74 MODERN MONETARY SYSTEMS 
over, a crisis occurred during this interval; it began in 
1920, and among the steps taken it was not deflation 
proper, but the process of tightening credit by raising the 
Discount rate, which most nearly coincides both with the 
beginning of the crisis and with the fall in prices which was 
one of its manifestations. 
It is therefore hardly surprising that some observers 
attribute the fall in prices to the policy of deflation, whereas 
others attribute the crisis to it. It is strange, however, that 
in order to exonerate deflation its supporters have loudly 
affirmed that it hardly took place. Now it is difficult to 
maintain at the same time that deflation alone deserves the 
credit of having provoked the fall in prices, or, in other 
words, of having raised the purchasing power of the 
currency, and that it was not capable of contributing to 
the crisis. But on the whole it may be admitted that the 
crisis, and therefore the fall in prices which is one of its 
most ordinary manifestations, would have occurred some- 
what sooner or later even if there had been no previous 
intention to contract the currency ; for a period of exces- 
sive boom is always followed by a period of credit restric- 
tion. On the other hand, it should be recognised that the 
first effect of deflation is not a reduction in the consumers’ 
purchasing power, but the tightening of credit, and that, 
therefore, it can hardly result in a fall in prices except by 
provoking a crisis. 
A choice must therefore be made between the theory 
that the crisis and the fall in prices were more or less inde- 
pendent of the deflationist policy of the British Govern- 
ment, and the theory that this policy was partly responsible 
for both ; but it would be rash to attempt a final answer to 
this question without a much more detailed study of the 
problem than the scope of our present inquiry permits.t 
1920 to the end of 1922 may be estimated at only 7%. Although it is 
rather arbitrary merely to add the note issue and the deposits, this estimate 
gives an idea of the fairly low order of magnitude of the deflation which 
actually took place. 
1 M. Bonnet’s excellent work, “La politique anglaise d’assainissement 
monétaire,” Th. Paris, 1923, may be consulted on this subject, although it 
does not give a decisive answer to the question.