chapter  IV
Pages 26

THE classical economists and their orthodox successors habitually treated the highest possible production as the unquestioned purpose of economic activity. Setting out from the conception of human wants which this activity was to satisfy within the limits of what could be produced, they asserted that system to be best that would issue in the highest possible total of goods and services. As goods and services of different sorts cannot be simply added together, some indirect way of measuring and comparing them had to be used, and this was found in the prices which they fetched in the market. This involved assuming that every offer of the same amount of money for any good or service represented an equal 'want,' so that the thing for which the amount was paid had a corresponding ' value.' The greater the sum of all the money prices paid for all the goods and services sold, the greater, on this showing, appeared to be the total ' value ' created, and therefore the total production. But of course, the classical economists could not really mean this ; for they were well aware that money prices are affected by the amount of purchasing power available, and did not suppose that, if prices rose without any change in the quantities of goods and services produced, there was any real increase in value or production. They had to invent a notion of ' real value,' as distinct from the expression of value in money terms, based on the amount of expected satisfaction represented by the purchaser's offer of a certain proportion of the available supply of purchasing power. Some later economists tried to get away from this notion of' real value,' by insisting that they studied only market

pricesanddidnotattempttogobeyondthem;butin practicetheseeconomiststoohadoftentomakeuseofa substitutefor'realvalue,'byvaluinggoodsandservices atthepricesofaparticularyear,orotherperiod-adevice withoutwhichtheywereunabletoarriveatanymeasurementoftheproductionofoneyearasagainstanother.