Prosperity and Depression.pdf

2.02. AnalYsis of Theories Part Iquantity of money is kept constant, the amount of idle balancescan be increased by the public at the expense of active balances.It is desirable, therefore, to define more precisely the. meaningof the term and to state some of its implications and corollaries.The concept of " idle balances" presupposes theThe toncepi assumption of some sort of an average or normalof " idle rate of turnover or velocity of circulation. For, inba/antes ". order to make the concept precise, it must be specifiedhow long a balance is to remain idle, so thatit should be regarded as falling under the category of " idlebalances ". Overnight, all balances are idle, and over a sufficientlylong period, all may have been active, in the sense of having beenturned over.People sometimes separate the balances which they keep " idle "from those which they " use ", by putting the former on savingsor time accounts while keeping the latter on checking accounts.But such is not always the case and, ifitis not, one cannot ascertainwhether an individual or society as a whole has hoarded or not bycomparing the amount of money held (by the individual or by allindividuals) at different points of time. We may express this bysaying that hoarding has a time dimension.Hoarding and dishoarding thus means or impliesHoarding a decrease or increase in the velocity of circulationand the of money ~ or an increase or decrease in the reciprocalof V -that is to say, in the Marshallian 1 k.velodty oftireu/alion Should we then say that "hoarding" (" dishoarding") and " decrease (increase) of V" are synony­of money.mous terms? Thisis a terminologicalquestion whichit is difficult to answer definitely on the basis ofthe general usage ofthe·terms involved. Let us briefly and roughly consider the mainforces responsible for changes in V (interpreting it, for the moment,1 It is hoped that further details lying behind the concept of " velocity"may remain undiscussed-viz.,the fact that we have, strictly speaking,todistinguish betweena "transaction-velocity",an "income-velocity" andsome other varieties, and correspondingly between a " transaction-k ",an " income-k ", etc., the formal nature of the relation between Vand k-viz., that of reciprocity-remaining in all cases the same. Onthis, compare the literature quoted _above, Chapter 3, § 6, page 62.