THE THEORY OF EXCHANGE 135 
It is possible, however, that the loss on exchange does 
not appear at once, if the balance of payments is positive. 
For the absence of exportable gold does not make itself 
felt and the available drafts on foreign countries will amply 
suffice to meet external payments. Thus, particularly in 
1914, the repatriation of capital enabled France for some 
time to keep the exchange in her favour in spite of forced 
currency and the impossibility of exporting gold. But this 
state of affairs could not continue for long. Even a coun- 
try with a positive annual balance of payments will suffer 
an exchange crisis if its currency cannot be exported, since 
periods will always occur when the balance of payments is 
negative ; then the exchange will break and its fluctuations 
will have no limits in the absence of any means of pro- 
curing exportable currency at a fixed rate. 
The question ought, however, to be put whether behind 
this direct cause of a fall in the exchange there does not 
exist a more remote cause among the circumstances which 
brought about the disappearance of the exportable cur- 
rency and thereby of the export gold point. Now this dis- 
appearance has generally accompanied abnormal issues of 
fiduciary currency. Is it therefore right to conclude that 
in the last analysis the exchange crisis is connected with 
the excess of currency and so amenable to an explanation 
based on “quantity” which would fit in so well with the 
vague and confused notion of monetary depreciation to 
which we have already directed the reader’s attention ? 
In the opinion of certain economists this view is con- 
nected with the idea of internal depreciation due to infla- 
tion preceding the loss on exchange. An internal currency 
which has lost purchasing power will only be in demand in 
foreign countries if it suffers in relation to par or to the 
previous parity a loss which makes up for the decrease in 
its internal purchasing power. Therefore in the opinion of 
these writers, if the franc only retained one-quarter of its 
purchasing power, Americans will not buy francs for the 
purpose of making purchases in France at more than one- 
quarter of its previous value unless the dollar has also lost 
purchasing power. In any case, they will wish to obtain in 
exchange for their dollars a sufficient quantity of francs to