WEBVTT NOTE 3.07. Maximizing Income and Allocating Resources 1 00:00:00.000 --> 00:00:06.000 7. Maximizing Income and Allocating Resources 2 00:00:06.000 --> 00:00:16.000 We have seen that in the money economy, other things being equal, men will attempt to attain the highest possible money income. 3 00:00:16.000 --> 00:00:25.000 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. 4 00:00:25.000 --> 00:00:33.000 The higher their money income, the more money they will have available for expenditure on consumers' goods. 5 00:00:33.000 --> 00:00:46.000 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. 6 00:00:46.000 --> 00:01:01.000 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. 7 00:01:01.000 --> 00:01:08.000 This was also called attempting to maximize psychic revenue or psychic income. 8 00:01:08.000 --> 00:01:17.000 This is a praxeological truth, a general law holding for all human action, with no qualification whatsoever. 9 00:01:17.000 --> 00:01:34.000 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. 10 00:01:34.000 --> 00:01:47.000 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. 11 00:01:47.000 --> 00:01:54.000 Despite this development, however, by no means can all goods be bought and sold on the market. 12 00:01:54.000 --> 00:01:58.000 Some goods are attainable in this way. Some cannot be. 13 00:01:58.000 --> 00:02:07.000 As was explained in Chapter 2, some goods cannot be alienated from a person, and therefore cannot be exchanged. 14 00:02:07.000 --> 00:02:14.000 They cannot come within the money nexus. They cannot be bought or sold for money. 15 00:02:14.000 --> 00:02:20.000 This fact does not mean that individuals disparage or revere them on that account. 16 00:02:20.000 --> 00:02:25.840 To some people, many of the un-exchangeable consumers' goods are very precious and hold 17 00:02:25.840 --> 00:02:28.680 a high place on their value scale. 18 00:02:28.680 --> 00:02:34.540 To others, these goods mean little, as compared to those consumers' goods that can be bought 19 00:02:34.540 --> 00:02:36.340 in exchange. 20 00:02:36.340 --> 00:02:43.480 The ranking on his value scale depends entirely on the voluntary choice of each individual. 21 00:02:43.480 --> 00:02:49.540 It is nonsense to place the blame on money for the tendencies of some people to value 22 00:02:49.540 --> 00:03:09.940 Money simply enables men to expand enormously their acquisition of exchangeable goods, but 23 00:03:09.940 --> 00:03:16.540 the existence of the market leaves it to each individual to decide how he will value money 24 00:03:16.540 --> 00:03:19.140 and the goods that money will buy. 25 00:03:19.140 --> 00:03:29.420 As a matter of fact, the existence of the money economy has the reverse effect, since 26 00:03:29.420 --> 00:03:36.840 as we know from the law of utility, the marginal utility of a unit of any good diminishes as 27 00:03:36.840 --> 00:03:43.120 its supply increases, and the establishment of money leads to an enormous increase in 28 00:03:43.120 --> 00:03:46.000 the supply of exchangeable goods. 29 00:03:46.000 --> 00:03:52.880 It is evident that this great supply enables men to enjoy unexchangeable goods to a far 30 00:03:52.880 --> 00:03:56.880 greater extent than would otherwise be the case. 31 00:03:56.880 --> 00:04:03.760 The very fact that exchangeable consumers' goods are more abundant enables each individual 32 00:04:03.760 --> 00:04:08.840 to enjoy more of the non-exchangeable ones. 33 00:04:08.840 --> 00:04:14.840 There are many possible examples of grading exchangeable and non-exchangeable goods on 34 00:04:14.840 --> 00:04:17.160 in one's value scale. 35 00:04:17.160 --> 00:04:23.720 Suppose that a man owns a piece of land containing an historic monument, which he prizes on aesthetic 36 00:04:23.720 --> 00:04:25.160 grounds. 37 00:04:25.160 --> 00:04:30.600 Suppose also that he has an offer for sale of the property for a certain sum of money, 38 00:04:30.600 --> 00:04:36.440 knowing that the purchaser intends to destroy the monument and use it for other purposes. 39 00:04:36.440 --> 00:04:42.640 To decide whether or not to sell the property, he must weigh the value to him of keeping 40 00:05:12.640 --> 00:05:28.640 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. 41 00:05:28.640 --> 00:05:40.640 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. 42 00:05:40.640 --> 00:05:51.640 The terms non-exchangeable or unexchangeable and exchangeable goods are far superior to the terms ideal and material. 43 00:05:51.640 --> 00:06:00.640 The latter classification errs on two counts, aside from failing to convey the essential difference between the two types of goods. 44 00:06:00.640 --> 00:06:11.640 In the first place, as has been stated above, many exchangeable goods are intangible services, rather than tangible material things. 45 00:06:11.640 --> 00:06:24.640 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. 46 00:06:24.640 --> 00:06:38.640 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. 47 00:06:38.640 --> 00:06:49.640 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. 48 00:06:49.640 --> 00:06:56.000 Problem. Other examples of such choices, however, are more important for catallactics. 49 00:06:56.000 --> 00:07:01.680 Consider the case of a man who has three offers for the purchase of his labor services, one 50 00:07:01.680 --> 00:07:10.200 of a money income of 30 ounces per month, another of 24 ounces, and a third of 21 ounces. 51 00:07:10.200 --> 00:07:16.520 Now, and here we return to the original problem of this section, the man will clearly choose 52 00:07:16.520 --> 00:07:18.520 The Theory of Money and Credit 53 00:07:46.520 --> 00:07:53.520 On the other hand, he may well have great differences in taste for the work itself and the varying conditions. 54 00:07:53.520 --> 00:08:00.520 Thus, the job earning 30 ounces may be for a firm or in a type of labor that he dislikes, 55 00:08:00.520 --> 00:08:07.520 or the job offering 24 ounces may have positive qualities that the man likes a great deal. 56 00:08:07.520 --> 00:08:15.520 We have seen in Chapter 1 that labor is evaluated on the basis not only of the monetary return, 57 00:08:45.520 --> 00:08:51.400 As in the case currently under investigation, along with the prospective money income, the 58 00:08:51.400 --> 00:08:58.040 man must weigh the non-exchangeable consumer's goods attached to the different jobs in his 59 00:08:58.040 --> 00:08:59.860 value scale. 60 00:08:59.860 --> 00:09:04.600 What he is weighing, in essence, is two bundles of utility. 61 00:09:04.600 --> 00:09:12.040 A, the utility of 30 ounces per month plus work in what he considers an immoral trade 62 00:09:12.040 --> 00:09:20.780 or in Unpleasant Surroundings vs. B, the utility of 24 ounces per month plus work in a job that 63 00:09:20.780 --> 00:09:22.020 he likes. 64 00:09:22.020 --> 00:09:27.500 The choice will be made in accordance with the value scale of each individual. 65 00:09:27.500 --> 00:09:33.460 One man may choose the 30 ounce job and another may choose the 24 ounce job. 66 00:09:33.460 --> 00:09:39.980 The important fact for catallactics is that a man always chooses a bundle of money income 67 00:09:39.980 --> 00:09:46.380 Income plus other psychic factors, and that he will maximize his money income only if 68 00:09:46.380 --> 00:09:51.260 psychic factors are neutral with respect to his choices. 69 00:09:51.260 --> 00:09:58.260 If they are not, then these factors must always be kept in view by the economist. 70 00:09:58.260 --> 00:10:02.680 Another similar example is the case of a prospective investor. 71 00:10:02.680 --> 00:10:09.020 Suppose an investor faces the choice of investing his saved money in various alternative production 72 00:10:09.020 --> 00:10:23.020 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. 73 00:10:23.020 --> 00:10:36.020 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. 74 00:10:36.020 --> 00:10:43.020 Suppose, however, that he has a great dislike for the product that would offer a 10% return, 75 00:10:43.020 --> 00:10:50.020 while he has a great fondness for the process and the product promising the 8% return. 76 00:10:50.020 --> 00:10:58.020 Here again, each prospect of investment carries with it a non-detachable positive or negative psychic factor. 77 00:10:58.020 --> 00:11:04.020 The pleasure in producing one product as against the distaste for producing another 78 00:11:04.020 --> 00:11:15.020 are non-exchangeable consumers' goods, positive and negative, which the actor has to weigh in deciding where to make his investment. 79 00:11:15.020 --> 00:11:29.020 He will weigh not simply 10% versus 8%, but 10% plus a disliked production process and product versus 8% plus a delightful production process. 80 00:11:29.020 --> 00:11:35.020 Which alternative he chooses depends on his individual value scale. 81 00:11:35.020 --> 00:11:55.020 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. 82 00:11:55.020 --> 00:12:02.900 In all cases whatsoever, of course, each man will move to maximize the psychic income on 83 00:12:02.900 --> 00:12:11.460 his value scale, on which scale all exchangeable and unexchangeable goods are entered. 84 00:12:11.460 --> 00:12:17.620 The belief of the classical economists, notably John Stuart Mill, as well as their critics, 85 00:12:17.620 --> 00:12:24.740 that economics must postulate a mythical economic man who is interested only in acquiring money 86 00:12:24.740 --> 00:12:29.140 Money Income is thus a completely erroneous one. 87 00:12:29.140 --> 00:12:35.500 In deciding on the course that will maximize his psychic income, man therefore considers 88 00:12:35.500 --> 00:12:40.940 all the relevant factors, exchangeable and non-exchangeable. 89 00:12:40.940 --> 00:12:47.180 In considering whether to work and at what job, he must also consider the almost universally 90 00:12:47.180 --> 00:12:50.860 desired consumer's good, leisure. 91 00:12:50.860 --> 00:12:56.860 Notice that on the basis of the money return and the non-exchangeable values attached, 92 00:12:56.860 --> 00:13:03.200 the laborer in the example given previously chooses to work at the 24-ounce job. 93 00:13:03.200 --> 00:13:09.540 As he continues to work at the job, the marginal utility of the money wage per unit of time 94 00:13:09.540 --> 00:13:17.420 that he earns, whether it be 24 ounces per month or one quarter ounce per hour, etc., 95 00:13:17.420 --> 00:13:18.940 will decline. 96 00:13:18.940 --> 00:13:25.780 The marginal utility of money income will tend to decline as more money is acquired, 97 00:13:25.780 --> 00:13:27.780 since money is a good. 98 00:13:27.780 --> 00:13:35.620 Insofar as money is desired for a non-monetary use, such as ornaments, or for use as an addition 99 00:13:35.620 --> 00:13:43.020 to one's cash balance, addition to its stock will lead to a decline in its marginal utility, 100 00:13:43.020 --> 00:13:46.020 just as in the case of any other good. 101 00:13:46.020 --> 00:13:51.780 Insofar as money is desired for the purchase of consumers' goods, an ounce worth of 102 00:13:51.780 --> 00:13:58.460 consumers' goods will also decline in utility as new ounces are acquired. 103 00:13:58.460 --> 00:14:04.300 The first ounce of money spent on consumers' goods will fulfill the highest-ranking once 104 00:14:04.300 --> 00:14:11.620 on the person's value scale, the next ounce spent the once-ranking second-highest, etc. 105 00:14:11.620 --> 00:14:17.500 Of course, this will not be true for a good costing more than one ounce, but this difficulty 106 00:14:17.500 --> 00:14:24.160 can be met by increasing the size of the monetary units so that each is homogeneous in what 107 00:14:24.160 --> 00:14:25.700 it can buy. 108 00:14:25.700 --> 00:14:34.260 Consequently, the marginal utility of money income tends to decline as the income is increased. 109 00:14:34.260 --> 00:14:41.260 On the other hand, as the input of labor increases, the stock of possible units of leisure decline. 110 00:14:41.260 --> 00:14:46.260 and the marginal utility of leisure foregone increases. 111 00:14:46.260 --> 00:15:02.260 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. 112 00:15:02.260 --> 00:15:18.860 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. 113 00:15:18.860 --> 00:15:27.060 Of course, the concrete result differs with the individual and with the unit of time selected for consideration. 114 00:15:27.060 --> 00:15:33.620 In terms of income per hour, the point at which labor stops may come fairly quickly. 115 00:15:33.620 --> 00:15:40.740 In terms of income per year, it may never come. Regardless of his money income per hour, 116 00:15:40.740 --> 00:15:46.740 in other words, he is likely to stop work after a certain number of hours worked, 117 00:15:46.740 --> 00:15:53.540 whereas he is likely to take a year off from work only if his annual income is substantial. 118 00:15:53.540 --> 00:16:01.740 Thus, man allocates his time between leisure and productive labor, between labor for money 119 00:16:01.740 --> 00:16:08.660 and labor on unexchangeable items, etc., in accordance with the principle of maximizing 120 00:16:08.660 --> 00:16:10.940 his psychic income. 121 00:16:10.940 --> 00:16:17.200 In deciding between labor and leisure, he weighs the marginal advantages of work with 122 00:16:17.200 --> 00:16:20.420 the marginal advantages of leisure. 123 00:16:20.420 --> 00:16:28.520 Similarly, man as a prospective investor must weigh not only the advantages and disadvantages, 124 00:16:28.520 --> 00:16:35.180 monetary and otherwise, from each prospective investment, but also whether or not to invest 125 00:16:35.180 --> 00:16:36.620 at all. 126 00:16:36.620 --> 00:16:43.340 Every man must allocate his money resources in three and only three ways. 127 00:16:43.340 --> 00:16:50.140 In consumption spending, in investment expenditure, and in addition to his cash balance. 128 00:16:50.140 --> 00:16:56.940 Assume that to the investor cited earlier, the 10% project is highest in utility in his 129 00:16:56.940 --> 00:17:00.340 value scale, all factors considered. 130 00:17:00.340 --> 00:17:04.380 But then he must decide, shall he invest at all? 131 00:17:04.380 --> 00:17:09.420 Or shall he buy consumers' goods now, or add to his cash balance? 132 00:17:09.420 --> 00:17:15.780 The marginal advantage of making the investment will be the prospective money return, weighted 133 00:17:15.780 --> 00:17:21.080 by the non-exchangeable utilities or disutilities involved. 134 00:17:21.080 --> 00:17:26.480 The advantage of a money return will be that he will have more money in the future that 135 00:17:26.480 --> 00:17:29.260 he could spend on consumers' goods. 136 00:17:29.260 --> 00:17:37.040 If he has 100 ounces of money now and invests it, in a year he might have 110 ounces which 137 00:17:37.040 --> 00:17:39.840 he could spend on consumers' goods. 138 00:17:39.840 --> 00:17:46.000 On the other hand, what chiefly militates against investment, as was explained in Chapter 139 00:17:46.000 --> 00:17:52.140 1, is the fact of time preference, the fact that he is giving up possible consumption 140 00:17:52.140 --> 00:17:53.900 in the present. 141 00:17:53.900 --> 00:17:59.500 If we assume that an ounce of money will buy the same quantity of goods as an ounce a year 142 00:17:59.500 --> 00:18:05.660 from now, an assumption that will be removed in later chapters, then one ounce of money 143 00:18:05.660 --> 00:18:12.660 Money now will always be worth more than one ounce a year from now, simply because enjoyment 144 00:18:12.660 --> 00:18:17.260 of a given good is always preferred as early as possible. 145 00:18:17.260 --> 00:18:24.420 Therefore, in deciding whether or not to invest, he must balance the additional return against 146 00:18:24.420 --> 00:18:29.380 his desire to consume in the present, rather than the future. 147 00:18:29.380 --> 00:18:38.380 He must decide if I value 100 ounces now more than 100 ounces a year from now, do I value 148 00:18:38.380 --> 00:18:45.380 100 ounces now more or less than 110 ounces a year from now? 149 00:18:45.380 --> 00:18:49.060 He will decide in accordance with his value scale. 150 00:18:49.060 --> 00:18:55.580 Similarly, he must weigh each against the marginal utility of adding to his cash balance, 151 00:18:55.580 --> 00:18:59.980 and what this consists will be examined later. 152 00:18:59.980 --> 00:19:06.300 Thus every unit of the money commodity in a man's stock, his money resources owned, 153 00:19:06.300 --> 00:19:13.820 is always being allocated to the three categories of use in accordance with his value scale. 154 00:19:13.820 --> 00:19:19.700 The more money that he allocates to consumption, the lower will be the marginal utility of 155 00:19:19.700 --> 00:19:21.700 the goods consumed. 156 00:19:21.700 --> 00:19:27.940 Each further unit spent will be devoted to less urgently desired goods, and each further 157 00:19:27.940 --> 00:19:34.660 unit so spent will decrease his available stock of investment goods and his available 158 00:19:34.660 --> 00:19:41.240 cash balance, and therefore will, in accordance with the law of utility, raise the marginal 159 00:19:41.240 --> 00:19:45.180 utility foregone in each of these uses. 160 00:19:45.180 --> 00:19:48.620 The same will be true for each of the other uses. 161 00:19:48.620 --> 00:20:00.620 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. 162 00:20:00.620 --> 00:20:11.620 Every man will allocate his money resources on the same principles that the hypothetical actor allocated his stock of horses in Chapter 1. 163 00:20:11.620 --> 00:20:16.620 Each unit will be used for the most useful end not yet achieved. 164 00:20:16.620 --> 00:20:22.940 It is in accordance with these principles, the maximizing of his psychic income, that 165 00:20:22.940 --> 00:20:26.420 each man will allocate his money stock. 166 00:20:26.420 --> 00:20:32.500 In accordance with his value scale, each man will judge the respective marginal utilities 167 00:20:32.500 --> 00:20:39.860 to be obtained by each monetary unit in each use, and his allocation of money expenditures 168 00:20:39.860 --> 00:20:46.660 Those as revealed in his balance of payments will be determined by such judgments. 169 00:20:46.660 --> 00:20:52.780 Just as within the general category of investment expenditure there are different projects with 170 00:20:52.780 --> 00:20:59.500 different expected returns, so there are an innumerable variety of consumers' goods within 171 00:20:59.500 --> 00:21:02.540 the general category of consumption. 172 00:21:02.540 --> 00:21:08.340 On what principles does a man allocate his expenditures among the numerous types of consumers' 173 00:21:08.340 --> 00:21:13.580 Consumers' Goods Available, on precisely corresponding principles. 174 00:21:13.580 --> 00:21:19.460 His first unit of money spent on consumers' goods will be spent on that good satisfying 175 00:21:19.460 --> 00:21:27.340 the most highly valued end, the next unit on the next most highly valued end, etc. 176 00:21:27.340 --> 00:21:34.780 Each parcel of a consumers' good bought decreases the marginal utility of this good to the man, 177 00:21:34.780 --> 00:21:39.420 and Increases the Marginal Utility of All Other Goods Forgone. 178 00:21:39.420 --> 00:21:46.920 Again, a man will allocate his money resources within the consumption category by apportioning 179 00:21:46.920 --> 00:21:54.020 each unit of money to that good with the highest marginal utility on his value scale. 180 00:21:54.020 --> 00:22:01.420 A judgment of relative marginal utilities determines the allocation of his money expenditures. 181 00:22:01.420 --> 00:22:07.500 It is evident that we may eliminate the words within the consumption category in the sentence 182 00:22:07.500 --> 00:22:14.080 before the preceding to arrive at the rule which governs all a man's money allocation 183 00:22:14.080 --> 00:22:18.360 within and between categories. 184 00:22:18.360 --> 00:22:22.440 Our analysis may now be generalized still further. 185 00:22:22.440 --> 00:22:29.280 Each man at every point in time has in his ownership a certain stock of useful goods, 186 00:22:29.280 --> 00:22:36.520 a certain stock of resources or assets. These resources may include not only money, but 187 00:22:36.520 --> 00:22:44.840 also consumers' goods, non-personal producers' goods, land and capital goods, personal energy 188 00:22:44.840 --> 00:22:51.800 and time. He will allocate each one of these resources according to the same principles 189 00:22:51.800 --> 00:22:58.600 by which he has allocated money, so that each unit goes into the use with the highest prospective 190 00:22:58.600 --> 00:23:03.080 of Marginal Utility on his value scale. 191 00:23:03.080 --> 00:23:07.000 Here we must note that the sale of personal labor service 192 00:23:07.000 --> 00:23:10.820 is not always made to an investing employer 193 00:23:10.820 --> 00:23:13.720 who purchases the labor service for money 194 00:23:13.720 --> 00:23:17.160 and then tries to sell the resulting product. 195 00:23:17.160 --> 00:23:21.920 In many cases, the man who invests also works directly 196 00:23:21.920 --> 00:23:24.360 in the production of the product. 197 00:23:24.360 --> 00:23:28.360 In some cases, the investor spends saved funds 198 00:23:28.360 --> 00:23:34.840 on Factors of Production and Hires the Labor of Someone to Direct the Actual Production 199 00:23:34.840 --> 00:23:36.520 Operation. 200 00:23:36.520 --> 00:23:42.760 In other cases, the investor also spends his labor time in the details of the production 201 00:23:42.760 --> 00:23:44.160 process. 202 00:23:44.160 --> 00:23:51.240 It is clear that this is just as much labor as the labor of an employee who does not own 203 00:23:51.240 --> 00:23:54.120 and sell the product. 204 00:23:54.120 --> 00:24:01.080 What principles will decide whether a prospective investor uses his labor in his own investment 205 00:24:01.080 --> 00:24:09.080 in production, that is, will be self-employed, or will invest only his money and sell his 206 00:24:09.080 --> 00:24:12.000 labor elsewhere as an employee? 207 00:24:12.000 --> 00:24:18.560 Clearly, the principle again will be the best psychic advantage from the action. 208 00:24:18.560 --> 00:24:41.560 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. 209 00:24:41.560 --> 00:24:48.280 He also estimates that if he were to perform the direction himself instead of hiring a manager to 210 00:24:48.280 --> 00:24:55.400 do it, he would be able to net a further income from the project of 50 ounces a year. With his 211 00:24:55.400 --> 00:25:01.640 own labor involved then, the net income from the project would be 200 ounces for the year. 212 00:25:02.360 --> 00:25:09.080 This figure will be the higher, the more skilled his direction would be than the man he replaces, 213 00:25:09.080 --> 00:25:13.080 and the lower, the less comparatively skilled he is. 214 00:25:13.080 --> 00:25:21.080 In this case, the 200-ounce net income would include a 150-ounce investment income 215 00:25:21.080 --> 00:25:25.080 and 50 ounces for the labor income of direction. 216 00:25:25.080 --> 00:25:30.080 Whether or not he takes this course depends, setting leisure aside, 217 00:25:30.080 --> 00:25:35.080 on whether he can sell his labor service for a greater income elsewhere. 218 00:25:35.080 --> 00:25:42.600 This greater income will of course be in terms of psychic income, but if non-exchangeable 219 00:25:42.600 --> 00:25:49.160 factors are assumed in this case to be neutral, then the greater income will be the greater 220 00:25:49.160 --> 00:25:51.360 money income. 221 00:25:51.360 --> 00:25:59.520 If Ceteris Paribus, Jones can earn 60 ounces as an employee for some other investing producer, 222 00:25:59.520 --> 00:26:06.120 Then he will take this job and hire someone else to use labor on his investment. 223 00:26:06.120 --> 00:26:14.320 His total money income will then be 150 ounces from the project plus 60 ounces from the sale 224 00:26:14.320 --> 00:26:20.200 of his labor services to a producer totaling 210 ounces. 225 00:26:20.200 --> 00:26:26.240 Of course, if non-exchangeable psychic factors countervail such as a great preference for 226 00:26:26.240 --> 00:26:33.900 For being self-employed in the use of his labor, then he may accept the 200-ounce income. 227 00:26:33.900 --> 00:26:39.860 It is clear from this discussion that the common concept of the productive laborer, 228 00:26:39.860 --> 00:26:47.100 limited to the man who works in the fields or on an assembly line, is completely fallacious. 229 00:26:47.100 --> 00:26:52.680 Laborers are all those who expend their labor in the productive process. 230 00:26:52.680 --> 00:26:59.440 This labor is expended for a money income, which may be weighted by other psychic factors. 231 00:26:59.440 --> 00:27:05.520 If the labor service is sold to an investing employer who owns the final good produced 232 00:27:05.520 --> 00:27:12.300 by the cooperating factors, it might be rendered in any required task from that of a ditchdigger 233 00:27:12.300 --> 00:27:14.440 to that of a company president. 234 00:27:14.440 --> 00:27:20.280 On the other hand, labor income may be the result of the self-employment of the investing 235 00:27:20.280 --> 00:27:26.560 Banking Enterpriser. This type of laborer is also the owner of the final product, and 236 00:27:26.560 --> 00:27:33.240 his net monetary return from the sale of the product will include his labor income as well 237 00:27:33.240 --> 00:27:39.720 as his return from the money invested. The larger and more complex the enterprise and 238 00:27:39.720 --> 00:27:45.280 the production process, the greater will tend to be the development of specialized skill 239 00:27:45.280 --> 00:28:07.800 We have so far specifically treated the principles of allocating labor and money. 240 00:28:07.800 --> 00:28:14.480 The other exchangeable resources that a man may possess, and it is the exchangeable resources 241 00:28:14.480 --> 00:28:25.480 The goods that catalactics is interested in are consumers' goods and non-personal producers' goods, land and capital goods. 242 00:28:25.480 --> 00:28:30.480 The consumers' goods in a man's stock are the durable ones. 243 00:28:30.480 --> 00:28:36.480 The non-durable goods and services will have disappeared in the process of consuming them. 244 00:28:36.480 --> 00:28:44.160 So, as we have seen in Chapter 2, any good may have either direct use value to its owner, 245 00:28:44.160 --> 00:28:48.240 or exchange value, or a mixture of both. 246 00:28:48.240 --> 00:28:54.840 At any time, each owner of a consumer's good must judge on his value scale whether its 247 00:28:54.840 --> 00:29:00.600 exchange value or its highest direct use value is the greater. 248 00:29:00.600 --> 00:29:07.080 In the money economy, the problem of exchange value is simplified, since it will be exchange 249 00:29:07.080 --> 00:29:10.800 for money that will be especially important. 250 00:29:10.800 --> 00:29:17.680 The utility on his value scale of the highest direct-use value will be compared to the utility 251 00:29:17.680 --> 00:29:23.240 of the sum of money the good could procure in exchange. 252 00:29:23.240 --> 00:29:26.900 Suppose for example that Mr. Williams owns a house. 253 00:29:26.900 --> 00:29:32.740 He determines that he could sell the house for 200 ounces of gold. Now he judges the 254 00:29:32.740 --> 00:29:40.340 ranking of the direct use as against the exchange value on his value scale. Thus he might have 255 00:29:40.340 --> 00:29:44.580 three alternative direct uses for the house. 256 00:29:44.580 --> 00:29:49.600 a. Living in it b. Living in it part of the time and letting 257 00:29:49.600 --> 00:29:56.600 his brother live in it part of the time c. Living in it part of the time with no participation 258 00:29:56.600 --> 00:30:04.720 by his brother, and he may weigh each of these against the exchange value as follows, Williams 259 00:30:04.720 --> 00:30:16.800 value scale, ranking, one, direct use A, two, exchanging good for 200 ounces of money, three, 260 00:30:16.800 --> 00:30:22.320 direct use B, four, direct use C. 261 00:30:22.320 --> 00:30:27.280 In this case Williams will decide to live in the house and not sell it. 262 00:30:27.280 --> 00:30:32.120 His decision will be determined solely by his value scale. 263 00:30:32.120 --> 00:30:37.280 Someone else might rank the exchange above the direct use and therefore sell the house 264 00:30:37.280 --> 00:30:39.240 for money. 265 00:30:39.240 --> 00:30:46.820 It is obvious that it is true without qualification that for any given good the seller will try 266 00:30:46.820 --> 00:30:51.800 to obtain as high a money price for it as possible. 267 00:30:51.800 --> 00:30:57.920 The proof of this is analogous to the demonstration given in Chapter 2 that the seller of a given 268 00:30:57.920 --> 00:31:05.160 good always tries to obtain the highest price, except that here the markets are simplified 269 00:31:05.160 --> 00:31:13.640 by being exchanges solely for money, and therefore it is the money price that is important. 270 00:31:13.640 --> 00:31:19.800 The money income that a man will get from the sale of a good will always equal the money 271 00:31:19.800 --> 00:31:25.080 Money Price of the sale times the quantity of units of the good. 272 00:31:25.080 --> 00:31:33.200 Thus, if he sells one house at a money price of 200 ounces per house, his total money income 273 00:31:33.200 --> 00:31:36.800 from the good will be 200 ounces. 274 00:31:36.800 --> 00:31:43.160 His desire to sell at the highest price does not, of course, mean that he will always sell 275 00:31:43.160 --> 00:31:44.880 at that price. 276 00:31:44.880 --> 00:31:50.640 The highest money price for a good may still be lower than the psychic value of direct 277 00:31:50.640 --> 00:31:54.400 use to him, as was the case with Williams. 278 00:31:54.400 --> 00:32:01.300 It is possible, however, that if the money price for selling the house rose to 250 ounces, 279 00:32:01.300 --> 00:32:07.660 the exchange value of the house would have ranked higher than direct use A, and he would 280 00:32:07.660 --> 00:32:10.240 have sold the house. 281 00:32:10.240 --> 00:32:16.900 It is clear that if the owner of the consumer's good is also the original producer, the direct 282 00:32:16.900 --> 00:32:20.700 use value to him will be almost nil. 283 00:32:20.700 --> 00:32:26.580 The specialized producer who produces and owns houses or television sets or washing 284 00:32:26.580 --> 00:32:34.060 machines finds that the direct use value to him of this stock is practically non-existent. 285 00:32:34.060 --> 00:32:42.380 For him, the exchange value is the only important factor, and his interest lies solely in maximizing 286 00:32:42.380 --> 00:32:49.020 his money income from the stock, and therefore in attaining the highest money prices in the 287 00:32:49.020 --> 00:32:51.060 sale of each good. 288 00:32:51.060 --> 00:32:57.220 The non-exchangeable factors that might loom large to the prospective investor or laborer 289 00:32:57.220 --> 00:33:03.220 in a certain line of production will be negligible to the producer, who already has a stock 290 00:33:03.220 --> 00:33:10.500 of Goods, since he had already taken the non-exchangeable factors into account when he made his original 291 00:33:10.500 --> 00:33:14.300 investment or his original choice of occupation. 292 00:33:14.300 --> 00:33:20.660 Thus, to the producer of a consumer's good, the way to maximize his psychic income from 293 00:33:20.660 --> 00:33:27.800 this revenue is to obtain the highest possible money price from its sale. 294 00:33:27.800 --> 00:33:33.020 When will an owner sell the good, and when will he rent out its services? 295 00:33:33.020 --> 00:33:39.540 Clearly he will take the course that he believes will yield him the highest money income, or, 296 00:33:39.540 --> 00:33:45.720 more precisely, the highest present value of money income. 297 00:33:45.720 --> 00:33:50.800 What of the owner of a stock of non-personal producers' goods? 298 00:33:50.800 --> 00:33:56.440 How will he allocate these goods to attain the highest psychic income? 299 00:33:56.440 --> 00:34:02.600 In the first place, it is clear that by definition producers' goods can have no direct use 300 00:34:02.600 --> 00:34:10.040 Use Value to Him as Consumers' Goods But they may well have direct use value as 301 00:34:10.040 --> 00:34:16.400 producers' goods, that is, as factors of production in the making of a product further 302 00:34:16.400 --> 00:34:22.040 along in the process of being transformed into consumers' goods. 303 00:34:22.040 --> 00:34:28.120 For any given stock of a producer's good, or for any unit of that stock, there might 304 00:34:28.120 --> 00:34:35.660 be an exchange value, a value in use for transformation into another product that would then have 305 00:34:35.660 --> 00:34:38.960 exchange value, or both. 306 00:34:38.960 --> 00:34:45.480 It is also true for the owner of producer's goods that non-exchangeable factors will generally 307 00:34:45.480 --> 00:34:48.320 play a negligible role. 308 00:34:48.320 --> 00:34:53.940 The fact that he has already invested and perhaps worked in producing or purchasing 309 00:34:53.940 --> 00:35:23.940 The Theory of Money and Credit 310 00:35:23.940 --> 00:35:31.020 from exchanging them directly for money, or from transforming them via production into 311 00:35:31.020 --> 00:35:37.500 a product of lower order, and then selling the product for money. 312 00:35:37.500 --> 00:35:44.740 As an example of the choices facing the owner of producers goods, let us take Robertson. 313 00:35:44.740 --> 00:35:51.220 Robertson has invested in, and therefore owns, the following factors, 10 units of producers 314 00:35:51.220 --> 00:36:05.720 He knows, because of his technological knowledge, that he can transform these units of cooperating 315 00:36:05.720 --> 00:36:15.040 factors x, y and z into ten units of a final product, P. The various units, of course, 316 00:36:15.040 --> 00:36:21.400 are purely physical units of the various goods and are therefore completely incommensurable 317 00:36:21.400 --> 00:36:23.440 with one another. 318 00:36:23.440 --> 00:36:30.120 He estimates that he will be able to sell these units of P for 15 ounces each, a total 319 00:36:30.120 --> 00:36:34.400 money income of 150 ounces. 320 00:36:34.400 --> 00:36:41.060 On the other hand, he sees that he could sell or resell the factors directly for money without 321 00:36:41.060 --> 00:36:49.060 Without himself transforming them into P, as follows, 10 units of X at 6 ounces of gold 322 00:36:49.060 --> 00:36:58.540 per unit, the money price of X, a money income from stock of X of 60 ounces, 5 units of Y 323 00:36:58.540 --> 00:37:08.820 at 9 ounces per unit, a money income of 45 ounces, 6 units of Z at 4 ounces per unit, 324 00:37:08.820 --> 00:37:13.460 A Money Income of 24 oz. 325 00:37:13.460 --> 00:37:19.140 His total money income from the sale of the stock of each producer's goods separately 326 00:37:19.140 --> 00:37:23.740 and directly is 129 oz. 327 00:37:23.740 --> 00:37:29.540 However, Robertson must also consider the money expenditures that he would have to make 328 00:37:29.540 --> 00:37:34.540 in buying labor services to help in this transformation. 329 00:37:34.540 --> 00:37:41.420 In a free economy, he cannot own a stock of laborers. If his expenditure on labor service 330 00:37:41.420 --> 00:37:48.660 is less than 21 ounces, then it will pay him to transform the factors and sell the product 331 00:37:48.660 --> 00:37:57.180 P for 150 ounces. If the required expenditures on labor service are more than 21 ounces, 332 00:37:57.180 --> 00:38:02.800 then it will pay him to sell the producer's goods directly for money. 333 00:38:02.800 --> 00:38:07.760 In each one of these prospective sales, of course, it is to the owner's interest to 334 00:38:07.760 --> 00:38:14.280 be able to sell at the highest possible price, thus yielding the highest money income from 335 00:38:14.280 --> 00:38:16.400 each good. 336 00:38:16.400 --> 00:38:21.520 Suppose now that Robertson had decided to go ahead with the production, and that he 337 00:38:21.520 --> 00:38:29.360 now has in his stock ten units of P. There is no prospect of his immediately going into 338 00:38:29.360 --> 00:38:35.520 to the business that would make use of P as a factor in making another product. 339 00:38:35.520 --> 00:38:42.120 Therefore there is only one alternative left to this owner, to sell the product for money, 340 00:38:42.120 --> 00:38:44.880 for the highest price that he can acquire. 341 00:38:44.880 --> 00:38:51.320 However, in those cases where P is durable, he still has the option of holding off the 342 00:38:51.320 --> 00:38:57.880 sale if he believes that its money price in the future will be higher, and provided that 343 00:38:57.880 --> 00:39:04.760 at the higher price will cover the disadvantage to him of waiting, his time preference, and 344 00:39:04.760 --> 00:39:09.980 the expenses of storing P until the sale is made. 345 00:39:09.980 --> 00:39:16.720 The owner of a producer's good, whether a product to him or a factor, may rent it out 346 00:39:16.720 --> 00:39:19.840 if he does not sell the entire good. 347 00:39:19.840 --> 00:39:25.720 In order for this to be feasible, of course, the good would have to be relatively durable. 348 00:39:25.720 --> 00:39:31.640 Here again, as in the case of a consumer's good, the owner will decide on outright sale 349 00:39:31.640 --> 00:39:37.960 of the good, or hiring out of its services, over a period of time, in accordance with 350 00:39:37.960 --> 00:39:44.620 his judgment of which alternative will yield him the highest money income, precisely the 351 00:39:44.620 --> 00:39:48.220 highest present value. 352 00:39:48.220 --> 00:39:55.400 We have thus analyzed the actions of an owner of a stock of consumer's goods, or of producer's 353 00:39:55.400 --> 00:40:03.400 in Attempting to Attain His Most Highly-Valued Ends, that is, to Maximize His Psychic Income. 354 00:40:03.400 --> 00:40:09.400 Non-Exchangeable Factors for him will generally be negligible in importance, 355 00:40:09.400 --> 00:40:14.400 since they had already been discounted when the investment in them was made. 356 00:40:14.400 --> 00:40:21.400 If we set aside the value of the durable consumer's good in direct use for some owners, 357 00:40:21.400 --> 00:40:27.960 Owners. The aim of the owners will be to maximize their money income from the stock of the good. 358 00:40:28.760 --> 00:40:35.640 Since money income from sale of a good is the money price of the good multiplied by the quantity 359 00:40:35.640 --> 00:40:42.200 sold, this means that the sellers will try to attain the highest money price for their stock. 360 00:40:43.080 --> 00:40:49.000 At this point, we may at least briefly begin to answer the question we did not have the 361 00:40:49.000 --> 00:41:19.000 The Theory of Money and Credit 362 00:41:19.000 --> 00:41:25.400 by the present owner or by someone in the past from whom he had acquired by exchange 363 00:41:25.400 --> 00:41:28.560 or gift this stock of goods. 364 00:41:28.560 --> 00:41:34.760 The past investment must have been made for the reason that we saw earlier, the expectation 365 00:41:34.760 --> 00:41:41.000 of a future money return from the investment, compensating for the sacrifice of waiting 366 00:41:41.000 --> 00:41:45.220 to consume in the future instead of the present. 367 00:41:45.220 --> 00:41:50.780 This previous investor expected that he would be able to sell the good for a money income 368 00:41:50.780 --> 00:41:57.220 greater than the money expenditures that he had to make on the factors of its production. 369 00:41:57.220 --> 00:42:04.220 As an example, let us take Robertson with a stock of 10 units of P. How did he acquire 370 00:42:04.220 --> 00:42:11.820 this stock? By investing money in buying factors of its production and then producing it, in 371 00:42:11.820 --> 00:42:17.880 In the hope of making a certain net money income, that is, in the expectation that the 372 00:42:17.880 --> 00:42:24.920 money income from the sale of P would be greater by a certain amount than the money expenditures 373 00:42:24.920 --> 00:42:28.520 invested in the various factors. 374 00:42:28.520 --> 00:42:36.720 Now how did the previously produced stock of the factors X, Y and Z come into existence? 375 00:42:36.720 --> 00:42:39.300 By the same process. 376 00:42:39.300 --> 00:42:44.940 This investors engaged in the production of these factors in the expectation of a net 377 00:42:44.940 --> 00:42:52.160 money income from the investment, total money income from the investment greater than total 378 00:42:52.160 --> 00:42:54.380 money expenditures. 379 00:42:54.380 --> 00:43:00.300 This investment decision accounts for the existence of all the stock of all producers 380 00:43:00.300 --> 00:43:08.000 goods and durable consumers goods for any community at any given point in time. 381 00:43:08.000 --> 00:43:14.400 In addition, the stock of pure nature-given factors was acquired through the owners or 382 00:43:14.400 --> 00:43:22.920 some previous persons finding and using previously unused factors in a production process. 383 00:43:22.920 --> 00:43:28.720 The stock of the money commodity was like that of the consumer's and producer's goods 384 00:43:28.720 --> 00:43:35.040 the result of an investment decision by an investing producer, who expected his money 385 00:43:35.040 --> 00:43:55.960 We have thus analyzed each type of exchangeable resource that a person may have, what governs 386 00:43:55.960 --> 00:44:03.120 his use of them in order to maximize his psychic income, and to what extent such maximization 387 00:44:03.120 --> 00:44:09.040 One involves attempted maximization of money income from the resource. 388 00:44:09.040 --> 00:44:14.520 In analyzing the determinants of the money income from any sale, we have seen that they 389 00:44:14.520 --> 00:44:20.800 are the quantity and the money price, and we have just seen how the quantities involved 390 00:44:20.800 --> 00:44:25.600 in the given stock of any good can be accounted for. 391 00:44:25.600 --> 00:44:30.200 What yet remains unaccounted for is the money prices. 392 00:44:30.200 --> 00:44:36.440 All we know about them so far is that the seller of any good, consumers' or producers' 393 00:44:36.440 --> 00:44:43.680 good or labor service, wishes to sell it for as high a money price as possible. 394 00:44:43.680 --> 00:44:49.700 Non-exchangeable goods on the owner's value scale may modify this rule, but generally 395 00:44:49.700 --> 00:44:56.600 these modifications will be important only for sellers of labor services. 396 00:44:56.600 --> 00:45:03.900 We have so far been considering man as the allocator or seller of a given good. 397 00:45:03.900 --> 00:45:07.060 What of man as a buyer of a good? 398 00:45:07.060 --> 00:45:12.080 And here we recall the discussion in the early parts of this chapter. 399 00:45:12.080 --> 00:45:18.960 As a buyer, he uses money for investment expenditures and for consumption expenditures. 400 00:45:18.960 --> 00:45:24.780 In our discussion of an individual's consumption expenditures, we saw that he decided on them 401 00:45:24.780 --> 00:45:28.660 upon considering a unit's worth of goods. 402 00:45:28.660 --> 00:45:33.220 But what determines what his unit's worth shall be? 403 00:45:33.220 --> 00:45:39.180 What is an ounce of money's worth of eggs, or hats, or butter, etc.? 404 00:45:39.180 --> 00:45:46.180 This can be determined only by the money price that the buyer would have to pay for the good. 405 00:45:46.180 --> 00:45:52.860 If a man can buy eggs at one tenth of an ounce per dozen, then one ounce's worth of eggs 406 00:45:52.860 --> 00:45:55.020 is Ten Dozen. 407 00:45:55.020 --> 00:46:01.380 Now it is obvious that man in his capacity as a buyer of consumer's goods with money 408 00:46:01.380 --> 00:46:07.980 will seek to buy each particular good at the lowest money price possible. 409 00:46:07.980 --> 00:46:14.100 For a man who owns money and seeks to buy consumer's goods, it is clear that the lower 410 00:46:14.100 --> 00:46:20.820 the money prices of the goods he seeks to buy, the greater is his psychic income. 411 00:46:20.820 --> 00:46:27.260 For the more goods he can buy, the more uses he can make with the same amount of his money. 412 00:46:27.260 --> 00:46:33.700 The buyer will therefore seek the lowest money prices for the goods he buys. 413 00:46:33.700 --> 00:46:40.640 Thus Ceterus Paribus, the psychic income of man as a seller for money, is maximized by 414 00:46:40.640 --> 00:46:45.320 selling the good at the highest money price obtainable. 415 00:46:45.320 --> 00:46:51.720 The psychic income of man as a buyer with money is maximized by buying the good for 416 00:46:51.720 --> 00:46:56.040 the lowest money price obtainable. 417 00:46:56.040 --> 00:47:00.640 Let us now sum up the results of the analysis of this chapter. 418 00:47:00.640 --> 00:47:07.720 We have seen how the common medium of exchange emerges in the market out of direct exchange. 419 00:47:07.720 --> 00:47:15.820 We have noted the pattern of exchanges with and for money in an economy of indirect exchange. 420 00:47:15.820 --> 00:47:23.400 We have described how each individual has a pattern of money income and money expenditures. 421 00:47:23.400 --> 00:47:29.000 Then we investigated what is involved in the maximization of psychic income in a money 422 00:47:29.000 --> 00:47:36.260 economy, how this principle governs the actions of people in their various functions, as owners 423 00:48:06.260 --> 00:48:13.200 of a Good to Seek the Lowest Money Price, with such exceptions as the laborer who spurns 424 00:48:13.200 --> 00:48:19.180 a higher money price for his labor because of the non-exchangeable conditions attached 425 00:48:19.180 --> 00:48:26.160 to the work, or the investor who spurns a greater prospective income for a line of production 426 00:48:26.160 --> 00:48:29.980 that he prefers for its own sake. 427 00:48:29.980 --> 00:48:36.560 These exceptions aside, pursuit of the rule, buy on the cheapest market and sell on the 428 00:48:36.560 --> 00:48:43.800 dearest, leads to satisfaction of the most highly valued ends for each individual, both 429 00:48:43.800 --> 00:48:48.200 as a consumer and as a producer. 430 00:48:48.200 --> 00:48:54.400 Although we know that man tries to maximize his psychic income and therefore his money 431 00:48:54.400 --> 00:49:00.840 Money Income, Ceteris Paribus, we still do not know on what basis the money income that 432 00:49:00.840 --> 00:49:04.160 he does acquire is determined. 433 00:49:04.160 --> 00:49:10.400 We know that the non-exchangeable values are simply determined by the value scales of each 434 00:49:10.400 --> 00:49:17.600 individual, but though we know that, Ceteris Paribus, a man will sell a service or a good 435 00:49:17.600 --> 00:49:24.160 for a greater rather than a lesser money price and income, we do not yet know what makes 436 00:49:24.160 --> 00:49:27.260 What determines the money prices what they are? 437 00:49:27.260 --> 00:49:33.840 What determines the money prices of consumers goods, of labor services, of capital goods, 438 00:49:33.840 --> 00:49:36.320 of nature given factors? 439 00:49:36.320 --> 00:49:42.840 What determines the money price of the entire durable good and the money price of the hired 440 00:49:42.840 --> 00:49:44.700 out services? 441 00:49:44.700 --> 00:49:50.760 And with the enormous importance of investment as the determinant of the given stock of every 442 00:49:50.760 --> 00:50:00.760 What determines the spread between gross money income from goods and the money expenditures on the factors needed to produce them? 443 00:50:00.760 --> 00:50:14.760 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. 444 00:50:14.760 --> 00:50:21.760 And what, if any, are the relations that tend to be established among the various prices? 445 00:50:21.760 --> 00:50:32.760 To put it differently, all human action uses scarce resources to attempt to arrive at the most highly valued of not yet attained ends, 446 00:50:32.760 --> 00:50:36.760 that is, to maximize psychic income. 447 00:50:36.760 --> 00:50:43.760 We have seen how this is done by individuals in isolation and by individuals in direct exchange, 448 00:50:43.760 --> 00:50:49.820 Exchange, although these can exist only to a drastically limited extent. 449 00:50:49.820 --> 00:50:56.040 We have seen how it is done on an immensely greater scale in the money economy, and we 450 00:50:56.040 --> 00:51:01.920 have seen that the specific components of psychic maximization in the money economy 451 00:51:01.920 --> 00:51:09.560 are ultimately non-exchangeable values, quantities of goods in stock, and the money prices that 452 00:51:09.560 --> 00:51:13.340 these goods can exchange for on the market. 453 00:51:13.340 --> 00:51:20.180 We have explained the operations of the non-exchangeable values, and we have very briefly indicated 454 00:51:20.180 --> 00:51:25.460 how the quantity of the given stock of each good is determined. 455 00:51:25.460 --> 00:51:32.200 We have now to investigate the classic problem in the analysis of indirect exchange, the 456 00:51:32.200 --> 00:51:35.240 determination of money prices. 457 00:51:35.240 --> 00:51:41.600 The analysis of money prices, moreover, will enable investigation into the reasons for, 458 00:51:41.600 --> 00:51:49.480 The determinants of the spread between expected gross money income from sales and the expenditure 459 00:51:49.480 --> 00:51:54.640 on factors, which induces people to invest in the production of stock.