§ 12. #Practical application of the quantity theory#. Despite the
number of changing factors affecting the methods of exchange and
the amount of business, the quantity theory is a rule unable at any
moment. These various factors change slowly, and the quantity theory
answers the question: What general change occurs in prices as a result
of the increase or decrease of the money in a given community at a
given moment? Like the law of gravitation and the law of projectiles,
the theory must be interpreted with relation to actual conditions.

The quantity theory makes intelligible the great and rapid changes in
prices which have followed sudden changes in the quantity of money.
Inductive demonstration of broadly stated economic principles is
usually difficult, but there have been many "monetary experiments"
to teach their lessons. Many inflations and contractions of the
circulating medium have occurred, now in a single country, again
in the whole world; and the local or general results have helped
to exemplify richly the working of the quantity principle. With the
scanty yield of silver and gold mines during the Middle Ages, prices
were low. After the discovery of America, especially in the sixteenth
century, quantities of silver flowed into Europe. The great rise of
prices that occurred was explained by the keenest thinkers of that day
along the essential lines of the quantity theory, tho there were many
monetary fallacies current at that time. The experience in England
during the Napoleonic wars, when the money of England was inflated (by
the forced issue of large amounts of bank notes) and prices rose above
those of the Continent, led to the modern formulation of the theory by
Ricardo and others about 1810. The discovery of gold in California
and Australia in 1848-50 greatly increased the gold supply, and gold
prices rose throughout the world. Between 1870 and 1890 the production
of gold fell off while its use as money increased greatly, and prices