It is obvious that this vitally important problem of circularity (X depends on Y, while Y depends on X) exists not only in regard to decisions by consumers but also in regard to any exchange decision in the money economy. Thus, let us consider the seller of the stock of a consumers’ good. At a given offered money price, he must decide whether to sell the units of his stock or whether to hold on to them. His eagerness to sell in exchange for acquiring money is due to the use that the money would have for him.

We may sum up the utility and cost considerations in decisions of buyers and sellers of consumers’ goods—or, rather, of potential buyers and sellers (cf. chapter 2, pp. 190f.)—as follows:

In cases where neither cost item is present, the sale is costless.

It should be evident that the establishment of money tremendously broadens the range of choice open to everybody. The range of alternative uses that can be satisfied by units of money is far wider than the number of uses to which individual goods can be put. Horses or houses can be allocated to several uses, raw materials to many areas of production, but money can be allocated in expenditure on every single type of exchangeable good in the society, whether a tangible commodity or an intangible service, a consumers’ or a capital or a natural good, or claims to these goods.

WE HAVE SEEN THE ENORMOUS importance of the money prices of goods in an economy of indirect exchange. The money income of the producer or laborer and the psychic income of the consumer depend on the configuration of these prices. How are they determined? In this investigation, we may draw extensively from almost all of the discussion in chapter 2. There we saw how the prices of one good in terms of others are determined under conditions of direct exchange.

Let us first take a typical good and analyze the determinants of its money price on the market. (Here the reader is referred back to the more detailed analysis of price in chapter 2.) Let us take a homogeneous good, Grade A butter, in exchange against money.

The money price is determined by actions decided according to individual value scales. For example, a typical buyer’s value scale may be ranked as follows:

Every money price of a good on the market, therefore, is determined by the supply and demand schedules of the individual buyers and sellers, and their action tends to establish a uniform equilibrium price on the market at the point of intersection, which changes only when the schedules do.8 Now the question arises: What are the determinants o