Note 350 — Chapter XV

A possible alternative interpretation of Professor Fisher's conception is suggested in two or three sentences in the passage of the Purchasing Power of Money I have been discussing. On p. 175 he makes a distinction between individual prices relatively to each other and the price-level. But the distinction which he discusses in the passage as a whole is between the price-level and individual prices not considered in relation to each other. Comparison, moreover, with his original enunciation of the notion (Papers and Discussions, 23d Annual Meeting of the American Economic Association, pp. 36-37), would serve to justify the interpretation I give, as nothing at all is said there about super-ratios between individual prices. But the internal evidence is even more convincing. Demand and supply, and cost of production, find their problem, not in the relation between the money price of aspirin and the money price of caviar, but in the money-price of aspirin or the money-price of caviar considered separately. Professor Fisher thus conceives supply and demand in his Elementary Principles (p. 260). This interpretation is especially necessary, since Professor Fisher is joining issue with writers who surely use demand and supply and cost of production as means of explaining money-prices, and not super-ratios between them. Further, the price-level is not, on Professor Fisher's own scheme, a factor in determining the relations of the prices of sugar and of wheat inter se. With a given price-level, wheat might be worth a dollar and sugar nine cents, and the ratio of their money equivalents would be 100:9; with a price-level twice as high, wheat would be worth two dollars, and sugar eighteen cents, but the ratio between their money equivalents would be still 100:9. The whole discussion is quite meaningless unless the contrast be between concrete money-prices of particular goods, and their average. On either interpretation, moreover, my criticism of the exalting of the average into an entity would stand.