But is a gold reserve such an important thing for the maintenance of the value of a currency? All supporters of the exchange standard must be said to be believers in that theory. But the view cannot stand a moment’s criticism. To look upon a gold reserve as an efficient cause why all kinds of money remain at par with gold is a gross fallacy.³⁵⁵ To take such a view is to invert the causal order. It is not the gold reserve which maintains the value of the circulating medium, but it is the limitation on its volume which not only suffices to maintain its own value, but also makes possible the accumulation and retention of whatever gold reserve there is in the country. Remove the limit on the volume of currency, and not only will it fail to maintain its value, but will prevent the accumulation of any gold reserve whatever. So little indeed is the importance of a gold reserve to the cause of the preservation of the value of currency that provided there is a rigid limit on its issue the gold reserve may be entirely done away with without impairing in the least the value of the currency. The Chamberlain Commission recommended that the Government of India should accumulate a reserve to maintain the value of the rupee because it was by means of their reserves that European banks maintained the value of their currencies. Nothing can be a greater perversion of the truth. What the European banks did was just the opposite of what the Commission recommended. Whenever their gold tended to disappear they reduced their currencies not only [pg 235] relatively but absolutely. It was by limitation of their currencies that they protected the value of the currencies and also their gold reserves. ³⁵⁵ Cf. in this connection the brilliant paper by F. A. Fetter, “The Gold Reserve: its Function and its Maintenance,” in the _Political Science Quarterly_, 1896, Vol. XI, No. 2.