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A TREATISE ON MONEY

BK. Ill

holders of real - balances, who find that their cash-balances have been depreciated in value by the actionof those who have cleared out (unless the volumeof cash is also diminished pari passu). Similarly, ifreal-balances are increased, then (unless the volumeof cash is also increased pari passu) pre-existingdepositors are enriched by the extent of the increase.Thus any change in the volume of real-balanceswhich is not balanced by a corresponding change inthe volume of cash involves a somewhat arbitraryredistribution of wealth. The gain or loss correspond-ing to the loss or gain of the depositors as a wholedoes not, of course, accrue to the depositors who bytaking steps to diminish or to increase their real-balances have been the cause of the disturbance, butto quite another set of people, namely to those whohave borrowed from the banks (or otherwise) in termsof money.

Whenever depositors as a whole take steps to dimin-ish the amount of their real-balances, their behaviourcan only take the form of an increased demand ontheir part at the existing level of prices, which mustresult in a tendency for the price-level to rise. Thusthe price-level (meaning by this the Cash-balancesStandard) is the balancing factor which brings intoappropriate relation the volume of real-balanceswhich results from the collective decisions of thedepositors and the volume of money-balances whichresults from the collective decisions of the bankers.The Quantity Theory of Money has been too oftenenunciated in a one-sided way, so as to make itappear that the price-level depends solely on thevolume of money-balances created by the bankers.But the price-level can be affected just as much by thedecisions of the depositors to vary the amounts ofreal-balances which they (the depositors) keep, as bythe decisions of the bankers to vary the amounts ofmoney-balances which they (the bankers) create.