140 MODERN MONETARY SYSTEMS 
played in the present exchange crisis by speculation and 
also by the purchase of foreign currencies apart from any 
necessity to make payments abroad and with the sole ob- 
ject of safely storing, in times of panic, money which has 
been saved. But it may be asked whether it is not possible 
to discover behind such psychological elements factors 
which are capable of having an objective effect on the 
exchange rate. 
When speculators try to forecast political events they 
concentrate more or less on those elements which are 
likely in the future to affect the balance of payments; 
e.g., at the present time the payment of reparations or 
inter-allied debts. But they also take into account many 
other factors, such as the volume of circulation, the Budget 
position and the revenue from taxation; and it may be 
added that these two last-named elements are generally 
considered by reference to the first. For it is generally 
feared, with some justification, that a State, the Budget of 
which does not balance, will be forced to resort unduly to 
the printing press.} 
§ 5. The exchange rate and the Quantity Theory. 
The factor of the Balance of Payments being thus given 
its due importance—which is considerable—it is the factor 
of monetary circulation which will next occur to the 
reader’s mind. The question arises whether behind the 
speculative forecasts which are often wrong but which 
are often corrected by events themselves, we should not 
assign a decisive influence in exchange fluctuations to the 
monetary circulation. 
L All these factors may therefore influence the exchange through the 
psychology of speculators; but it must not be forgotten that a psycho- 
logical influence may be counteracted by other influences of the same kind 
and must not be confused with concrete factors, and especially the faculty 
of conversion, which have a physical influence on the exchange market. 
Hence we should not assign an equal importance as factors in the stabilisa- 
tion of an exchange to Budget equilibrium, the effect of which is indirect 
and psychological, and to direct intervention on the exchange market to 
relieve a shortage of media of payment.