ABSTRACT
It has been shown that the monetary stocks of gold divided by the production of other commodities equalled prices and that there was no tendency for a given weight of gold to support either a higher or lower price. Whenever any force causes a sudden price change, prices tend to be carried too far because of the law of price momentum. If some force should call for a reduction of 10 per cent in the price level, the adjustment would not come by a drop of 10 per cent. A drop of more than 10 per cent would occur, which would be followed by too much recovery, which in turn would be followed by a drop. By a succession of smaller and smaller overshooting, adjustment would finally occur. The initial cause of the price movement may be any one of many forces such as changes in the gold supply, business cycles.
