Value & Capital, CHAPTER VIII, Section 7

This section explores in further detail some of the results of preceding sections by examining the role of "the standard commodity" (and considering what happens in the case where this is money).

Previous sections assumed an increase in the supply of factor A or in the demand for product X and examined the effects on the prices of other commodities, depending on whether these other commodities are substitutes or complements of the given product or factor.  The discussion in the previous section implicitly assumed that

... the amount of A offered at given prices increased, and the suppliers demanded nothing but some of the standard commodity in exchange.  If the standard commodity is money, this implies that they hoard all the income which they derive from the new units they supply.  Similarly, in [Section 5 of this chapter] it is implicitly assumed that the new demand is demand in terms of the standard commodity; so that if the standard commodity is money, the new demand comes from dishoarding, not from economizing on other goods.

If instead of making this implicit assumption we were to assume that the changes mentioned above were accompanied by changes in the demands for products, these latter changes would "produce an effect on general prices which goes in the opposite direction from the primary effect."  In particular, suppose that along with the increased supply of factor A there is an increased demand for products. The text argues that "prices in general" will only decrease if there is hoarding.  In other words, unless suppliers keep all their additional proceeds as money, they will spend some of it on products, which will tend to increase prices.  Conversely, suppose that along with the increased demand for product X there is a decreased demand for other products. Unless the increased demand for X comes from some dishoarding, all of the increased demand must be paid for through reduced spending for other products, thus decreasing their prices.

The discussion in the text also makes reference to the possible difficulties of calculating the net effect on prices of a combination of increased supply of a factor and increased demand for certain commodities.  Sometimes this can be simplified by choosing a representative consumption good as the standard commodity.  In other cases, there are obstacles to using this sort of device.  If there are any prices in the system that are fixed in terms of money, "severe intellectual contortions are needed" unless we choose money as the standard commodity.