THE THEORY OF EXCHANGE 147 
In most recent cases of depreciation the chief objective 
factor in exchange fluctuations appears to have been the 
ratio between foreign debts and credits, or, in other words, 
the balance of payments, fluctuations in the volume of 
currency being capable, when they are very marked, and 
particularly when they take the form of expansion, of 
affecting the balance of trade in a manner which must be 
considered in the light of each particular case. 
~ On the other hand, it seems that these fluctuations 
should be disregarded when they are not very marked, and 
when it is uncertain, in cases of deflation, in what sense 
their objective influence makes itself felt, deflation being 
always a factor which is likely to have a subjective influence 
in restoring the exchange on ‘account of the whole complex 
of favourable conditions which it may herald, such as the 
firm intention to improve the general financial position, 
the prospect of a return to a convertible currency and on 
account of the favourable psychological effect these cir- 
cumstances may have on the exchange market. 
It should be observed, however, that while the state of 
foreign debts and credits is always a factor of first import- 
ance in an irregular exchange, the amount of such credits and 
debts which can be immediately mobilised itself depends to a 
great extent on the whole set of factors which affect specu- 
lation ; capital belonging to foreign speculators may be 
lent, left on deposit or withdrawn according to circum- 
stances. Similarly, capital of every kind may be sent 
abroad ; this happens, particularly in cases of panic, when 
in circumstances of prolonged and increasing depreciation 
foreign bills are bought solely in order to convert savings 
in an unstable currency into a stable one. 
This process, which creates a quite abnormal demand 
for foreign drafts, is capable of radically destroying the 
equilibrium of the balance of payments. 
Finally, it is not clear, at this stage, that exchanges 
which have once moved outside the limits normally set by 
the possibility of converting the internal currency into 
exportable currency without loss are thereafter restricted 
by any limits whatever in their movements.