THE THEORY OF EXCHANGE 155 
In any case, if it is true that the exchange rate and the 
purchasing power parity influence each other, it hardly 
seems possible to hold that irregular rates of exchange can 
be determined, in the sense of being limited in their fluctuations, 
by a factor such as the purchasing power parity which is 
itself constantly being altered by the rate of exchange. It 
would be a curious limit which shifted with the pheno- 
menon, the movements of which it is supposed to restrict. 
Moreover, there are typical instances to show that the 
purchasing power parity cannot be considered as a factor 
capable of determining the exchange curve and of bring- 
ing an exchange back to equilibrium by restoring the 
balance of payments; it is enough to consider countries 
like Germany, where the exchange fell indefinitely. 
No doubt it is possible to give the a priori explanation 
that it was the issue of notes which rendered possible the 
unlimited depreciation of the German exchange by alter- 
ing the purchasing power parity. But it is well known 
that from the time when price and exchange movements 
became closely bound up with each other in Germany (in 
the second half of 1921), the new issues of notes on a large 
scale took place afer the rise in prices which made it 
imperative to increase the media of payment; the rate at 
which the currency increased was so far behind the rate 
at which prices rose that this increase cannot be con- 
sidered as anything but an alleviation of the currency 
contraction arising from the disproportion between the 
quantity of instruments of payment and the level of 
prices. And so only the following facts should be remem- 
bered. Violent exchange fluctuations which cannot be 
attributed to a change in the ratio between internal and 
external prices have occurred generally for reasons in no 
way connected with the state of the balance of pay- 
ments nor probably with that of the currency. These 
wide exchange fluctuations have not created the corresponding 
Rev. Econ. Int. of February 1924) M. Aftalion has clearly shown the 
decisive influence of exchange movements on internal prices, and demon- 
strates from several examples (1) that with stable exchanges internal prices 
may remain stable in spite of inflation, and (2) that prices rise, even without 
inflation, when the exchanges depreciate.