ABSTRACT
The distinction made between exchange-value and use-value for goods produces the idea that money, or-what is more specific and understandable-any income, has a purchasing power which is variable depending on prices. The distinction is recognized, but at the same time there is need to avoid the awkwardness of maintaining it fully. The need must be understood, because otherwise there can be bewilderment at consequences of it. One of these is the jump to the nebulous notion of the ‘general purchasing power’ of money, or its reciprocal which, no doubt, is the price level. Keynes, who made much of the price level, found it unsuitable and offered retreat to a more accommodating idea which allowed a “plurality” of purchasing powers (A Treatise on Money, Vol. I); but also this is nebulous, it being simply a relaxation of an already nebulous idea. A different and also familiar perplexity with the distinction is in general equilibrium and welfare theory. There the distinction is between the exchange-value of output of the economy at equilibrium prices and the use-value in the sense of collective welfare obtained. Under usual assumptions, the former is indeed maximum for output at equilibrium, but in fact this is not recognized, and from doctrine it is the latter which should be maximum. But the latter is only a phrase without an identified meaning, though it can gather the appearance of this from confusion with the former-wizardry with the differential calculus produces just this illusion. In consequence, equilibrium prices do not measure merely themselves but are proportional to ‘marginal product’; they become distinguished not just as equilibrium prices but as ‘efficiency prices’which lead the economy to maximum ‘welfare’. A formidable structure has been built on circularities.
