[164] Kemmerer (Money and Credit Instruments, p. 80) maintains that, "under perfectly static conditions," money in circulation and money in bank reserves will keep a fixed relation to one another. He offers no argument to support this view. Of course, "under perfectly static conditions," everything keeps in fixed relation to everything else. The volume of credit will keep a fixed relation to the number of laborers and to the supply of clocks. But this would hardly establish causal connections! Fisher multiplies "fixed relations" of various kinds, without, so far as very diligent search can tell, offering any argument to support them. Thus, we have on p. 105 the statement, "We have seen that normally the quantities of other currency are proportional to the quantity of primary money, which we are supposing to be gold." Where this thesis has been demonstrated, he does not indicate. In view of the fact that gold has been the one really flexible element in our money supply, the thesis is hardly credible. On pp. 146-147, facing this difficulty, Fisher says: "Since, however, almost all the money can be used as bank reserves, even national bank-notes being so used by state banks and trust companies, the proportionate relations between money in circulation, money in reserves, and bank-deposits will hold approximately true as the normal condition of affairs. The legal requirements as to reserves strengthen the tendency." Here is a very substantial growth in the doctrine, with only one new argument, namely, that concerning legal reserve requirements—which gives minimal ratios, not fixed ratios. In what way the fact that most kinds of money can serve as legal reserves gives reason for the doctrine of fixed proportions is not made clear. For Professor Fisher, however, it seems quite enough, for on p. 162, in the heart of his causal theory, he boldly announces: "There must be some relation between the amount of money in circulation, the amount of reserves, and the amount of deposits. Normally we have seen that the three remain in given ratios to each other." (Italics mine.) It is doubtless somewhat dangerous to make a confident negative statement concerning a book which has no index. But careful reading of all that has preceded this statement reveals no references to this topic except those quoted above. "We have seen" is not a legitimate premise when so important an issue is involved. In our discussion of reserves in the section on credit, as well as in the discussion of the volume of trade, it will appear that no "normal" or "static" relations of this kind are possible.
[165] "The price-level outside of New York City, for instance, affects the price-level in New York City only via changes in the money in New York City. Within New York City it is the money which influences the price-level, and not the price-level which influences the money. The price-level is effect and not cause." (Loc. cit., p. 172.)
[166] Loc. cit., p. 50.
[167] W. C. Mitchell, Business Cycles, p. 306.
[168] Ibid., p. 325.
[169] J. P. Norton, Statistical Studies in the New York Money Market, p. 71, and chart opposite p. 72.
[170] Ibid., chart facing p. 72.
[171] Cf. Mitchell, loc. cit., chart, p. 298, and text, p. 295. As the ratio of reserves to money in circulation was greater in 1911 than in 1894, and as the ratio of deposits to reserves was also higher, we have a still wider variation in the ratio of money in circulation to deposits—M:M´
[172] See the striking figures collected by A. P. Andrew for 1907. Quart. Jour. of Econ., Feb. 1908, p. 297.
[173] Infra, our discussions of the relations of volume of money and credit to volume of trade, and our discussion of credit in the constructive part of the book. The theory of money and credit must be a dynamic theory.