ch. i 4 ALTERNATIVE QUANTITY EQUATIONS 233

so by implying that relative prices are unchangeable,all individual prices and therefore all price-levels beingfixed in terms of wheat—which is remote from thefacts.

(iv.) The equation entirely obscures disturbances—which in practice are one of the most important typesof disturbances—arising out of a change in the pro-portions in which deposits are held for the differentpurposes distinguished above as Savings, Business andIncome. Moreover it is intractable for the task ofanalysing disturbances to the price-level due to dis-parities between the rates of saving and of investment.

(iii.) The “ Fisher ” Quantity Equation

Since the publication of Professor Irving Fisher’ sThe Purchasing Power of Money in 1911, the famousformula PT = MV therein propounded has held the yfield in the"world at large as against any other variety.

This formula has played a very great part in promotingthe progress of monetary theory, and those of us whohave been brought up on it must not be deemed un-grateful to the genius of Professor Fisher if we findthat the requirements of our analysis are outgrow-ing it. 1

This formula sets out neither from the flow of

1 Professor Fisher ’s The Purchasing Power of Money is dedicated toSimon Newcomb , from whom vid Professor Kemmerer the PT= MV formulaultimately derives. Newcomb was not a professional economist but amathematician (Professor of Mathematics in the U.S. Navy and at JohnsHopkins). His Principles of Political Economy, published in 1886, is oneof those original works which a fresh scientific mind, not perverted byhaving read too much of the orthodox stuff, is able to produce from timeto time in a half-formed subject like Economics ; and it still to-day deservesperusal. His Fundamental Equation, which he calls the “ equation ofsocietary circulation ” (op. cit. p. 328), is V.R=K.P, where V is the volumeof currency, R the rapidity of circulation (for the whole volume of currency,including both cash and bank-money, for which he allows distinct rapiditiesR' and R", corresponding to Fisher ’s V and V'), P the price-level, and K“ the industrial circulation on the scale of prices which we take as unity ”.

By the “ industrial circulation ” Newcomb means the volume of goods andservices changing hands for money. He excludes from the “ industrial