7. Maximizing Income and Allocating Resources
We have seen that in the money economy, other things being equal, men will attempt to attain the highest possible money income.
If they are investors, they will try to obtain the largest net return. If they sell their labor service, they will sell it for the largest return.
The higher their money income, the more money they will have available for expenditure on consumers' goods.
Before we proceed to a deeper analysis of the money economy, it is important to examine the Other Things Being Equal or the Ceteris Paribus qualification.
In Chapter 1, we examined the truth that in every action men try to obtain the greatest advantage, that is, to attain the end located on the highest possible point on their value scale.
This was also called attempting to maximize psychic revenue or psychic income.
This is a praxeological truth, a general law holding for all human action, with no qualification whatsoever.
Now the establishment of indirect exchange, or a money economy, enables every person to obtain a vast number of consumers' goods that he could not obtain, or could barely obtain, in isolation or by way of barter.
As we have demonstrated in this chapter, these consumers' goods are acquired by producing and selling a good for the money commodity, and then using money to purchase them.
Despite this development, however, by no means can all goods be bought and sold on the market.
Some goods are attainable in this way. Some cannot be.
As was explained in Chapter 2, some goods cannot be alienated from a person, and therefore cannot be exchanged.
They cannot come within the money nexus. They cannot be bought or sold for money.
This fact does not mean that individuals disparage or revere them on that account.
To some people, many of the un-exchangeable consumers' goods are very precious and hold
a high place on their value scale.
To others, these goods mean little, as compared to those consumers' goods that can be bought
in exchange.
The ranking on his value scale depends entirely on the voluntary choice of each individual.
It is nonsense to place the blame on money for the tendencies of some people to value
Money simply enables men to expand enormously their acquisition of exchangeable goods, but
the existence of the market leaves it to each individual to decide how he will value money
and the goods that money will buy.
As a matter of fact, the existence of the money economy has the reverse effect, since
as we know from the law of utility, the marginal utility of a unit of any good diminishes as
its supply increases, and the establishment of money leads to an enormous increase in
the supply of exchangeable goods.
It is evident that this great supply enables men to enjoy unexchangeable goods to a far
greater extent than would otherwise be the case.
The very fact that exchangeable consumers' goods are more abundant enables each individual
to enjoy more of the non-exchangeable ones.
There are many possible examples of grading exchangeable and non-exchangeable goods on
in one's value scale.
Suppose that a man owns a piece of land containing an historic monument, which he prizes on aesthetic
grounds.
Suppose also that he has an offer for sale of the property for a certain sum of money,
knowing that the purchaser intends to destroy the monument and use it for other purposes.
To decide whether or not to sell the property, he must weigh the value to him of keeping
Contrary, therefore, to the common accusation that the establishment of a money economy tends to lead men to slight the importance of non-exchangeable goods, the effect is precisely the reverse.
A destitute person is far less likely to prefer the non-exchangeable to the exchangeable than one whose standard of living in terms of the latter is high.
The terms non-exchangeable or unexchangeable and exchangeable goods are far superior to the terms ideal and material.
The latter classification errs on two counts, aside from failing to convey the essential difference between the two types of goods.
In the first place, as has been stated above, many exchangeable goods are intangible services, rather than tangible material things.
Secondly, many of the non-exchangeable goods valued by some persons would hardly be considered ideal by others, so that a less colored term is necessary.
Examples such as these are of great importance for human action, but of little importance for the rest of this volume, which is mainly concerned with analysis of the market under a system of indirect exchange.
In this study of money exchanges, the subdivision of praxeology known as catallactics, there is not much more that could be said about this problem.
Problem. Other examples of such choices, however, are more important for catallactics.
Consider the case of a man who has three offers for the purchase of his labor services, one
of a money income of 30 ounces per month, another of 24 ounces, and a third of 21 ounces.
Now, and here we return to the original problem of this section, the man will clearly choose
The Theory of Money and Credit
On the other hand, he may well have great differences in taste for the work itself and the varying conditions.
Thus, the job earning 30 ounces may be for a firm or in a type of labor that he dislikes,
or the job offering 24 ounces may have positive qualities that the man likes a great deal.
We have seen in Chapter 1 that labor is evaluated on the basis not only of the monetary return,
As in the case currently under investigation, along with the prospective money income, the
man must weigh the non-exchangeable consumer's goods attached to the different jobs in his
value scale.
What he is weighing, in essence, is two bundles of utility.
A, the utility of 30 ounces per month plus work in what he considers an immoral trade
or in Unpleasant Surroundings vs. B, the utility of 24 ounces per month plus work in a job that
he likes.
The choice will be made in accordance with the value scale of each individual.
One man may choose the 30 ounce job and another may choose the 24 ounce job.
The important fact for catallactics is that a man always chooses a bundle of money income
Income plus other psychic factors, and that he will maximize his money income only if
psychic factors are neutral with respect to his choices.
If they are not, then these factors must always be kept in view by the economist.
Another similar example is the case of a prospective investor.
Suppose an investor faces the choice of investing his saved money in various alternative production
He can, say, invest 100 ounces, with the prospect of earning a net return of 10% in a year in one project, 8% in a second, and 6% in a third.
Other non-exchangeable psychic factors being equal, he will tend to invest in that line where he expects the greatest net money return, in this case, the 10% line.
Suppose, however, that he has a great dislike for the product that would offer a 10% return,
while he has a great fondness for the process and the product promising the 8% return.
Here again, each prospect of investment carries with it a non-detachable positive or negative psychic factor.
The pleasure in producing one product as against the distaste for producing another
are non-exchangeable consumers' goods, positive and negative, which the actor has to weigh in deciding where to make his investment.
He will weigh not simply 10% versus 8%, but 10% plus a disliked production process and product versus 8% plus a delightful production process.
Which alternative he chooses depends on his individual value scale.
Thus, in the case of enterprise as well as in the case of labor, we must say that the entrepreneur will tend to choose the course that maximizes his prospective money income, provided that other non-exchangeable factors are neutral with respect to the various alternatives.
In all cases whatsoever, of course, each man will move to maximize the psychic income on
his value scale, on which scale all exchangeable and unexchangeable goods are entered.
The belief of the classical economists, notably John Stuart Mill, as well as their critics,
that economics must postulate a mythical economic man who is interested only in acquiring money
Money Income is thus a completely erroneous one.
In deciding on the course that will maximize his psychic income, man therefore considers
all the relevant factors, exchangeable and non-exchangeable.
In considering whether to work and at what job, he must also consider the almost universally
desired consumer's good, leisure.
Notice that on the basis of the money return and the non-exchangeable values attached,
the laborer in the example given previously chooses to work at the 24-ounce job.
As he continues to work at the job, the marginal utility of the money wage per unit of time
that he earns, whether it be 24 ounces per month or one quarter ounce per hour, etc.,
will decline.
The marginal utility of money income will tend to decline as more money is acquired,
since money is a good.
Insofar as money is desired for a non-monetary use, such as ornaments, or for use as an addition
to one's cash balance, addition to its stock will lead to a decline in its marginal utility,
just as in the case of any other good.
Insofar as money is desired for the purchase of consumers' goods, an ounce worth of
consumers' goods will also decline in utility as new ounces are acquired.
The first ounce of money spent on consumers' goods will fulfill the highest-ranking once
on the person's value scale, the next ounce spent the once-ranking second-highest, etc.
Of course, this will not be true for a good costing more than one ounce, but this difficulty
can be met by increasing the size of the monetary units so that each is homogeneous in what
it can buy.
Consequently, the marginal utility of money income tends to decline as the income is increased.
On the other hand, as the input of labor increases, the stock of possible units of leisure decline.
and the marginal utility of leisure foregone increases.
As was seen in Chapter 1, labor will tend to be supplied until the point at which the marginal utility reaped from labor no longer outweighs the marginal utility of leisure on the individual's value scale.
In the money economy, labor will cease when the marginal utility of the additional money income per unit of time no longer exceeds the marginal utility of the leisure foregone by working for the additional time.
Of course, the concrete result differs with the individual and with the unit of time selected for consideration.
In terms of income per hour, the point at which labor stops may come fairly quickly.
In terms of income per year, it may never come. Regardless of his money income per hour,
in other words, he is likely to stop work after a certain number of hours worked,
whereas he is likely to take a year off from work only if his annual income is substantial.
Thus, man allocates his time between leisure and productive labor, between labor for money
and labor on unexchangeable items, etc., in accordance with the principle of maximizing
his psychic income.
In deciding between labor and leisure, he weighs the marginal advantages of work with
the marginal advantages of leisure.
Similarly, man as a prospective investor must weigh not only the advantages and disadvantages,
monetary and otherwise, from each prospective investment, but also whether or not to invest
at all.
Every man must allocate his money resources in three and only three ways.
In consumption spending, in investment expenditure, and in addition to his cash balance.
Assume that to the investor cited earlier, the 10% project is highest in utility in his
value scale, all factors considered.
But then he must decide, shall he invest at all?
Or shall he buy consumers' goods now, or add to his cash balance?
The marginal advantage of making the investment will be the prospective money return, weighted
by the non-exchangeable utilities or disutilities involved.
The advantage of a money return will be that he will have more money in the future that
he could spend on consumers' goods.
If he has 100 ounces of money now and invests it, in a year he might have 110 ounces which
he could spend on consumers' goods.
On the other hand, what chiefly militates against investment, as was explained in Chapter
1, is the fact of time preference, the fact that he is giving up possible consumption
in the present.
If we assume that an ounce of money will buy the same quantity of goods as an ounce a year
from now, an assumption that will be removed in later chapters, then one ounce of money
Money now will always be worth more than one ounce a year from now, simply because enjoyment
of a given good is always preferred as early as possible.
Therefore, in deciding whether or not to invest, he must balance the additional return against
his desire to consume in the present, rather than the future.
He must decide if I value 100 ounces now more than 100 ounces a year from now, do I value
100 ounces now more or less than 110 ounces a year from now?
He will decide in accordance with his value scale.
Similarly, he must weigh each against the marginal utility of adding to his cash balance,
and what this consists will be examined later.
Thus every unit of the money commodity in a man's stock, his money resources owned,
is always being allocated to the three categories of use in accordance with his value scale.
The more money that he allocates to consumption, the lower will be the marginal utility of
the goods consumed.
Each further unit spent will be devoted to less urgently desired goods, and each further
unit so spent will decrease his available stock of investment goods and his available
cash balance, and therefore will, in accordance with the law of utility, raise the marginal
utility foregone in each of these uses.
The same will be true for each of the other uses.
The more money he spends on each use, the less will be the marginal utility from that use, and the higher will be the marginal utility of other uses foregone.
Every man will allocate his money resources on the same principles that the hypothetical actor allocated his stock of horses in Chapter 1.
Each unit will be used for the most useful end not yet achieved.
It is in accordance with these principles, the maximizing of his psychic income, that
each man will allocate his money stock.
In accordance with his value scale, each man will judge the respective marginal utilities
to be obtained by each monetary unit in each use, and his allocation of money expenditures
Those as revealed in his balance of payments will be determined by such judgments.
Just as within the general category of investment expenditure there are different projects with
different expected returns, so there are an innumerable variety of consumers' goods within
the general category of consumption.
On what principles does a man allocate his expenditures among the numerous types of consumers'
Consumers' Goods Available, on precisely corresponding principles.
His first unit of money spent on consumers' goods will be spent on that good satisfying
the most highly valued end, the next unit on the next most highly valued end, etc.
Each parcel of a consumers' good bought decreases the marginal utility of this good to the man,
and Increases the Marginal Utility of All Other Goods Forgone.
Again, a man will allocate his money resources within the consumption category by apportioning
each unit of money to that good with the highest marginal utility on his value scale.
A judgment of relative marginal utilities determines the allocation of his money expenditures.
It is evident that we may eliminate the words within the consumption category in the sentence
before the preceding to arrive at the rule which governs all a man's money allocation
within and between categories.
Our analysis may now be generalized still further.
Each man at every point in time has in his ownership a certain stock of useful goods,
a certain stock of resources or assets. These resources may include not only money, but
also consumers' goods, non-personal producers' goods, land and capital goods, personal energy
and time. He will allocate each one of these resources according to the same principles
by which he has allocated money, so that each unit goes into the use with the highest prospective
of Marginal Utility on his value scale.
Here we must note that the sale of personal labor service
is not always made to an investing employer
who purchases the labor service for money
and then tries to sell the resulting product.
In many cases, the man who invests also works directly
in the production of the product.
In some cases, the investor spends saved funds
on Factors of Production and Hires the Labor of Someone to Direct the Actual Production
Operation.
In other cases, the investor also spends his labor time in the details of the production
process.
It is clear that this is just as much labor as the labor of an employee who does not own
and sell the product.
What principles will decide whether a prospective investor uses his labor in his own investment
in production, that is, will be self-employed, or will invest only his money and sell his
labor elsewhere as an employee?
Clearly, the principle again will be the best psychic advantage from the action.
Thus suppose that Jones finds what he considers to be the best and most remunerative investment project which he estimates will yield him a net money income of 150 ounces for the forthcoming year, provided that he does not labor on the project itself, but hires others for its direction and management.
He also estimates that if he were to perform the direction himself instead of hiring a manager to
do it, he would be able to net a further income from the project of 50 ounces a year. With his
own labor involved then, the net income from the project would be 200 ounces for the year.
This figure will be the higher, the more skilled his direction would be than the man he replaces,
and the lower, the less comparatively skilled he is.
In this case, the 200-ounce net income would include a 150-ounce investment income
and 50 ounces for the labor income of direction.
Whether or not he takes this course depends, setting leisure aside,
on whether he can sell his labor service for a greater income elsewhere.
This greater income will of course be in terms of psychic income, but if non-exchangeable
factors are assumed in this case to be neutral, then the greater income will be the greater
money income.
If Ceteris Paribus, Jones can earn 60 ounces as an employee for some other investing producer,
Then he will take this job and hire someone else to use labor on his investment.
His total money income will then be 150 ounces from the project plus 60 ounces from the sale
of his labor services to a producer totaling 210 ounces.
Of course, if non-exchangeable psychic factors countervail such as a great preference for
For being self-employed in the use of his labor, then he may accept the 200-ounce income.
It is clear from this discussion that the common concept of the productive laborer,
limited to the man who works in the fields or on an assembly line, is completely fallacious.
Laborers are all those who expend their labor in the productive process.
This labor is expended for a money income, which may be weighted by other psychic factors.
If the labor service is sold to an investing employer who owns the final good produced
by the cooperating factors, it might be rendered in any required task from that of a ditchdigger
to that of a company president.
On the other hand, labor income may be the result of the self-employment of the investing
Banking Enterpriser. This type of laborer is also the owner of the final product, and
his net monetary return from the sale of the product will include his labor income as well
as his return from the money invested. The larger and more complex the enterprise and
the production process, the greater will tend to be the development of specialized skill
We have so far specifically treated the principles of allocating labor and money.
The other exchangeable resources that a man may possess, and it is the exchangeable resources
The goods that catalactics is interested in are consumers' goods and non-personal producers' goods, land and capital goods.
The consumers' goods in a man's stock are the durable ones.
The non-durable goods and services will have disappeared in the process of consuming them.
So, as we have seen in Chapter 2, any good may have either direct use value to its owner,
or exchange value, or a mixture of both.
At any time, each owner of a consumer's good must judge on his value scale whether its
exchange value or its highest direct use value is the greater.
In the money economy, the problem of exchange value is simplified, since it will be exchange
for money that will be especially important.
The utility on his value scale of the highest direct-use value will be compared to the utility
of the sum of money the good could procure in exchange.
Suppose for example that Mr. Williams owns a house.
He determines that he could sell the house for 200 ounces of gold. Now he judges the
ranking of the direct use as against the exchange value on his value scale. Thus he might have
three alternative direct uses for the house.
a. Living in it b. Living in it part of the time and letting
his brother live in it part of the time c. Living in it part of the time with no participation
by his brother, and he may weigh each of these against the exchange value as follows, Williams
value scale, ranking, one, direct use A, two, exchanging good for 200 ounces of money, three,
direct use B, four, direct use C.
In this case Williams will decide to live in the house and not sell it.
His decision will be determined solely by his value scale.
Someone else might rank the exchange above the direct use and therefore sell the house
for money.
It is obvious that it is true without qualification that for any given good the seller will try
to obtain as high a money price for it as possible.
The proof of this is analogous to the demonstration given in Chapter 2 that the seller of a given
good always tries to obtain the highest price, except that here the markets are simplified
by being exchanges solely for money, and therefore it is the money price that is important.
The money income that a man will get from the sale of a good will always equal the money
Money Price of the sale times the quantity of units of the good.
Thus, if he sells one house at a money price of 200 ounces per house, his total money income
from the good will be 200 ounces.
His desire to sell at the highest price does not, of course, mean that he will always sell
at that price.
The highest money price for a good may still be lower than the psychic value of direct
use to him, as was the case with Williams.
It is possible, however, that if the money price for selling the house rose to 250 ounces,
the exchange value of the house would have ranked higher than direct use A, and he would
have sold the house.
It is clear that if the owner of the consumer's good is also the original producer, the direct
use value to him will be almost nil.
The specialized producer who produces and owns houses or television sets or washing
machines finds that the direct use value to him of this stock is practically non-existent.
For him, the exchange value is the only important factor, and his interest lies solely in maximizing
his money income from the stock, and therefore in attaining the highest money prices in the
sale of each good.
The non-exchangeable factors that might loom large to the prospective investor or laborer
in a certain line of production will be negligible to the producer, who already has a stock
of Goods, since he had already taken the non-exchangeable factors into account when he made his original
investment or his original choice of occupation.
Thus, to the producer of a consumer's good, the way to maximize his psychic income from
this revenue is to obtain the highest possible money price from its sale.
When will an owner sell the good, and when will he rent out its services?
Clearly he will take the course that he believes will yield him the highest money income, or,
more precisely, the highest present value of money income.
What of the owner of a stock of non-personal producers' goods?
How will he allocate these goods to attain the highest psychic income?
In the first place, it is clear that by definition producers' goods can have no direct use
Use Value to Him as Consumers' Goods But they may well have direct use value as
producers' goods, that is, as factors of production in the making of a product further
along in the process of being transformed into consumers' goods.
For any given stock of a producer's good, or for any unit of that stock, there might
be an exchange value, a value in use for transformation into another product that would then have
exchange value, or both.
It is also true for the owner of producer's goods that non-exchangeable factors will generally
play a negligible role.
The fact that he has already invested and perhaps worked in producing or purchasing
The Theory of Money and Credit
from exchanging them directly for money, or from transforming them via production into
a product of lower order, and then selling the product for money.
As an example of the choices facing the owner of producers goods, let us take Robertson.
Robertson has invested in, and therefore owns, the following factors, 10 units of producers
He knows, because of his technological knowledge, that he can transform these units of cooperating
factors x, y and z into ten units of a final product, P. The various units, of course,
are purely physical units of the various goods and are therefore completely incommensurable
with one another.
He estimates that he will be able to sell these units of P for 15 ounces each, a total
money income of 150 ounces.
On the other hand, he sees that he could sell or resell the factors directly for money without
Without himself transforming them into P, as follows, 10 units of X at 6 ounces of gold
per unit, the money price of X, a money income from stock of X of 60 ounces, 5 units of Y
at 9 ounces per unit, a money income of 45 ounces, 6 units of Z at 4 ounces per unit,
A Money Income of 24 oz.
His total money income from the sale of the stock of each producer's goods separately
and directly is 129 oz.
However, Robertson must also consider the money expenditures that he would have to make
in buying labor services to help in this transformation.
In a free economy, he cannot own a stock of laborers. If his expenditure on labor service
is less than 21 ounces, then it will pay him to transform the factors and sell the product
P for 150 ounces. If the required expenditures on labor service are more than 21 ounces,
then it will pay him to sell the producer's goods directly for money.
In each one of these prospective sales, of course, it is to the owner's interest to
be able to sell at the highest possible price, thus yielding the highest money income from
each good.
Suppose now that Robertson had decided to go ahead with the production, and that he
now has in his stock ten units of P. There is no prospect of his immediately going into
to the business that would make use of P as a factor in making another product.
Therefore there is only one alternative left to this owner, to sell the product for money,
for the highest price that he can acquire.
However, in those cases where P is durable, he still has the option of holding off the
sale if he believes that its money price in the future will be higher, and provided that
at the higher price will cover the disadvantage to him of waiting, his time preference, and
the expenses of storing P until the sale is made.
The owner of a producer's good, whether a product to him or a factor, may rent it out
if he does not sell the entire good.
In order for this to be feasible, of course, the good would have to be relatively durable.
Here again, as in the case of a consumer's good, the owner will decide on outright sale
of the good, or hiring out of its services, over a period of time, in accordance with
his judgment of which alternative will yield him the highest money income, precisely the
highest present value.
We have thus analyzed the actions of an owner of a stock of consumer's goods, or of producer's
in Attempting to Attain His Most Highly-Valued Ends, that is, to Maximize His Psychic Income.
Non-Exchangeable Factors for him will generally be negligible in importance,
since they had already been discounted when the investment in them was made.
If we set aside the value of the durable consumer's good in direct use for some owners,
Owners. The aim of the owners will be to maximize their money income from the stock of the good.
Since money income from sale of a good is the money price of the good multiplied by the quantity
sold, this means that the sellers will try to attain the highest money price for their stock.
At this point, we may at least briefly begin to answer the question we did not have the
The Theory of Money and Credit
by the present owner or by someone in the past from whom he had acquired by exchange
or gift this stock of goods.
The past investment must have been made for the reason that we saw earlier, the expectation
of a future money return from the investment, compensating for the sacrifice of waiting
to consume in the future instead of the present.
This previous investor expected that he would be able to sell the good for a money income
greater than the money expenditures that he had to make on the factors of its production.
As an example, let us take Robertson with a stock of 10 units of P. How did he acquire
this stock? By investing money in buying factors of its production and then producing it, in
In the hope of making a certain net money income, that is, in the expectation that the
money income from the sale of P would be greater by a certain amount than the money expenditures
invested in the various factors.
Now how did the previously produced stock of the factors X, Y and Z come into existence?
By the same process.
This investors engaged in the production of these factors in the expectation of a net
money income from the investment, total money income from the investment greater than total
money expenditures.
This investment decision accounts for the existence of all the stock of all producers
goods and durable consumers goods for any community at any given point in time.
In addition, the stock of pure nature-given factors was acquired through the owners or
some previous persons finding and using previously unused factors in a production process.
The stock of the money commodity was like that of the consumer's and producer's goods
the result of an investment decision by an investing producer, who expected his money
We have thus analyzed each type of exchangeable resource that a person may have, what governs
his use of them in order to maximize his psychic income, and to what extent such maximization
One involves attempted maximization of money income from the resource.
In analyzing the determinants of the money income from any sale, we have seen that they
are the quantity and the money price, and we have just seen how the quantities involved
in the given stock of any good can be accounted for.
What yet remains unaccounted for is the money prices.
All we know about them so far is that the seller of any good, consumers' or producers'
good or labor service, wishes to sell it for as high a money price as possible.
Non-exchangeable goods on the owner's value scale may modify this rule, but generally
these modifications will be important only for sellers of labor services.
We have so far been considering man as the allocator or seller of a given good.
What of man as a buyer of a good?
And here we recall the discussion in the early parts of this chapter.
As a buyer, he uses money for investment expenditures and for consumption expenditures.
In our discussion of an individual's consumption expenditures, we saw that he decided on them
upon considering a unit's worth of goods.
But what determines what his unit's worth shall be?
What is an ounce of money's worth of eggs, or hats, or butter, etc.?
This can be determined only by the money price that the buyer would have to pay for the good.
If a man can buy eggs at one tenth of an ounce per dozen, then one ounce's worth of eggs
is Ten Dozen.
Now it is obvious that man in his capacity as a buyer of consumer's goods with money
will seek to buy each particular good at the lowest money price possible.
For a man who owns money and seeks to buy consumer's goods, it is clear that the lower
the money prices of the goods he seeks to buy, the greater is his psychic income.
For the more goods he can buy, the more uses he can make with the same amount of his money.
The buyer will therefore seek the lowest money prices for the goods he buys.
Thus Ceterus Paribus, the psychic income of man as a seller for money, is maximized by
selling the good at the highest money price obtainable.
The psychic income of man as a buyer with money is maximized by buying the good for
the lowest money price obtainable.
Let us now sum up the results of the analysis of this chapter.
We have seen how the common medium of exchange emerges in the market out of direct exchange.
We have noted the pattern of exchanges with and for money in an economy of indirect exchange.
We have described how each individual has a pattern of money income and money expenditures.
Then we investigated what is involved in the maximization of psychic income in a money
economy, how this principle governs the actions of people in their various functions, as owners
of a Good to Seek the Lowest Money Price, with such exceptions as the laborer who spurns
a higher money price for his labor because of the non-exchangeable conditions attached
to the work, or the investor who spurns a greater prospective income for a line of production
that he prefers for its own sake.
These exceptions aside, pursuit of the rule, buy on the cheapest market and sell on the
dearest, leads to satisfaction of the most highly valued ends for each individual, both
as a consumer and as a producer.
Although we know that man tries to maximize his psychic income and therefore his money
Money Income, Ceteris Paribus, we still do not know on what basis the money income that
he does acquire is determined.
We know that the non-exchangeable values are simply determined by the value scales of each
individual, but though we know that, Ceteris Paribus, a man will sell a service or a good
for a greater rather than a lesser money price and income, we do not yet know what makes
What determines the money prices what they are?
What determines the money prices of consumers goods, of labor services, of capital goods,
of nature given factors?
What determines the money price of the entire durable good and the money price of the hired
out services?
And with the enormous importance of investment as the determinant of the given stock of every
What determines the spread between gross money income from goods and the money expenditures on the factors needed to produce them?
It is only the anticipation of this spread between money income from the sale of the product and money expenditure on factors that brings about investment and production.
And what, if any, are the relations that tend to be established among the various prices?
To put it differently, all human action uses scarce resources to attempt to arrive at the most highly valued of not yet attained ends,
that is, to maximize psychic income.
We have seen how this is done by individuals in isolation and by individuals in direct exchange,
Exchange, although these can exist only to a drastically limited extent.
We have seen how it is done on an immensely greater scale in the money economy, and we
have seen that the specific components of psychic maximization in the money economy
are ultimately non-exchangeable values, quantities of goods in stock, and the money prices that
these goods can exchange for on the market.
We have explained the operations of the non-exchangeable values, and we have very briefly indicated
how the quantity of the given stock of each good is determined.
We have now to investigate the classic problem in the analysis of indirect exchange, the
determination of money prices.
The analysis of money prices, moreover, will enable investigation into the reasons for,
The determinants of the spread between expected gross money income from sales and the expenditure
on factors, which induces people to invest in the production of stock.