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A TREATISE ON MONEY

of output, i.e. the rate of efficiency-earnings, and e thecoefficient of efficiency (so that W = e . Wj).

We can then re-write Equation (i.) in the forms :

The price-level of consumption-goods (i.e. the in-verse of the purchasing power of money) is made up,therefore, of two terms, the first of which representsthe level of efficiency-earnings, i.e. the cost of produc-tion, and the second of which is positive, zero ornegative, according as the cost of new investmentexceeds, equals or falls short of the volume of currentsavings. It follows that the stability of the purchasingpower of money involves the two conditions—thatefficiency-earnings should be constant and that thecost of new investment should be equal to the volumeof current savings.

Thus the price-level, as determined by the firstterm, is upset by the fact that the division of the out-put between investment and goods for consumption isnot necessarily the same as the division of the incomebetween savings and expenditure on consumption.For workers are paid just as much when they areproducing for investment as when they are producingfor consumption; but having earned their wages, itis they who please themselves whether they spend orrefrain from spending them on consumption. Mean-while, the entrepreneurs have been deciding quiteindependently in what proportions they shall producethe two categories of output.

The reader will observe that the price-level ofconsumption-goods is entirely independent of theprice-level of investment-goods. Given the level ofefficiency wages and the difference between the costof new investment-goods (as distinguished from their

P " W ‘ + I TT

(ii.)

(iii.)