78 MODERN MONETARY SYSTEMS 
The first part of this plan, viz., the stamping and 
contraction of the note issue, was carried out under a 
law of February 25th, 1919, supplemented by several 
ordinances of the same date. The notes which were with- 
drawn were not necessarily confiscated ; those which were 
withdrawn formed, for each owner, an account bearing 
interest at 19 ; this forced loan was intended to prepare 
the way for a tax on capital levied in accordance with a 
careful assessment, and every individual was to be reim- 
bursed any surplus of notes appropriated over and above 
his share as soon as the proceeds of the loan itself had 
flowed in. 
The rate of reduction was finally fixed at only 50%, 
and owing to a certain number of exemptions (for amounts 
under 300 crowns, one-quarter of all salaries and wages, 
notes issued by public authorities) the effective reduction 
was less than 30%. Moreover, a very large proportion 
of the notes which had thus been withdrawn were put 
back into circulation some months later, when M. 
Horacek succeeded M. Rasin as Minister. 
Deflation, properly so-called, seems therefore to have 
been fairly moderate. But a law of April 10th, 1919, 
prohibited any increase of State notes “in excess of the 
succeeded by its bill and discount system in maintaining the quotation of 
the krone at gold parity.” 
It will be observed in the first place that it is a strange misconception to 
suppose that a noticeable currency contraction can be brought about by 
reducing the note issue, while at the same time an equal amount of 
purchasing power is made available in the form of Bank accounts supplied 
by the Treasury. Again, the creation of a “gold” currency secured on a 
foreign loan is necessarily ineffective if that currency is to remain incon- 
vertible. But the author contemplated a system similar to the one adopted 
by the Austro-Hungarian Bank before the war and could point out with 
truth that therewas no convertibility then. To be more exact, the note issue 
was not legally convertible, but was convertible in practice, and this 
explains how it was possible to maintain an almost constant parity. 
On the whole, the practical lessons of the experience of Austria-Hungary 
before the war corrected a too simple theory, and it will be seen that the 
present stabilisation of the Czech crown is due not to the theory but to 
these practical lessons. 
1 Rasin, 0p. cit., pp. 28, 29.