200 MODERN MONETARY SYSTEMS 
gold value of the rupee was raised to one-tenth of a 
sovereign. The rupee therefore came to represent a larger 
number of monetary units in Great Britain and also in the 
United States, Japan, etc. This change in what may be 
called theoretically the gold tenor of the rupee may have 
had someeffect on internal pricesin India, becauseit enabled 
imported goods to be purchased more cheaply in rupees 
and thus enabled exported goods to be sold less dearly 
in rupees. But the relation of cause and effect between the 
change in the theoretical gold tenor of the rupee, of which 
the silver rupee is more or less the representation (as would 
be Mr. Fisher’s gold dollar, since it 1s partly fiduciary in 
character), is indicated by a variation in the rate of exchange 
due to the change in parity —or in the gold tenor—and to the 
increase in the number of foreign monetary units which could 
thenceforward be obtained by the rupee. Hence it is impossible 
to argue from this observation that changes in the theoretical 
gold tenor of a monetary unit are such as to affect prices if these 
changes have not modified the rate of exchange and enabled 
the internal monetary unit to represent a larger number of 
foreign monetary units. This assumption is eliminated in 
the international plan for a “compensated” currency 
drawn up by Mr. Irving Fisher. 
Thus in order to make this plan plausible, we should 
have to adopt an interpretation different from that of the 
author—the one given by M. Gide—namely, that when the 
gold content of the dollar is increased, the number of 
dollars is diminished, so that the value of each one is 
increased—and wice versa. But here we can only repeat 
the reservations which we made in connection with that 
application of the Quantity Theory which states that any 
variation, however large or small, in the volume of currency, 
reacts at once and definitely on prices. This statement, put 
in the form of an arbitrary generalisation, misinterprets 
the meaning of observations made in a closed market in 
which an increase in the volume of currency strictly 
means an increase in demand and in which supply cannot 
increase in proportion to demand. Moreover, it fails to 
take into account the extreme complexity of monetary