Vv: INTRODUCTION 
phenomenon ? The depreciation of some other money, 
some currency of a low standard, of debased metal—in 
fact, a low-grade commodity—or even WOrSE, a paper cur- 
rency. And surely in this last case there need usually be no 
hesitation in advancing an obvious a priori reason for the 
depreciation, namely, excessive production. 
Turning to the phenomena of rising prices, we observe 
that, in a country where there is only one currency left— 
a paper currency which the Government increases indefin- 
itely—a rise in prices will occur. Or again, a rise will take 
place in one or more countries where the standard is still 
gold—that sound and solid metal. It is true that the rise is 
much smaller, but in spite of an immense difference in 
degree, the phenomenon must be essentially the same in 
both cases. If prices rise, that is to say, if more gold must 
on the average be given for the same object, gold itself 
may be said to have depreciated. Surely this is due to 
there being too much of it. The Quantity Theory covers 
all these phenomena of general price movements. 
Take, lastly, the phenomena of the exchanges. The rate 
warns us that a given national currency is falling more or 
less below the normal rate of exchange, below par,! if we 
are dealing with currencies of the same metal. This, it is 
said, 1s due to the depreciation of the particular currency. 
And why should it have depreciated for any other reason 
save that it does not fulfil the essential condition of sound 
money—that it shall be a commodity—or else because it is 
produced in excess ? Here again the notion of a com- 
modity and the Quantity Theory seems to solve the prob- 
lem for us. 
Turning now from theory to practice, let us consider the 
problem of restoring the value of a depreciated currency 
and of strengthening a weak exchange. The solution is to 
be found in a very simple piece of reasoning. A currency 
need only be reduced in volume in order to recover both 
its internal and external value, or, as the modern phrase 
goes, it is only necessary to deflate. 
Finally, take the case of an attempt to make a stable 
On the exact meaning of the idea of “par,” see infra, p. 4. 
73