During the Great War, owing to the advanced systems of banking found in most countries, the issue of fiat money was used much less extensively than during our Civil War. Much the same results were effected, however, by the rapid expansion of bank notes, and these results were, of course, magnified in the countries where specie payments were stopped. The rapid in-, crease in prices, in the terms of which the governments had to buy goods, made the money expenditures appear much greater, as the war progressed, than was the actual consumption of goods. It has been estimated that the value of goods demanded by the war at the pre-war price level would be about one half of the total monetary outlay. Since such a large part of the finances came from loans, however, which must be paid from taxes during a presumably lower price level, the demand upon goods will be greater than the figures represent at present.

Expansion in Different Countries. - A comparison of the amount of notes in circulation in the various nations just before the war and about the middle of 1919 shows the increase to be about twentyfold. With this must be considered, also, the state of industry, in which production fell off so that there were fewer goods to be exchanged for the money. Russia took the lead in the amount of per capita note expansion, which was carried to such a degree as to make the gold reserve practicably negligible. France came second in the amount of per capita inflation, yet her reserve was maintained to a much better degree than that of either Austria-Hungary or Turkey, where inflation was not so marked. In the total circulation of notes, Russia increased her amount about forty-five times; Germany and Austria-Hungary about eighteen times; Great Britain a little less than ten times; while the increase in the United States, Italy, and France was about four times. The following table will portray at a glance the changes in the note circulation during the war period, for the important countries. In addition to the increase in note issues, some of the countries made large issues of treasury notes, as in England, for example, which of course increased the inflation.

Note Circulation of Belligerent Countries in Millions oF Dollars1

A. Allied Countries

1 This table is taken, somewhat modified, from Gottlieb. See note, p. 494.

Before the War

Country'

Date

Total Amount

Per Capita

United States..

July 1, '14

$ 715

$6.70

Great Britain.

July 29, '14

223

4.84

France........

July, 30, '14

1,290

32.49

Italy.........

July, 31, '14

518

14.11

Japan ..............

Aug. 1, '14

163

2.81

Russia ............

Aug. 1, '14

842

4.62

Belgium .........

Mar. 19, '14

186

24.29

Greece........

July, 31, 14

46

9.29

Total.....

 

$3,983

$8.26

After the War

Date

Total Amount

Per

Capita

Aug. 1, '19

$ 3,340

$ 31.32

Aug. 6, '19

2,331

50.58

Aug. 7, '19

6,805

171.41

May 20, '19

2,695

73.40

June 28, '19

582

10.03

Aug. 31, '19

38,474

211.18

July, 24, '19

882

115.17

June, 23, '19

257

31.92

 

$55,366

5114.88

   

B. Central Powers

   
   

Before the War

After the War.

Country

Date

Total Amount

Per Capita

Date

Total Amount

Per

Capita

Germany ........

July

23, '14

$ 528

$7.93

July 7, '19

$10,109

$149.07

Aus. - Hungary.

July

23, '14

432

8.25

Aug. 15, '19

8,400

160.40

Turkey ............

July

1,'14

9

0.42

April '19

704

33.09

Bulgaria .........

Sept.

'13

36

6.52

Mar. '19

390

70.68

Total.................

$1,015

$6.91

.................

$19,603

$133.38

Grand Total..........

$4,998

$7.95

...................

$74,969

$119.20

Effects of Price Changes. - There is no question but that this greatly inflated currency was one of the principal causes of the rapidly rising prices. In some countries the above table does not show the entire increase in circulating medium. In the United States, for example, the amount of gold coin almost doubled between 1913 and 1919. While this did not actively circulate to any extent, yet it formed the basis for extending a much larger volume of credit and, consequently, purchasing power.

The burden which resulted from this inflation was re-flected in the nation-wide and world-wide expression, "the high cost of living." Various index numbers have been compiled to show the general price changes during the war period, and from the results it appears that wholesale prices in the United States were about 100 per cent higher in 1919 than in 1913. In some of the other countries the increase was much greater. Some classes were benefited by this situation, especially those industries whose expenses of production did not rise as rapidly as prices. This was particularly true of extractive industries, and a large number of industrial concerns. It could not help being a benefit to plants producing for the government on the basis of cost plus contracts. The higher the level of prices the greater their expenses, and the larger their percentage of return.

These gains from inflated prices were more than offset by the burdens imposed upon other classes. While no accurate index of general wage changes has been compiled, it is well known that wages did not rise as rapidly as prices, and it is to these classes, that must buy at the inflated prices, but with incomes that have not risen proportionately, that the high cost of living has its real significance. The situation represents an unjust distribution of the war burdens - in fact, it is a tax upon one class of the population in favor of the class that gains from rising prices. Inflated prices, also, may work a long-run injustice as well. The increased prices have added to the costs, and hence to the amount borrowed by the government. The loans come to a large extent from those who have gained from the increased prices. The levy of taxes in the future to repay the loans will, without doubt, fall with an unjust proportion upon the classes which have been injured by the inflated prices during the war.