There is a disposition on the part of many quantity theorists to beg the question at the outset, to assume money as circulating, without realizing how much this assumption involves. The assumption involves the further assumption that there are _causes_ for the circulation of money. But the same causes which make money circulate will also be factors in the determination of the _terms_ on which it circulates, _i. e._, the prices. To seek then, by a new principle, the quantity theory, to explain these prices without reference to these causes, is a remarkable procedure. There is sometimes a disposition to do the thing quite simply indeed: define money as the circulating medium, and, _by definition_, you have it circulating! A rather striking case of this, which is either tautology or circular reasoning, appears in Fisher's _Purchasing Power of Money_ (p. 129): "Take the case, for instance, of paper money. So long as it has the _distinctive characteristic of money,--general acceptability at its legal value_,--and is limited in quantity, its value will ordinarily be equal to that of its legal equivalent in gold." (Italics mine.) It is not quite easy to construct, even ideally, a social psychology which would perfectly fit the quantity theory. One would have to assume that money circulates purely from habit, without any present _reason_ at all. The assumption must be that the economic life runs in steady grooves, so that quantity of goods exchanged will always be the same, or at least, that it will always be the same proportion of the goods produced--there must be no option of speculative holding out of the market allowed the holder of exchangeable goods. The individuals must have constant habits as to the _proportions_ of the money they receive to be spent and to be held for emergencies. All the factors affecting "velocity" of both money and goods must be constant--Professor Fisher maintains very explicitly that velocities, both of money and of bank-deposits are fixed by habit (_loc. cit._, p. 152),--and, in any case, the assumption is necessary. A thoroughly mechanical situation must be assumed, where there is the rule of blind habit. Given such a mechanism, you pour in money at one end, and it grinds out prices at the other end, automatically. But, strangely enough, in this social situation where blind habit rules, prices are perfectly fluid! In India, or in other countries where the assumptions of the quantity theorist come most nearly to realization, so far as the general rule of habit is concerned, one finds also many customary prices. In a country completely under the rule of habit, the prices would, as a matter of _psychological_ necessity, be also fixed. What might then be expected to happen in such a country, if an economic experimenter should disturb them in their habitual quantity of money? Which habits would give way, those relating to prices, or those to velocities, or those relating to