oh. i 4 ALTERNATIVE QUANTITY EQUATIONS 225

real-balances respectively, and price-levels are theresultant of these. Every decision by an individualas to whether at the existing 'price-levels he desires tobuy, to sell or to do neither is, in effect, a decision asto whether he desires to decrease, increase or leaveunchanged his real-balances.

Thus this method of approach furnishes us witha clue to the manner in which the causation of theprice-making process is related to human decisions.The train of thought is worth following a littlefurther. For it makes apparent in what way harmonyis established between the separate sets of decisionsmade by the body of depositors on the one side andthe body of bankers on the other.

The normal state of affairs is a perpetual flow ofexchanges of purchasing power for goods and vice versa,which temporarily increase both the Cash-balancesand the Real-balances of some parties and decreasethose of others, whilst leaving the aggregate balancesapproximately unchanged. In a state of equilibriumbetween the amount of Real-balances required, theamount of Cash-balances outstanding and the Price-level, the normal flow of purchases and sales has notendency either to alter the relative aggregate volumesof Cash-balances and Real-balances or to modifythe Price-level. If, however, at any moment thepressure of the individuals who wish to diminish theirReal-balances (i.e. who wish to diminish their Cash-balances at the existing price-level) exceeds that ofthose who wish to increase their Real-balances (i.e.who -wish to increase their Cash-balances at theexisting price-level), the greater eagerness of thebuyers than of the sellers at the existing price-levelcreates a tendency for the price-level to rise. Theprice-level will rise until there is again an equilibriumbetween the eagernesses of the two parties. Thecausation of the price-change is in the form of anincrease of demand at the existing price-level, and the

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