CRITICISM OF CLASSICAL THEORY 99
increase in the volume of currency issued does not
always mean a corresponding rise in prices.
It follows that even in a case where the old Quantity
Theory seemed to explain the phenomenon much more
complex relations of cause and effect must be sought.
Finally, when we come to economic phenomena (such
as the supposed equilibrium in Foreign Trade), which
are connected with monetary phenomena, it again appears
to be necessary to substitute for the older theory of
Ricardo with its faulty chain of reasoning! and its
questionable conclusions, a set of hypotheses derived
from a much more detailed knowledge of facts and
particularly of exchange mechanism.
In general, the inadequacy of the classical theory in
explaining the monetary phenomena of the present time
is due to the fact that it consists of blindly applying a
few simple principles in an abstract way instead of taking
a large number of particular cases, analysing them and
then drawing the conclusions which they warrant. It is
no doubt true that the old-established law of supply and
demand can be seen operating everywhere, but this is not
enough. Ve must examine the objects supplied or de-
manded and the conditions of the market. Neither in
attempting to account for the depreciation of the rupee
nor in explaining Bimetallism is it sufficient to bring into
play this notion of Quantity as applied to any given cur-
rency or to two precious metals. We must ask ourselves
what exactly is meant by the ratio between gold and
silver (price of the metal in London, in a monometallist
gold country bordering on bimetallist countries) and dis-
cover what is the situation both from the legal point of
view and in practice of buyers and sellers of silver at
different times. Similarly, we must ask ourselves what
exactly is meant by “ the value of the rupee.” We must
understand that this involves the rate of exchange of the
rupee on the London market and inquire what are the
circumstances which affect that market at a given moment.
! See B. Nogaro, “Le Role de la Monnaie dans le commerce inter-
national et la théorie quantitative,” thesis, Paris, 1904.
