IT will have been observed that in speaking of the depreciation of the exchanges due to inflation we have been careful to speak of the increase of" incon-
vertible " paper currency. In dealing with the effects on the exchanges of an increase in the volume of currency it is necessary to distinction between an increase due on one hand to putting into circulation additional gold or paper convertible into gold, and an increase due on the other hand to the issue of inconvertible paper. It is true that in both cases the quantity theory applies and prices rise. But in the first case the exchanges are not affected, while in the second they are. This distinction and the reason for it are vital to the elucidation of the problem how far a decline in exchange values due to inflation is likely to go.