On the basis of the doctrine of purchasing power parities as an explanation of actual exchange rates, one may be led to answer the question in the affirmative. For it may be argued that if the gold value of the rupee was maintained it is because gold prices and rupee prices were equal.³⁸⁴ This, it may be said, is all that the exchange standard aims at doing and can be claimed to have done, for the fact that the gold-standard reserve was seldom depleted is a proof that the general prices inside India were on the same level as those ruling outside India. On _à priori_ considerations such as these, the exchange standard may be deemed to be as good as a gold standard. ³⁸⁴ It is, however, to be noted that neither Prof. Kemmerer nor Prof. Keynes has set up this claim in favour of the exchange standard. If anything, both have argued against the assumption of there being equality of _all_ prices. One may ask as to why Indian prices should have been kept as high, if they were no higher than gold prices, and whether it would not have been better to have kept Indian prices on a lower level. But we shall not raise that question. We shall be satisfied if Indian prices were only as high as gold prices. Now did Indian prices rise only as much as gold prices? A glance at the chart reveals the surprising phenomenon that prices in India not only rose as much as gold prices, but rose more than gold prices. Of course in comparing Indian prices with gold prices to test the efficacy of the exchange standard we must necessarily eliminate the war period, for the reason that gold had been abandoned as a standard of value by most of the countries. And, even [pg 252] if we do take that period into account, it does not materially affect the conclusion, for although India was not a belligerent country, yet prices in India were not very much lower than prices in countries with most inflated currencies during the war, and, barring a short period, were certainly higher than gold prices in U.S.A. It is obvious that the facts do not agree with the _à priori_ assumption made in favour of the exchange standard. So noticeable must be said to be the local rise in Indian prices above the general price level in England that even Prof. Keynes, not given to exaggerate the faults of the exchange standard, was, as a result of his own independent investigation, convinced that³⁸⁵ “a comparison with Sauerbeck’s index number for the United Kingdom shows that the change in India is much greater than can be accounted for by changes occurring elsewhere.” ³⁸⁵ “Recent Economic Events in India,” in _The Economic Journal_, March, 1909, p. 4. Italics not in the original.