Increases of money and bank credit, if used, tend to price inflation, but they do not inflate all prices equally because there is not an equal demand for all kinds of things or services. The inflation comes not simply from an increase in the quantity of purchasing power, but from the increasing competitive efforts to exchange the money or credit for things and services; if no attempt were made to use the enlarged purchasing facilities there would be no effect upon prices.

An abnormal demand for munitions, for instance, and the use of almost unlimited supplies of money and credit in competitive bidding during the years 1914-1919, caused a great increase in their price. But the price of real estate did not rise because little, if any, of the new credit was used for purchasing real estate. The high profit in the manufacture of munitions tended to cause the transfer of capital from the development of real estate to the manufacture of munitions. This drift of capital was accompanied by a drift of laborers eager to earn the higher wages paid in munition factories. Employers in other lines of business then found that they had to give their employees higher wages to hold them; they had to bid for capital in like manner. The demand for many products was increased by the higher purchasing power of the munition workers and manufacturers. In consequence there followed an equalization of wages and prices in the various lines; that is, the inflation became quite general.

It has been previously stated that in 1914-1918 real estate prices did not rise with the inflation because capital funds were devoted largely to other uses. Nor did wages and salaries respond with such uniform rapidity as the price level of goods. This unresponsiveness was due to the same fact, viz., that, relatively speaking, less was spent upon these items than upon goods. The wage-earner lacks the ability to foresee the depreciation in the purchasing power of his earnings as the prices of his budget rise; and even when he does foresee it, his timidity often prevents him from wresting a just advance from his employer. The simultaneous advances of wages and prices is prevented by lack of foresight, or by custom, or contract, or union wage bargain. Salaries respond still more slowly. In times of rising prices the employer of labor is therefore at an advantage and the employee finds his real earning power declining pari passu with the rise.