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A TREATISE ON MONEY

BK. Ill

income against consumption goods, nor from KealBalances, nor from the proportion of resources held incash, but from the total volume of cash-transactions,or of “ expenditure ” as Professor Fisher calls it. IfB is the total volume of cash-transactions in a givenperiod, M the volume of cash outstanding, and V theaverage number of times that a unit of cash is usedin transactions during that period, i.e. the velocity ofcirculation, then by definition B = M . V.

But we can also analyse B in a different way.Each transaction consists of a quantity of goods orservices or securities traded, multiplied by the priceof the article. That is to say B = 1p r . q r where q is thequantity of anything traded and p the price at whichit is traded. Let us take as our units of quantity theamount which has a unit value in the base year.We then have

B *= = P 2 . T

where P 2 = ±(p r . and T = *(?,.

Otherwise interpreted P 2 is the price-level of thearticles traded, the price of each individual articlebeing weighted in proportion to the money-volume ofthe transactions in that article ; that is to say, P 2measures the Cash-transactions Standard as definedin Chapter 6. And T is the sum of the number ofunits traded (a unit of anything being the quantityworth a unit of money in the base year), weighted inproportion to their relative prices, i.e. to their pricesin terms of P 2 in the year in question ; that is to sayT measures what Professor Fisher calls the Volume of

circulation ” and, presumably, from the “ rapidity of circulation ”, “ allsuch transfers as loaning money, or depositing it in a bank, because theseare not balanced by reverse transfers of wealth or services ”. The wholething is worked out with much subtlety—more subtlety, perhaps, than isshown by Fisher.