58 
MONEY 
of demand for the article would be said to be always 
“equal to unity.” So if the elasticity of the de- 
mand for currency were always ‘equal to unity,” 
doubling its quantity would just halve its purchasing 
power and just double the prices of other commodi- 
ties, however often the doubling was repeated. 
Now, it has very often been assumed that this is 
actually the case, without any inquiry why it should 
be so. Though ever since the time of Davenant in 
the seventeenth century it has been a commonplace 
that a drop in the supply of a necessary of life below 
the normal quantity will raise the price much more 
than in proportion to the deficiency, popular appre- 
hension has never quite reconciled itself to the fact, 
and persists in ‘thinking it unreasonable. It is 
somehow supposed to be “ quite natural ”’ that the 
price should rise in proportion to the deficiency, but 
not more. This is probably the explanation, though 
of course it is no justification, of the neglect to ask 
why the elasticity of the demand for money should 
be assumed to be equal to unity. 
When the question is asked, the answer is not very 
difficult. The peculiar use of currency suggests it 
at once. [Each individual holds his stock of currency 
in order that he may be able to buy a very definite 
quantity of commodities and services before his stock 
of currency is replenished. If he is well-to-do and 
receives his income through his bank, his stock of 
currency has to hold out till he draws another cheque 
to “self ”’ to replenish it. If, without any alteration 
in his real wealth, prices double, he will (so far as he 
is not the creature of habit nor deterred by the 
weight or bulk of the currency) double the amount 
of each cheque to “self” (instead of going more 
frequently to the bank) and hold double as much 
currency as before. Similarly, in the case of a 
workman whose holding of currency depends on his