NORMAL EXCHANGES 215 
currency; this lowers prices and by stimulating exports 
restores equilibrium.! The same notion is put forward 
in a more modern form by emphasising the part played 
in international exchanges by exchange fluctuations; 
the depreciation of the national monetary unit in 
relation to foreign currencies helps to send up the in- 
ternal price both of imported and exported goods. It 
therefore restricts imports and stimulates exports and so 
has a double effect in bringing about equilibrium in inter- 
national trade and so restoring the exchange. As regards 
the first of these theories, that of Ricardo, it is not neces- 
sary to emphasise the loopholes in his argument.? It will 
be observed that it only applies to the trade balance and 
that it attributes to sma// fluctuations in the volume of metal 
currency an effect on the entire monetary circulation and 
on prices, which is neither demonstrable a priori nor sus- 
ceptible of proof. As regards the second theory, which 
has already been examined, it rests on much more accurate 
1 This same theory of Ricardo (High Price of Bullion) also claims to 
account for the distribution of precious metals in the world; as their 
excess production sends up prices in the producing countries the trade 
balance of those countries continually shows a deficit and so the precious 
metals flow to other countries. In the course of an inquiry made locally 
shortly after the opening up of the gold mines in Western Australia, the 
author observed that the local rise in prices was from the beginning due to 
difficulties of transport and to the ease with which a monopoly could be 
created, and in no way affected the rest of the country. On the contrary, 
prices in Western Australia were determined by prices at Sidney (see the 
author’s article “Contribution a une Théorie Réaliste de la Monnaie” in 
the Revue d’économie politique, 1906). It should be added that Australia, 
which is a large gold-producing country and has an ample circulation 
(larger in 1913 per head than the French circulation), had preserved up to 
the end of the 19th century a much lower price level than that existing in 
European countries. It is therefore demonstrable that the mechanism of dis- 
tribution as conceived by Ricardo does not explain the actual distribution 
of Australian gold. The flow of gold to Europe appears mainly to result 
from the necessity of paying dividends on European capital and from the 
difficulty experienced by a new country, which devotes a large part of its 
productive forces to the exploitation of gold or silver mines, in developing 
its other export industries sufficiently to meet the debit side of its trade 
balance otherwise than by the export of precious metal. 
2 See on this point the author’s “Le Réle de la Monnaie dans le Com- 
merce International et la Théorie Quantitative,” thesis, Paris, 1904.