GENERAL ARTICLES

What's Your Dollar Worth?

The best guess is 78 cents — that’s if you don’t smoke, have a thrifty wife and 2.6 children and hate green vegetables

BLAIR FRASER August 15 1946
GENERAL ARTICLES

What's Your Dollar Worth?

The best guess is 78 cents — that’s if you don’t smoke, have a thrifty wife and 2.6 children and hate green vegetables

BLAIR FRASER August 15 1946

What's Your Dollar Worth?

The best guess is 78 cents — that’s if you don’t smoke, have a thrifty wife and 2.6 children and hate green vegetables

BLAIR FRASER

IN MONTREAL a man went to buy a suit of English cloth that he used to buy for $65, even as late as 1942. His tailor showed him a bolt supposed to be a little better, though the man could see no difference. It will cost $95—46% higher than the old price—and it’s all the tailor has.

In Toronto a man wanted his house painted. In 1940 the job had cost $60. This year the same contractor quoted him $125. He called another contractor, who bid $150, so he put the first man to work. Increase over pre-war price, 108%.

In Winnipeg a man bought a house for $14,000. The same house was offered in 1938 for $8,000, but nobody bid more than $7,500. The 1946 price was 81% higher than the highest offer before the war.

In every part of Canada housewives are paying more for food, golfers are paying more for golf balls, motorists are paying more for cars—there’s scarcely a price that hasn’t risen.

That’s inflation.

We have less in Canada than in any other country, including the wartime neutrals. But we may have more before we’re through. I couldn’t find anyone in Ottawa, among the men who know most about it, who would guess what the Canadian dollar will be worth this time next year. Before the end of June, optimists would tell you that the cost of living would rise “not more than three or four points” by

the end of this year. But they always added, “IF prices don’t go hog wild in the United States.” When I was in Washington in June, economists of the Office of Price Administration (OPA) were already calculating what would happen if Congress should do what it did do—let OPA die. Some thought American price levels would rise only 20% by Christmas, others put the increase as high as 45%. Both schools of thought expected the end of controls to bring a quick bump of five or six points in the cost-of-living index, which would lead labor unions to demand new wage increases, which would bring new price increases, and the inflation spiral would be rolling away.

Officially It’s Worth 81 Cents

HOW MUCH Canada would suffer from inflation in the United States, or even how much inflation of our own we may generate in the months to come, nobody knows. The only thing we can do with any degree of precision is to find out what our Canadian dollar is worth now. Even that turns out to be a complicated question.

Officially, the answer is 81 cents, in pre-war buying power. The Canadian cost-of-living index in July stood at about 123, which meant 23% higher than the 1935-39 average. But does the official figure mean anything?

Many housewives answer “no.” They think living costs are anywhere from half as high again to twice as high as they used to be. Not only government departments but labor union headquarters and welfare offices get a steady flow of complaints against the cost-of-living index, which is denounced as at best an error, at worst a fraud.

In Canada even its detractors concede the accuracy of the index within its limitations. A recent publication of the Workers Educational Association strongly attacked the use made of our cost-of-living figures and the policies based thereon. But the Association admitted “it would be extremely difficult to improve on the reporting methods of the Dominion Bureau of Statistics,” and that “the ‘cost-of-living’ index as a measure of price changes probably ranks with any similar index in the world.”

Not only is our index as good as any in the world

it’s a lot better than most. Britain still uses a yardstick created in 1913, and applies it to the barest kind of subsistence. As one Englishman said: “The index assumes the people live on a diet of oatmeal and dried peas.” Canada’s index is based on a survey of actual expenditures by 1,439 families in 12 Canadian cities just before the war. They were families with two and three children, and their income averaged $1,400, with a few below $1,000, a few as high as $2,800, but most between $1,200 and $1,600.

These families spent half their income on food and shelter-31% for groceries, 19% for rent. Of the other half 12% went for clothing, 6% for fuel and light, 9% home furnishings and service, 23%, for doctor bills, insurance, soap, haircuts, carfare, movies and tobacco and other “miscellanies.” Very poor families spent as high as 40% of their income on food and 22%; on rent, whereas families in the $2,500 bracket spent only 21% on food. But the averages were representative.

From the articles on which the 1,439 families spent their money the Bureau of Statistics chose 140 typical items, and arranged them in the proportions or “weights” that the survey indicated the families had used. The 1935-39 average price of each item was calculated, and the whole reduced to a figure of 100 for the cost-of-living index.

From 100 to 123

T? VERY MONTH price changes in these items M.J are recorded, and each change has a proportionate influence on the whole index. For example, food represents 31%, or roughly one third, of the total. If food prices go up three points, the whole index thereby goes up one point. Rent is 19%, roughly a fifth, so when rents go up five points the index goes up one point.

That’s how the Canadian index inched its way from the basic 100 of 1935-39 to 123 last month. Everyone who has looked into it agrees that these figures are correct as far as they go. They also agree that they don’t go all the way.

For one thing, too many factors in the cost of living can’t be weighed or measured statistically. For another, no over-all average figure can fit the individual case.

Take the matter of low-priced specials and cutrate sales. “We used to carry odd lots of boys’ broadcloth shirts at 60 cents,” one retailer said. “They were made of fag ends of material we used to pick up—what we call end-of-run fabrics. Now there’s nothing like that on the market. Manufacturers don’t have fag ends, they sell every inch of every run.”

In that man’s store the cheapest boys’ shirt is now 90 cents, and it’s a rough cotton. Cheapest broadcloth is $1.20. The index, based on standard retail prices, says shirts are up only one third over the basic period.

Another retail executive said, “We used to run sales every few weeks to keep goods turning over. Price cuts averaged about 20%. Any housewife who watched the sales could save a dollar in five.”

When the index shows clothing up 24% and home furnishings up 21% (the June levels) it takes no account of such pre-war savings.

Some cheaper lines have disappeared altogether.

“Look at this summer suit,” a price control official in Washington said. “Cost me $30 three years ago. Last week I tried to get one like it, but they don’t make this kind any more. They make another kind out of the same material, a few more pockets, better lining, maybe a little better styling - for $47.50.”

In Washington and Ottawa vigorous efforts have been made to prevent this “trading up” to costlier lines. The Wartime Prices and Trade Board uses “production directives” to try to make sure that a normal number of lower-priced goods continues to be made. But it obviously isn’t successful.

One mail-order house in 1939 advertised its cheapest men’s shoe at $1.98. Cheapest shoe in the same catalogue this year is $2.98. Doubtless it’s a better quality shoe, but the fact still remains that the lowest price available is 50% higher than it was in 1939. In the index the increase in men’s shoes is 14%.

When prices do remain the same or nearly so, what about quality?

A buyer for a big retail store told me, “Ottawa used to ask us for reports in three categories, low, medium and high priced. Take women’s stockings -say we had them at $1, $1.50 and $2 for the three groups. We still have stockings at each of those

prices, so the price levels haven’t changed. But they’re not the same stockings. By pre-war standards none of them are any good-—you couldn’t have sold the best of them at any price before the war.”

Here and in the United States the Bureaus of Statistics do an honest and vigorous best to allow for these things. But, in the United States at least, price control people frankly admit they “no more than make a pass” at recording these “hidden changes” in living costs. If they can’t do it with their elaborate machinery and big field staff, certainly Canadians can’t either.

What Increases Are Hidden?

HOW MUCH is added to the cost of living by these hidden factors?

American labor unions said they would add 13 points to the index. The Workers Educational Association gives a figure “based on studies in the United States and experience in Canada” that’s 11 points higher than the official one.

Neither claim is supported by any published evidence. The only thorough, nonpartisan enquiry was carried out in January, 1944, by a committee of experts appointed by President Roosevelt. The committee reported that although the hidden factors could not be measured with precision, their own informed guess was that hidden changes would raise the whole index by no more than four points. The American Bureau of Labor Statistics believes that another point, or five in all, should be added now.

Canada has no corresponding official figure, but the U. S. calculation applies equally here. Adding the five points for “hidden increases,” then, we get a cost-of-living index of 128 for July, 1946.

What does this mean?

It means that if you are one of those hypothetical urban workers who live in statistics with a wife and 2.6 children, earning between $1,200 and $1,600; if your rent hasn’t gone up more than 8j^% since 1939; if your wife is content with a sensible, durable dress no matter what it looks like; if you and your 2.6 children don’t eat many green vegetables or fresh fruits, and if nobody in the family smokes— then your cost of living has

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gone up only 28% and your dollar is worth 78 pre-war cents. But a good many Canadians don’t meet all these specifications.

Take the one about smoking. Tobacco costs were included in the original survey, and still are counted up to the level of tobacco prices in June, 1942. That was when the Government slapped on the big tax increase. Wage rates and bonuses were calculated on the basis of the index, and the Government didn’t want to have its own war taxes made the excuse for a higher bonus. So the Bureau of Statistics was told to omit, in future calculations, any price rise caused directly by taxation.

So, although tobacco costs are still nominally a part of the index, the biggest increase in them doesn’t show. The Bureau has, however, kept its own record of what the official index would have been with all tobacco costs included, and it runs nine tenths of a point above the official figure. If you smoke, your cost of living is already 128.9, and your dollar’s down to cents.

Then, what kind of food do you eat?

Fresh vegetables are scanty in the hypothetical diet on which Ottawa statisticians base their figures. The only vegetables included are beans, onions, cabbage, carrots, turnips and potatoes, the all-year-round things that you can store in your cellar.

Even these homely staples have gone up a lot onions 67.4% by May, potatoes 46%. But things like asparagus, spinach, broccoli, celery, lettuce and tomatoes have gone up a great deal more. The home-grown crops have not been under price control at all, and the imported out-of-season stuff is controlled on a more flexible basis. Look at newspaper advertisements of 1939 and then of the same week this year, and you’ll see prices of this type of food are up anywhere from 60% to 150%.

Meat prices are away up, even in the index listings, but these don’t show the full effect of “disappearance of cheaper

lines.” In the days when customers had less money butchers carried lots of cow beef—Montreal especially was known to the trade as a “cow town.” But now butchers don’t want to bother with it.

You can see that whereas a careful, sparing food budget might be up only 43%, as the June index says, a table wouldn’t have to be very luxurious to show an increase 10 points higher than that.

We’re Living Better

Remember, Canadian standards of living have gone up a lot in seven years of war prosperity. The 1,439 families of the 1938 survey drank 10]/¿ quarts of milk a week; families today are averaging 15 quarts. Consumption of all foods in Canada was up 13% over prewar levels even by 1944, and the increase has been continuing. We smoked 63% more cigarettes in 1944 than in 1939. As a nation we’re living better, eating more, and more expensively than we could afford to do in the thirties.

Even if your family is still eating the same quality and same quantity of food it ate in 1939, it’s a fair guess to say your cost-of-living index is up another 3.3 points to 132.2, and your

dollar’s value has shrunk to 75.6 cents.

For most Canadians that is probably a final answer. If your income has not increased since 1939, or if war taxation has decreased it; if you’re still in the same job at a frozen salary, and in the same house at only 8)^% higher rent; if at the same time you’re a smoker, and fend of green salads and such— then you’re only three quarters as well off as you were before the war, if that.

For a great and growing minority of Canadians the dollar has shrunk even further. Those are the newcomers.

Rent is a stabilizing factor in the index of almost any country. Even without controls it rises slowly. At the peak of postwar inflation in 1920, with no controls of any kind holding them back, Canadian rents were only 46% higher than in 1914 and the whole cost of living had doubled.

Canadian rent control in this war has been highly successful. Most people’s dwellings rent for no more than before. Last year the Bureau of Statistics took a random sample of 780 families in York County, Ont., and found their monthly rental averaged $34.33. Then the Bureau traced as many of the 780 as it could find in 1941 census returns, and found 648 of them. Their rent in 1941 averaged $33.34. Increase in four years had been 99 cents, or less than three per cent.

That is probably still true of 80% to 90% of our million Canadian

families. But the rest—somewhere between 200,000 and 300,000 have had a grim time. That 8j^j% increase in rent which the index shows is merely an average between rents which didn’t go up, and those which increased from 40% to 100% over 1939 rates.

For the 6,000-odd families living in new dwellings built for rental by private owners, the Rental Administration says rents are up to 40% to 45% on the basis of building costs. They get no more space than they would have in 1939; quality and location of the dwelling are probably not as good.

Although rentals are controlled, most new houses are built for sale—and there is no ceiling on the price of a house. As thousands of servicemen know, houses today cost anywhere from half as much again to twice as much as they did before the war.

Some of these prices are pure profiteering. Others are a true reflection of inflated costs. In either case the buyer carries the burden. Last year we built 47,000 new houses in Canada, this year will probably be about the same. Those figures alone represent 94,000 families whose outlay for shelter is up 50% to 100%. Shelter is one fifth of the index, so that means 10 to 20 points more on their personal cost-ofliving index. That might bring the index up between 142 and 152, and their dollar down to between 66 and 70 cents.

Inflated Furniture

Nor is that the end of their trouble, if they’re young people setting up housekeeping.

“Home furnishings and services” are supposed to be nine per cent of living costs, and the June figures showed them at 121% of the base price level. But that’s the cost of maintenance and replacement. Nearly 40% of the charges under this heading are soap and laundry, which have gone up very little, and telephone bills, which haven’t gone up at all.

That’s no measure of newlyweds’ outlay. They’re not buying dining room and bedroom furniture in modest replacement quantities. They’re buying these things by the houseful, and paying up to 40% more for them, even at standard prices.

And here again, standard prices don’t tell the story. Dishes and glassware are supposed to be up 18^%. But in 1939 one mail-order house offered a “special value, 38-piece utility set” for $2.95. There were four 32piece sets under $6, and 96-piece dinner sets began at $15.

This year there are a couple of breakfast sets below $7, but the cheapest dinner set costs $27 for 66 pieces. Before the war the same company would sell you that much chinaware plus two dozen glasses and cutlery for eight people, all for $24—$2.40 down. There’s no way to calculate precisely where this leaves a young couple’s dollar, but a guess would put it not far above 50 cents.

Recite this catalogue of gloom to a price control expert and he won’t deny it, but he will tell you all these criticisms of our own index apply with equal or greater force to every other index in the world—and ours is the lowest.

It Was Worse Last Time

We’re a little ahead of the U. S. Their index was over 131 when the OPA died, and may be a lot higher by now. We’re farther ahead of the British, who were showing 131 six months ago on an index far less reliable than ours. Devastated countries of Europe are out of sight, as you’d expect, and so are the war-prosperous neutrals. Sweden is crowding 140, Switzerland has passed 150. And a world away from war damage, profiteer Argentina had an index ot 137 last December, and Chile hit 240 at the turn of the year.

We can look back with relative cheer on what happened in Canada last time. Eleven months after Armistice Day our index was not 123 but 165.6, and still rising. A tin of peaches now selling for 21 cents cost 33 cents in 1920, peas, instead of 13, were 19, and so on. By the time Armistice Day was as far behind as V-J Day is now, clothing prices were exactly double the 1914 levels.

And we’re not yet out of the woods for this time, either. There’s a mistaken notion in this country that U. S. price control was a mere joke, and didn’t work. That’s not true, as we shall probably find now that OPA is dead.

U. S. prices at the beginning of war were lower than ours in almost every field, except certain foods. While we were at war and they weren’t, our prices rose faster than theirs, until in October, 1941, we clapped on price ceilings. Then for two more years U. S. prices rose. By the time the U. S. adopted effective price control in May, 1943, their index had gone up to 126, nearly 10 points above ours.

There it was stabilized. In the next two years, to V-E Day, it rose only three points. Ours went up three points in the same period. Since then the index has risen faster in both countries. Theirs has been a little quicker than ours, but so have their wage rates. Weekly earnings in manufacturing industries, even before the strikes of last May, were $42.38 in the United States against $32.43 in Canada.

But the price relation between the two countries was fairly stable. Some U. S. prices were still lower than Canadian prices for comparable goods. Where a gap did exist, Canada paid subsidies to the importer.

Even with stable prices, subsidies were expensive. All told we spent $308 millions on one kind or another, up to last April, and it looks like another $100 millions this year even if the U. S. price rise is fairly moder-

ate. If it does hit the 20% or 40% that the OPA economists were predicting, lots of people in Ottawa think we might as well give up hope of holding down our own prices.

Hut to Donald Gordon, Prices Board chairman, this pessimism is mere defeatism. He is convinced we can keep our prices in reasonable control no matter what any other country does. And already the Canadian Government has taken some pretty decisive steps to offset those price increases below the border.

Most important was the restoration of our dollar to parity with the American dollar. Ever since 1939 ours had been at a 10% discount, so each Canadian dollar bought only 90 cents worth of American goods. Now it buys a dollar’s worth. Even if the 90-cent article in the United States goes up to a dollar in price, the Canadian buyer will be no worse off.

Whether these measures will stem the tide, only events will show. Meanwhile, don’t get panicky if our cost of living continues to riseit was expected to do so anyway. Increases of 6% to 9% in prices of men’s and boys’ clothing were authorized last April, but still haven’t hit the retail market. We’ll feel them in the fall. Many items hitherto controlled are out of control altogether since the new policy order of July 5, and though none of these things are in the index, you’ll feel their weight. Imports are no longer under 1941 ceilings, they’re priced on a cost-plus basis now. Food

prices are still rising, and will continue to do so for a while yet.

Don’t forget, though, this isn’t all bad news. Those base prices of 1935-39 were really depression prices. They were too low. The farmer couldn’t make a living on what we were paying for food in those days, and he couldn’t buy the goods that keep the rest of us employed. Prices now are just about at the prosperity level of 1926-29.

1 oday our dollars are not worth so much apiece as they were in 1939, but we have a lot more of them. Money in circulation in Canada was only $216 millions in 1939, today it’s a billion. Wages and salaries totalled $24jj billions then, they’re $5 billions now just double. Net farm income was $490 millions in 1939, it’s over a billion today. Even in prosperous 1941, average weekly earnings in manufacturing industries were only $25.57; now they’re $32.43.

Bank accounts in Canada numbered less than five millions, today there are 6J/2 million Canadians with money in the bank, and their accounts total well over $5 billions. We have Victory Bonds worth $6 billions among the lot of us, six times as much in Government bonds as we held before the war.

And considering everything—that our land is unscarred, our people unafraid and our resources largely untapped — perhaps this is the most important fact of all: Our 65to 81-

cent dollar is still worth a higher fraction of its pre-war value than any currency on earth.