Thomas Tooke

How did the economy fare during the 1913-1919 period? The statistics of physical quantities.

In Inflationary Period of 1913-1920 on April 23, 2012 at 1:40 am

As we have now forgotten the simplicity of the statistics of physical quantities, back in 1913-1919 Kemmener used true economics measurement of activity away from distortion. Today we have what is commonly referred by equity analysts as GIGO in their attempt to figure out the fair value of an asset, or “Garbage in, Garbage out”. The economics quantities are measured in currency units and are thereafter redressed by a GDP deflator. Why not just measure the physical quantities and their evolution? That is precisely what Kemmener decided to do:

” In attempting to form a judgement as to the extent to which our circulating media have been inflated since 1913, the first problem is to measure in some way the growth, since that date, of the country´s physical volume of business. Money and circulating credit exist primarily as instruments for exchanging goods and services. This exchange work is their job. To what extent, if any, has the job increased during the last six years? This question cannot be answered with any high degree of accuracy, but a rough approximation can be reached the study of certain business statistics which typify business activity and growth. Obviously the statistics used for this purpose should be statistics of physical quantity and not of value involving prices, since the movements of price level are one of the results of inflation.”

” Among the best items for measuring the movement of business in general, because they are items that enter into so many products, are the production of pig iron, bituminous coal, anthracite coal, petroleum, copper and silver. Other goods indices of general business are the number of tons of freight carried on important railroads and the tonnage of vessels entered and clear in American ports. Representative of agricultural industry is the production of wheat, corn, and cotton; and representative of hte building industry is the number of building permits given in leading cities. Here are the twelve items, an of which is an honest of the growth of American business, but each of which has its own bias. Safer than to trust any one of them is to take the testimony of all, so that in the mouths of many witnesses the truth may be established. If we reduce the figures of these twelve items to a percentage basis, taking 100 the figure of the year 1913, and if we then combine these figures into a simple average, we arrive at the following of index numbers which represent in a rough way the growth of the country´s physical volume of business since 1913. ”

Another Author, Mitchell attempted the same exercise from a broader sample of 90 raw materials during the year. Here is the result.



The year 1919 saw the start of the Federal Reserve Bulletin.  The author selected 13 categories and came up with the following comparison , re-basing to 100 in 1918.

So where is the miraculous growth thanks to the sale of  war supplies to Europe?

We have in total a real growth 9.6 of  percent over a period of 7 years, or 0.92% per year compounded from 1913 to 1919. Dismal performance in real terms but a massive expropriation and redistribution of wealth through inflation as we will see.

Let us now turn from the demand for money and deposit currency to the supply.

Next we will investigate where this money ended up, which asset or commodities got pushed up in prices?


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