CH. 3

THE ANALYSIS OF BANK-MONEY

49

estimates as to the magnitude and variability of k 2 ,or rather of its inverse V 2 , will be given in Volume ii.

Now, whilst Jc u in any given economic community,can reasonably be thought of as a steady fractionof the national income in terms of money, this is notthe case with k 2 . For both the volume and the price-level of the transactions which govern k 2 are capableof wide variations which do not correspond to varia-tions of the national money-income. Thus it is mis-leading to represent the total cash-deposits ( i.e. income-deposits plus business-deposits) as bearing any stableor normal relationship to the national money-income.

The reader will have noticed that k x and k 2 arethe inverse of what are generally called the “ velocitiesof circulation” of the income - deposits and of thebusiness-deposits respectively.

We must now embark on a very long argumentas to the manner in which the creation of depositsby the banking system is related to the price-level.To begin with, the Second Book of this Treatise—constituting an inevitable digression from the centraltheme—will be devoted to an analysis of the mean-ing, and to the problem of the measurement, of theValue of Money.

VOL. i

E