Rising prices and industrial prosperity are intimately related. Just as soon as prices begin to rise producers begin to enjoy increased profits, which in turn stimulate them to increase the volume of their output. They buy more land, build additions to their plants, purchase newer and better equipment, and increase their laboring forces. They reach out after new markets, either by increasing their sales force or by advertising more liberally. Prosperity is in the air. Every undertaking seems to succeed. Raw materials increase in value, permitting higher prices to be set on finished products even before they are ready for the markets. Jobbers and merchants reap additional profits which arise from the increases in value their goods have enjoyed while waiting to be sold. It is to be noticed that the enterpriser first of all feels the impulse coming from a rising price level. This impulse he transmits to others by competing sharply for raw materials, land, labor, and capital, which he must have in order to gain increased profits through an increase in production; also by increasing his own purchases for consumption.

This whole movement is extremely complicated, yet we may assume a simple case for purposes of illustration. Five manufacturers of a standard article enjoy, let us say, a monopoly of its production. Just as soon as the price level starts upward they begin to enjoy additional profits arising from the increased price which their products command. Each sees the desirability of increasing his own output. It is highly probable that up to this point their laborers have not enjoyed any of the income which the increased price produces; and it is also possible that the producers of the raw materials which our five manufacturers consume are selling at the old price. The competition of the five, however, will in time raise wages, and increase the prices of raw materials.