226

A TREATISE ON MONEY

BK. Ill

articles to which the additional buying pressure hasbeen directed rise in price.

This, however, is only the first step in the processby which a final equilibrium is restored between Cash-balances, Real-balances and Price-level. The rise ofprice on the part of the articles first affected will initself, by raising the price-level as a whole, diminishto a certain extent the amount of the Real-balanceswhich are equivalent to a given amount of Cash-balances ; so that, whilst the Cash-balances held bythe sellers of the goods just exchanged will haveincreased by the same amount as that by which theCash-balances held by the buyers has diminished, yetthe Real-balances now held by the depositors as awhole will be less than they were before. Neverthe-less it is unlikely that the initial rise of price on thepart of the articles first affected will be sufficient toprevent any increase at all in the Real-balances heldby the remaining depositors (including those who havejust sold goods for balances) other than those whohave just cleared out their balances in exchange forgoods. For if the depositor who decides to reduce hisReal-balances spends an amount of cash equal to aproportion r of the total cash on purchasing anarticle, the weight of which is q in the Cash-balancesStandard, and thereby raises its price in the propor-tion p, it is unlikely that pq will be so great as r.

Unless, therefore, something has happened tochange their ideas as to how much real-balances theyrequire, the recent sellers, finding themselves with anincrement, not only of cash-balances, but also of real-balances, become, in their turn, additional purchasers.Thus an endless chain of additional purchasing atsomething above the old price-level for goods ingeneral is set up, affecting commodity after com-modity, until equilibrium is brought about by a newand higher price-level being established at which theaggregate holdings of real-balances are diminished by