oh. i 4 ALTERNATIVE QUANTITY EQUATIONS 227

the exact amount by which the original set of depositors,who turned buyers of goods, had decided to diminishtheir real-balances. This must necessarily come aboutin due course unless one of the individuals, into whosehands comes additional purchasing poiver in thecourse of the process, decides that he will take thisopportunity to increase the amount of purchasingpower which it suits him to keep at the bank, in whichcase the circle is broken, there will be no tendency tomaintain the price-level at any higher figure thanbefore, and the upward fluttering of prices will havebeen no more than temporary.

We are left, therefore, with the following proposi-tion :

Whenever an individual makes a decision whichmeans a diminution in his stock of real-balances,this occasions a rise in the jprice-level, except in sofar as it may be balanced by decisions in theopposite sense, at the existing price-level, on thepart of other individuals or by decisions on thepart of the bankers to diminish correspondinglythe stock of cash. If, however, the decision ofthis individual does not affect the decisions of theother individuals or of the bankers, then the eventualproportionate rise in the price-level is exactly inthe proportion which the diminution in his stock ofreal-balances bears to the remaining stock of real-balances . 1

We may observe, in passing, that whenever someindividuals take steps to diminish their real-balances,this action is necessarily to the detriment of the other

1 The second part of this proposition follows thus : If r is the stock ofreal-balances, m the stock of cash-balances (assumed constant), and p theprice-level, whilst dp is the rise in the price-level when the depositor dimin-ishes his stock of real-balances by dr, then : rp=m = (r-dr) (p-f-dp)

dp dr

so that - =

p r -dr

Let me repeat that the price-level in this equation is the Cash-BalancesStandard.