CHAPTER 6

CURRENCY STANDARDS

(i.) T he Cash-Transactions. Standard and theCash-Balances Standard

The new Fundamental Equation, which I shall pro-pound in Chapter 10, leads up, as it should, to thePurchasing Power of Money. The Quantity Equationswhich have been in use hitherto do not, however, doso. They refer, as we shall see in Chapter 14, toPrice-Levels which weight different articles, not inproportion to their importance to consumers, but inproportion to their importance in connection withthe volume either of cash-transactions or of cash-balances—two types of Currency Standard, as theymay be termed, which we shall call respectively theCash-Transactions Standard and the Cash-BalancesStandard.

These Currency Standards must necessarily differfrom the Purchasing Power of Money, because therelative importance of different articles as objects ofmonetary transactions is not the same as their relativeimportance as objects of consumption. It is evidentthat the systems of weighting appropriate to a Con-sumption Standard and to a Currency Standard re-spectively can differ materially from one another. Anobject of expenditure which passes straight from theoriginal producer to the ultimate consumer, such aspersonal services for example, gives rise to a less volume

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