ch. i 4 ALTERNATIVE QUANTITY EQUATIONS 231

contracted in terms of legal-tender money. Most peoplehave also a flow of claims that are similarly maturing intheir favour. But the obligations and the claims thatbecome due at any moment seldom exactly cancel oneanother, and the difference has to be met by the transferof titles to legal tender. Hence everybody is anxious tohold enough of his resources in the form of titles to legaltender both to enable him to effect the ordinary transac-tions of life without trouble and to secure him againstunexpected demands. For these two objects people ingeneral elect to hold in the form of titles to legal tenderthe aggregate value of a given quantity of wheat . 1There is thus constituted at any given moment a definitedemand schedule for titles to legal-tender money. LetR be the total resources , 2 expressed in terms of wheat,that are enjoyed by the community ; k the proportion ofthese resources that it chooses to keep in the form oftitles to legal tender; M the number of units of legaltender, and P the value, or price, per unit of these titlesin terms of wheat. Then the demand schedule just

ykR

described is represented by the equation P “ M '

Professor Pigou then enlarges this equation tocover the case where cash is held partly in legaltender and partly in bank deposits, namely :

„ _ ,

P “ qj i c + Ml -c )}

where c is the proportion of their cash which thepublic keep in legal tender and h, is the proportion oflegal tender to deposits held by bankers.

Now it is evident that this equation is formallycorrect. The question is whether it brings out clearlythe important variables. It seems to me to be opento the following criticisms, some of which are equallyapplicable to the form of the Quantity Equationwhich I propounded in my Tract on Monetary Reform :(i.) The introduction of the factor R, the current

1 Prof. Pigou explains that there is no special significance in wheatbeing chosen in this connection rather than any other commodity.

2 The context implies that “ resources ” means income over a period of time.