the rise in prices. Others think it is a result of their increase. Undeniably, our redundant currency encouraged consumers to be prodigal. Since August 1, 1914, France has placed in circulation 34,000,000,000 francs in paper money. By thus multiplying our currency, we have lessened its value. We are repeating the history of the assignats in France during the Revolution, and of the inconvertible paper money in England early in the nineteenth century, and in the United States between 1861 and 1879. A kilogram of gold, which was worth about 3100 francs in 1914, is worth to-day about 10,000 francs. That is to say, a paper franc is worth less than a third of a franc in specie.

Under such conditions, we must pay three times as much for an equal quantity of merchandise. A daily wage paid in paper francs does not enable the receiver to purchase as much as an equal wage in gold. So we are living in an era of business make-believes. The rise of wages is merely apparent. The rise of prices counterbalances them. If we examine the situation more deeply, keeping constantly in mind that we must first subtract the influence of currency depreciation before we can estimate the real rise in prices, we will discover that since 1914 gold prices have risen only a little. The evil grows because the government continues to issue more paper money. Inflation is constantly increasing. In its balance of September 30, the bank of France showed an addition of half a billion to its note issues. Its balance of October 7 showed an additional 360,000,000 francs. Nor do we see any immediate end to this; for we passed a law last August permitting the Bank to raise its total issues from 40,000,000,000 to 43,000,000,000 francs. Notwithstanding this, we must eventually return to a gold basis, and

eventually reduce this inflation, which is one of the causes of our present business instability.

However, we can accomplish this only gradually, or else we shall cause serious disturbances in trade and credit. Inflation is, indeed, partially a result of the multiplication of transactions, and to that extent it is unavoidable. Before the war, there were in circulation in France 7,000,000,000 francs of currency of which 5,000,000,000 were in bank notes and 2,000,000,000 in specie. At that time, our government expended about 4,000,000,000 francs annually. Let us assume that this proportion of four to seven is normal. Then with our budget of 20,000,000,000 francs to-day, we ought perhaps to have 35,000,000,000 of notes in circulation; that is only five times as much as formerly. To cancel part of the notes would lead to partial insolvency, such as happened in 1796. So nothing would be more risky than to curtail abruptly and excessively our circulating medium. Faced by this economic crisis, and the growing social unrest of which it is a cause, the government has felt called upon to act. But its measures have been so illchosen that they have served mainly to furnish arguments to opponents of all government control.

At one of the last meetings of the Economic Society of Paris, Professor Yves Guyot read an article upon this subject which fairly bristled with facts. Governments are preaching economy and frugality; but themselves set an example of unbounded prodigality. They have committed every conceivable offence against good business management, not only during the war, when errors perhaps were excusable, but since the armistice. For instance, there is the scandal in the sale of war property. There are the blunders with regard to exports and imports. One

day a prohibition is issued. The next day it is repealed. A little later, it is again put in force. How can business go on in the midst of such official incoherence? Furthermore, trade restrictions are the most dangerous instruments of government. They are very simple in theory, but produce the most surprising and unintended results in practice. The government encouraged exports in order to improve exchange. But this resulted in raising prices at home. Then the government tried to curtail the importation of luxuries. But some of these luxuries proved to be desirable. For instance, that was true of silk. We were purchasing that article of luxury in Italy, Syria, and the Orient, and manufacturing it into finished goods, which we sold abroad at a good round profit, thus bringing prosperity to our importers, manufacturers, wage-earners, and exporters. The value of the silks we send abroad averages three times the value of the silk we buy abroad. For instance, in 1919 our foreign purchases of this article amounted to 474,000,000 francs; our sales to foreign customers amounted to 1,500,000,000 francs. This means that a billion francs remained in the country. Faced by such facts as these, the partisans of restricting exports soon drew in their horns. We had to admit foreign silk, cost what it might. However, there were busybodies who insisted that we ought to admit only silk to be remanufactured for export. A shrewd senator thereupon made the point that, when the French ladies ceased to wear silk, ladies of fashion in other countries would follow their example.

Likewise, the government tried to fix prices. At the solicitation of consumers, it prescribed maximum prices whenever there was protest against the prevailing rates. We already had the example of the famous maximum price

laws of 1793 to caution us. Those laws, instead of improving the situation, made it so much worse that the very people who forced their adoption compelled their speedy repeal. Any attempt to fix prices is sure to prove futile. Whenever the producer finds himself compelled to accept government rates which are unsatisfactory, he either curtails production or withdraws his goods from the market. Since the regulated articles are no longer offered in open trade, they find their way into the hands of illegal agents, who manage to dispose of them in evasion of the law. For we must not lose sight of the fact that whenever the consumers try to prescribe prices, they only force them upwards. A free market is invariably the cheapest market.

Faced by the failure of its price policy, the government relinquished it in the summer of 1919, except so far as it applied to wheat and coal. It then tried another system. Instead of using compulsion to check the reprehensible practices which have aroused legitimate protest from consumers,' it endeavored to apply moral restraints to the sellers and to encourage buyers to inform themselves as to the justice or injustice of the prices demanded of them. To accomplish this, it was necessary to have precise data. That was a fine idea, but one difficult to put in practice. How is the normal price of foods and drinks to be ascertained?

A special commission representing all the interested parties was organized in each department. It consisted of the agricultural director as its president, of four merchants of whom two were wholesalers and two retailers appointed by the Chamber of Commerce, of two farmers appointed by the Agricultural Department, of two workingmen appointed by the Trade Unions, of two delegates from the Coöperative Societies, of one village mayor, and of

an alderman from the principal town in the department.

This commission had a complex task to perform. In order to ascertain costs, it had to take into account interest upon capital, wages, cost of raw materials, freights, and the various operating and fixed charges of farmers, manufacturers, and merchants. It added. 15 per cent to these costs as a normal profit. Now, when you try to ascertain the cost of producing crops, you are up against quite a problem. The cost is seldom the same on any two farms. Practically all that any commission could do was to accept the customary prices then prevailing. After a few months, it ceased to function of its own accord.

This failure did not prevent a second attempt. In February 1920, the Minister of Labor appointed a Central Commission composed of twenty-two members including representatives of Parliament, manufacturers' associations, chambers of commerce, agricultural societies, coöperative societies, and the various cabinet departments. That commission was expected to organize district commissions, whose duty it should be to collect and transmit to it information regarding the movement of prices and the cost of living in their respective localities. The primary object was to ascertain prices in order to fix the bonuses paid to officials in place of an increase in salaries. That was the idea last February; but now Parliament sees that a straight increase in government salaries will have to be authorized, since there is no immediate prospect that the cost of living will fall.

Anything the government does will be futile until consumers discover how to protect themselves. Hitherto, the latter have merely helped prices upward. It is difficult for consumers to accomplish much, because they are

unorganized. Perhaps the wisest possible measure would be to encourage the organization of consumers. Such unions were provided for by the government last October. We may await their result but without exaggerated hope.

Last spring a great campaign to lower prices started, in which the press took the lead. It had an almost immediate effect. There was a slight fall in the cost of raw materials. This may have been a mere coincidence. By a happy chance, the campaign started just when prices were really coming down in the United States, when Japan was in the midst of a business crisis, and when there was a growing surplus of production. America had imagined that European markets would take goods without limit, since they were absolutely bare. However, this expectation was disappointed by reason of the decline in European money as measured by dollars, and by such untoward events as the prolongation of the war between Russia and Poland, the constant disorders in Central and Eastern Europe, and political uncertainties in the newly created states. In order to prevent a crisis, American banks, at the urgency of the Federal Reserve Board, curtailed their credits, which had expanded in a most unhealthy way, having risen from $6,500,000,000 on June 30, 1914, to more than $12,000,000,000 on May 4, 1920. These were the figures for national banks alone. The credits granted by trust companies and private banks had been still larger. Americans thought this inflation of credit the principal reason for the dizzy rise of prices. Overliberal credit enabled merchants and manufacturers to compete ruthlessly for raw materials and labor. The result had been a constant advance of wages and salaries without any increase in production. Under such con

ditions, an expansion of credit is nothing but an evil; therefore it was decided to restrict it. Americans fancy that they are reaching the end of their era of extravagance and foolish spending. Realizing the gap between consumption and production, they feel the necessity of increasing the latter or diminishing the former. The big buyers of merchandise and raw materials realize that they must keep within safe limits and not plan a bigger campaign than they can handle with their means in hand. The banks decided to grant credit to factories only in proportion to their capacity and output, and to railways only in proportion to the traffic they carried. This decision did not produce a serious business crisis, although latest reports indicate that failures are increasing.

So it was an excellent moment to start a campaign for lower prices in France. Encouraged by a slight decline in the cost of some raw materials, consumers hoped that retail prices would soon follow, and so cut down their purchases. This movement spread so rapidly that retailers, finding their sales falling off, ordered fewer goods and canceled orders already given. Factories, in their turn, curtailed production. Even the manufacture of articles of first necessity, such as shoes, was cut down to four or five days a week.

Immediately, people interested in the industries thus affected appealed to the government, pointing out the dangers which a fall in prices involves. They asserted that the strongest desire they had in the world was to see prices reduced, but that the cost of making the goods they had on hand and the goods they would turn out during the next few months prevented an immediate reduction. Then the minister of commerce made a public statement, to the effect that indus

tries using raw materials which pass through several processes, such as the textile industry, for example, could not lower the price of their products to correspond with the declining price of wool and cotton enough to justify a reduction in the cost of clothing for several months to come. On the other hand, he pointed out that in case of perishable goods, declining wholesale prices might reduce retail prices inside of twenty-four hours. Unhappily for consumers, food also refused to fall. It was obvious that retailers, though prompt to raise their prices as soon as wholesale prices go up, are loath to lower their prices when the wholesale prices go down.

Meantime, the consumer is also at fault. For a time, he was crazy to buy things which he did not need. Now he has gone to the other extreme. Frugality is an excellent thing, but parsimony is a bad thing. The consumer should limit his purchases to the minimum which he reasonably requires. But to refuse to buy when there is an abundance of an article in the market, is to paralyze industry and to invite a new rise of prices, which will certainly ensue when consumers are forced, as they eventually will be, to come into the market again. For then they will all come in at once. Charles Gide wrote twenty years ago: "Though the consumer may be king of our business system, we must recognize that he is a most incompetent king. He does not even possess the power of a constitutional monarch who reigns, but does not govern.' Let us add, when he tries to govern, he invariably governs badly. As Mr. Mauray, editor of La Journée Industrielle, and president of the Boot and Shoe Manufacturers' Association of France, recently wrote-the tastes of the public are never ruled by reason:

Box calf is the only upper leather which we do not have to import. Unhappily the public taste

demands other leathers, such as kid, buckskin, and the like, which are imported at enormous prices on account of the low value of the franc abroad. In women's shoes, it is the fashion to employ special fabrics, the cost of which is rising abnormally. Under such conditions, how can the public expect our costs to go down so that we can sell our goods at more reasonable rates? We have no reason to expect a decline in the cost of clothing. Before that can occur, cloth, dyes, and findings must fall and there is no indication of that; wages must be reduced — and workers demand more than ever; taxes must be diminished — and they will invariably increase to meet the growing burden of government, as will likewise railway rates, since our transportation companies are facing a deficit of 2,000,000,000 francs.

Some people argue that we could force down prices by compelling the sale of hoarded provisions and raw materials. But here we face another fact. Our industries require a normal stock of materials ahead. These accumulations regulate the market and are indispensable for that purpose. If the visible supply falls below prospective consumption, prices shoot upward. If that supply greatly exceeds prospective consumption, the bottom falls out of the market. One of the principal reasons for the rise in prices during the war was the decrease in this normal supply. Food and raw materials, like cotton and coffee, which appear in the market at a definite season, must be stored. Buyers must purchase the planter's crop before it is ready for delivery, or else some competitor will snap it up. Factories must feel that enough raw materials are procurable to enable them to run regularly. So what some people consider hoarding is a perfectly sound and healthy commercial operation. We must start out by drawing a clear line between these normal stocks and stocks accumulated solely for speculative purposes. That

is an exceedingly difficult line to draw. At least it would be hazardous to start a general campaign of forced selling.

Price movements have two aspects. Hitherto, retail prices have risen steadily so as to increase the cost of living. On the other hand, raw materials have fallen, but not enough to compensate for increased costs of production due to rising wages and a shorter working day. In France, producers face other difficulties. The cost of capital has risen throughout the world. So we shall have no sudden drop in prices. Producers themselves would profit by a decline which would set goods in circulation and end the stagnation of the present manufacturing.

I do not mean by this that manufacturers and other producers are not guilty of unfair efforts to maintain high prices. Germany is up in arms against such practices, and German employers' associations are charged with opposing any reduction. To cite three examples mentioned in the press of that country: the Bavarian Glass Manufacturers' Association has raised prices from 130 per cent to 200 per cent above those of a year ago, although some members of the association state that an increase of 85 per cent is sufficient. The German Porcelain Manufacturers' Union, after getting the assistance of the government to force all the works which had not previously joined to become members, increased prices 600 per cent between January 15 and April 30, 1920. This association also compels retailers to buy goods exclusively from its members. Before the war, a dozen white china plates retailed for 1.80 marks and they now cost 82.60 marks; a coffee service which formerly cost 2.20 marks to-day costs 87.50 marks; a dinner service of twenty-three pieces which used to cost 12.50 marks, now costs 350.35 marks, and so on. Similar conditions exist in most branches of