[pg 201] Now do these tables confirm, or do they not, the argument that the fall in the gold value of the rupee is coincident with a fall in the general purchasing power of the rupee? What was the general purchasing power of the rupee when a fall in its gold value occurred? If we scrutinize the facts given in the above tables in the light of this query there can be no doubt as to the validity of this argument. From the tables it will be seen that the gold value of the rupee improved between 1893–1898 because there was a steady if not unbroken improvement in its general purchasing power. Again, on the subsequent occasions when the exchange fell, as it did in 1908, 1914, and 1920, it will be observed that those were the years which marked the peaks in the rising price-level in India; in other words, those were the years in which there was the greatest depreciation in the general purchasing power of the rupee. A further proof, if it be needed, of the argument that the exchange value of the rupee must ultimately be governed by its general purchasing power is afforded by the movements of the rupee-sterling exchange since 1920 (_see_ p. 202). But, although such is the theoretical view confirmed by statistical evidence of the causes which bring about these periodic falls in the gold value of the rupee (otherwise spoken of as the fall of exchange), it is not shared by the Government of India. The official explanation is that a fall in the gold value of the rupee is due to an adverse balance of trade. Such is also the view of eminent supporters of the exchange standard like Mr. Keynes³¹⁷ and Mr. Shirras.³¹⁸ No doubt some such line of reasoning is responsible for the currency fiasco of 1920. How is it possible otherwise to explain the policy of raising the exchange value of the rupee? Both the Smith Committee on Indian Currency³¹⁹ and the Government of India³²⁰ were aware of the fact that the rupee was heavily depreciated, as evidenced by the rise of prices in India. [pg 202] ³¹⁷ Op. cit., p. 16. ³¹⁸ Op. cit., p. 4. ³¹⁹ Cf. Report, pp. 19–21. ³²⁰ Memorandum from the Government regarding Indian price movements. App. XXVIII to the Report of the Currency Committee of 1919. _TABLE XL_