percent wage increase as of May 1947. Meanwhile, the Government completed plans to subsidize imports, chiefly textiles and shoes, to offset foreign price increases.

COUNTRIES WITH LARGER DEGREES OF INFLATION

In the countries that have been less successful in combating inflation, reasons for lack of success have varied. In several, the destruction caused by war has made the restoration of productive capacity a slow process. Others, normally dependent upon foreign sources for essential consumer goods, found difficulty in purchasing food and other essentials abroad, and such supplies as were available were high priced. Former enemy countries were faced, in some cases, with relatively heavy drains on current output in the form of occupation costs and reparations payments. Another factor which was important in certain areas was the break-down in transportation systems. Finally, the fiscal policy of certain governments has been an important source of inflationary pressure.

Although official food prices in Belgium early in 1946 were several times the prewar level,2 the Belgians had maintained a degree of stability in late 1946 which is outstanding for a country ravaged by war. This resulted in no small measure from the drastic program of monetary contraction planned while the Belgian Government was still in exile. In October 1944, 60 percent of all bank deposits were blocked and subsequently were liquidated by means of a 3%-percent currency stabilization loan. After the war's end Belgian exports rose steadily and despite shortage of men and materials Belgium was planning for a larger volume of foreign trade. In exchange for an agreement by trade-unions not to press for wage increases beyond the September 1945 level, the Belgian Government undertook in May 1946 to roll retail prices back 10 percent. A wave of strikes followed and brought about another crisis at the beginning of July which was resolved by another understanding between labor and Government. The general principles of a wage freeze and price. reduction were retained, but before the end of 1946 prices had risen to the levels prevailing before the price reduction began, minimum hourly wage rates had been increased, and wage readjustments had been applied in several instances.

Conditions in France began to improve almost from the very moment of liberation. By the third quarter of 1946, the rate of output of coal and electric power reached or surpassed prewar levels, and general industrial activity had risen to 80 percent of prewar. The 1946 food crop was good, but, as in many other countries, supplies were held back by producers in anticipation of higher prices. France has, moreover, been confronted with a wage-price problem of the first

See Monthly Labor Review, July 1946 (p. 30).

magnitude. A long drawn-out crisis on wage increases began with the June 1946 election-eve demands of the General Confederation of Labor for a 25-percent rise. A temporary settlement was reached on July 30, with the publication of a decree authorizing revisions which have increased wage rates 18 to 30 percent. Despite this general wage increase, wages still lagged behind the rise in prices.

The Paris index of 34 retail prices (mostly food) continued to rise after the July decree granting wage increases; it moved from 576 in July to 858 in October (1938-100). Part of the increase in the index was caused by the elimination of subsidies for milk, sugar, and butter and to the reduction of subsidies on other items, including wheat, causing an almost twofold increase in the official price of bread. (The Minister of Finance estimated that the continuance of all subsidies would have involved expenditures equivalent to a quarter of the revenue expected in 1946.) Labor leaders have maintained that the 34-items index fails to reflect the actual increase in prices because of its limited coverage and because it does not include prevalent blackmarket prices. They have intensified their campaign against rising living costs.

Hungary, perhaps, has had the most disastrous experience of any European country. The advance of inflation may be judged from the movement of the cost-of-living index in the last half of 1945; by November it was 18 times as high as in July, and by December it was more than 350 times the July level. From then on, the price structure moved rapidly toward complete collapse. By the summer of 1946, it is reported that people were literally throwing away smaller notes in the streets. According to the official United States view, the inflation was caused in no small part by the diversion of current output (greatly reduced in the first instance by war damage) to Russia in payment of reparations and occupation costs. In a note to Moscow in July 1946, the United States Government maintained that over half of the current manufacturing output in Hungary was going to Russia. The Russians, on the other hand, stressed the German transfer of almost all movable wealth from Hungary as the main causal factor. In August, the worthless pengö was withdrawn from circulation and replaced by the forint. The Hungarian Government successfully stabilized this unit, which was pegged at 11.6 to one United States. dollar.

China is another country that has suffered from severe inflation. Some idea of its extent may be obtained from the depreciation of the Chinese dollar in terms of the American dollar: in the middle nineteen thirties an American dollar was worth 3 or 4 Chinese dollars; at the end of 1946 it was worth 3,350 at the official rate and even more on the black market. Transportation difficulties greatly accentuated

Chinese problems. China has never had an adequate system of rail or road transport. In its existing state of disintegration the network has proven completely inadequate for the heavy tasks imposed upon it. Food surpluses have existed in one province simultaneously with famine conditions in another province a few hundred miles away. Prevailing civil war conditions in large parts of China have greatly retarded the return of production and consumption to peacetime levels. In China, Hungary, and almost all countries where money has depreciated in value rapidly, barter has increased. In Germany, currency has not changed in value, yet barter has displaced monetary exchange to a point that it threatens to destroy the entire system of incentives connected with a price economy. The unique feature of the German situation is that although the Allied Military Authorities successfully avoided the usual kind of inflationary spiral of wages and prices, goods have remained so scarce and marks so plentiful that people are reluctant to exchange either services or goods for marks, Absenteeism among workers-who stay away from their jobs in order to barter with farmers for food-is an increasingly common occurrence; it is reported that many wage earners stay on their jobs primarily because they get larger rations when they are employed. Shortages of labor and particularly of skilled labor are general. Businessmen, in possession of large quantities of bank deposits as well as cash, have little incentive to exchange goods for marks of dubious value or to plan for increases from the current low level of productivity. Thus, the universal lack of confidence in the currency has greatly hampered the upswing in German production.

Latin America's price problems arise to a much greater degree from external factors than is the case in other areas. In spite of the wartime impetus to industrialization in Brazil, Mexico, and other countries, Latin America is still principally a raw-material economy. Wartime demand for the continent's raw materials was very great and exports rose rapidly. Imports-through which Latin America obtains most of her necessary industrial products-were curtailed because of both the wartime scarcity of shipping and the diversion of resources to war production in countries which normally supplied this region. The tremendous excess of exports over imports increased holdings of foreign exchange from approximately 1 billion dollars in 1941 to 5 billion dollars in the fall of 1946, thereby adding to inflationary pressures in Latin America. The outcome was a large increase in currency circulation, bank deposits, and credit in most of the countries; for example, between the latter part of 1941 and the early part of 1946, currency in circulation tripled in Bolivia and Ecuador and increased by six and a half times in Venezuela. The Mexican monetary situation illustrates the effects of these forces: one of the important factors

contributing to the higher cost of living is the rise in money in circulation by more than 400 percent between 1934 and 1946, while the physical production of goods and services increased only 25 percent. As increased imports become available, the situation in many countries may be expected to improve.

Not all of the factors making for inflation in Latin America originated in wartime conditions; in some instances the war only developed difficulties that had been latent. In Brazil, for example, the beginning of the inflation problem goes back to the early 1930's when the Government first undertook a program of industrialization and began to issue increasing amounts of paper money. The issuance of such currency reached large proportions in most of Latin America during the war.

Industrialization, which increased sharply in some of these countries, consumed scarce materials and attracted rural labor to urban areas. The result was that the demands on rural production increased at the same time that workers were being withdrawn. Transport also proved inadequate to the greater burdens placed upon it, particularly after the flow of gasoline from the United States was reduced to a trickle because of the needs for the war effort and submarine warfare.

High freight and transportation costs, speculation, black-market activities, and high-profit margins-which constitute inflationary pressures in many regions throughout the world-are sometimes of great importance in Latin America. In one country, it was reported that goods were "invariably" sold at prices from 200 to 600 percent and more above their landed cost plus duties.

Higher prices in North America and Europe are also felt in Latin America. Some Latin Americans are concerned over drastic declines in the value of their large dollar and sterling credits because of rising prices in the countries from which they import.

For the countries of the Far East and of Latin America, long distances from both North American and European markets and sources of finished goods have magnified the effect of higher ocean freight rates, which by the spring of 1946 had increased on an average of from 50 to 100 percent over 1939 levels.

Government Intervention in the Price System: Price Control, Rationing, and Subsidies 3

COUNTRIES WHERE INTERVENTION HAS BEEN REDUCED

Most Governments found it necessary to intervene in the operation of the price system during the war period and to retain the controls. at least to a limited extent in the postwar era. Price control, ration

This subject has been treated in more detail in the Monthly Labor Review for November 1945 (pp. 882-900) and for May 1946 (pp. 777-790). The situation described in these articles remains substantially the same except for the trends noted in this section.

ing, and subsidies have been the devices most commonly employed in order to aid in the equitable distribution of scarce goods and to avoid runaway inflation. By the end of 1946, certain countries had gone further than others in lifting these controls.

The United States has decontrolled prices and wages more rapidly than any other large country. From August 1945 to mid-November 1946, the Bureau of Labor Statistics consumers' price index had risen 17.4 percent. Between the middle of June 1946, the last pricing date when the old price control law was still in effect, and the middle of November, when many but not all of the controls had been lifted, the index rose 13.8 percent.

In Canada, a similar movement toward the withdrawal of Government intervention occurred during the first half of 1946. However, the 4.3-percent rise in the cost-of-living index between January and July and the weakening of price controls in the United States led the Canadians early in July to retard their decontrol program. Thus, although subsidies were withdrawn and price control eliminated in many instances, Canada still retained its wartime system of price control, subsidies, rationing, and governmental bulk purchasing over a significant segment of the economy. Food subsidies, for example, were being paid at an annual rate of about 90 million dollars early in November 1946 as compared with their peak rate of 130 million dollars in 1945. However, wage and salary controls were lifted at the end of November 1946 and plans for the rapid removal of other controls were announced. The Canadian cost-of-living index rose 5.2 percent between August 1945 and October 1946.

COUNTRIES WHERE INTERVENTION HAS BEEN CONTINUED

In most of Europe, fear of an inflationary wage-price spiral has kept price stabilization programs in force and in some cases even strengthened them. Generally, however, upward price adjustments have been made continuously in response to the pressures already described.

Either by exclusive purchasing for resale to consumers or by licensing domestic production and imports, the British Government maintained close controls over the supply and distribution of consumers goods that were only slightly relaxed after the end of the war. The more important foodstuffs (except potatoes, fish, and fresh vegetables) and clothing and furniture remained on the ration list; the food rations are changed as the supply situation alters. Prices of many rationed products are kept down by subsidies, which will cost approximately 1.3 billion dollars in 1946-47.

Rationing is still prevalent throughout Europe, even in countries like Sweden and Switzerland which have fared relatively well. Bread, meat, fats, and sugar constitute the minimum list of rationed foods in