MONEY AND THE MECHANISM OF EXCHANGE 169

one large set of transactions, and an adequate reserve of
money is the necessary condition of the free use of credit in
the remaining transactions of purchase and sale.
Another feature is of importance in modifying the need
for money, namely the efficiency of money and its representatives
 in their function as media of exchange. The
amount of goods whose change of ownership can be effected by
the use of a certain amount of money, even where no goods
change ownership except for a payment of actual money, is
not fixed. Its variations are ascribed to the “rapidity of
circulation” of money. This phrase being explained, its
appropriateness need not be discussed. It is enough to
recognise that the business habits of some communities make
a relatively small number of coins do the same exchange
work, and in the same time, as would require a larger sum of
money in other communities. A change in the efficiency of
money, as thus conceived, may be equivalent to an increase
or decrease of the money supply.
It has long been held that the supply of money is a most
important element in the determination of the general pricelevel.
 There are, indeed, some who contend that moneysupply
 adjusts itself to price-level and not price-level to
money-supply. But the weight of argument, and of fact,
seems to support the view embodied in the proposition
known as the “ quantity theory of money.” This proposition
is, that increase or decrease of the money-supply causes
increase or decrease respectively in the general level of
Prices, and that a large movement in money-supply will give
tise to a large movement in prices, a small movement in
money-supply to a small movement in prices. It must be
borne in mind that this proposition is maintained subject to
the provision “other things being equal,” so far as those
“other things” do not necessarily change in consequence of
the change of money-supply. For convenience, a tabulated
statement of the leading causes, which may operate to
affect the phenomena dealt with. may be set down. These
are ;—
; (i) The money-supply, or quantity of money in circulaion.
