146 MODERN MONETARY SYSTEMS
changes in the volume of currency, of any size and however
small; have a specific influence on the rate of exchange
apart from whatever importance speculators may rightly
or wrongly attribute to such changes—because it does not
seem possible to attribute to them a priori or to prove any
single or consistent effect on price movements.
Moreover, as regards the power to restore the exchange,
said to belong to currency contraction, or, in other words,
“/deflation,” we believe that it is necessary to take an ex-
ceedingly cautious view. For if the deflation is small in
extent, the effect on prices is very doubtful and could
hardly react on the exchange except in so far as it may
influence certain naive speculators. If, on the other hand,
deflation is far-reaching, there is a risk that exports will
suffer more from the resulting dislocation of credit and
production than it will benefit by the fall in prices.
§ 6. Principles governing fluctuations of abnormal exchanges.
Having arrived at this stage of our analysis we may sum-
marise the preceding remarks in the form of the following
conclusions :
When an exchange ceases to move within the limits set
by the power to obtain an exportable currency at a fixed
rate without loss (in practice the limits are usually the gold
points), it will fluctuate unequally in relation to different
countries according to their monetary system and as a
result of factors which make themselves felt through the
psychology of a speculative market.
Of these factors, variations in the volume of fiduciary
currency appear capable of exercising a direct influence in
cases like the depreciation of the assignats, in which the
agio of paper in relation to metal shows itself both in
internal transactions and in exchange operations.
In considering the curves of exchange and currency it
should not be forgotten, however, that the rise in prices
which is the direct result of the foreign rate of the currency
may provoke the expansion of the currency, and may be in
certain cases the cause rather than the effect of the latter.
