146

A TREATISE ON MONEY

BK. Ill

In the more general case where the public senti-ment towards securities or the volume of savings-deposits is changing, then if the extent to which theentrepreneurs have recourse to the expedient of re-leasing bank-deposits plus the increase in savings-deposits allowed by the banking system just balancesthe increase in the desire of the public to employtheir resources in bank-deposits, there is no reasonfor any change in the price of securities. If theformer is in excess of the latter, the price of securitieswill tend to rise ; and if the latter is in excess of theformer, the price of securities will tend to fall.

(iv.) The Relation of the Peice-level to theQuantity of Money

The reader will have perceived by now that therelationship of the purchasing power of money (orprice-level of consumption-goods) and of the price-level of output as a whole to the quantity of moneyand the velocity of circulation is not of that directcharacter which the old-fashioned quantity equations,however carefully 'ded, might lead one to suppose.

are unchanged, the requirements of the Cash-Depositsare mainly determined by the magnitude of the earn-ings bill, i.e. by the product of the rate of earningsand the volume of output; and the requirements ofthe Savings-Deposits are mainly determined by the

junction with the price-level of securities. Or puttingit the other way round, given the total quantity ofmoney, only those combinations of the rate of earn-ings, the volume of output and the price-level ofsecurities are feasible which lead to the aggregaterequirements of money being equal to the given total.

This means, indeed, that in equilibrium— i.e. whenthe factors of production are fully employed, when the

If we assume banking habits and practices

bearishness of the public’s disposition taken in con-