What is Robertson’s Equation of Value of Money?

D.H. Robertson gave an equation similar to that of Pigou but with a slight difference. He stated:

P = M/KT

Where, P = price level (of things included in T).

M = the supply of money,

T = total amount of goods and services to be purchased during a year (i.e., the annual volume of transactions),

K = fractional part of T over which people wish to hold command in the form of cash.

It is easy to see that this equation implies that P changes directly as M and inversely as K or T.

This equation is sometimes preferred to that of Pigou’s because of its straight comparability with Fisher’s equation. A similarity may be easily found between the cash transactions equation, P = MV/T and the cash- balances equation of Robertson, P = M/KT.

In the two equations, P, M and T more or less convey the same meanings; and V is reciprocal of K, i.e., V = 1/K. The only difference between the two is that while the former considers the spending of money, the latter takes into account the holding (not spending) of money.

But actually these are but two sides of the same coin, for ultimately money held would be spent.