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f\AF* f% ^T Office Correspondence Qov«mor Beclat FEDERAL RESERVE B0ARD Subject: ^B D JteK- Apsil 9, REC'D IN FILES SECTION MAR 2 In connection with the alleged relationship between production, currency in circulation, and commercial borrowing, I thought it might be useful to plot these series on a chart* The chart brings out very clearly the absence of any constant relationship between these series. From 1924 to 1929 production went up, currency in circulation remained constant, and eligible paper declined* In 1931-52 production and eligible paper declined, while currency In circulation (that is, cash outside of banks on June 50th) increased* In 1955-34 production went up, currency in circulation declined, and eligible paper remained fairly constant* If you think it worthwhile, I could have a large chart prepared or I could have a number of copies lithographed from this chart* I am also attaching another chart on indebtedness to reserve banks, and reserves of member banks. The point of this chart is to show that the banks as a whole do not borrow for the purpose of increasing their reserves* They borrow only to make up a loss of reserves. It will be noted that the years when reserves increased most rapidly ( in 1924, 1927, 1932, and 1933) were the years in which member banks were decreasing their borrowings from reserve banks. If you will check the movements of commercial loans and of borrowings of member banks from reserve banks you will observe again that no relationship exists. INDEBTEDNESS TO RESERVE BANKS AND RESERVES OF MEMBER BANKS BORROWINGS RESERVES MILLIONS OF DOLLARS ( Monthly averages of daily figures ) MILLIONS OF DOLLARS 3000 1500 2500 1000 2000 500 1500 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 ELIGIBLE PAPER AND BUSINESS ACTIVITY I® PER CENT PER CENT 130 130 A 120 110 100 90 80 1 / A V A J r Production \ _. 70 V VV V 60 MILLIONS DOLLARS K 5000 Cur rency in uircuian on i 4000 —=F=4- Eligible Paper National Banks 3000 i A Vv V Eligible Paper Member Banks OF k — / \ / " • 2000 1000 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 JJ
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