Belgium relief fund, post war food shortages and the “True” cost of living

Abstract

A key criteria in measuring the true cost of living is the absence of non-price rationing. To examine how non-price rationing distorts conventional measures of the cost of living, we examine the case of Belgium following WWI. The economic fallout from WWI to Belgium was so severe that the Commission for Relief in Belgium provided considerable assistance after the war ended. Nonetheless, food shortages persisted even after international assistance ceased in 1919 and production in Belgium did not return to pre-war levels until the end of 1924. A nonparametric revealed preference test for fifteen food categories shows shortages for eggs, butter, potatoes, vegetables, and sugar for periods from 1920 to 1924. Estimated virtual prices for these five foods, in conjunction with actual prices for the other ten goods, show that the actual cost of living was severely underestimated. The virtual prices of these five goods are the prices at which consumers would have willingly paid to purchase them, given the observed quantities, along with their other purchases. In this respect they can be viewed as market clearing prices. Our findings reinforce the view that Belgium's population continued to endure the effects of constrained consumption and a lower standard of living after the war ended. Further the results show how much the welfare of the Belgium people improved when shortages began to decrease.