movement 
 ipparently has the support of the Bnt- 
 gb govemment,^ which in shipping, any 
 sxoess of gold that may be available 
 ;o this country is employing a natural 
 nethod for restoring its currency to 
 lormal. International bankers believe 
 that sterling at par will clarify the 
 
 Conflicting Influences Result From A: 
 normal Foreign Exchanges; Outlook 
 Continues Unsettled 
 
 .^'. 
 
 sttnation in other nations and that 
 somo' betterment In world tradlng.con- 
 ditions must inevitably follow. 
 
 The significance , of ?uch an eventu- 
 ality iiirith relation to the price move- 
 ment in the United States is best de- 
 termined by reference to the recent 
 course of quotations here and the pres- 
 ent position. The yeaer 1922 encom- 
 paBsed a rise in prices of extent such 
 as was never achieved in peacet-:me 
 in a like period before the World War. 
 For sevi-al months prior to January 1, 
 the check to deflation had been defi- 
 nitely established and there was a 
 barely ^perceptible drift toward higher 
 levela. This drift gradually assumed 
 the proportions of a major upswing 
 that is still under w«y, if somewhat 
 abated in force, as 1923 opens. 
 
 The extent of the advance is best 
 shown by reference to the various 
 prices indices maintained in this coun- 
 try. Bradstreet's compilation by De- 
 cember 1 was a full SO per cent above 
 the low point reached in the late 
 spring of 1921. It is still far below 
 the post-armistice peak. The record 
 follows: Maximum, February 1, 1920, 
 $20,8690; minimum, June 1, 1921, $10,- 
 6169; January 1. 1922, $11,3726; De- 
 cember 1, 1922, $13,7835. Dun's index 
 nun ber shows a recovery of 16 per 
 cent from the low of 1921, of which 
 12.8 per cent was recorded in the first 
 eleven months of 1922. The New York 
 Fodersl Reserve Bank's index of prices, 
 based upon the quotations of twenty 
 basic commodities, is up 22 per cent 
 during the year, the Department of 
 Labors compilation has recovered 13 
 per cent. The Harvard University in- 
 dex, based upon ten commodities and 
 extremely sensitive, is up 40 per cent 
 from its low point. 
 
 Gold Basis of Rise 
 
 The fundamental explanation of the 
 rise in prices in this counti^ is to be 
 found in the continued influx of gold 
 from all quarters of the globe. Im- 
 ports were not so heavy as in 1921, but 
 the expansion of gold holdings during 
 that year was not fully effective at the 
 time because of the force of the de- 
 flationary movement and during 1922 
 the cumulative influence of the gold 
 brought in over the two-year period 
 wa? experienced. The gold was not 
 directly the basis of a new Inflation, 
 bnt It was the increase in tiie Federal 
 Reserve System's gold- reserves te 
 above $3,000,000,000 that made that in- 
 irtion possible if not inevitable. 
 
 The growth of gptd stocks made It 
 possible for the banks to make loans 
 without resort to the facilities of the 
 Federal Reserve banks, at the same 
 time that they paid off their indebted- 
 ness to these institutions. It imparted 
 impetus to the speculative and invest- 
 ment purchases of securities, and the 
 motive was from this point passed on 
 to industry and business in general. 
 A considerable expansion in bank de- 
 posits occurred,, and there was _ a 
 marked recovery in the purchasing 
 rower of the people wli'ch dunng 
 1921 had slumped so sharply. 
 
 One theory offered in explanation of 
 the stiffening of prices is that the re- 
 sistance to wage deflation in the same 
 degree' that price deflation had been 
 experienced provided the check to the 
 latter movement and was a basic cause 
 of the turn. The maintenance of wages 
 in the mining industry (and the djfii- 
 oulty of bringing down the schedule of 
 ■fimuneration to railroad workers, with 
 attendant labor difficulties, were closely 
 i followed by an upward revision of 
 
 wages In the steel industry and by set- 
 tlement of textile wages on a relailvfl- 
 ly high basis. Against this may be set 
 the contention that widiout consump- 
 tion demand, without the expanded 
 purchasing power of the people, wages 
 would have had to go lower. Specific- 
 ally, if the demand for steel products 
 1)»a not been great and if there had not 
 been a scarcity of workers to raise pro- 
 duction to the level of that demand 
 steel, wages would not have been 
 marked up. 
 
 Production Indices 
 
 Reference to production and con- 
 sumption indices indicates that the 
 rise has not been attributable to- a 
 shortage of commodities available for 
 consumption but that, on the contrary, 
 application of the nation's new pui<- . 
 chasing power has been the motivat- 
 ing force. The New York Federal Re- 
 serve Bank's indices of product on 
 dhow that in the case of most basic 
 commodities the output* over recent 
 months has been close to or above nor- 
 mal. This applies particularly to pe- 
 troleum, cement, wheat flour, sugar, 
 cotton, tobacco, paper, wood pulp and 
 gasoline. Coal nroduction has recov- 
 ered rapidly after the strike, and the 
 production of metals, includ ng pig 
 iroB^ steel ingots and ceppec has 
 been steadily mounting. Wool con- 
 sumpt on is well above normal, while 
 tobacco and cotton consumption is 
 not far from the average. , 
 
 In Kngiand, which more closely ap- 
 proximates the full gold basis than 
 any other coijntry- except the United 
 States, there has existed no expauson 
 of gold stocks to serve as a basis for 
 inflation, and the situation, therefor*, 
 has proved easier to handle. Som§ 
 inflation of security prices has not 
 been avoided, but the commodity price 
 3 tuation has been held well in hand. 
 The British price level was behind the 
 American in the major post-armistice 
 upswing and the turn downward' came 
 later. During 1922, the movements in 
 the two countries have been, in direct 
 contrast, as Britain has sent here sucti 
 uxcess oi gold as she has been abl* to 
 command. The British price level bas 
 declined during man^ months and been 
 ipproximately stationary or gone 
 slightly higher in others. The differ- 
 
 ncc in price trends has largely ac- 
 -•ounted for the recovery of sterling, 
 
 •hich many are hop ng may achieve a 
 
 :oint where gold begins to flow out of 
 this country. 
 
 The movement of, prices on the 
 Continent of Europe usually has borne 
 a direct relation to the currency posi- 
 tion. Germany's note issue has lately 
 been expanding at the rate of more 
 than 30 per cent a month, and as a 
 r'esuH the foreiEn -iu-!?KaBing powfi^ o 
 the mark has dwindled to an inconsid- 
 erable fraetion of normal, and the in- 
 ternal value of the mark as measured 
 in goods also has fallen away sharply. 
 Prices have climbed in proportion. In 
 France an advance in prices has paral- 
 leled the expansion of note circulation, 
 while in Italy, wore dependent upon 
 
 mported goods, the value of lire in the 
 foreign exchange market has been a 
 controlling factor. In Scandinavia and 
 
 n other countries where the currency 
 inflation has been cheeked and where 
 the foreign exchange moveinent has 
 been favorable prices have tended to 
 taper off. 
 
 The price situation as 1928 gets un- 
 der way is still complicated by the 
 
 tinancial and political aftermaths of 
 
 war. Only as these are smoothed out 
 
The original of this book is in 
 the Cornell University Library. 
 
 There are no known copyright restrictions in 
 the United States on the use of the text. 
 
 http://www.archive.org/details/cu31924013930817