In many lines of manufacture production has no doubt decreased, tho when the figures shall have become available it will probably appear that in the industries of large volume "high cost" has, on the whole, not checked production.

Another set of explanations approach the matter from the side of demand. The insistency of the government's demands is urged as a reason for rising prices - what the government wanted it would have at any price. For vast quantities of goods, marginal utility, the usual governor of consumption failed to exercise its steadying effect on purchases. Such feverish bidding as the government engaged in must, it is true, inevitably have forced a rise in the prices of the things bought, and in turn of those which entered into their production. If, however, for patriotic or other reasons there had been a corresponding check on private consumption, the insistent bidding of the government, while it would have caused a rise in the prices of the goods bought by the government, it would not, according to the quantitivist philosophy, have disturbed the price level. The only way the feverish bidding of the government could affect general prices was, to repeat, by disturbing the relation between goods and money means; and this it did simply by putting the government in possession of great quantities of goods. The effect would have been substantially the same if the government had commandeered the goods at established prices.

If the greatly increased demand of the last two years had been the result of more active private buying of the usual sort and the goods had circulated through the usual channels general prices would have risen. But there is this peculiarity about government purchases that enhances their power to affect the price level: When once they are made the goods are withdrawn from circulation at once and finally. Under peace conditions a large proportion of the steel production would have passed through many hands in one form or another before reaching the final consumer, making a demand for money or money means at every exchange and the same is true of the products of the textile mills; but government orders went directly from the mill to the final consumer.

Vast quantities of goods passing directly into the hands of the government ceased to circulate as effectually as tho they had ceased to exist. In the Quartermaster General's Report for 1918 there is an interesting chart showing the distribution of stocks from factory to reserve depots, from these depots to training camps, embarkation ports, intermediate depots, and so on to the "regulation stations " and finally to the soldier, but at no stage did they constitute a demand for money; stores were "requisitioned" and "issued," not bought and sold.

The scale of these withdrawals of goods from circulation is indicated by the following table showing the amounts of various supplies ordered by the War Department from April 1, 1917 to the signing of the armistice, the amounts delivered to February 8, 1919, and the amount of the orders cancelled.

The War Department's purchases of subsistence to the signing of the armistice amounted to $729,000,000. The Navy, the Shipping Board and other agencies of the government were similarly active buyers in their fields. Keeping in mind the uncertainty of the duration of the war and remembering over what distances goods had to be moved and the number of points at which depots of supplies had to be maintained, there seems to be some excuse for the "wild orgy of buying" indicated by these figures.

Now, if these commodities and others of which they are typical would ordinarily pass through the hands, say, of three

1 The New York Times, February 23, 1919.

sets of dealers from factory to consumer, the government purchase of them reduced their circulation by two-thirds. But, in addition to this, the government's method of buying in many cases brought it in control of goods before fabrication; in control of the cloth and even of the fiber of which it was made. The Paymaster General of the Navy in his last report mentions purchases of 14,500,000 yards of denim and cloth. The War Department's order for textiles of various kinds amounted to 598,250,000 yards, while cancellations of these orders amounted to only a little more than 10,000,000 yards. The government's purchases of wool down to February 15, 1919 reached 612,450,000 pounds and it was obligated to buy 110,000,000 pounds more.

The effect of this large-scale purchase by the government, often in the early stages of production, and its method of dispensing them without the further use of money, by decreasing the rapidity of circulation of great quantities of goods, must have affected the price level in the same way as would a reduction in the amount of goods, or a sudden resort to barter on a large scale, or to a more direct move of marketing. This peculiarity of the government's demand is not, of course, the most important factor of the many operating to produce the high price level. Inflation, on the one hand, as Dr. Miller frankly calls it, and increased consumption at home and the swelling exports on the other, are doubtless the dominant forces; but surely the falling off in the " demand for money through the withdrawal of large quantities of goods from the ordinary channels of trade is a factor that cannot be neglected when the attempt is made to explain the mystery of the present price level and to show why war prices are always high prices.1

UNIVERSITY OF NEBRASKA.

G. O. VIRTUE.

1 It is possible also that study may show that the government's regulations of prices and of profits, while designed to prevent the rise of particular prices, may by the process of limiting the number of transactions have caused a diminution in the demand for money that had an appreciable effect on the general rise in prices.

AN OVERSIGHT IN THE THEORY OF

INCIDENCE

IN studying, recently, with a class in taxation, Professor Edwin R. A. Seligman's The Shifting and Incidence of Taxation, the writer of this note came across the discussion of A Uniform Tax (on agricultural land) according to the Quantity or the Quality of the Land.1 Analysis of the argument of a part of this section seems to show a rather important oversight which entirely vitiates the conclusion.

Professor Seligman's discussion of the matter here in question is as follows:

"Suppose that there are three tracts of land producing wheat of the same quality, but, as a result of differences in fertility, yielding respectively ten, twenty, and thirty bushels to the acre; and suppose further that this quality of wheat is worth 50 cents a bushel. Tract A would thus yield $5.00 an acre, tract B, $10.00 and tract C, $15.00."

Then" if in the above case the tax per acre on grade A were 50 cents, on grade B, $1.00 and on grade C, $1.50," the price of wheat would be" 55 cents per bushel " instead of 50 and "the amount of taxes paid by the landowners would exactly equal the increased price obtained from the consumers. Hence, whenever a land tax is graded as to follow with precision the differential advantages of production, and where the land is cultivated intensively up to the point when the law of diminishing returns becomes effective, given a constant demand, the tax will be shifted entirely to the consumers, without causing them any additional loss."

It is not clear what Professor Seligman means regarding diminishing returns. In the strict sense of the expression, returns would begin to diminish on tracts C and B long before it was worth while to cultivate land as poor as tract A.

1 See third edition, New York (The Columbia University Press), 1910, pp. 259,260, ? Italics are the present writer's.

• Ibid.

1

What should be assumed is that the better tracts are cultivated intensively up to such a point that the marginal return to labor (or labor and capital) on them is no greater than the return to labor on the extensive margin. For the remainder of the present discussion it will be presumed that this is what Professor Seligman really means. It is evidently assumed altho it is not specifically stated that the differences in fertility among the different tracts are natural and more or less permanent rather than that they are maintained by differences in effort and investment among the owners.

The principal point which is involved in the main criticism here advanced is the nature and significance of the intensive margin of cultivation. On Mr. Seligman's assumption regarding different grades of land, tract C yields 30 bushels to the same amount of labor which can get only 10 from tract A. But it may be entirely possible that the labor which yields 10 bushels on A could, by being used for the more intensive cultivation of C (or B), add 9.8 bushels to the product otherwise there yielded, making a total of 39.8 bushels. To assume an addition to the product on this tract, from the added labor, of anything over 10 bushels, would be inconsistent with the hypothesis that tract A is actually used. But to assume an addition of 9.8 bushels is entirely consistent with that hypothesis.

Let us turn now to the tax of fifty cents on tract A, $1.00 on tract B and $1.50 on tract C. Since tracts B and C are superior to tract A by more than the entire tax to which their owners are to be subjected, these tracts would continue to be used to produce wheat and to produce at least as much as if untaxed, even if there were no increase of price whatever because of the tax. It is because the owner of tract A will cease cultivating if he cannot get fifty cents more for his 10 bushels, when the tax is laid, that the tax is supposed to be shifted entirely upon the consumers in a price of wheat five cents higher per bushel than before. But if the labor which produces 10 bushels on A can, by increased intensiveness of cultivation, add 9.8 bushels to the product of C, this result clearly need not follow. For the tax, being graded upon the