98 MODERN MONETARY SYSTEMS
and thereafter are not to be explained solely by consider-
ing the amounts produced but by a much more com-
plicated set of circumstances, which cannot be adequately
understood in the light of a purely deductive theory.
Further, we observed that the confused notion of cur-
rency depreciation closely bound up with that of excess
production—the Quantity Theory—had led to an explana-
tion of exchange problems which was sometimes ex-
ceedingly faulty. The case of India, selected from among
a number of others, clearly showed the common mistake
of looking for the cause of an exchange crisis and for its
appropriate remedy in a mere consideration of quantity,
used in the abstract in observing any given currency. We
saw that at the time when the problem first arose, the
system of free coinage as applied to the rupee had the
effect of making the rate of the rupee and the world price
of silver interdependent, and that therefore the deprecia-
tion of the rupee could not be attributed to the amount
of silver circulating in India. It was also demonstrated
that the recovery and, above all, the stabilisation of the
rupee were not due to any diminution in quantity brought
about by suspending the mint. For it was possible to
resume minting without difficulty after freedom of coinage
had been suppressed, at a time when the interdependence
of the rate of the rupee and the price of silver had dis-
appeared. Finally, we observed that the depreciation of
the rupee and its stabilisation were accounted for simply
by the technique of exchange operations. There is a whole
theory to be set up in explanation of phenomena of this
kind which we will describe later, and which cannot
be deduced solely from the Quantity Theory.
On the other hand, an analysis of the most recent
monetary phenomena shows that even the internal de-
preciation of a currency, as measured by a general rise in
prices, is not always the result of an exceptional increase
in its volume, but, on the contrary, that such an increase
may be the result, in the first instance, of a rise in prices,
this rise having been in turn caused by an exchange
crisis. Such an analysis also shows that even a marked
