ABSTRACT
We have remarked, when considering the nature of Purchasing Power, that the market value of commodities and services and money in relation to each other depends upon the extent of the entire supply of each and the manner in which it is being utilised, and that every subjection of the use of any supply to a lower utility affects its purchasing power in accordance with the law of diminishing utility. We have seen, also, that whenever the total supply of cash and credit money fails to expand in a manner at all times proportionate to the production and total supply of commodities and services for sale, they cannot all be marketed unless their total value is correspondingly reduced by a fall in the price level. On the other hand, our examination of the monetary system shows that the expansion of the total supply of cash and credit money is only, at all times, proportionate to the production and total supply of commodities and services for sale, provided the total amount of money continuously earned in production by labour, land, capital, enterpreneurs and governments, or an equal quantity of money, is all spent on commodities and services for fi nal consumption or deferred utilisation as fast as it is earned. Therefore, the total continuous purchasing power or income arising from, or earned by, production can only be utilised provided it is all spent on commodities and services as fast as it is earned or received. The nature of the commodities and services on which the total continuous purchasing power or income is spent, and whether spending money in any particular manner is a “wicked waste,” are questions beside the point. The point is that any income, in being spent on commodities and services as fast as earned, is actually utilised to demand effectively. It may be spent on anything for fi nal consumption, from degenerating drugs to healthy food and exercise; or it may be spent on anything for deferred utilisation, from pictures and ornaments of art to necessary furniture, or from special machinery for the production of a patent medicine for prize rats to a necessary farm, factory or railway; but purchasing power is utilised so long as it is spent on commodities and services as fast as it is earned or received. Those from whom the wasteful or useful commodities and services have been bought can employ the purchasing power so earned in any way that suits them. Purchasing power earned directly or indirectly by the sale of a degenerating drug
may be utilised to maintain the widowed mother of a growing future inventor, or it may be utilised to buy a cottage which eventually keeps somebody off the poor rates. Notice that the total monetary income arising from all sources in production can trade all the commodities and services produced for sale without a fall in the price level provided it is all spent as fast as it is earned or received; and that this is so regardless of whether the commodities and services are for fi nal consumption, or for deferred utilisation in the form of new capital commodities. Naturally, it is not possible for producers to estimate always the exact quantity of each commodity that will be demanded effectively at the same price; but, a rise in prices in respect of under-stocked commodities and a fall in prices in respect of overstocked commodities, would continually reconcile the quantity of each commodity in stock to the quantity of money used to demand it effectively, and simultaneously adjust the quantities further produced; and, any loss or hardship to producers in respect of a relatively over-stocked commodity would be balanced by an increased gain to producers in respect of commodities, the quantities in stock of which were relatively less plentiful.
