122 MODERN MONETARY SYSTEMS 
received by individuals in the course of previous trans- 
actions. This money, representing as it does the value 
of goods and services previously supplied, ought, it seems, 
to enable an equivalent volume of goods and services to 
be produced without disturbing the market, and this 
putting into circulation of money is the proper function 
of credit. But as the credit machinery is not perfect enough 
to allow all the reserves of money to be mobilised as soon 
as they are created, it is possible to compensate for that 
part which lies idle by making uncovered note issues, i.e., 
by issuing supplementary money.! And so we see how an 
increase in the amount of money in circulation will con- 
tribute to increasing production and therefore the supply 
of goods. And the cumulative effect of these observations 
is to confirm the statement already made that variations 
in the amount of money will operate in two contrary 
directions ; an increase in the circulation tending at first 
to provoke a rise, by increasing the demand for goods, and 
thereupon becoming a factor in a fall in prices through its 
influence on production and supply. But the latter influence 
is less rapid and can only make itself felt in so far as there 
are already in existence latent resources capable of being put 
to better and more immediate use. 
Thus we find on the whole that while the Quantity 
Theory is based on the observations of actual experience, 
this observation has been confined to a closed market at a 
given moment, and with a stock of money which is at 
once used up in the purchase of a limited stock of goods ; 
a market which is, as it were, stationary, so that supply can 
never adapt itself to demand; but the classical school 
extend the theory to markets which receive a flow of 
goods, continually renewed, to a whole country, and to 
the world at large in its full activity. Lastly, it only takes 
into account one of the two influences which may be 
exercised by variations in the amount of money, i.c., the 
effect which they have through consumers and not the 
two successive effects, one tending to increase demand, the 
1See B. Nogaro, “Traité Elémentaire d’économie politique,” “Le 
crédit,” Sect. 111, Ch. 1, § 3.