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VI Goods-induced and Cash-induced Changes in the Purchasing Power of the Monetary Unit 1. The Inherent Instability of Market Ratios Changes in the exchange ratios between money and the various other commodities may originate either from the money side or from the commodity side of the transaction. Stabilization policy does not aim only at eliminating changes arising on the side of money. It also seeks to prevent all future price changes, even if this is not always clearly expressed and may sometimes be disputed. It is not necessary for our purposes to go any further into the market phenomena which an increase or decrease in commodities must set in motion if the quantity of money remains unchanged.1 It is sufficient to point out that, in addition to changes in the exchange ratios among individual commodities, shifts would also appear in the exchange ratios between money and the majority of the other commodities in the market . A decrease in the quantity of other commodities would weaken the purchasing power of the monetary unit. An increase would enhance it. It should be noted, however, that the social adjustments which must result from these changes in the quantity of other commodities will lead to a reorganization in the demand for money and hence cash holdings. These shifts can occur in such a way as to counteract the immediate effect of the change in the quantity of goods on the purchasing power of the monetary unit. Still, for the time being we may ignore this situation. The goal of all stabilization proposals, as we have seen, is to maintain 1. Whether this is considered a change of purchasing power from the money side or from the commodity side is purely a matter of terminology. 88 • monetary stabilization and cyclical policy unchanged the original content of future monetary obligations. Creditors and debtors should neither gain nor lose in purchasing power. This is assumed to be “just.” Of course, what is “just” or “unjust” cannot be scientifically determined. That is a question of ultimate purpose and ethical judgment. It is not a question of fact. It is impossible to know just why the advocates of purchasing power stabilization see as “just” only the maintenance of an unchanged purchasing power for future monetary obligations. However, it is easy to understand that they do not want to permit either debtor or creditor to gain or lose. They want contractual liabilities to continue in force as little altered as possible in the midst of the constantly changing world economy. They want to transplant contractual liabilities out of the flow of events, so to speak, and into a timeless existence. Now let us see what this means. Imagine that all production has become more fruitful. Goods flow more abundantly than ever before. Where only one unit was available for consumption before, there are now two. Since the quantity of money has not been increased, the purchasing power of the monetary unit has risen and with one monetary unit it is possible to buy, let us say, one and a half times as much merchandise as before. Whether this actually means, if no “stabilization policy” is attempted, that the debtor now has a disadvantage and the creditor an advantage is not immediately clear. If you look at the situation from the viewpoint of the prices of the factors of production, it is easy to see why this is the case. For the debtor could use the borrowed sum to buy at lower prices factors of production whose output has not gone up; or if their output has gone up, their prices have not risen correspondingly. It might now be possible to buy for less money factors of production with a productive capacity comparable to that of the factors of production one could have bought with the borrowed money at the time of the loan. There is no point in exploring the uncertainties of theories which do not take into consideration the influence that ensuing changes exert on entrepreneurial profit, interest and rent. However, if we consider changes in real income due to increased production, it becomes evident that the situation may be viewed very differently from the way it appears to those who favor “stabilization.” If the creditor gets back the same nominal sum, he can obviously buy more goods. Still, his economic situation is not improved as a result. He is not benefited relative to the general increase of real income which [18.117.81.240] Project...

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