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A TREATISE ON MONEY

BK. IV

to transactions in working capital will be more or lessdivorced not only from those of the Income-depositsbut also from those of the consumption standard.

For these various reasons the changes in the volumeof the Industrial Circulation as a whole will not cor-respond accurately to changes in the volume of theIncome-deposits. Nevertheless, in the main the volumeof the Industrial Circulation—though it is also in-fluenced to a certain extent by changes in the char-acter of production, in the habits of the public and ofthe business world, and in the sacrifice involved inkeeping resources in the form of money—will varywith E, the aggregate of money incomes, i.e. with thevolume and cost of production of current output.

(iii.) Factors determining the Volume op theFinancial Circulation

The amount of money required for the purposesof Finance, which we call the Financial Circulation,is, however, determined by quite a different set ofconsiderations. In this case, also, the amount ofBusiness-deposits B required to look after financialbusiness depends—apart from possible variations inthe velocity of these deposits—on the volume oftrading x the average value of the instruments traded.But the volume of trading in financial instruments,i.e. the activity of financial business, is not only highlyvariable but has no close connection with the volumeof output whether of capital-goods or of consumption-goods ; for the current output of fixed capital is smallcompared with the existing stock of wealth, which inthe present context we will call the volume of securities(excluding from this liquid claims on cash) ; and theactivity with which these securities are being passedround from hand to hand does not depend on the rateat which they are being added to. Thus in a modernStock-Exchange-equipped community the turnover of