THE MONETARY CRISIS 73 
amortise the public debt. For the rest, the issue of 
currency notes was regulated and effectively reduced from 
1921 onwards. But in view of English monetary habits, 
real inflation and deflation, i.e., an increase or decrease in 
purchasing media, depend even less than in other countries 
on the amount of currency in circulation, but rather on 
the expansion or contraction of credit. It was therefore 
decided to raise the discount rate to 79%, at the beginning 
of 1920. 
After these measures had been taken the following 
events happened. The wholesale price index which had 
risen to 325 on May 30th, 1920, thenceforward fell 
sharply and stood at 166 on December 31st, 1922. The 
retail price index, which had continued to rise until the 
end of 1920 and reached 265 on January 1st, 1921, in turn 
fell sharply from that date onwards and dropped—almost 
continuously—to 178 on January 1st and 163 on July 
1st, 1923; but it rose again after that date. The curve 
of the dollar exchange is less uniform, but after having 
reached its maximum with a loss of 409, at the end of 
1920, it also took a turn on January 1st, 1921, and 
registered a loss of 309, in the middle of that year, of 
209%, by the end of the year, and of only 109, in 1922. 
Finally in February 1923 the external depreciation of the 
pound sterling had been reduced to less than 39, but 
was back to 119, in January 1924. 
It is not very easy to establish definitely a relation of 
cause and effect between the steps taken and the observed 
results. Deflation, properly so-called, happened after the 
fall in prices, or at least of wholesale prices, which it was 
supposed to provoke; for there was no decrease in the 
note issue in 1920; it was fairly small in 1921, and 
suddenly stopped, and did not begin again till 1922. If 
the figures for bank deposits are taken as forming a 
supplementary index of the available purchasing power, 
it will be seen that inflation quite definitely went on into 
1920 and that deflation was even less in 1921.1 More- 
1 According to M. Rist, “La déflation en pratique” (p. 31), the deflation 
which took place according to the indices of the period from the end of