7. The coinage policy of the Government of India from 1905 to 1907 suggests one obvious reflection. A succession of years, in which there is a heavy demand for currency, makes it less likely that the heavy demand will persist in the year following. The effects of heavy coinage are cumulative. The Indian authorities do not seem to have understood this. They were, to all appearances, influenced by the crude inductive argument that, because there was a heavy demand in 1905–6, it was likely that there would be an equally heavy demand in 1906–7; and, when there actually was a heavy demand in 1906–7, that this made it yet more likely that there would be a heavy demand in 1907–8. They framed their policy, that is to say, as though a community consumed currency with the same steady appetite with which some communities consume beer. In so far as the new currency is to satisfy the demands, not of hoarding, but of trade, it is hardly necessary to point out the fallacy. Moreover, even a superficial acquaintance with the currency history of India brings experience to the support of reason. Even when the rupee was worth no more than its bullion value, so that it was hoarded and melted much more than it is now, years of unusually heavy coinage were nearly always followed by a reaction. India has taken her coinage in great gulps, and it need not have been difficult to see that the demand of 1905–7 was one of these. 8. The Government of India’s silver policy during the early part of 1907 left them, therefore, in a somewhat worse position to meet the crisis which came at the end of the year, than need have been the case. But their sterling reserves were nevertheless fairly high. On September 1, 1907, they seem to have been, approximately, as follows:— _Gold_— Currency Reserve in India £4,100,000 Currency Reserve in London 6,200,000 ——————————– £10,300,000 ═══════════ _Money at Short Notice_— Gold Standard Reserve in London £50,000 Cash Balances in London 5,150,000 ——————————– £5,200,000 ═══════════ _Sterling Securities_— In Currency Reserve £1,300,000(a) In Gold Standard Reserve 14,100,000(a) ——————————– £15,400,000 ═══════════