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A TREATISE ON MONEY

BK. Ill

income of the community, suggests that variation inthis is one of the two or three most important directinfluences on the demand for cash resources. In thecase of the income-deposits this seems to me to betrue. But the significance of It is much diminishedwhen we are dealing, not with the income-deposits inisolation, but with the total deposits. Indeed thechief inconvenience of the “ Cambridge ” QuantityEquation really lies in its applying to the totaldeposits considerations which are primarily relevantonly to the income-deposits, and in its tackling theproblem as though the same sort of considerationswhich govern the income-deposits also govern the totaldeposits. I have aimed in the formulae given at theend of Chapter 10 at keeping the essential advantagesof the “ Cambridge ” method by segregating theincome-deposits and applying it to them alone.

(ii.) The prominence given to k, namely theproportion of the bank-deposits to the community’sincome, is misleading when it is extended beyond theincome-deposits. The emphasis which this methodlays on the point that the amount of real balancesheld is determined by the comparative advantages-of holding resources in cash and in alternativeforms, so that a change in k will be attributableto a change in these comparative advantages, isuseful and instructive.. But “ resources ” in thisconnection ought not to be interpreted, as it isinterpreted by Prof. Pigou , as being identical withcurrent income.

(iii.) By measuring the quantity of Real Balancesin terms of wheat, Professor Pigou is shirking, ratherthan solving, the question of the type of price-level towhich our fundamental equation is intended to leadup. The object of any quantity equation is to dis-cover, not the price of wheat, but, in some sense orother, the purchasing power of money. But hisequation either makes no contribution to this or does