18 8

ESSAYS IN PERSUASION

PART

(i) Devaluation versus Deflation

The policy of reducing the ratio between thevolume of a country’s currency and its require-ments of purchasing power in the form ofmoney, so as to increase the exchange valueof the currency in terms of gold or of com-modities, is conveniently called Deflation.

The alternative policy of stabilising the valueof the currency somewhere near its presentvalue, without regard to its pre-war value, iscalled Devaluation.

Up to the date of the Genoa Conference ofApril 1922, these two policies were not clearlydistinguished by the public, and the sharpopposition between them has been only gradu-ally appreciated. Even now (October 1923)there is scarcely any European country in whichthe authorities have made it clear whether theirpolicy is to stabilise the value of their currencyor to raise it. Stabilisation at the existing levelhas been recommended by International Con-ferences; and the actual value of many cur-rencies tends to fall rather than to rise. But,to judge from other indications, the heart’sdesire of the State Banks of Europe, whetherthey pursue it successfully, as in Czecho-slovakia, or unsuccessfully, as in France, is toraise the value of their currencies.

The simple arguments against Deflation fallunder two heads.

In the first place, Deflation is not desirable ,because it effects, what is always harmful, a