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A TREATISE ON MONEY

BK. II

monetary influence lias come into operation mean-while to affect relative prices, various distinct price-levels may settle down in the end to much the sameposition as before relatively to one another. Never-theless we must not argue for these reasons that anexpansion of the currency influences relative prices inthe same way as the translation of the earth throughspace affects the relative position of the objects on itssurface. The effect of moving a kaleidoscope on thecoloured pieces of glass within is almost a better meta-phor for the influence of monetary changes on price-levels. For the way of thinking which I have criti-cised overlooks, or under-values, the importance oftwo other factors, neither of which is conveniently in-cluded in “ economic friction ”.

In the first place, when increased or decreasedpurchasing power in the form of money, seeking torealise itself in actual purchases, comes into, or iswithdrawn from, the market, the increase or decrease(as the case may be) is not spread evenly and pro-portionately over the various buyers. It will, ingeneral, be concentrated in the hands of particularclasses of purchasers : in the case of war inflation,for example, in the hands of the Government; inthe case of a credit boom, probably in the hands ofthose who borrow from banks ; and so on. Thus theimmediate effect is on the goods in which the pur-chasers primarily affected are most interested. Un-doubtedly this will set up a diffusion of price-changes.But the working-out of the social and economicconsequences of the new distribution of purchasingpower will end up in establishing a new equilibriumwhich will be different, in greater or less degree, fromthe old equilibrium. Thus a change in the available“ counters ”, which does not affect everyone’s holdingequally (and in practice such changes never do), mayhave a fairly large lasting effect on relative price-levels.It is evident that there are two types of influences