Southwest Washington labor press. [volume] (Hoquiam, Wash.) 19??-19??, 1926-10-22
WHAT CONSTITUTES
PURCHASING POWER
Of SILVER DOLLAR


In the last stor was described what
is meant by the purchasing power Of
the dollar. In this We shall see what
forces fix that purchasing power.
The reader win notice that this is
the first time in this series of articles
that causes have been discussed. All
of the preceding eight stories have
been confined to describing the econ
omic world in which we live. We are
now ready to explain how it opef-
ates. In other words, thus far we have
studied, so to speak. economic aHat-
omy; but now we are to study econ
omic physiology.
As we know, the purchasing power
of the dollar is simply the price level
upside down. As oneA goes up the
other goes down in the same proper
ton. So in explaining the purchase
ing power Of the dollar we are ex-
planning the general level, or scale,
of prices.
Now it is much simpler to explain
this general level Of prices than to
explain any one price, surprising as
this may sound. The first step in
understanding why wheat is worth say
two dollars a bushel is to explain
why the dollar is worth what it is.
The purchasing power of the dol
lar, or the general level of prices, is
explained chiefly by the equation Of
exchange"-the fact that money and
goods are always balanced against
each other.
If you buy ten pounds of sugar at
nine cents a pound, of course what
you pay Is the ten pounds multiplied
by the nine cents per pound, or ninety
cents. You pay 80 cents: equals 10
lbs. x 8 cts.
Every other purchase may be ex-
pressed in the same way. The money
spent is always equal to the amount
bought multiplied by tn eprice. We
might write thousands of such equa-
tions. Besides the one for sugar are
those for wheat, steel, cloth and so
on, one for every purchase in the
country. But we can combine them all
into one: The total number of dol
lars exchanged for goods in, say,
1926, is equal to the total amounts Of
goods exchanged each multiplied by
its price.
In figures, the money side, or left
hand side, Of this equation might be,
say 100000, 100000. The other. or
goods side, or right hand side, how
ever, consists not of one figure but of
thousands of separate items-for SUI
gar, wheat, steel, etc, etc.
But these thousands Of items can
be purchased by adding all the
amounts bought (say 20 billion units)
and multiplying this by the average
price per unit (say IS per unity
We shall then have, as the COM
bined equation of exchange" $780,
0OO,OO0,000, is equal to 10000. 100000
units multiplied by IS per unit.
This equation, n like the first equa-
ton (that for sugar. except that the
price, S., is now not the price Of sugar
nor Of any other one commodity but
an average 81 ali prices, and the
amount is the total number Of units
in all the trade Of the country.
OF course these units are a mis-
cellaneous lot--pounds Of sugar, tons
of coal, bushels Of wheat, quarts of
milk, yards of cloth, acres Of land,
ETC., and the result would be differ
emit if we measured say, sugar in
tons instead Of pounds, or coal in
pounds instead Of tons, etc. etc. We
may select any sets of such units we
wish but a good way is to select
units having nearly the same value.
as the values are constantly changing
a certain year, say 1913, may be chos-
en- and the unit of each commodity
taken so as to be about a dollars
worth at that time. Thus the unit
for sugar might be fifteen pounds
instead Of one pound.
In this way the right hand side Of
the equation has become the sum of
all amounts Of goods exchanged Tor
the volume Of trade) multiplied by
the general level, or scale Of prices
Tor the Index Numbers Of Prices.)
Having reduced the right hand side