INTRODUCTION vii 
standard of values out of a currency which has undergone 
fluctuations in purchasing power. Such fluctuations may 
be reduced to a minimum by merely varying the stock, 
i.e., by contracting the currency when prices rise and 
expanding it when they fall. 
Moreover, this invaluable theory combined with one or 
two other factors leads us to some ingenious corollaries. 
It may be asked why the precious metals, produced in a 
few countries, are so conveniently distributed over the 
large trading countries. The answer is that their produc- 
tion, by inflating the stocks of currency in the producing 
countries, provokes a rise in prices, which in turn creates 
the incentive to make purchases abroad and to pay for 
them by exporting the precious metals. 
How and why does international commerce naturally 
tend to reach equilibrium? Here again the Quantity 
Theory gives a simple explanation. Countries which have 
to pay for an import surplus, export species; but in so 
doing their stock of metal decreases, the units of currency 
become more and more scarce, and increase in value, ‘.e., 
prices fall; this fall stimulates exports and restores 
equilibrium. 
And so the explanation of monetary phenomena—or 
even of the general economic phenomena connected with 
the use of money—is apparently reduced to a mere applica- 
tion of such simple and elementary principles that it is easy 
to understand why any tyro will feel no diffidence in ex- 
pounding the subject as if he were an authority ; all he 
needs to do is to adhere rigidly to “sound doctrine.” 
Anyone who has investigated monetary phenomena 
scientifically for many years realises, of course, that the 
theory which has been summarised above rests upon a 
certain number of correct data, however crudely observed. 
But it also rests on many confused notions, the result of 
imperfect knowledge or incomplete analysis of the facts. 
While adequate in some cases, in many others it only has 
the appearance of a scientific explanation. 
The following pages are intended to give an explanation 
of monetary phenomena to-day which shall be more