CHAPTER 14

ALTERNATIVE FORMS OF THE FUNDAMENTAL EQUATION

The Fundamental Equations of Chapter 10 are inthemselves no more than identities, and thereforenot intrinsically superior to other identities whichhave been propounded, connecting monetary factors.Indeed they have a disadvantage in that their ele-ments are not those which it is easiest to determinestatistically in the present state of our knowledge.They have, however, two principal advantages.

The first advantage is that which we have alreadyemphasised, namely, that they do lead up to whatare generally our real quaesita, namely, the PurchasingPower of Money and the price-level of output as awhole, whereas the alternative methods lead up, aswe shall see, to various hotch-potch price-levels whichare of no great interest in themselves ; and if we tryto argue on from these price-levels to the PurchasingPower of Money, then we are faced with statisticaldifficulties at least as great as those which attend ourown Equation. Thus when we approach the mone-tary problem quantitatively, the statistical difficultieswhich the Equations of Chapter 10 bring to the surfaceare really latent in any method which we can adopt.In fact the statistical advantages of the other methodsonly exist so long as we are content with a price-levelwhich is by no means the price-level we want.

The main advantage, however, to be claimed forthe new Fundamental Equations is for the purposes