CURRENCY AND PRICE MOVEMENTS 123
other supply, which are revealed by a “dynamic” study of
the problem.
Subject to this reserve, it should, however, be pointed out
that the latter influence is necessarily limited by the practical
possibility of developing methods of production, whereas the
artificial stimulation of demand by fiduciary issues may be
unlimited; it does not take long to double the volume of
paper money ; it would be impossible in the same period
to double a country’s production.
The Quantity Theory, therefore, appears to be justified
in so far as a change in demand may correspond to a change
in the circulation and in that it explains a rise in prices
which exceeds the limits of a possible increase in pro-
duction ; it therefore seems justifiable to use it in explaining
a sudden and considerable increase in the volume of
money ; and in such cases it seems to square with the facts
more often than not.
On the other hand, it seems to us equally difficult to
prove theoretically or practically by isolating the factors
under consideration, when we are dealing with slow and
small changes in the circulation. For then it is exceed-
ingly difficult to know whether a change in the volume of
money corresponds to an equivalent change in demand;
moreover, the production and therefore the supply of
goods may be stimulated at the same time as demand. It
cannot therefore be admitted that the influence of money
on prices can be held to operate continuously and con-
sistently whatever the scale involved. Small variations in
the volume of money are an unknown factor, which in any
case 1s negligible, and we believe that the importance
which is assigned to it in the explanation of monetary
phenomena is illusory: for instance, in Ricardo’s old
theory of international trade,! or in more recent theories
which attribute variations in the exchanges to small varia-
tions in the volume of money, we believe, not only that the
quantity hypothesis cannot be proved by the figures, but
also that for the reasons given it is not logically sound.
! See B. Nogaro, “Le role de la monnaie dans le commerce international
et la théorie quantitative,” thesis Paris, 1904.
