oh. io THE FUNDAMENTAL EQUATIONS

(i.) The Fundamental Equations for theValue op Money

Let E be tbe total money-income or Earnings ofthe community in a unit of time, and I' the part of itwhich has been earned by the production of invest-ment-goods, so that I' measures the cost of productionof new investment and E -1' the cost of productionof the current output of consumption-goods.

Further, let S be the amount of Savings as definedabove, so that E - S measures the current expenditureof income on consumption-goods.

Let us choose our units of quantities of goods insuch a way that a unit of each has the same cost ofproduction at the base date ; and let 0 be the totaloutput of goods in terms of these units in a unit oftime, R the volume of liquid Consumption-goods andServices flowing on to the market and purchased byconsumers, and C the net increment of Investment, inthe sense that 0 = R + C.

Let P be the price-level of liquid Consumption-goods,so that P . R represents the current expenditure on

C

consumption-goods and E . ^( =P) is the cost of pro-

duction of new investment.

Then, since the expenditure of the community onconsumption goods is equal to the difference betweenits income and its savings, we have

P.R=E-S=^(R+C)-S=S.R + P-S

U q u

s

which is the first of our Fundamental Equations.

Let W be the rate of earnings per unit of humaneffort (so that the inverse of W measures the LabourPower of Money), W x the rate of earnings per unit