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grain at a low level, and most of the crop was consumed long 

 before new crops were available. Little or no grain was shifted 

 from other areas. One third of the population died. During a 

 later famine the government did not fix prices and in fact 

 encouraged speculation. Prices advanced immediately, the 

 pressure of the shortage was spread equally over the year, 

 and grain was brought from other areas. 



In 1916 the world began to feel some shortage in food sup- 

 plies. Prices promptly rose. This decreased the purchasing 

 power of consumers and served to shift our consumption so 

 that the war effort was not hampered by malnutrition or 

 famine in the Allied countries. If prices had not risen and 

 especially if crops had been poor or had failed in the later 

 war years, the food supply for any one year would have been 

 consumed long before the following harvest. 



Importance of Rising Prices during War 



The price mechanism is an effective tool for changing the 

 nation's economy from a peacetime to a wartime basis. Dur- 

 ing wars it is highly essential: 



(a) to stimulate food production, 



(b) to shift a large part of industry from the production of civilian 

 goods to armament, and 



(c) to reduce the standard of living of civilians. 



Advancing prices were the time-honored way of obtaining 

 maximum food production. Price incentives were an effec- 

 tive way to shift industry from a peace to a war economy. 

 Rising prices reduced the standard of living of civilians indi- 

 vidually and collectively. 



During World War I salaries of public school teachers rose 

 8 per cent while the cost of living rose 50 per cent. Therefore 

 the purchasing power of these incomes declined 28 per cent. 

 The purchasing power of salaries of university professors 

 declined 27 per cent; of government employees, 19 per cent; 



