vast addition through incoming gold to the cash reserves of the banks of the country, we had a decrease in the reserve requirements of the banks through the operation of the new Federal Reserve Act, which had lowered reserve requirements for the central reserve cities from twenty-five percent to eighteen percent on demand deposits, with a corresponding lowering of reserve requirements in reserve city banks and country banks. Bank credit was easy. It was easy to float new securities. It was easy for businesses to expand if profits were in sight.
Profits were in sight. Britain and France and their Allies were buying the products of American farms and mines and industries—buying all that they could get and find transportation facilities for. Our own industries were making a great transformation as they turned to the production of munitions, and the easy money market facilitated this.
The response of American industry to this extraordinary stimulus, facilitated by abundant financial resources, was very impressive. The production-construction table on page 39 tells the story.
Wartime Prices. The first effect of the great increase in demand from Europe for our goods with the great inflow of gold was, not a rise in prices, but rather a great quickening of industry. The annual averages for the Bureau of Labor Statistics Index of Commodity Prices for the United States, taking 1913 as a base, show:
| 100 | for | 1913 |
| 99 | for | 1914 |
| 100 | for | 1915 |
[print edition page 39]
PHYSICAL VOLUME OF PRODUCTION AND CONSTRUCTION, 1914-22*
| Year | Total volume of production | Total volume of construction |
| 1914 | 100 | 100 |
| 1915 | 113.7 | 97.9 |
| 1916 | 120.6 | 111.3 |
| 1917 | 125.5 | 93.8 |
| 1918 | 124.5 | 64.9 |
| 1919 | 116.7 | 88.7 |
| 1920 | 124.5 | 48.5 |
| 1921 | 103.9 | 91.8 |
| 1922 | 121.6 | 139.2 |
* Frederick C. Mills, Economic Tendencies in the United States (New York, 1932), pp. 188, 191. Bases changed from 1913 to 1914.
At quarterly dates for 1915 the figures show:
| January | 98 |
| April | 99 |
| July | 101 |
| October | 101 |
By November and December of 1915, however, industrial slack in the United States had disappeared, and our labor and resources were fully utilized. Additional production of one kind of commodity could come only as labor and supplies were pulled away from other kinds of production. The pull and haul among competing uses for labor and supplies began, and a great rise in commodity prices came. Prices rose sharply from 100 in September 1915 to 112.8 in January 1916 to 152.9 by January 1917 and to 182.6 by May 1917. The peak for the year 1917 was in July, at 187, after we had entered the war; and from then on to the end of the year the price curve flattened out and even reacted a little. Our great increase in prices came before we ourselves got into the war, before the great expenditures of the United States government, before the vast public loans.
This rapid rise in commodity prices caught the country wholly by surprise. Retailers were asleep. In the summer of 1916 one purchased silver spoons in a small Connecticut town for less than the price of bar silver in New York the same day, and purchased cotton batting in the same small town for less than the price of raw cotton on the New York Cotton Exchange.
Wages and Prices. Commodity prices at wholesale rose a good deal more rapidly than wages per hour during the war boom, though wages caught up
[print edition page 40]
THE WHOLESALE PRICE INDEX OF THE DEPARTMENT OF LABOR, 1913-27* (Wholesale Index Numbers, 1913 average = 100)
| Year | Yearly average | Jan. | Feb. | Mar. | Apr. | May | June | July | Aug. | Sept. | Oct. | Nov. | Dec. |
| 1913 | 100 | ||||||||||||
| 1914 | 98 | ||||||||||||
| 1915 | 101 | 98 | 99 | 99 | 99 | 100 | 99 | 100 | 100 | 100 | 102 | 104 | 108 |
| 1916 | 126.8 | 112.8 | 115.1 | 118.5 | 121.1 | 122.4 | 122.6 | 123.2 | 126.3 | 129.6 | 135.6 | 145.8 | 148.8 |
| 1917 | 177.2 | 152.9 | 156.8 | 162.4 |
|