MONEY AND THE MECHANISM OF EXCHANGE 173

panied by increased transactions, which is seen in boom
years. But this is an example of a class already dealt with.
Credit facilities are vastly increased, without the usual care
for adequate provision of reserves, just as might take place
as the result of improved organisation. The difference is
‘hat, as the reserves are really needed, the inflation is,
sooner or later, tried by a test which it cannot stand, and
the inadequacy of the money basis of the great mass of
Credit transactions breaks down the high level to which
brices have been carried.
Some brief reference in support of the theorem in
experience may be given. The nature of the case does not
permit of precise statistical verification of parallelism in the
Movements of prices and money-supply. As argued above,
it is not to be looked for. The most generally quoted
illustrations of the proposition are found in the rise of prices
which excessive issues of inconvertible paper-money have
Caused. The assignats of French revolutionary finance, the
Breenback issues of the American Civil War, and other
similar instances, are to the point. But objection is taken
that these are cases where the money whose quantity is
Varied is a credit money. The response of price-level to
Money-supply, when the money is metallic, is observable
after the great supplies with which the New World enriched
Europe got into circulation there in the sixteenth century,
Trade grew, but money supplies increased faster, and prices
tose, and did not fall back to their former level. During
the first half of the nineteenth century, trade was growing
while money-supplies did not keep pace with the growth,
and a fall in general prices is observable, only interrupted
here and there by boom years. After the discovery of gold
in California and Australia, though the increase of trade was
Certainly not checked in its pace, the fall was interrupted by
4 substantial rise, sustained for a score of years, till the
growth in demand for money outran what the increased
Supplies could provide for, after which a generally downward
course of prices continued for a quarter of a century. Such
Eeneral confirmation of the quantity theory indicates that,
n spite of the great importance of credit fluctuations on