II

INFLATION AND DEFLATION

109

inevitably risen to their international parity.But the classes of goods such as food and otherarticles entering into the cost-of-living indexnumber, which are dominated by home pro-duction, are far below their equilibrium value.Wholesale food prices in November 1925were 490 per cent of pre-war, retail prices inParis (thirteen items) were 433 per cent, andin the third quarter of 1925 the cost-of-livingindex for Paris stood at 401 per cent. Thesefigures may understate the real rise of prices,but it certainly seems that French domesticcosts are not above five times their pre-warfigure. This means that the prices of purelyhome produce, converted at the present rate ofexchange, are not much more than half worldprices, and are actually below their pre-war levelin terms of gold. Thus the Inflation of the cur-rency has produced its full effect on the ex-changes, and consequently on the prices of im-ported commodities, but has largely failed to doso on the prices of home produce.

Now the burden of the rentier on the tax-payer is measured by the internal purchasingpower of the francs which have to be taken fromthe latter to be handed to the former. Thusif internal prices had risen as fast as the exchangehas fallen , the real burden of the national debtservice would be reduced by at least a third. Isuggest to you, therefore, that, whilst the solu-tion of your fiscal difficulties can come aboutin no other way than by a rise in the internalprice level, it is not so clear that this need be