In agricultural countries where peasants readily hoard money, an inflation, especially in its early stages, does not raise prices proportionately, because when, as a result of a certain rise in the price of agricultural products, more money flows into the pockets of the peasants, it tends to stick there;--deeming themselves that much richer, the peasants increase the proportion of their receipts that they hoard. Thus in these and in other ways the terms of our equation tend in their movements to favour the stability of _p_, and there is a certain friction which prevents a moderate change in _n_ from exercising its full proportionate effect on _p_. On the other hand a large change in _n_, which rubs away the initial friction, and especially a change in _n_ due to causes which set up a general expectation of a further change in the same direction, may produce a _more_ than proportionate effect on _p_. After the general analysis of Chapter I. and the narratives of catastrophic inflations given in Chapter II., it is scarcely necessary to illustrate this further,--it is a matter more readily understood than it was ten years ago. A large change in _p_ greatly affects individual fortunes. Hence a change after it has occurred, or sooner in so far as it is anticipated, may greatly affect the monetary habits of the public in their attempt to protect themselves from a similar loss in future, or to make gains and avoid loss during the passage from the equilibrium corresponding to the old value of _n_ to the equilibrium corresponding to its new value. Thus after, during, and (so far as the change is anticipated) before a change in the value of _n_, there will be some reaction on the values of _k_, _k´_, and _r_, with the result that the change in the value of _p_, at least temporarily and perhaps permanently (since habits and practices, once changed, will not revert to exactly their old shape), will not be precisely in proportion to the change in _n_. The terms _inflation_ and _deflation_ are used by different writers in varying senses. It would be convenient to speak of an increase or decrease in _n_ as an inflation or deflation of _cash_; and of a decrease or increase in _r_ as an inflation or deflation of _credit_. The characteristic of the “credit-cycle” (as the alternation of boom and depression is now described) consists in a tendency of _k_ and _k´_ to diminish during the boom and increase during the depression, irrespective of changes in _n_ and _r_, these movements representing respectively a diminution and an increase of “real” balances (_i.e._ balances, in hand or at the bank, measured in terms of purchasing power); so that we might call this phenomenon deflation and inflation of real balances.