PURCHASING POWER PARITY

Abstract

IT will have been observed that in speaking of the depreciation of the exchanges due to inflation we \nhave been careful to speak of the increase of" incon- vertible " paper currency. In dealing with the effects \non the exchanges of an increase in the volume of currency \nit is necessary to distinction between an increase due on \none hand to putting into circulation additional gold or \npaper convertible into gold, and an increase due on the \nother hand to the issue of inconvertible paper. It is \ntrue that in both cases the quantity theory applies and \nprices rise. But in the first case the exchanges are not \naffected, while in the second they are. This distinction \nand the reason for it are vital to the elucidation of the \nproblem how far a decline in exchange values due to \ninflation is likely to go.

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