CURRENCY AND PRICE MOVEMENTS 1135 
sarily react on prices, in the manner indicated by the 
heory ; they hold that this reaction will be continuous and 
proportional to the changes in the stock of money, whatever the 
extent of such changes. In spite of the impossibility o 
separating, in any attempt at proof, the Quantity factor 
of money from other factors which may influence prices, 
some authors will even hold that quantitative changes in 
the circulation will overcome, absorb and ultimatel 
neutralise the influence of other factors. Mr. Irving 
isher has said only recently that the general price level 
cannot rise for any considerable period except as a result 
of an increase in the circulation and cannot fall except 
as the result of a decrease in the circulation. 
A fairly simple explanation of this automatic and rigi 
conception will be found in the following argument. If] 
as a result of some technical cause, prices tend to rise, 
but the existing stock of money is insufficient to purchase 
all the goods offered at the new level, the demand will 
necessarily fall off and prices will then fall back to th 
previous level. If, on the other hand, prices tend to fall, 
the currency which has thus been set free will nevertheless 
nfluence the market, create a fresh demand and force up 
he general price level. Hence the existing stock of money 
vill always be sufficient for transactions to be completed, 
prices being adjusted automatically by the scarcity o 
money. Thus money will always be, as it were, absorbed 
by goods; for this reason no lasting fall in prices can 
occur without a decrease in the circulation. 
This theory, to which we shall return, seemed to acquire 
eculiar force in the writings of certain economists, who 
ut it in rather a different form. They consider that 
rices express two kinds of relations, the exchange ratio 
etween goods and the exchange ratio between goods and 
oney, as though these two kinds of relation were estab- 
ished successively and as if transactions, once concluded, 
reve a demand for money. If the problem is put in this 
orm the Quantity Theory is greatly reinforced, because 
he supply and demand of a medium of exchange will 
be greater or less according as that medium is present i