116 MODERN MONETARY SYSTEMS
larger or smaller quantities, and ultimately we arrive at
the statement that “prices are proportional to the ratio
between the required transactions and the amount of
currency.” But in fact here are mot two separate and
successive kinds of exchange ratio. Except when one cur-
rency is purchased by another (foreign exchange), the
medium of exchange is not in demand. Only one exchange
ratio is established—i.e., between goods and money, and
from this are derived the exchange ratios between goods.
Thus the problem is incorrectly stated.
It may, of course, be objected that, even if money is
not in greater or less demand, the demand for goods is
in terms of money, and, therefore, when money is plenti-
ful goods are in greater demand and prices rise, as though
it were money which is in less demand. But the result
is no longer the same ; for on the supposition that there
are purchases and sales to be made, that there is a certain
volume of transactions to be effected and that there is a
limited amount of currency available for the purpose, the
necessary deduction is that prices will vary with the
demand for currency. Those writers who are under the
influence of this idea believe that the stock of money
must necessarily be adequate to all transactions and must
be entirely used up by them. However complicated the
real mechanism of transactions may be, this principle
holds good. For it is when goods are limited in quantity,
when production cannot be rapidly increased to meet
increasing consumption, that supply and demand come
to play an essential part in the determination of exchange
value.
But when we come to consider, not an imaginary
demand for money by parties to transactions, but the
demand for goods by purchasers, we only have to refer
to our general knowledge of the conditions governing
exchange value to see that supply and demand do not
have an equal effect and perhaps that they do not neces-
sarily affect the prices of all goods. For instance, constant
experience shows that the volume of demand will obvi-
ously influence the price of certain goods, e.g., vegetable
