Money

Consumers' Income and Consumers' Outlay.

The price level of all products is settled in the same way as the price of any one of them. Demand is composed of all the money that con sumers spend. We must include not only what they spend on consumable goods, but what they spend on investment. In or dinary speech this is said not to be spent but to be saved. But in reality it is spent on the products of which fixed capital is com posed. The demand for the services of builders arises from the money spent on the acquisition of houses in just the same way as the demand for the services of bootmakers arises from the money spent on the acquisition of boots. People may apply their savings not to acquiring houses but to buying stocks and shares ; but shares represent money spent on the capital assets (plant, etc.) of companies. A man may employ his savings to buy shares from another, but the seller of the shares is then left with money to invest or spend. Without multiplying instances, it is clear enough that money invested is spent. A man devotes his income partly to buying consumable goods and partly, in the form of savings, to buying capital goods or pecuniary rights in capital goods. The total demand for all products is the total of what all people in the community spend from their incomes. The total of incomes may conveniently be called the "consumers' income," and the total spent the "consumers' outlay." These are totals of monetary units.

The price level is determined by the amount of the consumers' outlay; it tends to be such that the consumers' outlay just buys the community's output of wealth, commodities and services, con sumable goods and capital goods. If the price level is too high, sales fall short of output, and stocks accumulate. If the price level is too low, sales overtake output, and stocks are reduced. In the one case dealers tend to put prices up, and in the other to put prices down, till equilibrium is reached. Thus, with a given output of wealth, prices are proportional to the consumers' outlay. Any departure from this principle implies an increase or decrease in the stocks of commodities.

The Unspent Margin.

Everyone who receives and pays money, whether it be his own income or the turnover of his busi ness, will in general at any time have a balance in hand unspent, representing the margin of his receipts over his payments up to date. In a country where a banking system exists, this balance need not be money. It may be partly and even mainly composed of bank credit. A debt can be paid not only with money, but by being set off against another debt, and a bank provides facilities for this procedure. A debt due from a banker (bank credit or "credit money") can be assigned from one creditor to another by means of a bank note or cheque. Bank credit tends to be used for all the major payments. A man with a banking account on which he can draw will keep the greater part of his balance in the form of bank credit; the money he holds will be no more than pocket money. On the other hand those who are not rich enough to have banking accounts (numerically the great majority) must keep their balances in money. Anyone's balance, whether it be all

money or partly bank credit, will be constantly varying. From time to time, when it grows beyond what the possessor thinks it reasonable to hold as idle money, he will invest a portion (spend it on capital). Through all these variations the balance will tend to a more or less definite norm or average, depending upon his income and circumstances.

If we add up all the balances held in the community, we get a total composed of (I) all the bank credit, and (2) all the money in the hands of the public outside the banks. This total we will call the "unspent margin." The unspent margin excludes the money in the hands of the banks, because this is merely a part of the assets held by the banks against their liabilities to deposi tors, and these liabilities have already been counted under the heading of bank credit. If money is paid into or drawn out of the banks, the unspent margin remains unchanged; all that happens is that money is transformed into bank credit, or bank credit into money. But if a change in the volume of bank credit is brought about by a change in the total amount of the banks' assets other than money (their "earning assets," such as loans, discounts, in vestments, etc.), then an equal change is effected in the unspent margin.

The unspent margin may be divided into two parts, consumers' balances and traders' balances. A trader is at the same time a consumer, and his private balance and business balance may not be kept separate, but the existence of such cases does not invalidate the broad division. The consumers' outlay must be equal to the consumers' income, except in so far as the consumers' balances change. If the balances increase or diminish over any interval of time, then the consumers' outlay over that interval is less or greater than the consumers' income by the precise amount by which the balances change.

Traders' Stocks.

The consumers' outlay is what is paid to the traders and others who take part in all the processes of produc tion, transport and dealing, by which goods and services of every kind are placed at the consumers' disposal. But the consumers' income itself is simply composed of the remuneration derived, in the form of profits, wages, salaries, rent, interest, from these very processes. (Incomes which are not so derived are directly or in directly charged upon incomes which are.) If the consumers' in come is not exactly equal to the receipts in terms of money derived from the economic activities of the community, that is because there intervenes a class of traders who hold varying amounts of goods in stock, and whose profits are not identical with their net cash receipts, but can only be calculated from a balance sheet. Traders are those who either produce or buy goods with a view to sale. If a trader's sales of goods from stock outstrip his pur chases or output, his net cash receipts are in excess of his income. If the sales by all the traders as a group outstrip their output, then their net cash receipts are in excess of their income, and the consumers' income falls short of the consumers' outlay by the difference.