INTRODUCTION 
The explanation of monetary phenomena and the classical 
theory. 
MonNETARY systems give rise in their operation to 
phenomena which from their first appearance have en- 
gaged the attention of thinkers as also of economists since 
such have existed. 
The explanation of these phenomena appears to rest 
upon a few simple premises which need only to be 
judiciously combined in order to explain any particular 
case. 
Money, it is commonly said in virtue of a doctrine now 
classical, 1s essentially a commodity. As such it is subject to 
the action of supply and demand, and its value varies in- 
versely as its amount. This proposition is known as the 
Quantity Theory and seems to afford a key to almost all 
monetary problems. Thus, taking in the first place those 
problems which arise out of the concurrent use of two 
metals, gold and silver, we are assured that if one of 
these metals stands at a premium with regard to the 
other, this is obviously due to the latter being produced 
in excess. 
Even Gresham's law, although it is the result of a piece 
of direct observation, namely, that bad money drives out 
good, can be linked up with this Theory. It is no doubt 
true that when money is at a premium it is exported be- 
cause it is preferable for the purpose of making payments 
to foreign countries where it 1s admitted for the sake of its 
“intrinsic value” ; or again, that it disappears because it is 
hoarded by cautious people who are confident that it will 
maintain its value, and lay it by in the hope of better times. 
In any case, it disappears. But what 1s there behind this 
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