THE MONETARY CRISIS 23 
PERCENTAGE OF INCREASE COMPARED WITH THE 
PREVIOUS QUARTER. 
Sept. 30, Dec. 31, io June 30, ! Sept. 30, | Dec. 31, 
1921. I 1. 1922. 1922. | 1iy2z. 1922. 
Note Issue . 11-89 29:6 A 257 84:2 290-2 
Prices". WN51-4.5 68-7 BEEN 4 308-2 | 4139 
bound up with those of the exchange, whereas both appear to 
be fairly independent of changes in the note issue. This 
observation, the theoretical consequences of which will be 
stated more fully, must be emphasised here, for it supple- 
ments, even if it does not invalidate, certain commonly 
accepted theories. 
Taking first price movements, we shall find a simple 
explanation of this phenomenon when we reflect that in 
a country the economic life of which is bound up with its 
foreign trade, the prices of imports and exports are directly 
dependent on the rates at which foreign bills are nego- 
tiated. A further and more complete explanation is given 
by the custom of fixing the majority of prices day by day 
in accordance with the rate of exchange in a country 
where depreciation is continuous, unlimited and always 
increasing. It is easy to understand, after this, how in- 
ternal prices become more and more closely connected 
with the rates for foreign exchange, and follow the spas- 
modic movements of international speculation, while 
changes in the note issue are thenceforward rhe result 
rather than tle cause of a rise in prices, even though they 
originally helped to bring about the exchange crisis. 
Once internal prices are swept along by the exchange 
movements, the number of monetary units required for 
every kind of transaction also increases. And inflation 
itself, always lagging behind the price movements, in reality 
merely attenuates the process of monetary contraction. It is 
1 Figures given in the “Memorandum on Currency 1913-1922,” published 
by the League of Nations, February 1923, p. 15. Another table (p. 12) shows 
the movements of the note issue and of prices between 1919 and 1922 in 
another form. A basic index of 100 taken for both rises to 18,377 in the 
case of prices, and only to 2587 in the case of the note issue. 
6G t