The Cost of Living.—VIIL. 
 
 [This is the eighth article in our series on the increased cost of 
 living. Those already having appeared are: “The Remedy for High 
 Prices,” by J. Pease Norton (February 10); “The Crisis in American 
 Home: Life,” by S. N. Patten (February 17); “The Tariff and the Cost of 
 Living,” by Byron ‘W. Holt (February 24); “An Old-Fashioned Theory of 
 Prices,” by F, H. Giddings (March 3); “Prices and Incomes,” by John B. 
 Clark (March 10); “Economy in Diet,” by R. H. Chittenden (March 17) ; “Does 
 Increased Gold Production Increase Prices,’ by Stewart Brown (March 24). 
 We shall close this series very shortly readers.—ED1ror. } 
 with a symposium of letters from our 
 
 High and Low Prices 
 BY EDWIN R. A. SELIGMAN, LL.D. 
 
 McVicKkar Proressor or PoLtticaL Economy at CoLumBtA UNIVERSITY. 
 
 N the present discussion of the in- 
 creased cost of living there are four 
 fundamental problems : 
 
 First, What are the facts? 
 
 Second, What are the results? 
 
 Third, What are the causes? and 
 
 Fourth, What are the remedies? 
 
 1. As to the facts of the case, two 
 considerations stand out prominently ; 
 namely, that there has been a general 
 rise in the price level in all civilized 
 countries, and that the increase of prices 
 has been especially marked in certain 
 classes of commodities. Whether we 
 take the figures for America, for Eng- 
 land, or for any other country, the facts 
 are strikingly similar. From 1896 to 
 1g10 there has been a rise of from 50 to 
 60 per cent. in the general price level 
 thruout the world. Yet everywhere cer- 
 tain classes of commodities have risen 
 more than others. As Mr. Frank Greene, 
 of Bradstreet’s, has recently pointed out, 
 utilizing the figures of his journal, 
 which show a general increase of 61 per 
 cent. in the price level from 1896 to 
 1910, naval stores—that is, principally 
 lumber—have increased 136 per cent.; 
 live stock, 116 per cent.; and breadstufts, 
 100 per cent.; while goods like sheetings 
 have increased only 50 per cent.; ging- 
 hams, 40 per cent.; and glass, 23 per 
 cent. Other commodities, like coffee, 
 sugar, tea, raw silk, have even de- 
 creased in price. In England, according 
 to Sauerbeck’s figures, the index num- 
 ber for animal food increased during 
 
 074 
 
 the period 1896-1908, from 73 to 89, 
 and for vegetable food from 53 to 70; 
 while for textiles it increased only from 
 54 to 62, and for sugar, coffee and tea 
 it decreased from 59 to 48. 
 
 It is obvious, therefore, that at the 
 very outset it is necessary to distinguish 
 between prices of individual commod- 
 ities and the general price level. In the 
 ordinary play of the market, prices of 
 every commodity are subject to con- 
 tinual change, whether these changes 
 are due to mere oscillations in tempo- 
 rary demand and supply, or to the more 
 deep-seated reasons connected with cost 
 of production. But when the great 
 mass of commodities rise in price simul- 
 taneously, even if unequally, and if this 
 rise is a world-wide phenomenon, the 
 facts acquire an added significance. 
 
 This phenomenon, however, is not a 
 new one. Most of us think only of the 
 great increase of price since 1896. We 
 forget that the preceding period, from 
 1879 to 1896, marked a corresponding 
 fall in prices. In fact, as far back as 
 accurate records go, we notice these 
 periodic fluctuations in the price level. 
 In the sixteenth and seventeenth cen- 
 turies general prices in Europe in- 
 creased, not as they have done in the 
 last decade, by 60 per cent., but by sev- 
 eral hundred per cent., and the increase 
 was so prodigious that we ordinarily 
 speak of the period as that of the great 
 price revolution. During: the nineteenth 
 century we ha ve Jnad several sural cycles 
 
HIGH AND 
 and 
 
 ot price changes. Between 1790 
 Be- 
 
 1810 prices rose about 80 per cent. 
 tween 1810 and 1850 they fell about 60 
 per cent. Irom 1850 to 1860 they rose 
 about 20 per cent. Irom 1860 to 1873 
 the price level remained relatively st bis. 
 apart from the speculative movement 
 which culminated in the panic of 1873. 
 From 1873 to 1896 prices fell almost 
 60 per cent., and from 1896 to the pres- 
 ent prices have again risen about 60 per 
 cent., altho by no means having attained 
 the level of 1870. According to the 
 chart printed herewith, we have a rough 
 indication of the fluctuations of general 
 prices in England from 1790 to ig1o, 
 
 From 1820 onward the chart is based 
 on the index number published by Sauer- 
 beck, which takes the period from 1860 
 to 1870 as representing the base line of 
 100. Before 1820 the figures are those 
 worked out by Jevons. According to 
 this chart, therefore, we see that the 
 price level of 1910 is approximately that 
 of 1790, and that the nineteenth century 
 has been characterized by several peri- 
 od of oscillations now in one direction 
 and now in the other. We happen at the 
 present time to be in the rather devel- 
 oped stage of a single series of fluctua- 
 tions. 
 
 I] Let us now consider the results of 
 a period of rising prices. Are rising 
 prices a good or a bad thing? In ap- 
 proaching this question we must distin- 
 guish between rising prices in a country 
 whose general level of prices has been 
 considerably lower than that of its 
 neighbors, and rising prices in a country 
 which is on a parity with its neighbors. 
 It is notorious, for instance, that in poor 
 countries prices, including, of course, the 
 wages of labor, are comparatively low; 
 and that in rich countries prices are rela- 
 tively high. In Germany, for example, 
 before the great development of the past 
 generation, prices were exceedingly low 
 as compared with England; and in 
 Japan, until the last few years, the price 
 level was ridiculously low, when com- 
 pared with American, or even with 
 European, standards. The rise in the 
 price level in Germany, and more recent- 
 ly in Japan, is due to the introduction of 
 modern industrial methods. As Ricardo 
 pointed out over a century ago, if coun- 
 try A suddenly makes improvements in 
 the production of goods previously im- 
 
 LOW 
 
 PRICES 675 
 
 ported from country B, these goods will 
 fall in cost, but not in price. For A will 
 now import less of these goods from Bb, 
 or perhaps even now export them to B, 
 and b must make good this relative defi 
 clency of exports of goods to A by ex- 
 porting gold; with the consequence that 
 the increase of the money supply in A 
 will inevitably raise all prices, including 
 that of the ey Gai product. Any 
 form, hence, of advance in industry or 
 in banking, or in transportation—any- 
 thing, in short, which tends to lower the 
 cost of production in A, tends to raise 
 general prices; and this increase in the 
 price level in the hitherto poorer country 
 will continue until the general price level 
 
 > 1810 i220 if30 18-0 
 
 i650 1B6y 1870 1880 1880 1900 1910 
 
 
 
 SAUERBECK’S AVERAGE PRICES OF 
 FIVE COMMODITIES. 
 (Dotted line covers period previous to Sauerbeck’s 
 figures. ) 
 
 FORTY- 
 
 thruout the civilized world is approxi- 
 mately reached. Such an increase of 
 prices in a backward country is there- 
 fore a benefit, because it means an in- 
 creased output of wealth, at a lower 
 cost. Increased prices are always fol- 
 lowed by increased money wages. but 
 increased output, with lower cost, will 
 ultimately mean increased real wages. 
 The higher prices which go with the in- 
 troduction of modern industrial methods 
 into a hitherto backward country mean 
 not alone higher wages, but an increase 
 of capital, lower interest and more 
 wealth. The rise in prices, such as took 
 place in Germany after 1870, or in Japan 
 after 1900, is an evidence of substantial 
 progress. 
 
 The situation is, however, different 
 when we deal with a country like the 
 United States, where modern methods 
 of industry have long since been in 
 vogue, and where the price level, if any- 
 thing, is somewhat higher than that in 
 
676 THE 
 other countries. What is the significance 
 of a change in the price level here? 
 
 It is obvious that rising and falling 
 prices help or harm different classes 1 
 the community in turn. In a period of 
 falling prices such as that which culmi 
 nated in 1896, it is primarily the pro- 
 ducer who suffers. [Falling prices are 
 almost always attended by “bad times.” 
 lank reserves decrease and loans are 
 called in. Speculators, first in securities 
 and then in staple commodities, tend to 
 sell their holdings at a sacrifice, profits 
 are curtailed in some business and enter- 
 prise slackens. Altho raw materials are 
 cheaper, the manufacturers cannot find 
 a satisfactory market for their goods, 
 and the farmers find difficulty in meet- 
 ing the interest on their mortgages. 
 ven tho wages are perhaps the last to 
 fall, the laborers suffer because the em- 
 ployers either work on half time or close 
 their shops. Borrowers are embarrassed 
 because they must work harder to pay 
 back an equivalent sum of money. Own- 
 ers of land and of corporate shares get 
 less rent and less dividends. Falling 
 prices, hence, produce almost universal 
 stagnation. It is only the recipients of 
 fixed incomes to whom any benefit ac- 
 crues, and that only temporarily. 
 
 A rise of prices, on the contrary, in- 
 jures not the producer, but the consumer. 
 The producer is satisfied because business 
 is good. The consumer grumbles because 
 it always takes some time for wages and 
 salaries to adjust themselves to the new 
 scale of prices. The serious feature of 
 the situation consists in the discomfort 
 of this period of transition. Ultimately 
 the country will be as well off as before, 
 whether with high prices or with low 
 prices. But in the interval of the fluc- 
 tuations the hardships are apparent. 
 
 The period of falling prices culmi- 
 nating in the early nineties engendered 
 the silver movement, which was started 
 primarily by the small agricultural pro- 
 ducers in the West and the South. The 
 present period of rising prices is causing 
 an added unrest primarily in the ranks 
 of the wage earners. Perhaps the most 
 serious aspect of the situation is the fact 
 that whereas the ordinary industrial em- 
 ployer will be enabled to pay higher 
 wages because he secures higher prices 
 for his goods, the great mass of public 
 
 final consumer. 
 
 INDEPENDENT 
 
 service corporations, and primarily the 
 railroads, whose charges are fixed either 
 by law or by custom, find the greatest 
 difficulty—a difheulty only partly over- 
 come by the increased volume of busi- 
 ness—in + meeting the legitimate de- 
 mands of the laborers without trenching 
 unduly upon their profits. In the public 
 service corporations there is no such 
 automatic change in the price level of 
 what they have to sell as there is in the 
 price level of what they have to buy. 
 While, therefore, rising’ prices in the 
 main mean an increase of business pros- 
 perity, they are a matter of serious con- 
 cern not only to the whole class of con- 
 suming wage earners, but also to a by 
 no means ‘insignificant section of the 
 business interests of the country. 
 
 lll. What, now, are the causes of 
 this rise of prices? As we pointed out 
 above, it is necessary here to distinguish 
 between general prices and prices of 
 individual. commodities. There may be 
 causes at work which tend to enhance or 
 depress prices in general, and at the 
 same time there may be other causes 
 which tend to enhance or depress the 
 prices of some particular commodities 
 more than others. It is obvious that the 
 rise of price of meat, for instance, is in 
 some measure due to an increase in the 
 cost of production. We know that with 
 the progress of agriculture, the free 
 range in this'country has been consid- 
 erably reduced, and this difficulty of 
 finding free or cheap feeding for the 
 cattle has inevitably been transmitted 
 right along the line until it reaches the 
 In the same way it is 
 notorious that the reckless cutting of our 
 forests has so diminished the timber 
 supply that the price of woods has in- 
 creased enormously. So the butchery of 
 our virgin soil, which for the time being 
 kept down unduly the price of agricul- 
 tural staples, is working out its own 
 Nemesis, with a sharp reduction in the 
 yield per acre, and a corresponding in- 
 crease in the cost per bushel. We might 
 go thru the whole range of individual 
 commodities and show that in many 
 cases the rise in prices is due, in part, at 
 all events, either to a falling off in the 
 demand or to an increase in the cost of 
 production. 
 
 This explanation, however, is utterly 
 

 
 | 
 
 : 
 
 HIGH AND 
 
 ynavailing when we come to a consid- 
 prices in general. 
 
 eration of the rise of 
 If all commodities in the world tend to 
 
 rise in price at the same time, it is ob- 
 vious that there is some cause which 
 cannot be explained by the conditions ot 
 any particular commodity. Che progress 
 of invention, for instance, often tends to 
 reduce the cost, and therefore the price, 
 of particular manufactured commod- 
 ities; and the pressure of population on 
 the means of subsistence frequently 
 tends to increase the cost of food and 
 other materials. But if we find that the 
 prices of all foodstuffs and of all manu- 
 factured commodities tend to rise to- 
 gether for a long period, or to fall to- 
 gether for a long period—even if they 
 rise and fall in somewhat unequal pro- 
 portions—it is clear that some other ex- 
 planation must be sought. Indeed, most 
 of the current particular explanations 
 are inadequate. To say that the present 
 high prices are due to trusts will not ex- 
 plain the similar rise of prices in cases 
 where there are no trusts in those par- 
 ticular commodities of this country, or 
 no trusts at all in other countries where 
 the rise of prices is also well marked. 
 To say that high prices are due to the 
 tariff does not explain the similar rise 
 of prices in England, where there is no 
 protective tariff. To say that high prices 
 are due to labor unions does not explain 
 the rise of prices in the Orient, where 
 there are no labor unions. To say that 
 the rising prices are due to the growth 
 of population, or to the pressure upon 
 the means of subsistence, does not ex- 
 plain the rise of prices in those manu- 
 factures where the raw material has only 
 slightly risen in price, and where the 
 wages cost is relatively low; nor does it 
 explain the falling prices of a decade 
 ago, when population increased at virtu- 
 ally the same rate. During the free 
 silver agitation the argument of men 
 like David A. Wells was that falling 
 prices are due to the progress of inven- 
 tions; yet the progress of inventions has 
 continued unabated during the past 
 twelve years, and still prices have risen, 
 instead of falling. 
 
 While all these alleged reasons may 
 constitute a partial explanation of a rise 
 of particular prices, far above the gen- 
 eral level, they do not avail to explain 
 
 677 
 
 LOW PRICES 
 
 the change of general prices. Prices of 
 commodities are their values exprest in 
 terms of money; that is, under modern 
 -onditions, of gold. A general rise of 
 prices must therefore mean a deprecia- 
 tion of gold, and where there are no 
 marked changes in the conditions of 
 credit, or no sudden diminution in the 
 volume of business transactions, a fall 
 in the value of gold is always the result 
 of an increase in the output. Unless 
 there is some change in the supply of 
 (or the demand for) gold, there can be 
 no change in the general price level. 
 
 Prices of some things indeed can go 
 up independently; but with the same 
 supply of money, the increased price of 
 some commodities must mean the de- 
 creased price of others. If a community 
 with a given supply of money has to 
 spend more for, let us say, wood and 
 wheat, it will have less money for other 
 things; and with the falling off in de- 
 inand for these other things their prices 
 will decline. As wood and wheat go up, 
 some other things must come down. Or, at 
 all events, there will be either !¢ss wood 
 and wheat consumed at the higher price, 
 or less of the other commodities at un- 
 altered prices. In other words, the total 
 number of commodities, multiplied by 
 their price, will be precisely as before. 
 The index number formed by weighting 
 commodities according to their relative 
 consumption will be unchanged. The 
 only way in which all things can rise in 
 price simultaneously, even tho some rise 
 more than others, is thru a relative in- 
 crease in the supply of gold. 
 
 Toward the end of the sixteenth cen- 
 tury there was intense excitement in 
 France, culminating in riots, over the 
 
 _ prodigious rise in prices. Some writers 
 denied that there was any such rise; 
 while others alleged precisely the same 
 variety of causes which we find advanced 
 today. Among such causes we _ find 
 stated, first, the great monopolies, or the 
 trusts of that day ; second, the conditions 
 of foreign exchange; third, the extrava- 
 gance of the court and of the people; 
 fourth, the abandonment of the wheat 
 fields for the sheep walks; and so on. 
 This led the philosopher, Jean Bodin, to 
 write a special treatise on the subject, 
 wich may well be called the earliest 
 investigation as to fundamental economic 
 
678 THE 
 causes. In this remarkable book, Bodin 
 advances the statement that: 
 
 “The principal and well-nigh sole cause of 
 the increased cost of living that we see about 
 us, to which no one has hitherto adverted, 1s 
 the abundance of gold and silver, which is to- 
 day in this kingdom far greater than it has 
 been in the preceding centuries. 
 
 In his elaboration of this statement 
 Bodin not only lays down what has since 
 come to be universally acknowledged by 
 all economic historians to be the true 
 cause of the great revolution of prices, 
 but he also advances arguments which 
 are equally applicable today. Would 
 that all of the writers who are discuss- 
 ing this problem so voluminously might 
 read “La Responce de Jean Bodin au 
 Paradoxe de Malestroict touchant l’en- 
 chérissement. de toutes choses et le 
 moyen d’y remédier,” published in Paris 
 in 1578. 
 
 What was competent to explain the 
 situation at the time of the great revo- 
 lution in prices is equally competent to 
 explain the situation in the present slight 
 revolution in prices. At that time the 
 discoveries of silver in the New World 
 flooded Europe with an unheard-of addi- 
 tion to the stock of money. During the 
 past fifteen years the invention of the 
 eyanide process in the extraction of gold 
 and the development of the mines in 
 South Africa and Alaska have increased 
 the yearly output of gold from $163,- 
 000,000, which was the annual average 
 during the five-year period 1890-1895, to 
 about $450,000,000 in 1909. Just as was 
 the case then with the standard metal, 
 silver, so now the standard metal, gold, 
 is being turned out in such prodigious 
 quantities that it is rapidly falling in 
 value. But a fall in the value of gold, 
 other things being equal, is tantamount 
 to a rise in general prices. 
 
 Money or purchasing power in its 
 broadest sense includes, however, more 
 than the mere money metal. Business 
 transactions take place not alone for 
 cash, but also for credit. In considering 
 the question of the supply of money or 
 of purchasing power, we must therefore 
 look not alone at the coin or cash, but 
 also at the credit which is based upon 
 the coin. Now, it is clear that with 
 every increase in the quantity of gold in 
 the reserves of the banks, the power of 
 extending credit grows enormously. It 
 
 INDEPENDENT 
 
 is a well-known fact that banking and 
 credit facilities thruout the world have 
 recently augmented to a far greater de- 
 gree than the increase in the output of 
 gold. Hence, the secondary and addi- 
 tional reason for the general rise in the 
 price level has been this augmentation 
 in credit facilities. I call it a secondary 
 reason not because credit today is, in its 
 influence on prices, inferior to gold—for 
 the very reverse is true—but simply be- 
 cause this great increase of credit is ulti- 
 mately dependent for its very existence 
 upon the increase in the output of gold. 
 This does not, of course, mean that 
 there may not be changes in credit con- 
 ditions which are unconnected with or 
 which even go contrary to changes in the 
 gold supply. But such a situation is 
 due to particular reasons which this is 
 not the place to discuss. The broad fact 
 remains that, taking it by and large, and 
 apart from particular perturbations, a 
 great change in the supply of gold will 
 generally mean a corresponding change 
 in the conditions of credit. 
 
 If we combine these two factors—the 
 increase in the gold supply and the re- 
 sulting increase in the use of credit— 
 we see that we have at once an adequate 
 explanation of the general rise of prices, 
 compared to which the deviations in the 
 prices of particular commodities are of 
 very minor importance. The control of 
 trusts, the lowering of the tariff, the dis- 
 appearance of any alleged abuses on the 
 part of the labor unions, even the appli- 
 cation of more sensible methods to the 
 tillage of the soil and the care of the 
 forests—any or all of these together 
 would make very little difference in the 
 general scale of prices. In the face of 
 an overwhelming general cause, all these 
 special causes are of indubitable insig- 
 nificance. 
 
 IV. What, then, is the remedy? In 
 reality, if we are patient, the situation 
 carries its own remedy with it. As prices 
 rise, the same quantity of gold purchases 
 less goods, and it no longer pays the 
 man who is operating the poorest mine 
 and just getting back his outlay, to con- 
 tinue. The relative lessening in the rate 
 of output in the face of a steadily grow- 
 ing business prosperity must, after a 
 time, check the rise in prices until a new 
 equilibrium is reached. For as the force 
 
FAREWELL 
 
 of the inventions of new processes of 
 gold extraction spends itself, and as the 
 newly discovered mines are gradually 
 ‘worked out, the normal situation will 
 slowly be restored, and the rise of prices 
 will be checked. Unless, indeed, what is 
 not at present to be anticipated, there 
 should be another far-reaching discovery 
 of new and easily procurable gold de- 
 posits, the rise of prices may be declared 
 to have well nigh reached its term. No 
 legislation can avail to prevent these 
 periodic oscillations until the whole 
 world—and not any single nation—gets 
 ready to discard a particular commodity 
 as money, and to replace it with an arti- 
 ficial and composite standard of prices. 
 But that is something for the remote 
 future to accomplish, and will come 
 about only with the gradual cessation of 
 international jealousies and the impera- 
 tive need of international commercial 
 stability. 
 
 What really should cause us concern 
 is not the rise of prices (which will be- 
 fore long be followed ‘by a fall, and 
 which means no general change in the 
 country’s wealth or ultimate welfare), 
 but the increase of cost in the sense of 
 a lessening of the powers of man over 
 nature, and the failure of the same ex- 
 ertion to yield corresponding results. 
 Economy of production and economy of 
 consumption spell progress and wealth. 
 A prodigal waste of natural resources 
 and reckless extravagance in outlay spell 
 retrogression and ultimate poverty. A 
 rising price level is not an unmixed evil, 
 
 679 
 
 and in so far as it is an evil at all, it will 
 correct itself. Increasing cost, in the 
 sense of the necessity on the part of soci- 
 ety of more effort to secure the same 
 amount of wealth is both deplorable and 
 remediable. High prices may mean low 
 cost, and are generally characteristic of 
 wealthy countries; low prices may mean 
 high cost and are generally characteristic 
 of poor countries. With the progress of 
 population not only must the price of 
 land always advance, but also the price 
 of food, when not checked by the appli- 
 cation of science to agriculture. With 
 the progress of civilization, on the other 
 hand, prices of manufactures tend to 
 fall, and with each successive decrease in 
 cost, human energy is liberated to seek 
 new opportunities for augmenting the 
 resources of mankind. Whether at any 
 given time the rise in rents, in wages 
 and in food is counterbalanced and more 
 than counterbalanced by the fall in the 
 prices of manufactured articles depends 
 upon the relative progress that is made 
 in the command of man over nature, and 
 the forces at work in controlling popula- 
 tion or raising the standard of life. The 
 real problem of importance to the world 
 is not that of high or low prices—for 
 that is in large measure the result of an 
 accident as to the supply of the money 
 metal. The real problem is one of high 
 or low cost. High or low prices will 
 ultimately take care of themselves; 
 cheap or dear cost means the entire dif- 
 ference between progress or poverty. 
 New York City. 
 
 Farewell 
 
 BY GERTRUDE HUNTINGTON McGIFFERT 
 
 FAREWELL, O little son o’ mine! 
 Thou tak’st the heart o’ me. 
 My life is as a fallen leaf 
 To blow to thee. 
 
 The time together twinkled by! 
 So flitting brief the space 
 
 We walked together e’er thou went'st 
 Beyond my pace. 
 
 , 
 
 I can no longer see thy path, 
 No longer choose thy way! 
 
 But love leaps out across the years, 
 And [ can pray. 
 
 Who'll guard thee? Save thee an thou fall? 
 Who'll comfort thee in pain? 
 
 Oh, God—that I may never see 
 Thee home again! 
 
 Farewell! Farewell! Life trumpets thee! 
 
 These bursting tears but show 
 IT would not, dare not bid thee stay. 
 
 Adieu, Dear. Go! 
 New York City,