72

HOW TO PAY FOR THE WAR

account of the statistical deceptions arising outof the change of system and of the diversion ofconsumption after the introduction of strictrationing and fixed prices.

The above analysis tells us how to interpretthese results. The volume of spendable earnings(which increased more rapidly than wage-ratesowing to better employment, overtime etc.) in-creased 15 per cent relatively to the supply ofconsumption goods (rather less than this at firstand rather more eventually), as is indicated bythe 15 per cent rise in prices relatively to wages.This rise in the cost of living provoked a corres-ponding rise in wage-rates with a time-lag ofalmost exactly a year and was off-set simul-taneously by an equal further rise in prices. Ineach year wages rose almost exactly to the price-level of the previous year. Thus the time-lag wasjust long enough to prevent disaster. If priceshave to keep 15 per cent above wages and ifwages rise half this amount in the first year andthen follow prices with a time-lag of a year, wecan get through four years of war by a littleless than a doubling of prices. How closely thisrule of thumb corresponded with the facts isshown in the following table:—

Theoretical rate of rise Actual rate 1

Wage Bates Prices Wage Sates Prices

1914

100

100

100

100

1915

107£

122i

107i

122J

1916

122*

141

117*

140

1917

141

161

137*

170

1918

161

185£

1771

192J

Average of the two estimates.