CHAPTER II 
CURRENCY AND PRICE MOVEMENTS 
S 1. General price movements and the Quantity Theory. 
Or those economic phenomena which appear to be 
closely connected with the working of monetary systems, 
the first to be mentioned are the general movements of 
prices. 
As almost all transactions under the modern economic 
system are effected by means of money, almost all goods 
and service are exchangeable for money ; more accurately, 
any unit of any given commodity or service is exchange- 
able for a certain number of currency units ; this number 
of currency units in its relation to the commodity or ser- 
vice in question is called tke price ; the exchange value 
which is created between each commodity or service and 
the currency unit is usually expressed by the price. Thus 
the exchange value of the commodity will increase if the 
price rises, and that of the currency will correspondingly 
decline, since more monetary units will be required in 
order to obtain the same object—and vice versa. More- 
over, it is possible to measure changes in the average 
exchange value, or purchasing power, of a currency by the 
movements of average prices. Thus a currency loses 
purchasing power or depreciates when there is a rise in 
prices ; its purchasing power increases, or it appreciates 
in the opposite case. A rise in prices and currency de- 
preciation are therefore equivalent, and express the same 
phenomenon ; this also holds good of a fall in prices, 
i.e., an appreciation of the currency, for the rise or fall 
of the currency is in relation to goods or services. 
This simple statement has its importance ; for often, 
by mistaking this inevitable correspondence between two 
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