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A TREATISE ON MONEY

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twentieth. A large command of resources in the formof currency renders their business easy and smooth, andputs them at an advantage in bargaining ; but on theother hand it locks up in a barren form resources thatmight yield an income of gratification if invested, say,in extra furniture ; or a money income, if invested inextra machinery or cattle.” A man fixes the appropriatefraction “ after balancing one against another the advan-tages of a further ready command and the disadvantagesof putting more of his resources into a form in whichthey yield him no direct income or other benefit “ Letus suppose that the inhabitants of a country, taken onewith another (and including therefore all varieties ofcharacter and of occupation), find it just worth theirwhile to keep by them on the average ready purchasingpower to the extent of a tenth part of their annualincome, together with a fiftieth part of their property;then the aggregate value of the currency of the countrywill tend to be equal to the sum of these amounts.” 1

This theory has been put into the form of aQuantity Equation by Professor Pigou 2 :

In the ordinary course of life, people are continuallyneeding to make payments in discharge of obligations

1 Money, Credit and Commerce, I. iv. 3. Dr. Marshall shows in a foot-note as follows that the above is in fact a development of the traditionalway of considering the matter : “ Petty thought that the money ‘ sufficientfor ’ the nation is ‘ so much as will pay half a year’s rent for all the landsof England and a quarter’s rent of the Houseing, for a week’s expense ofall the people, and about a quarter of the value of all the exported com-modities ’. Locke estimated that ‘ one-fiftieth of wages and one-fourthof the landowner’s income and one-twentieth part of the broker’s yearlyreturns in ready money will be enough to drive the trade of any country ’.Cantillon (a.d. 1755), after a long and subtle study, concludes that thevalue needed is a ninth of the total produce of the country; or, what hetakes to be the same thing, a third of the rent of the land. Adam Smith has more of the scepticism of the modern age and says : ‘ it is impossibleto determine the proportion,’ though ‘ it has been computed by differentauthors at a fifth, at a tenth, at a twentieth, and at a thirtieth part of thewhole value of the annual produce ’.” In modern conditions the normalproportion of the income-deposits to the national income seems to be some-where between a tenth and a fifteenth, and the proportion of the totaldeposits round about a half.

2 Quarterly Journal of Economics, vol. xxxii., November 1917. I haveabbreviated the quotation which follows without indicating where sentenceshave been omitted.