CH. 15 INDUSTRIAL & FINANCIAL CIRCULATIONS 245

purchases of goods and out again through payment ofwages. Those parts of the Business-deposits whichrepresent the proceeds of sales to consumers and theremuneration of the factors of production must, there-fore, bear the same proportion to the Income-depositsas the velocity of the latter (V!) bears to that of theformer (V 2 ), so that the two fluctuate together so longas the ratio of their velocities is unchanged.

In the second place, the prices of unfinished goods(i.e. of working capital) will in conditions of equilibriumreflect the prices of finished goods. Further, the costsof production, and therefore the prices, of fixed capitalgoods will, in equilibrium, also move with the money-rate of efficiency-earnings in the same way as theprices of other goods. Moreover, the relation betweenthe volume of these transactions and the volume ofoutput will be much the same as in the case of theIncome-deposits. Thus the quantity of that part ofthe Business-deposits which is required for the ex-change of unfinished goods and of newly finished fixedcapital-goods between entrepreneurs will also tend inthese conditions to vary in the same proportion as dothe Income-deposits.

But there remain certain reasons why the amountof the Business-deposits A can vary differently fromthat of the Income-deposits, namely :

(a) The comparative importance of different articlesfor the Income-deposits and the Business-depositsrespectively varies considerably— i.e. they are differ-ently “ weighted ” ; so that changes in relative pricesare liable to upset the ratio between the two classesof deposits. For the same reason the ratio may beupset by a change in the character of production.

(b) An assumption of stability in the ratio betweenthe velocities of the Income-deposits and of theBusiness-deposits A respectively is not reliable. Thelatter is not tied down to a measure of stability, asthe former is, by the regularity in the dates of pay-