If Keynesians are unsure about investment, they have, until very recently, been very emphatic about consumption. Investment is a volatile, uncertain expenditure. Aggregate consumption, on the other hand, is a passive, stable “function” of immediately previous social income. Total net expenditures determining and equaling total net income in a period (gross expenditures between stages of production are unfortunately removed from discussion) consist of investment and consumption.

The once highly esteemed “multiplier” has now happily faded in popularity, as economists have begun to realize that it is simply the obverse of the stable consumption function. However, the complete absurdity of the multiplier has not yet been fully appreciated. The theory of the “investment multiplier” runs somewhat as follows:

Social Income = Consumption + Investment

In chapter 3 above, we engaged in an extensive analysis of the individual’s balance of payments.

Up to this point we have analyzed the market in terms of a single money and its purchasing power. This analysis is valid for each and every type of medium of exchange existing on the market. But if there is more than one medium coexisting on the market, what determines the exchange ratios between the various media? Although on an unhampered market there is a gradual tendency for one single money to be established, this tendency works very slowly. If two or more commodities offer good facilities and are both especially marketable, they may coexist as moneys.

The basis on which we have been explaining the purchasing power of money and the changes in and consequences of monetary phenomena has been an analysis of individual action. The behavior of aggregates, such as the aggregate demand for money and aggregate supply, has been constructed out of their individual components. In this way, monetary theory has been integrated into general economics.

In the real world, there will be continual changes in the pattern of economic activity, changes resulting from shifts in the tastes and demands of consumers, in resources available, technological knowledge, etc. That prices and outputs fluctuate, therefore, is to be expected, and absence of fluctuation would be unusual. Particular prices and outputs will change under the impact of shifts in demand and production conditions; the general level of production will change according to individual time preferences.

In olden times, before the development of economic science, people naively assumed that the value of money remained always unchanged. “Value” was assumed to be an objective quantity inhering in things and their relations, and money was the measure, the fixed yardstick, of the values of goods and their changes.

The knowledge that the purchasing power of money could vary led some economists to try to improve on the free market by creating, in some way, a monetary unit which would remain stable and constant in its purchasing power. All these stabilization plans, of course, involve in one way or another an attack on the gold or other commodity standard, since the value of gold fluctuates as a result of the continual changes in the supply of and the demand for gold.