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Definition

In ordinary usage, price is the quantity of payment or compensation for something. People may say about a criminal that he has 'paid the price to society' to imply that he has paid a penalty or compensation. They may say that somebody has 'paid for his folly' to imply that he suffered the consequences of his actions.

Economists view price as an exchange ratio between goods that are exchanged for each other. In the case of barter of two goods in the quantities x and y, the price of a unit of the first good is the ratio y/x, while the price of a unit of the second good is the ratio x/y.

This however has not been used consistently, so that old confusion regarding value frequently reappears. The value of something is a quantity counted in common units of value called numeraire, which may even be an imaginary good. This is done to compare different goods. The unit of value is frequently confused with price, because market value is calculated as the quantity of some good multiplied by its nominal price.

Theory of price asserts that the market price reflects interaction between two opposing considerations. On the one side are demand considerations based on marginal utility, while on the other side are supply considerations based on marginal cost. An equilibrium price is supposed to be at once equal to marginal utility (counted in units of income) from the buyer's side and marginal cost from the seller's side. Though this view is accepted by almost every economist, and it constitutes the core of mainstream economics, it has recently been challenged seriously.

There was time when people debated use-value versus exchange value, often wondering about the paradox of value (diamond-water paradox). The use-value was supposed to give some measure of usefulness, later refined as marginal benefit (which is marginal utility counted in common units of value) while exchange value was the measure of how much one good was in terms of another, namely what is now called relative price.

Relative and nominal price

The difference between nominal price and relative or real price (as exchange ratio) is often made. Nominal price is the price quoted in money while relative or real price is the exchange ratio between real goods regardless of money. The distinction is made to make sense of inflation. When all prices are quoted in terms of money units, and the prices in money units change more or less proportionately, the ratio of exchange may not change much. In the extreme case, if all prices quoted in money change in the same proportion, the relative price remains the same.

It is now becoming clear that the distinction is not useful and indeed hides a major confusion. The conventional wisdom is that proportional change in all nominal prices does not affect real price, and hence should not affect either demand or supply and therefore also should not affect output. The new criticism is that the crucial question is why is there more money to pay for the same old real output. If this question is answered, it will show that dynamically, even as the real price remains exactly the same, output in real terms can change, just because additional money allow additional output to be traded. The supply curve can shift such that at the old price, the new higher output is sold. This shift if not possible without additional money.

From this point of view, a price is similar to an opportunity cost, that is, what must be given up in exchange for the good or service that is being purchased. For example, if x=1 and y=2, the relative price of x in terms of y is 2, and the price of y in terms of x is 0.5.

The price of an item is also called the price point, especially where it refers to stores that set a limited number of price points. For example, Dollar General is a general store or "five and dime" store that sets price points only at even amounts, such as exactly one, two, three, five, or ten dollars (among others). Other stores (such as dollar stores, pound stores, euro stores, 100-yen stores, and so forth) only have a single price point ($1, £1, 1€, ¥100), though in some cases this price may purchase more than one of some very small items.Price is relatively less than the cost price.Loss always be there when the cost price is higher than the selling price.

Austrian theory

The last objection is also sometimes interpreted as the paradox of value, which was observed by classical economists. Adam Smith described what is now called the Diamond – Water Paradox: diamonds command a higher price than water, yet water is essential for life, while diamonds are merely ornamentation. One solution offered to this paradox is through the theory of marginal utility proposed by Carl Menger, the father of the Austrian School of economics.

As William Barber put it, human volition, the human subject, was "brought to the centre of the stage" by marginalist economics, as a bargaining tool. Neoclassical economists sought to clarify choices open to producers and consumers in market situations, and thus "fears that cleavages in the economic structure might be unbridgeable could be suppressed".

Without denying the applicability of the Austrian theory of value as subjective only, within certain contexts of price behavior, the Polish economist Oskar Lange felt it was necessary to attempt a serious integration of the insights of classical political economy with neo-classical economics. This would then result in a much more realistic theory of price and of real behavior in response to prices. Marginalist theory lacked anything like a theory of the social framework of real market functioning, and criticism sparked off by the capital controversy initiated by Piero Sraffa revealed that most of the foundational tenets of the marginalist theory of value either reduced to tautologies, or that the theory was true only if counter-factual conditions applied.

One insight often ignored in the debates about price theory is something that businessmen are keenly aware of: in different markets, prices may not function according to the same principles except in some very abstract (and therefore not very useful) sense. From the classical political economists to Michal Kalecki it was known that prices for industrial goods behaved differently from prices for agricultural goods, but this idea could be extended further to other broad classes of goods and services.

Price as productive human labour time

Marxists assert that value derives from the volume of socially necessary abstract labour time exerted in the creation of an object. This value does not relate to price in a simple manner, and the difficulty of the conversion of the mass of values into the actual prices is known as the transformation problem. However, many recent Marxists deny that any problem exists. Marx was not concerned with proving that prices derive from values. In fact, he admonished the other classical political economists (like Ricardo and Smith) for trying to make this proof. Rather, for Marx, price equal the cost of production (capital-cost and labor-costs) plus the average rate of profit. So if the average rate of profit (return on capital investment) is 22% then prices would reflect cost-of-production plus 22%. The perception that there is a transformation problem in Marx stems from the injection of Walrasian equilibrium theory into Marxism where there is no such thing as equilibrium.[citation needed]

Confusion between prices and costs of production

Price is commonly confused with the notion of cost of production as in “I paid a high cost for buying my new plasma television”. Technically, though, these are different concepts. Price is what a buyer pays to acquire products from a seller. Cost of production concerns the seller’s investment (e.g., manufacturing expense) in the product being exchanged with a buyer. For marketing organizations seeking to make a profit the hope is that price will exceed cost of production so the organization can see financial gain from the transaction. Finally, while pricing is a topic central to a company's profitability, pricing decisions are not limited to for-profit companies. Non-profit organizations, such as charities, educational institutions and industry trade groups, also set prices, though this is often not as apparent. For instance, charities seeking to raise money may set different “target” levels for donations that reward donors with increases in status (e.g., name in newsletter), gifts or other benefits. While a charitable organization may not call it a price in their promotional material, in reality these targets are prices since they specify a cost that must be paid by buyers (donors) in order to obtain something of value.

See also

References

  • Milton Friedman, Price Theory.
  • George Stigler, Theory of Price.
  • Simon Clarke, Marx, marginalism, and modern sociology: from Adam Smith to Max Weber (London: The Macmillan Press, Ltd, 1982).
  • Makoto Itoh & Costas Lapavitsas, Political Economy of Money and Finance.
  • Pierre Vilar, A history of gold and money.

External links

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1911 encyclopedia

Up to date as of January 14, 2010

From LoveToKnow 1911

"PRICES. - In the following article, which should be read in connexion with those under Cost Of Living and Wages, the changes in prices of commodities during the years 1910-20 are considered with special reference to the United Kingdom. An account of the American system for controlling prices in the United States is appended.


(I.) Wholesale Prices in General. - The movement of wholesale prices in general is measured by the method of index numbers. The prices of commodities for which definite market quotations for definite grades exist are selected as typical in their changes of prices in general, a year or longer period is chosen as base, the price of each commodity is equated to Too at the base period and the price in other years expressed proportionately, such numbers being called price ratios. (Thus if the price of wheat in the base period was 60s. and in another year 45s., the price ratio in the latter year would be written as 75.) Then either factors are chosen expressing the relative importance of the commodities as deter Exports Imports $ 166,8J9 1,236,889 mined by the total sum spent on them in a period or some other criterion, and each price ratio is multiplied by the corresponding factor, the sum of the products is divided by the sum of the factors and the resulting quotient is the index number of wholesale prices for that year; or the more important commodities are represented by two or more price quotations and the resulting price ratios are simply averaged to obtain the index number. There are many variants of method and there has been much controversy on every detail of the process; in fact, however, the precision of the result depends not to any great extent on the particular method followed, but principally on (i.) the number of independent prices included and (ii.) on the dispersion of the various price ratios in the year to which the index number refers, so that when prices are moving on the whole in the same proportion the index number is more accurate than when some are moving rapidly upwards and others are stationary or falling. In normal times when changes are moderate it has been shown both from theoretical considerations and by comparing the numbers obtained by various methods that the precision of the method is high, but during the war period the movements were rapid and unequal, the conditions of accuracy were lost and no very precise measurement could be obtained. The object of the method of index numbers is to average away the variations due to the special conditions of supply and demand of particular commodities, and to obtain a resultant which measures the effect on prices of general causes, such as the supply of currency.

It is found in practice that the necessity for restricting price quotations to those of commodities for which the same grade and quality is in the market in large quantities through a long period of years restricts the choice greatly, and limits it to raw materials or articles in an elementary state of manufacture. In some cases the price used is based on the average value of all grades of the commodities (e.g. of wheat, of tea, of coal), imported or exported, but this introduces a possibility of error since the average may change owing to a change in the relative quantities of high and low grades independently of any change in price. The three index numbers of wholesale prices in use in the United Kingdom are the Board of Trade's, the Economist's, and the Statist's (formerly Sauerbeck's); the first uses average values to some extent, and applies factors to the price ratios to allow for the relative importance of commodities, the second and third use market quotations of definite qualities of goods and take a simple average of the price ratios.

Table I. exhibits the general movement in the twelve years before the World War, and shows how little the variation of method affects the result in this period. The year 1903 is taken as the starting point, since it is after the great fall of prices ending in 1896 and the subsequent rise and the inflation of 1900-1, and may be regarded as a normal year.

Year

Board of

Trade No.

I n N

Index d

Sauerbeck's

Index No.

Economist

Index No.

1903

83

82

79

1 904

84

83

81

1905

84

85

81

1906

87

91

88

1907

91

94

93

1908

89

86

83

1909

90

87

84

1910

94

92

90

1911

94

94

95

1912

99

I oo

108

1913

100

100

100

1914

-

97

96

Jan. - June

TABLE I. - Movement of wholesale prices in the United Kingdom 1903-13. (In each case the index number of 1913 is equated to moo.) Sauerbeck's index numbers for 1903 on the same basis for separate groups of commodities were: - Vegetable food 90; animal food 85; sugar, tea, coffee, 86; minerals 74; textiles 79; sundry materials 83. Wholesale prices had therefore been rising from 1902-13 (with a short inflation and depression in 1906-8), but tended downwards in the first half of 1914.

[[Table Ii]]. - Statist monthly index numbers. Average Jan. to July 1914 taken as Ioo.

End of

1914

1915

1916

1917

1918

1919

1920

1921

Jan.

117

150

193

225

2 33

2 9 8

239

Feb.

122

1 54

199

227

227

317

220

March

126

158

205

228

224

316

215

April

100

128

163

209

230

224

323

206

May

130

164

212

231

235

316

196

June

129

159

218

233

242

311

189

July

129

158

214

233

250

309

-

Aug.

106

130

163

213

237

258

308

-

Sept.

108

131

163

214

239

260

302

-

Oct.

109

133

173

219

239

272

291

-

Nov.

108

137

183

222

237

280

272

-

Dec.

III

143

187

225

237

285

252

-

Average for year Statist. . 131 164 212 2 33 249 301 - Economist 128 167 212 2 34 2 44 298 - Board of Trade 127 164 214 235 261 327 - Immediately after the declaration of war in 1914 prices began to rise, and with certain interruptions continued to mount up till the spring of 1920, when the index numbers reached their maximum (Statist 323, end of April; Economist 326, end of March; of Trade 357, average of July). Till Oct. 1917 the increases showed a remarkable regularity averaging 2% monthly, equivalent cumulatively to 27% per annum; on this scale the index in the successive Octobers would leach in 1914 106, in 1915 135, in 1916 171, in 1917 217 and in 1918 258, numbers which' (except the last) are in close agreement with those shown in the' table. This was, however, a definite seasonal movement superimposed on this regularity; in the first three or four months of each year prices moved up with special rapidity, while in the summer the increase was slackened and in some cases was replaced by a fall. The check in the increase in the summer of 1917, following a specially rapid rise, is attributable to the control of prices which by that date was general. From Aug. 1917 prices continued to rise in spite of control till Sept. 1918, but the rise in these 13 months aggregated to only 13% (2 39 against 213). After the Armistice prices fell slowly for five months, dur ing the season in which in previous years the increase had been' specially rapid, but expectations of a permanent fall were not realized; in the year beginning April 1919 the index rose from 224 to 323 or 44%.

Board of Trade

Economist

Statist

1919 July

Ioo

moo

I 00

Aug.

106

101

103

Sept.

I I 0

102

104

Oct.

115

105

109

Nov.

120

I 08

112

Dec.

123

114

114

1920

Jan.

127

120

119

Feb.

131

127

126

March

133

130

127

April

133

128

129

May

132

128

126

June

140

122

124

July

144

122

123

Aug.

135

120

123

Sept.

137

119

120

Oct.

IJ4

I II

116

Nov.

129

102

I 08

Dec.

125

92

100

From the beginning of the war till July 1919 the Statist and Economist index numbers are in close agreement, except that the Economist shows a more rapid rise for twelve months from Oct. 1916 and less increase in the late autumn of 1917, but there is disagreement as to the dates and amount of the increase after July 1919. At that date the three index numbers agree in' estimating the whole increase in five years at 148, 149 or 150%. The following table shows the divergence in subsequent months:_ TABLE III. Monthly index numbers, July 1919 taken as moo: The earlier agreement is more remarkable than the later discrepancies, for the conditions of accuracy named above were not present during the war when prices were moving rapidly and quotations for the usual qualities of goods were often [[Table Iv]]. - Index numbers of wholesale prices.

United

King-

dom

Statist

Canada

Official

U.S.A.

Brad;

street's

France

Statist-

ique

Generale

Italy

Bacchi

Japan

Bank of

Japan

Sweden

Nether-

lands

Den-

mark

Norway

Aus-

tralia

Svensk

Handels-

tidning

Official

Finanz

tidende

Okono-

miks

Revue

Official

1913. .. .

100

100

100

100

100

100

100

I 00

100

-

1914. .. .

101

100

97

103

95

951

H 6

106

134

100

TOO

1915. .. .

126

109

108

1 41

133

97

145

149

149

-

141

1916. .

1592

134

130

190

200

117

185

233

206

-

132

1917. .. .

206

175

1 72

263

306

1482

244

298

284

-

146

1918. .. .

2262

205

204

341

409

196

339

398

292

-

170

1919. .. .

242

216

204

358

366

239

330

306

340

-

180

1920

Jan.. .. .

289

248

227

489

504

301

319

293

-

334

203

Feb.. .. .

306

2532

226

525

556

314

342

289

-

344

206

Mar.... .

308

258

2252

557

619

322

354

290

-

351

209

April. .

313

261

226

591

679

301

354

296

-

354

217

May. .

306

263

216

553

659

272

361

297

-

371

225

June. .

301

258

211

495

615

248

366

297

383

384

233

July. .

2992

256

205

498

613

239

363

301

385

411

234

Aug.... .

298

244

196

504

632

235

365

290

394

418

236

Sept.... .

293

241

184

528

660

231

362

288

398

427

230

Oct.. .. .

282

234

171

504

662

226

346

283

403

422

215

Nov.... .

263

2242

148

463

658

221

331

260

374

404

208

Dec.. .. .

244

214

138

437

634

206

200

233

341

377

197

The prices are of course measured in the currency of each country. In every case there is a fall in the last months of 1920.

unobtainable. It is important to emphasize this uncertainty, for it is the fact that exact measurements of general price changes cannot be made in times of disturbance, and indeed it is difficult even to define the quantity we wish to measure; tendencies can be observed clearly, but only rough measurements can be made and fine comparisons lead to error. The maximum level was reached in March 1920 by the Economist index number, in April by the Statist, in July by the Board of Trade. By Dec. 1920 the Board of Trade index was back at the level of the beginning of 1920, that of the Statist at the level of July 1919, and that of the Economist at the level of May 1919. The difference is mainly due to the varying proportions given to cereals and textiles, which had fallen rapidly, and to meat and minerals which had fallen little in the three numbers.

Table IV. (from the Monthly Bulletin of Statistics of the Supreme Economic Council, vol. ii., No. 5) shows the index numbers for several countries.

(II.) Wholesale Prices of Selected Commodities. - When we come to commodities separately, the measurements can be made more exactly subject to the two following qualifications. During the war period the ordinary sources of supply were so disturbed that pre-war kinds and qualities were no longer in the market (in the Economist index number only 19 out of the 44 quotations included were not subject to some modification of kind); and a statement of prices is generally taken as meaning the price at which a purchaser can obtain the goods he desires and at which a merchant is willing to sell, but in the time of control and rationing these conditions did not obtain, and the price was fixed by other conditions than those which influence a free market.

Table V. is based on the prices tabulated in the Journal of the Royal Statistical Society, July 1920, pp. 640-5, by the editor of the Statist. The index numbers have been recast, the average price in 1913 being taken as Ioo for each commodity; the totals have been obtained by grouping together the separate entries on the same plan as in the original, but the change in base year affects the results, which thus differ from those given in Table II. in the same way as if the weights had been changed.

It is at once evident that the various prices have not followed the same course; the extremes in 1919 are tin, whose price rose only 28% in 6 years, and Russian flax, where the rise is 323%. This great divergence of itself shows that the general index number cannot have great precision; but in the absence of means of improving it, we cannot do better than take this number (shown in the line " Grand Total " in Table V.) as measuring the general inflation of wholesale prices.

The prices as recorded are the resultants of at least five nearly distinct forces, viz. the general inflation of prices, the conditions of supply and demand for the separate commodities, the control of supply, the control of prices, the change of quality. In 1915 [[Table V]]. - Statist index numbers. Averages for each year.

1913

1915

1916

1917

1918

1919

1920

Vegetable food

Wheat

English Gazette

100

170

184

239

229

229

253

American

100

164

185

229

215

205

253

Flour, Town made

white or G.R..

100

1 60

172

192

1 53

1 53

216

Barley, English Ga-

zette .

100

137

189

238

217

2 7 8

330

Oats, English Ga-

zette .

100

162

180

270

258

2 74

301

Maize, American

mixed .

Ioo

1 75

22 3

3 0 4

33 2

334

383

Potatoes, good Eng-

lish.. .

TOO

120

197

2 39

18 3

2 54

311

Rice, Rangoon .

100

162

206

309

320

313

501

Total

100

156

192

252

238

2 55

319

Animal food

Beef: Carcase, Lon-

don Central

meat market.

Prime

100

134

150

194

191

200

231

Middling .

100

139

157

206

211

220

257

Mutton: Carcase,

London Central

meat market.

Prime. .

MO

121

151

185

176

184

233

Middling .

100

126

1 54

1 95

196

203

258

Pork: Carcase,

London Central

meat market .

Ioo

129

160

200

2 34

2 33

306

Bacon, Waterford.

100

121

143

192

237

248

311

Butter, Friesland .

Ioo

118

161

181

208

212

253

Total

IOO

127

154

193

208

214

264

Tropical food

Sugar

West-Indian* .

100

15

255

33 2

347

404

611

Beet*.. .

100

180 #

2 39 +

26 7 #

2 79

361

689

Java.. .

100

1 7 2

2 44

301

327

400

687

Coffee

East India* .

100

97

96

159

180

183

Ioo

84

94

109

130

215

210

Tea

Congou, common*

167

160

338

418

270

225'

Indian, good me-

diumf .

127

130

185

182

114

Average Import*

TOO

122

125

162§

166

171

165

Total*

1 0

143

182

241

269

432

Total Food

100

143

186

228

233

250

322

1913

1915

1916

1917

1918

1919

1920

Minerals

Iron

Scottish Pig* .

100

109

137

146

154

215

326

Cleveland Pig* .

100

112

142

154

16 3

2 35

357

Common Bars .

100

136

1 77

1 77

181

249

366

Copper

Chili Bars. .

English Tough

100

107

170

183

170

1 35

143

Caket. .

100

112

182

185

171

1 35

153

Tin, Straits .

ioo

82

91

118

165

128

150

Lead, English Pig

Ioo

125

170

169

169

1 54

209

Coal

Wallsend in Lon-

don .

Ioo

143§

128§

128§

156

211

149

Newcastle Steam t

TOO

136

266

194

216

2 93

332

Average Export

100

122

177

193

219

33 1

572

Total

100

118

150

1 60

174

205

276

Textiles

Cotton

Middling Ameri-

can.. .

TOO

84

128

236

318

280

330

Fair Dhollerah .

100

77

123

240

301

259

248

Flax

Petrograd* .

Ioo

176

226

333

353 4

353 a

353a

Russian, Average

Import* .

ioo

161

207

3 68 §

379

4 2 3

837

Hemp

Manila, Fair rop-

ing*

Ioo

120

172

266

313

185

207

Petrograd, clean*

Ioo

159

18 7

2 7 8

439

3 88

385

Jute, good medium

ioo

80

117

149

148

189

169

Wool

Merino, Port

Philip*. .

Ioo

119

182

258

262

37 2

444

Merino, Adelaide*

Ioo

114

174

2 45

2 47

33 8

337

English, Lincoln

half-hogs .

Ioo

140

162

169

152

183

178

Silk, Tsatlee. .

Ioo

89

148

1 95

2 34

2 3 6

351

Total

100

I12

156

214

269

272

320

Miscellaneous

Hides

River Plate, dry*

100

105

119

162

163

182

166

River Plate,

salted*

Ioo

116

139

167

149

206

192

Average Import

price*. .

Ioo

116

135

180

185

198

233

Leather

Dressing hides*

Ioo

1 47

1 45

179

168

187

223

Average import

price*. .

Ioo

113

140

179

170

21I

370

Tallow, town. .

Ioo

108

138

181

242

255

218

Oil

Palm.. .

TOO

98

126

130

127

197

198

Olive.. .

Ioo

104

120

2 34

4 00

404'

404a

Linseed* .

TOO

122

167

228

2 57

375

356

Linseed*

Ioo

126

176

247

288

306

345

Petroleum, refined

100

105

141

190

252

204

298

Soda, crystals .

100

102

166

189

1 74

2 49

317

Nitrate of Soda .

100

II()

156

217

237

216

215

Indigo, Bengal .

Ioo

486

486

373

3 2 7

33 2

527

Timber. .

Hewn, average

import*. .

Ioo

147

205

244

268

344

400

Sawn, average

import*. .

Ioo

150

2 3 6

333

43 0

3 6 9

416

Total

'00

148

182

217

247

268

312

Total Materials .

Ioo

129

165

201

234

2 5 2

304

Grand Total. .

135

170

212

234

251

312

Silveri-

86

114

151

172

, 207

223

[[Table V]]. - Continued. *The entries in these cases of similar commodities are averaged before inclusion in the index numbers.

tThese commodities are not included in the Statist index numbers. $Comparative values.

§Approximate prices. a Nominal prices.

and 1916 the principal increases may be traced to the diminution or difficulty of supply (cereals, sugar, flax) or to acuteness of demand (wool) or to both (timber). In 1 9 17-8 the prices of nearly all commodities whose supply was threatened or for which the demand was increased were controlled. The quality was changed definitely in the case of flour and indirectly when the prices are averages of several grades as in the cases of meat, flax, leather and timber..

Food

The price of wheat rose immediately after the beginning of the war, and with it the prices of flour, oats, maize and rice. The prices were checked by the establishment of a government system of purchase at the end of 1916 and by the control of the prices of home-grown cereals in 1917; with this system flour of mixed materials was substituted for wheat-flour and the product sold at a price kept constant and relatively low, by the help of a subsidy beginning in the autumn of 1917. In the case of wheat and flour the subsidy and control continued till the beginning of 1921 but the prices rose; the prices of other cereals increased very rapidly from the autumn of 1919. An attempt was made to control the consumption of oats in 1917-8, otherwise cereals were not rationed. The wholesale price of potatoes was fixed from time to time, the Government undertaking to make good growers' losses, but the price was changed so frequently that the control had little effect.

Early in the war the price of imported meat increased more rapidly than that of home-killed, till in 1917 there was little difference between their retail prices. On the whole the price of meat increased less than that of commodities in general. Prices were fixed in Aug. 1917 and consumption was rationed early in 1918; after the Armistice control was gradually relaxed; but prices of beef and mutton changed very little during the two years after the first fixing of them. The prices of Irish bacon quoted are hardly typical; in 1917 a great quantity of American bacon of inferior quality was bought by the Government, who had difficulty in selling it at a price which covered the cost. The demand for high-class bacon could not be met, and its price after 1917 rose more rapidly than that of butcher's meat. The line in the table relating to imported butter is perhaps misleading since the supply was insignificant, and its inclusion unduly depresses the average; for the records of milk and its products we must depend on retail prices. Taken together the prices of animal food increased at a lower rate than the general average of prices except in 1916-7.

The price of sugar was of course dominated by the cutting off of the continental supply, and its increase was greater than that of any commodity always obtainable included in the table. The Government took over the whole supply at the beginning of the war and issued it at a fixed price; the control continued till 1921. There was no shortage of supply of coffee nor of tea (except in the autumn of 1917), and their prices rose relatively little.

When all food prices are grouped together as in the table, it is seen that they rose till 1917 more rapidly than the average for materials, but that the increase from 1913 to 1918, and to 1919 was the same in the two groups.

Materials

The prices of different kinds of coal increased at different rates prior to the general control of coal mines which took effect early in 1917; with the stoppage of export of coal the supply was adequate even for the increased use in the manufacture of pig-iron, and the restriction in consumption from 1917 was only necessary to economize labour in the mines. For domestic and manufacturing use the price rose but slowly till 1919 and generally less than for goods in general. Iron and steel began to come under control as early as June 1915 with the initiation of the Ministry of Munitions, and their use was severely restricted for all civil purposes, so that there was no free market for more than three years. The prices were actually fixed in Nov. 1917, a government subsidy being given to steel and to pig-iron makers to meet any extra costs. The subsidies were withdrawn early in 1919 and the price of pig-iron rose from L4 15s. to 8 a ton, the pre-war level having been L2 I Is. Reconstruction and repairs, for many years in arrear, caused a great demand for iron and steel, and in July 1920 pig-iron was 320% and steel rails were 283% dearer than in 1914; prices fell slowly in the autumn of 1920 (Birkett: " Iron & Steel Trades during the War," Statistical Journal, May 1920). Copper, tin and lead showed no special inflation and were relatively cheap in 1919.

Cotton followed an exceptional course. With the cutting off of Germany from the market the price fell considerably in the first months of the war and was below the pre-war level till nearly the end of 1915. Presumably in consequence of the restriction of shipping, a rapid rise began in the autumn of 1916, and at the date of the Armistice cotton was at three times its pre-war price; then there was a perceptible fall for some months, but this was followed by a great increase, the reason of which has not been explained, which brought American cotton early in 1920 to more than four times its cost in July 1914; the reaction from this inflation gave the first indication in 1920 that the general index number was about to move downwards. Both yarn and piece goods rose more rapidly than raw cotton, especially in 1919-20.

The price of wool also fell after the outbreak of war, but the great demand for the Allied armies soon turned the scale and English wool especially became rapidly dearer in 1915. From June 1916 the Government took steps to assume ownership of all the wool it required and to control the rest; the distribution to manufacturers and prices was arranged by an intricate system involving the Government, wool-brokers and manufacturers (Zimmern: Economic Journal, March 1918). The price was very high in 1917-8 and rose rapidly in 1919 when the civilian demand for replenishing their wardrobes and households was acute, and the prices of yarn and manufactured goods outpaced even raw materials. There was no definite fall till 1920. As regards flax, the cutting off of the Russian supply and the Government demand for linen in airships caused linen to be practically unobtainable by civilians, and the shortage naturally continued long after the war. Jute and silk were less affected.

The variations in the movements shown under the heading " Miscellaneous " can in general be explained by known conditions of supply and demand. The supply of petroleum proved to be sufficient for war needs. The Statist index number is vitiated by the exclusion of rubber. Owing to the development of plantations before the war the supply was even excessive; the price was rarely more than 20% higher than in July 1914 and after the Armistice was lower.

(III.) Retail Prices of Food in the United Kingdom. - Accurate and useful statements of retail prices are in general only obtainable with respect to food, in part because most attention has been directed to recurrent and necessary domestic expenditure, in part because it is less easy to define the unit of purchase in the case of clothes and manufactured goods. The cost of other necessary items of expenditure is considered in the article Cost Of Living, and this section deals with food alone.

The following tables show the average prices paid by the working classes in the United Kingdom, the result of the monthly collection of information by the Ministry of Labour (formerly by the Board of Trade) published in each issue of the Labour Gazette, and described in detail in the issue of March 1920. The general movement in retail prices was similar to that of wholesale, that is, a nearly regular increase (23% cumulatively per annum) took place for three years after the outbreak of war, then for more than a year the rise was checked by control and rationing; there was a temporary fall in the spring of 1919, followed by a rise which became rapid in the summer and autumn of 1920 and a fall after Nov. 1920.

1914

1915

1916

1917

1918

1919

1920

1921

January. .

-

118

145

187

206

230

236

278

February. .

-

122

147

189

208

230

235

263

March .

-

124

148

192

207

220

2 33

249

April .

-

124

1 49

1 94

206

213

235

238

May. .. .

-

126

155

198

207

207

246

232

June. ... .

-

132

159

202

208

204

255

218

July. ... .

100

1321

161

204

210

209

258

220

August .

-

134

160

202

218

217

262

-

September. .

II()

135

165

206

216

216

267

-

October.. .

112

140

168

197

229

222

270

-

November. .

113

141

178

206

233

231

291

-

December. .

116

144

184

205

229

234

282

-

Average for year

-

131

160

198

215

219

256

-

Wholesale food index*

(Statist

-

142

173

22 5

2 3 1

2 45

30 8

-

TABLE VII. - Average of Retail Food Price-Changes in the United Kingdom as computed in the Labour Gazette. (The average on the 1st or 2nd of each month is expressed as a percentage of the average in July 1914.) *Second quarter of 1914 taken as loo.

Table VII. shows the average of the movements as combined from the data in Table VI. (together with the prices of fish and eggs) by the Ministry of Labour, each item being given the importance estimated from a pre-war standard budget of expenditure. For the relation of this computation to the cost of living see Cost Of Living. Except for making facile generalizations the detailed table is more important than the summary.

The price of bread rose intermittently, but on the whole rapidly till Sept. 1917, when its price was exactly double that of July 1914. The rate of extraction of flour from grain was controlled from the autumn of 1916, and government regulation flour containing an admixture of wheat, maize, rice and other cereals in varying proportions alone was used in the three years 1917-8-9, and during this period the price is not that of a commodity of constant quality. In Sept. 1917 the Government fixed the price at 9d. for the 4-lb. loaf, became the sole purchasers of the necessary cereals, regulated the price to millers and bakers and met the deficit by a subsidy. The price was raised to Sid. in Sept. 1919 to meet bakers' increased expenses, and at subsequent dates again raised with the increasing price of wheat till it reached is. 4d.; when wheat fell in the latter part of 1920 the subsidy was gradually reduced to zero and the price of bread maintained; in 1921 the price fell, and was Is. 'Id. from April to July. Flour followed nearly the same course as bread.

1914

July Dec.

1915

June Dec.

1916

June Dec.

1917

June Dec.

1918

June Dec.

1919

June Dec.

1920

June Dec.

1921

June

s. d.

s. d.

s. d.

s. d.

s. d.

s. d

s. d.

s. d.

s. d. s. d.

s. d.

s d.

s. d.

s. d.

s. d.

Bread. 4 lb.

54

62

8

8

84

10

III

9

9

9

9

92

I 02

I 4

1 II

Flour. lb.

102

I 0

I 3

I 34

I 42

I 72

I IO

I 4

I 4

I 4

I

4

I 4

I II

2 64

2 04

Beef

British lb.

Imported lb.

8

6

3?

84

1

74

3

I14

9

3

114

1

94

3

I I .

1

I 14

II I

3

I I 4

1

I 42

3

I I 4

1

I 3z

1

I I z

1

I 32

1

I 3 2

1

1 52

1

I 5z

I

I

1

32

1

I Z

I 6

3

I 24

i 6

3

I 0 4

I 9

3

I 0 4

3

8,

I O

Mutton

British lb.

84

81

104

II

I II

I 14

I 52

I 3

I 3

I 44

I

34

I 54

I 54

I II

I IO

Imported lb.

52

61

8

84

114

II

I 2

I I I

I 3

I 54

I

I

I O

IO 2

I 14

II

Bacon lb.

III

1 o

I 14

I 24

I 3 2

I 51

1 84

2 24

2 3

2 3

2

3

2 42

2 6

2 94

2 21

Milk. qt.

32

32

34

42

42

54

52

64

52

82

62

104

74

104

74

Cheese

Imported lb.

84

92

114

I14

I 14

I 22

I 72

I 44

1 5

1 8

I

6

I 6

1 8 1

I 9

I 72

Butter. lb.

I 24

I 32

I 41

I 7

I 7

2 0

2 0

2 42

2 52

2 6

2

6

2 64

2 III

3 34

2 2

M argarine lb.

74

74

74

7 2

84

84

114

112

I o

1 0

I14

I I

I 2

I 14

9

Sugar. lb.

2

3 a

3 2

4

54

52

54

6

7

7

7

8

I 2

Io

I 74

Potatoes lb.

7

a

44

4

3

44

1

42

. 1

2

1 O 1

4

Iii

r

63

4

1

72

1

74

81

4

101

2

I 1

34

I11

2

83

4

Tea. lb.

I 62

I 84

I II

2 34

2 34

2 8

3 11

2 8

2 8

2

64

94

2 104

2 84

2 62

The retail prices of meat were determined by the wholesale prices already discussed. Imported meat remained for three and a half TABLE VI. - Average Retail Prices in the United Kingdom of the Principal Foods as recorded* at the beginning of each month in the Labour Gazette. *The prices from Dec. 1914 to Dec. 1918 are calculated from the percentage changes recorded.

NoTEs

The prices of meat are the means between two entries in each case and not the average prices of the carcases. They shoul only be used for comparative purposes, and not taken to be the average price of all meat bought.

In general the records are the average for the commodities as bought in shops and stores used by the working class.

years at 2d. or 3d. a lb. lower than British meat, but since the price of the latter was nearly doubled, the percentage increase of the former was much greater. The Ministry of Food fixed wholesale prices and the retailer's margin in September 1917 and subsequently the distinction in price between British and imported meat was removed. Rationing was gradually introduced, and was nearly universal from April 1918 to May 1919. Purchasers were restricted also to the kind of meat that was available from time to time. During the period of control and till the summer of 1920 prices fluctuated little, but after control was removed imported meat became cheaper than British, and with a rise in the latter in 1920 the pre-war proportion between the two was nearly restored. Home meat was at its maximum (at about two and a half times its pre-war level) in the autumn of 1920 and did not fall at all considerably till after May 1921.

Prior to 1914 the corresponding numbers, for London only, are 1910 and 1911 98, 1912 and 1913 103. (See article Cost Of Living for further analysis, and for comparative figures for other countries.) The price of bacon rose rather more slowly in the opening years of the war, but rapidly in the summer of 1917 till it was 140 °A the pre-war price. In Nov. 1917 importers' and dealers' prices were fixed, and in July 1918 the regulations extended to retail prices; during this period large supplies of generally inferior bacon were received from America, and rationing was only necessary for a few months. The price after being stationary for two years rose during 1920 till it reached three times the level of July 1914.

After 1915 the price of milk was markedly seasonal, while before the war it was generally retailed at the same price nearly all the year round. No change took place till the autumn of 1915, when the price rose id. a qt., and in the following autumn another id., and in neither case was there a fall in the spring; in the autumn of 1917 it reached nearly twice the pre-war price, and in subsequent years fell in the spring and rose in the winter to successively higher points, the maximum (fold.) being reached in Jan. 1920. Maximum prices were in force from the autumn of 1917 till Jan. 1920, but they were not reached in all localities. The great rise in the price of milk must be attributed to the high cost of cattle food, which was very scarce in the period of restricted imports; elaborate arrangements were made to increase the supply by curtailing the consumption of cream and the manufacture of butter and cheese. Milk was not rationed except by informal local arrangements. Not much attention should be paid to the prices of butter and cheese after 1916, since during a long period they were not freely obtainable, and the Government having taken control distributed them at prices which would meet their cost. Butter was rationed with margarine.

The price of margarine rose little till 1917, while its consumption increased greatly owing to the want of butter. A shortage of supply was felt suddenly at Christmas 1917, and the Ministry of Food took control and presently assumed ownership of the supply of its constituents and the factories in which it was made. The quality was greatly improved, as compared with that in 1914, and it.:; importance as food became very great in view of the difficulty of obtaining sufficient fatty substances from other sources. The price was fixed in Nov. 1917 at Is. (Is. 4d. for oleomargarine) and changed little till the end of 1920. In May 1919 the price was left free.

The whole supply and distribution of sugar was taken over by the Government at the beginning of the war and control was continued till 1921. Sugar was distributed through the ordinary channels in such amounts as were available and traders began early to ration their customers. Official rationing (generally at 8 oz. per person) developed in 1917 and its success encouraged the Government to develop the general scheme of rationing meat, fats and some other foods in 1918; rationing of sugar gradually became obsolescent in 1919. The price rose consi lerably at irregular intervals as shown in the table till in Jan. 1920 it was seven times as dear as before the war.

Potatoes became dear after 1916 and afterwards fluctuated strongly upwards in sympathy with other agricultural produce and the prise of manures, and in relation to the supply of each season. The high prices, however, were not universally felt owing to the development of the cultivation of private allotments especially early in 1918.

The supply of tea was ample except for a short period in the autumn of 1917. At that date the Government took control of the supplies and provided a uniform blend to be retailed at 2s. 8d. per lb. The rise in price was less on the whole than that of any other commodity shown in the table.

Other less important foods often showed a greater increase in price than those already named, especially since there was a run on them during the time of restriction and shipping facilities were given rather to the more necessary imports. Eggs in particular became scarce and dear owing to the failure of the European supply and the scarcity of poultry food.

No general comparison of wholesale and retail prices is possible, for want of adequate records of the wholesale prices of manufactured goods and of retail prices of articles other than food. In the case of food, however, the figures are sufficiently typical and accurate to allow of a general comparison, but not to permit accurate detailed measurements. The two index numbers shown depend on nearly the same range of foods, but the bread subsidy lowers the retail prices by about 10 points in 1918-20.

Year

Quarters

Wholesale

(Statist)

Retail

(Labour Gazette)

1914. .

1st &2nd'

100

100

4th

118

116

1915. .

1st

134

123

2nd

144

130

3rd

142

136

4th

144

143

1916. .

1st

159

.

148

2nd

173

158

3rd

169

164

4th

195

183

1917. .

Ist

218

192

2nd

232

201

3rd

221

203

4th

222

206

1918. .

1st

230

207

2nd

227

208

3rd

234

221

4th

247

231

1919. .

1st

236

221

2nd

233

207

3rd

244

218

4th

264

234

1920. .

1st

292

234

2nd

328

253

3rd

326

268

4th

290

284

1921 .

1st

246

230

TABLE VIII. Wholesale and retail prices of food. (Statist and Labour Gazette index numbers.) *July 1914 for retail prices.

In Table VIII. the retail prices for the first quarter of each year are the averages for the 1st of Feb., March, April and so throughout the year. Wholesale and retail prices include those of controlled goods, and in the case of wheat, flour and bread are affected by the bread subsidy. The table shows that retail prices rose in sympathy with wholesale prices during the first three years of the war, but the rise on the whole was less, and the accelerated rise in the spring of each year was only marked in wholesale prices. As prices became more and more rigidly controlled in 1917, and some commodities were rationed in 1918, wholesale prices fell or remained nearly stationary, while retail prices rose very slowly.

(A. L. Bo.)


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