The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
RALPH E. FLANDERS
BOX 477
SPRINGFIELD, VERMONT
December 27, 1937
Hon. Marriner S. Eccles, Chairman
Board of Governors
Federal Reserve System
Washington, D, C.
Dear Mr. Eccles:
As a result of some discussion in the Committee on ffBig
Business11 of the Twentieth Century Fund, Laurence H.
Sloan, Vice President of the Standard Statistics Company,
has prepared for me some charts, photostatic copies of
which I am enclosing. These charts seem to me to be of
significance in connection with the question of our
sluggish velocity of circulation. They show that distribution of earnings (whether because of or without reference to the undistributed profits tax) has been high
throughout the recovery period* In spite of that fact, our
velocity of circulation has been low throughout the same
period. This would seem to be prima facie evidence that
we must look elsewhere than in the corporate earnings of
large companies to find the obstructions which are choking
the circulation of money. This in turn, it seems to me,
lends force to the suggestion that I made when talking with
you — namely, that it is important for the Board of
Governors to discover factual means for determining what
kind of deposits it is that are stagnant•
As an offset to the two line-charts, the bar-chart indicates
that the large industrial corporations have carried more
cash or equivalent steadily throughout the depression than
in the period prior to 1929. However, the year 1937 with
its fairly rapid turnover is well below 1929 and about on a
par with 1928, and there does not seem to be here any evidence of such a decrease in velocity as would account for
present conditions*
Also, in the discussions of the Committee on "Big Business"
Dr. Dewhurst raised tiie question as to whether large cash
surpluses, such as are shown on the bar-chart, indicated
dangerous restriction of the necessity for borrowing. It
has been in my mind for some time past, as I think it has
been in yours, that a certain volume of outstanding bank
ttALPH E. FLANDERS
BOX 477
SPRINGFIELD, VERMONT
Mr. Eccles
-2December 27, 1937
indebtedness is necessary to give the required volume of
money for transacting a desirable volume of business* Dr#
Dewhurst raises doubts as to tliis point of view* He takes
the stand that large cash reserves decrease the necessity
for borrowing to carry on a given volume of business so
that as they are built up, then, pari. passu, the necessity
for additional credit money decreases.
Of course, large surpluses are not necessarily in the form
of "cash and equivalent.* They may be in inventories and
unpaid-for shipments to customers that are owned outright
which formerly were carried on bank indebtedness* In this
case also, it would seem that perhaps the decreased borrowing results in a decreased necessity for borrowing. Does
not the whole thing point toward a condition in which we
might do a larger volume of business with less money?
I raise these questions without feeling as yet able to give
the answers. I, at least, cannot yet see to the bottom of
the problem, but I am sure that it is an exceedingly important one. forgive me for writing at such length.
Sincerely yours,
REPtM
Ends.
/Ralph 1. flanders
AVAiLAbLE
FOR COMMON 3T<
213
INDUSTRIAL
CORPORATIONS
CASH COMMON
DIVIDENDS
UNIT
MILLION DOLLARS
6 8 INDUSTRIAL
CORPORATIONS
CASH COMMON DIVIDENDS VS. NET AVAILABLE FOR COMMON STOCK
UNIT: MILLION DOLLARS
1000
900
900
800
ff
600
i
500
400
/
300
100
NET AvAlt. ABIE
ft
700
200
/
2V A
FOR COMMON OTOCK
L
V
\
r
V 11
1
JT
y
(J
/
w
f
800
^SH COMKOI
\
DIVIDENl \
>
/
>
/I
\
\
V
Y
600
ft
500
/
{
'14 ' I S '16 '17 '18 '19 ' 2 0 '21
400
300
200
y
100
¥
700
r
/
\
0
-100
1000
%
22 '23 "24 '25 '26 '27 '28 '29
'30 '31 '32 "33 ' 3 4 "35 "36 '37
0
IUU;
@FedFRASER