The terms value and purchasing power have hitherto been used synonymously, much to the confusion of the science, notwithstanding the fact that they embrace wholly different conceptions. Value is the relationship existing between two exchangeable commodities, and is expressed by a simple ratio of two numbers or quantities. Purchasing power is the power of a commodity in exchange, and is expressed by a single number or quantity. Value can be expressed only by two numbers or quantities; purchasing power is expressed by one. Value cannot be measured; purchasing power can be. There cannot be an invariable unit of value; there can be an invariable unit of purchasing power. Nothing possesses value, but all commodities may be said to have purchasing power. A man's credit is his purchasing power; we do not speak of it as his value.
We may trace an analogy between purchasing power and potential as used in mechanics. A body is said to have potential energy when it is placed above other objects, i. e., it has potential power with regard to any object or point below it. A stone thrown upwards gradually loses its initial energy imparted to it by the force that projected it upwards; but this actual energy is gradually converted into potential energy, the latter increasing with the loss of the former until the initial energy is transformed wholly into potential, at its highest point. Thus potential energy is advantage of position.
Now in the commercial world commodities occupy different relations to each other, relations which they are constantly changing. Commodities are continually rising and falling in price, changes which are analogous to change of altitude in mechanics. With every fall there is a loss, and with every rise a gain in purchasing power, just as with a falling or rising body its potential energy diminishes and increases. Purchasing power unlike value, is capable of expression in units, which may be any number arbitrarily selected. Value, on the other hand, corresponds to distance, which is expressed by the relative positions of the two bodies.
Unit of Purchasing Power.
Referring to the illustration in the previous chapter, I showed how the exchange relationship of commodities received definite expression by ratios. These relations are expressed as follows:
Butter in lbs. 100
Wheat in bushels. 60
Shoes in pairs. 10
Whiskey in gallons. 35
Silver in ozs. 50
Gold in ozs. 2
The relation of one pound of butter to one bushel of wheat is expressed by 60 to 100 or 3 to 5.
Now in order to find the purchasing power of each of these commodities, it will be convenient to find their least common multiple, and then range them according to their powers. This multiple is 5,250. Dividing this by each number, we obtain the following results:
Butter in lbs. 5,250 / 100 = 52.5
Wheat in bushels. 5,250 / 6,0 = 87.5
Coats. 5,250 / 5 = 1,050
Shoes in pairs. 5,250 / 10 = 525
Whiskey in gallons. 5,250 / 35 = 150
Cows 5,250 / 1 = 5,250
Silver in ozs. 5,250 / 50 = 105
Gold in ozs. 5,250 / 2 = 2,625
These numbers represent the proportion in which the purchasing powers of the above commodities stand to each other, and we may conveniently suppose each number to represent the number of units of purchasing power which is contained in each unit of quantity of the different commodities. Thus, supposing one pound of butter to contain 52.5 units of purchasing power, then one bushel of wheat will contain 87.5 units, one coat 1050 units, one cow 5,250 units, and so on. Units thus selected are invariable; they are expressions of a power which, whilst it fluctuates in each and every commodity in quantity, has no variable degree of intensity. For instance, if the demand for butter should decrease one-half, its purchasing power might decline to an equal extent. Its purchasing power would probably fall to below 30. But whilst it lost in number of units, the units themselves remain invariable. A unit of this nature is therefore an invariable unit and measure of purchasing power.
Now all commodities at any given time and place stand in some definite relation to each other, i. e., have certain amounts of purchasing power which is capable of numerical expression similar to the above example. In other words, all commodities are of equal value when taken in certain proportions. The market reports give these exchange relations, and indicate their fluctuations from day to day.
Now it is only necessary to tabulate commodities as I have done above, commencing at any given time and place, and bring the numbers that indicate their exchange relationship to a common multiple. I am aware that this method involves the use of a very great number of figures, where the commodities are numerous, and vary in purchasing power. This difficulty is overcome, however, by the decimal monetary system. In fact, the exchange relations of commodities are now expressed daily by the market reports. All that is requisite to bring our present system to a scientific basis is to abolish that commercial fiction known as the standard of value, and convert the specie basis into a universal commodity basis. With the abolition of the specie basis and the standard of value, commodities would stand upon their own foundation, and be freed from the mischievous and irritating disturbances that those unscientific institutions are perpetually creating.
Nice try, but quite impossible for the following reasons: 1) The enormous number of calculations required are technically impossible, 2) Market data cannot be trusted for accuracy or they are under the sway of “special interests” with “privileges” and “agendas,” and 3) The present order would eat such an attempt alive unless it focuses attention directly on the only exchange that matters; that traditionally existing between precious metals and currencies. Anyone who seriously thinks otherwise is … take your pick of whatever pejorative you choose. The fourth objection is that labour is forced by automatic definition into the same commodity calculations. None of these can be precisely known and change every day and … are not really even necessary.