IN Dr. Tobin's rejoinder to my article of November I948,1 he greatly improves the visual presentation of the range in circuit velocity since I919. This does not solve the question of whether the decline in circuit velocity is more reasonably interpreted as the result of low interest rates or as a secular trend due to other socio-economic factors. His Charts 3 and 4 suggest that for the 12-year period, I9I9-30, there was a considerable correlation of the sort which he stresses, that is, the lower the rate of interest the lower the velocity. But for the succeeding period of equal length, the correlation is in the opposite direction. Dr. Tobin also suggests and I agree that thse explanation of the change in circuit velocity since I919 should be consistent with data for the 40 years prior to 1929. The chief purpose of this note is to indicate the character of the relation of circuit velocity to the rate of interest and the passage of time, respectively, for a longer period than that covered by the data in my previous article. Before presenting data for a longer period, I would like to make brief comments on three items of theory mentioned by Dr. Tobin. First, Dr. Tobin is right in saying (in the last paragraph of his rejoinder) that Keynes assumed constancy for short periods in V (= Y/M1) and not in v (= Y/M). But the paragraphs in my article which Dr. Tobin takes as a misinterpretation of Keynes 2 relate to Keynes' attitude toward the likelihood that a secular trend in income velocity exists, and therefore to changes in v abstracting from the influence of the rate of interest. Second, Dr. Tobin objects (in the next to the last paragraph in his rejoinder) to my reluctance to make an a priori assumption regarding the interest-elasticity of the demand for cash balances, after allowing for a secular trend in circuit velocity if such is found to exist, and claims that I am dodging a theoretical issue. On the contrary, what I have tried to do is to bring into focus the major theoretical issue between the Keynesian analysis and that of traditional theory in a form which has the most direct bearing on monetary policy and can be tested by factual data. This is done by looking at the correlary of the hypothesis of interest-elasticity of cash balances, namely, the assumption that v and M (after adjusting the former for trend in circuit velocity and the latter for a reasonable rate of growth) are compensatory. It is Dr. Tobin who is dodging the issue, which is not only theoretical but also factual, by insisting that the validity of the Keynesian, in contrast to the traditional, view should be assumed. Third, Dr. Tobin again misrepresents my position (in the same paragraph) by claiming that I hold that circuit velocity of money is a constant except for the time trend and has no relationship to the rate of interest. There is nothing in my writings to support this claim. What I have claimed is (a) that circuit velocity is more stable than is generally recognized and has a downward trend, (b) that there are notable deviations from trend associated with business fluctuations and certain other special circumstances, and (c) that the deviations associated with business fluctuations are in conformity with traditional theory and in conflict with the abovementioned correlary to the hypothesis of interest-elasticity of cash balances.3 In examining the long-run relationship of circuit velocity of money to the rate of interest, we cannot rely on the data which exclude time deposits from the supply of money. The data cited by Dr. Tobin (footnote 3 in his rejoinder) rest, for the 20 years from I890 to Igog, on

should be identified with social control of the rate and direction of progress, not with the absence of progress (p. I6o, italics added). Lauterbach himself admits that this cannot mean an absolute individual security. But even so I do not feel that the effects of expansion in causing both unexpected change and personal insecurity are at all adequately appreciated. Nor does Lauterbach relate his emphasis on the non-material drives (p. I63) to the pressure group problems which change involves in any society. Scientific discovery is taken as more or less automatically self-implementing, within the plan, despite pressure groups. Finally, Lauterbach's political analysis seems fundamentally incomplete. It is greatly to his credit that he does not rely on mere elections to maintain freedom. Nevertheless, except for emphasis on elections and on the need for a good moral attitude taken by intelligent and educated voters, there is little of a constructive nature to be found in his treatment. He does not seem to have fully realized that, unless the voters have some economic independence, an election will tend to become a farce. Also, the role of competing employment opportunities in helping to underwrite such independence, and in facilitating the rise of independent leadership and discovery, is largely overlooked. On all these points I would like to refer the reader to my Democracy and Progress. Leaving aside political na-vete, the fundamental defect of the book is the lack of any coherent theory of social growth and economic development. If Lauterbach were advocating a stationary society he would be on much stronger ground economically at least. We could then combine decentralized planning with literal personal (economic) security. But Lauterbach specifically wants a higher standard of living, and it is just here that his analysis is most inadequate. However, not everyone believes in a growing society, and it is worth asking whether, even if we decided on a stationary state, it could be kept politically free. I do not think so. How would people be stopped from trying out new ideas unless there were established drastic social penalties for innovation, or some sort of inquisition for the suppression of dangerous thoughts? In short, the basic problem seems to me to be that if we make men genuinely free they become creative, and that if they become creative they simultaneously create growth and insecurity. No technique of planning can ever wholly overcome this difficulty, and while a workable compromise is certainly possible there is always the danger that as we cut down on the insecurity we may find ourselves cutting down on the growth. One can find these conclusions in Lauterbach, but not entirely with the author's help.

Originally published in 1947, this book is divided into three parts. Part I discusses the historical background, the internal organization and the business of the clearing banks. Part II consists of four chapters with two appendixes on the floating debt and the London gold and silver markets. Part III deals with institutions prior to 1914, the war of 1914 and its consequences, and the world crisis and after. There is also a statistical index.