order to perform a given amount of traffic. We must compare the number of purchases made by the money in a given time, not with the time itself, but with the goods sold in that same time. If each piece of [pg 299] money changes hands on an average ten times while goods are sold to the value of a million sterling, it is evident that the money required to circulate those goods is £100,000. And, conversely, if the money in circulation is £100,000, and each piece changes hands, by the purchase of goods, ten times in a month, the sales of goods for money which take place every month must amount, on the average, to £1,000,000. [The essential point to be considered is] the average number of purchases made by each piece in order to affect a given pecuniary amount of transactions.
§ 4. Explanations and Limitations of this Principle.
The proposition which we have laid down respecting the dependence of general prices upon the quantity of money in circulation must be understood