246

A TREATISE ON MONEY

BK. IV

ment which generally characterises the disbursementof wages and salaries.

The evidence, which we shall consider in Chapter24, indicates that V 2 , the velocity of the Business-deposits as a whole, is highly variable. Althoughthis variability may often be due, in major part, notto changes in the velocities of Business-deposits Aand of Business-deposits B, but to changes in theproportionate distribution of the total Business-deposits between A and B, nevertheless there can beno doubt that there are also short-period fluctuationsof some magnitude in the velocity of the Business-deposits due to variations in the amount of sacrificeinvolved in holding balances, as well as to other causes.For when business is active and the cost of borrowinghigh, firms will tend to economise in the amount ofBusiness-deposits A which they keep. Moreover, whenreal-incomes are falling through a decline in employ-ment, the public may endeavour for a time to main-tain their standard of life by reducing their Income-deposits, thus increasing the velocity V x at a timewhen V 2 is likely to be decreasing ; though apart fromchanges due to a distrust of the currency, which can,as we know, be catastrophic, I incline to the opinionthat the short-period fluctuations of V 1 are inconsider-able. 1 In any case, V x and V 2 may show differenttrends over long periods, due to progressive changesin business habits or in the character of production.

(c) Thirdly, the Business-deposits A and the Price -level appropriate to them may be influenced by theemergence of Profit or Loss, which, in some circum-stances, can affect price-levels and the requirementsof the monetary circulation out of proportion to thechange, if any, in the volume of the Income-deposits.

Nevertheless, the requirements of the monetarycirculation will be much less affected by a given change

1 The variability of the velocities of circulation is a matter to which weshall return in detail in Chapter 24.