France must come in due course to some compromise between increasing taxation, and diminishing expenditure, and reducing what they owe their _rentiers_. I have not much doubt that the French public, as they have hitherto, will consider a further dose of depreciation--attributing it to the “bad will” of Germany or to financial Machiavellism in London and New York--as far more conservative, orthodox, and in the interest of small savers, than a justly constructed Capital Levy, the odium of which could be less easily escaped by the French Ministry of Finance. If we look ahead, averting our eyes from the ups and downs which can make and unmake fortunes in the meantime, the level of the franc is going to be settled in the long run not by speculation or the balance of trade, or even the outcome of the Ruhr adventure, but by the proportion of his earned income which the French taxpayer will permit to be taken from him to pay the claims of the French _rentier_. The level of the franc exchange will continue to fall until the commodity-value of the francs due to the _rentier_ has fallen to a proportion of the national income, which accords with the habits and mentality of the country. CHAPTER III THE THEORY OF MONEY AND OF THE FOREIGN EXCHANGES The evil consequences of instability in the standard of value have now been sufficiently described. In this chapter[19] we must lay the theoretical foundations for the practical suggestions of the concluding chapters. Most academic treatises on monetary theory have been based, until lately, on so firm a presumption of a gold standard régime that they need to be adapted to the existing régime of mutually inconvertible paper standards. [19] Parts of this chapter raise, unavoidably, matters of much greater difficulty to the layman than the rest of the book. The reader whose interest in the theoretical foundations is secondary can pass on. I. _The Quantity Theory of Money_ This Theory is fundamental. Its correspondence with fact is not open to question.[20] Nevertheless it is often misstated and misrepresented. Goschen’s saying of sixty years ago, that “there are many persons who cannot hear the relation of the level of prices to the volume of currency affirmed without a feeling akin to irritation,” still holds good. [20] “The Quantity Theory is often defended and opposed as though it were a definite set of propositions that must be either true or false. But in fact the formulæ employed in the exposition of that theory are merely devices for enabling us to bring together in an orderly way the principal causes by which the value of money is determined” (Pigou).