it they had to have a 120-percent increase in order to get something like a 16- to 18-percent increase in their relative well-being.

Senator TAFT. You mean, you had to get an increase of 100 percent?

2

This is what happened to teachers [indicating chart 16]. They had a 20 percent loss, despite the fact that, beginning in 1918, the average salary of teachers was on a steady increase.

Senator TAFT. I suppose the manufacturing industry presented the greatest wage increase of any group?

Mr. HENDERSON. Yes, sir; wage earners in industries that were at strategic places were able to beat the cost of living, but in beating

1917

1918

1919

1920

1921

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Mr. HENDERSON. Yes. But the effect of the price level was to accelerate it, of course, and to make it unmar geable and also to add to the impossibility of keeping the econon in any sort of balance in the post-war period. In other words, it is sometimes said that nobody gains by inflation. That is a pretty good truism. But, as a matter of fact, during the period of inflation some people gained. During the period of deflation some people gained. But the worker might have gotten a 20-percent increase in his standard of living for a period of several months, and then had a period during the deflation when he did not have any employment, or very minor employment. In other words, he lost over the period from 1914 to

1924.

Senator TAFT. Are those figures on wages based on earnings or on rates per hour?

Mr. HENDERSON. They are based on the weekly income.

Senator TAFT. Representing partly increase in hours and partly increase in wages?

Mr. HENDERSON. That is correct.

Senator TOBEY. Referring to your statement that nobody gains by inflation, it was said long ago that in a war no nation wins.

Mr. HENDERSON. That is probably where it came from.

Senator MALONEY. Can you give me a concrete example of who does gain during an inflationary period?

Mr. HENDERSON. I cannot think of anybody, Senator, who gains if he continues to live in this country. I think you have to die in order to win.

Senator MALONEY. You said a moment ago that during an inflation period somebody always gains and that in a period of deflation somebody always gains. It would be helpful to me if I could get a concrete picture of somebody gaining during these rises and depressions. Mr. HENDERSON. We have a number of cases of brokers who are dealing in imported commodities and who have been doing very well, by reason of our lack of ability to get at the thing; and if any of those brokers or speculators could take those inflated dollars and keep them in a position where they could buy goods or anything of value in the deflation period, they would gain, of course. But my point is, mainly, about the farmer, the workingman, the average citízen. He has lived on his current income and he cannot gain over a long period. The speculator can if he can retain the money which he got.

Take a number of industries that made a lot of money in the last war. They made it by reason of delivering a large volume of production, of armament goods, and they lost all of it by getting caught in the $11,000,000,000 deflation of inventory that took place after the

war.

I was talking with one manufacturer this week who had just exactly that experience. Before the war this manufacturer had a good business; he had a good asset position; he had a good working capital position. He took Government orders and worked very hard himself and enlarged his staff. He made a very substantial profit out of Government orders. But in order to do that he had to accumulate metals that had gone up more than 111 percent, and chemicals that more than doubled, and in the post-war period, in addition to the decline in his

business, he had this tremendous inventory, and as a result he had to have a reorganization in 1921. He said it always seemed to him that had worked 3 years just for nothing but the privilege of losing his good working capital position.

Senator RADCLIFFE. The increase in income and the increase in the cost of living are not likely to move exactly parallel, anyhow, are they?

Mr. HENDERSON. That is correct. There is a lag between wages in toto and the cost of living.

Senator RADCLIFFE. It might work one way one time and another way another time, but it is not likely to be exactly parallel.

Mr. HENDERSON. That is right. The workers who are well organized into unions and are in the defense industries are the ones who can keep ahead of the procession.

I inserted in the House hearings a chart showing which of the labor groups gained in the last war in this cost-of-living race with wages, and those that lost, and it was one of the most telling things I know of.

On page 149 of part I of the House hearings is chart No. 40, which shows which of the labor groups lost and which won in this race with the cost of living.

Senator HUGHES. What do you mean by that?

Mr. HENDERSON. Very many wages did not go up so fast as the cost of living did in that period; and I say that they lost by reason of the fact that our price level pyramided so high that when it deflated it paralyzed the entire country and they lost days and weeks and months of earnings by reason of the inflation that had its genesis in the failure to control prices.

Senator MALONEY. Can you tell us where that difference goes? Mr. HENDERSON. It goes into and comes out of bookkeeping. Senator MALONEY. That does not help me. I am sure it is a good

answer.

Mr. HENDERSON. It is something like the fellow who said he had a $100,000 dog, and he was told that he would never get that much for it. He said later, "Well, I did." They said, "You did get $100,000 for your dog?" He said, "Well, I took two $50,000 cats for it."

And that is about what is happening because of the multiplicity of transactions on the way down. It cannot all be taken at once and it cannot all be lost at once. I think maybe the Brookings Institution, in its explanation of what happened to the stock market, in one of its major volumes, may give the best clue to it.

In the last war it was usually thought, as you will recall, that the building trades, when they got high rates for construction, were really the "silk shirt" group. But the records show that the building trades failed to gain in this race. They also lost 20 percent (chart 17). The farmer loses by inflation. These black marks [indicating on chart 18] represent the number of bushels of corn required to pay interest and taxes on mortgaged farms in Iowa, and I think they tell their own story. They do not tell the full story of what happens to farmers in a deflation, but they give some indication.

It is sometimes said that in order to get increased production you have to have inflation. I want to point out that there was a rise in wholesale prices during the last war, substantially a doubling up to the time of the armistice. However, after America's entry into the World War there was no increase in total production (chart 19).