[346] Supra, chapter on "Velocity of Circulation."
[347] This distinction is clearly made and developed by von Wieser, in the two articles referred to in our chapter on "Marginal Utility." It is used by him in criticisms of the quantity theory. "Der Geldwert und seine geschichtlichen Veränderungen," Zeitsch. für Volkswirtschaft, Sozialpolitik und Verwaltung, XIII, 1904; discussions in Schriften des Vereins für Sozialpolitik, 1009, no. 132. A similar distinction runs through J. A. Hobson's Gold, Prices and Wages, London, 1913. The present writer had worked out the line of argument here presented before reading either of these discussions.
[348] I have chosen maid-servants, to avoid complications of costs of production in the reasoning that might come if other labor, engaged in producing goods for the market, were selected. To tighten the argument a tittle further, I assume that the masters receive their monthly incomes on the first day of the month; that they pay the maids on the same day; that the rest of the expenditures, both of masters and maids, are strung out through the rest of the month.
[349] Op. cit., p. 27.
[350] A possible alternative interpretation of Professor Fisher's conception is suggested in two or three sentences in the passage of the Purchasing Power of Money I have been discussing. On p. 175 he makes a distinction between individual prices relatively to each other and the price-level. But the distinction which he discusses in the passage as a whole is between the price-level and individual prices not considered in relation to each other. Comparison, moreover, with his original enunciation of the notion (Papers and Discussions, 23d Annual Meeting of the American Economic Association, pp. 36-37), would serve to justify the interpretation I give, as nothing at all is said there about super-ratios between individual prices. But the internal evidence is even more convincing. Demand and supply, and cost of production, find their problem, not in the relation between the money price of aspirin and the money price of caviar, but in the money-price of aspirin or the money-price of caviar considered separately. Professor Fisher thus conceives supply and demand in his Elementary Principles (p. 260). This interpretation is especially necessary, since Professor Fisher is joining issue with writers who surely use demand and supply and cost of production as means of explaining money-prices, and not super-ratios between them. Further, the price-level is not, on Professor Fisher's own scheme, a factor in determining the relations of the prices of sugar and of wheat inter se. With a given price-level, wheat might be worth a dollar and sugar nine cents, and the ratio of their money equivalents would be 100:9; with a price-level twice as high, wheat would be worth two dollars, and sugar eighteen cents, but the ratio between their money equivalents would be still 100:9. The whole discussion is quite meaningless unless the contrast be between concrete money-prices of particular goods, and their average. On either interpretation, moreover, my criticism of the exalting of the average into an entity would stand.
[351] Purchasing Power of Money, pp. 175-179.
[352] I am glad to find myself in agreement with Professors Laughlin and Kemmerer in holding that this notion of Professor Fisher's is untenable. "The distinction Professor Fisher draws between the prices of individual commodities and the general price-level appears to me, as to Professor Laughlin, to be untenable. It is, moreover, contradictory to his general philosophy of money. His index numbers recognize no general price-level distinct from individual prices.... Professor Fisher's illustration of the ocean would be more apposite if he called it a lake whose level was continually changing, and if he considered each particular wave as extending to the bottom." Kemmerer, Papers and Discussions, 23d Annual Meeting of the American Economic Association, p. 53. At the same time, I agree with Professor Fisher that there must be something more fundamental than the particular prices to make the scheme work. This something I find in the absolute value of money.
[353] Loc. cit., p. 14.
[354] Cf. Social Value, chs. 2 and 11, and "The Concept of Value Further Considered," Quart. Jour. of Econ., Aug., 1915. See also, supra, the chs. on "Value," "Supply and Demand," "Cost of Production," and "Capitalization."
[355] This tendency may be more than offset by the increasing significance of money as a "bearer of options" or "store of value" in periods of panic and depression. See, infra, the chapter on "The Functions of Money," and Davenport, Economics of Enterprise, pp. 301-03.