Velocity of money

“ As we have seen, a doubling of all prices and incomes would not affect anybody's rate of turnover of money. Each person would need to make exactly twice the expenditure for the same actual result and to keep on hand exactly twice the money in order to meet the same contingencies in the same way. The determinant of velocity is real expenditure, not nominal. But a person's real expenditure is only another name for his volume of trade. We conclude, therefore, that a change in the volume of trade, when it affects the per capita trade, affects velocity of circulation as well. ”

“ If money is more abundant, if money-rates are easier, for a time, it may easily happen that many small merchants will experience the superior convenience of having a more adequate amount of change in the till, and will, even after the money-rates have risen—if they do rise again to the old figure—find a new reason for keeping more cash on hand. There is a marginal equilibrium between the interest on the capital invested in cash in the till, and the wages of the clerk, [211] whose active legs assist the velocity of money. ”

“ As in mechanics, so in money, the whole power is the product of mass and velocity. Money also is like any other tool, the more constant its use the more profitable its agency. The quick movement of a small mass, accordingly, is better than the torpid movement of a large mass, both in what it saves of expense, and in what it presupposes of the general conditions of exchange. ”

“ In this comparative ease of new issues is seen the action of a law in finance as certain as the working of a similar law in natural philosophy. If a material body fall from a height its velocity is accelerated, by a well-known law, in a constantly increasing ratio: so in issues of irredeemable currency, in obedience to the theories of a legislative body or of the people at large, there is a natural law of rapidly increasing emission and depreciation. ”

“ X.6 There are innumerable methods of weighting*19 and of averaging. None of them is perfectly satisfactory from a theoretical standpoint. We must choose what seems to be best from a practical standpoint. The effect of changed volume of currency or changed velocity of circulation on the whole series of prices is complex, and cannot, even in theory, be compressed into one figure representing all price changes, any more than a lens can be constructed which will focus in one point all the rays of light reaching it from a given point. ”

“ Just as the currency of money, generally considered, is but a reflex of the circulation of commodities, or of the antithetical metamorphoses they undergo, so, too, the velocity of that currency reflects the rapidity with which commodities change their forms, the continued interlacing of one series of metamorphoses with another, the hurried social interchange of matter, the rapid disappearance of commodities from the sphere of circulation, and the equally rapid substitution of fresh ones in their places. ”

“ In no other way could there be avoided a depression in the price level in the United States as compared with foreign countries. The increase in M brings about a proportionate increase in M'. Besides this effect, the increase in trade undoubtedly has some effect in modifying the habits of the community with regard to the proportion of check and cash transactions, and so tends somewhat to increase M' relatively to M; as a country grows more commercial the need for the use of checks is more strongly felt.*3
VIII.41 As to effects on velocity of circulation, we may distinguish three cases. ”

“ The habit of using checks rather than money will also affect the velocity of circulation; because a depositor's surplus money will immediately be put into the bank in return for a right to draw by check. ”