48

A TREATISE ON MONEY

BK. I

as the state of speculative sentiment; and, whilst itis possibly stimulated by the activity and depressedby the inactivity of production, its fluctuations arequite different in degree from those of production.Moreover the price-level of the capital goods thusexchanged may vary quite differently from that ofconsumption goods. Business-deposits held for thepurposes of transactions (ii.) and (iii.) make up, 'to-gether with the savings-deposits, what in Chapter 15we shall call the Financial Circulation.

Unfortunately these transactions are not onlyhighly variable, and varying differently from trans-actions arising out of production and consumption;they are also large enough compared with the lattertransactions to confuse the statistics. For examplein Great Britain the total cheque transactions of allkinds in 1927 probably approached £64,000,000,000,to which must be added the transactions for whichnotes are used, making a total of more than sixteentimes the annual income. Since each item of currentoutput cannot change hands on the average so manyas sixteen times, it is evident that transactions aris-ing out of current production and consumption areswamped by business transactions of other kinds.This confusion of production and income statistics bythe large and variable factor of financial transactionsis a serious obstacle to reaching reliable inductive re-sults concerning modern monetary problems.

The corresponding figures for the United States in 1926 were about 700 billion dollars for chequetransactions, which was about ten times the annualincome.

It is evident from the above that the proportion,k 2 , of the average level of the business-deposits tothe volume of the business transactions may be quitedifferent from k u the proportion of the income-depositsto the income transactions. Also it is likely both tovary differently and to be much more variable. Some