CHAPTER 1 
CRITICISM OF THE CLASSICAL THEORY 
Tue preceding description of the most important mone- 
tary phenomena is sufficient to show that the classical 
theory is inadequate. It is evident, in the first place, that 
neither the ideas of commodity and quantity nor the 
empirical proposition called Gresham’s Law can satis- 
factorily explain the working of Bimetallism. The origin- 
ators of this system, holding as they did the classical 
doctrines about currency, did not believe that it could 
survive ; it seemed impossible to maintain a stable ex- 
change ratio between two precious metals—gold and 
silver—both being accepted for free coinage. This was 
conclusive, and perfectly logical as soon as it was admitted 
that this régime consisted of allowing these two com- 
modities to circulate after they had undergone a merely 
physical process of transformation by minting, their 
respective values being determined like that of any other 
commodity. The experience of three-quarters of a century 
has shown, however, that it is possible, not only to main- 
tain the concurrent circulation of gold and silver coinage 
with a fixed exchange ratio between them, but also to 
maintain an almost equally constant ratio between the 
rates of these two metals on the world market. This 
definitely disproves a theory which is still, however, 
commonly held. We shall show later how an analysis of 
this phenomenon leads to a different conclusion as to the 
way in which the value of money is determined and to a 
different conception of money itself. 
We also observed that slight fluctuations in the rate of 
silver in relation to gold during the period of Bimetallism 
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