CHAPTER 1
CRITICISM OF THE CLASSICAL THEORY
Tue preceding description of the most important monetary
 phenomena is sufficient to show that the classical
theory is inadequate. It is evident, in the first place, that
neither the ideas of commodity and quantity nor the
empirical proposition called Gresham’s Law can satisfactorily
 explain the working of Bimetallism. The originators
 of this system, holding as they did the classical
doctrines about currency, did not believe that it could
survive ; it seemed impossible to maintain a stable exchange
 ratio between two precious metals—gold and
silver—both being accepted for free coinage. This was
conclusive, and perfectly logical as soon as it was admitted
that this régime consisted of allowing these two commodities
 to circulate after they had undergone a merely
physical process of transformation by minting, their
respective values being determined like that of any other
commodity. The experience of three-quarters of a century
has shown, however, that it is possible, not only to maintain
 the concurrent circulation of gold and silver coinage
with a fixed exchange ratio between them, but also to
maintain an almost equally constant ratio between the
rates of these two metals on the world market. This
definitely disproves a theory which is still, however,
commonly held. We shall show later how an analysis of
this phenomenon leads to a different conclusion as to the
way in which the value of money is determined and to a
different conception of money itself.
We also observed that slight fluctuations in the rate of
silver in relation to gold during the period of Bimetallism

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