The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
(T h e article on the last page describes the relation of gold m ovem ents to the R eserve B anks)
M ONTHLY
O f C r e d it a n d
I n
B y
th e
F e d e r a l
t h e
S e c o n d
R e s e r v e
R E V IE W
B u s in e s s
F e d e r a l
A g e n t ,
F e d e r a l
New York , October
C r e d it C o n d itio n s
H E R E has been a change recently in the direc
tion of the movement of several im portant indices
of credit conditions. Interest rates have grown
firmer and have risen fraction ally.
The commercial
loans of banks, which had been dim inishing in volume fo r
n early two years, have increased in N ew Y o rk C ity and
in all reporting cities. F e d e ral Reserve B an k loans to
member banks have increased n ea rly $50,000,000 in a
few weeks, and note circulation n ea rly $100,000,000.
The amounts of these changes from the low point are
shown in the follow ing table and they are illustrated
grap h ically in the diagram s at the foot of the page.
T
(Dollar figures in millions)
Interest rate on commercial paper. . . .
Interest rate on Bankers’ bills................
Commercial loans of banks:
New York C itv........................................
All reporting cities..................................
Discounts and advances of Federal Re
serve Banks to member banks...........
Note issues of Federal Reserve Banks
Interest Kates on
Prime 4-6 Months
Commercial Paper and
Prime 90 Day Bank
er’s Acceptances
Low
1922
4%
3%
$1,997
7,279
380
2,123
Latest
report Increase
4K %
3}4%
$2,018
7,367
424
2,219
Commercial Loans and
Total Investments of
Reporting M e m b e r
Banks irt tho United
States
M%
H%
$21
88
44
96
R e s e r v e
1,
C o n d itio n s
D is t r ic t
R e s e r v e
B a n k ,
N e w
Y o r k
1922
These changes all indicate an increase in the demand
for fund s which, w hile it coincides in time w ith the
seasonal needs of agricultu re is more probably a reflec
tion o f more fundam ental a ctivity in the business and
industrial life of the country.
A s long ago as the summer of 1 9 2 1 , forces were set
in motion in business and industry, which have gained
impetus slow ly but steadily, and at last have begun to
make themselves felt in the increasing use of bank
credit fo r commercial purposes.
Evidences of this business recovery are presented in
the set of fou r diagram s, and in the single diagram on
the following page.
In p ra ctica lly every one of the
basic industries the current rate of production is fa r in
excess of the rate a y ea r ago. In most of them the im
provement in the past few months has been steady.
A general increase in facto ry operations in this dis
trict is shown by the records of the number of workers
employed in factories. These m ay be taken as typ ical
of the changes w hich have taken place in facto ry em ploy
ment throughout the country.
The total movement of freigh t b y rail has been largely
affected b y the coal strike, as coal constitutes norm ally
Commercial Loans and
Total Investments of
Reporting M e m b e r
Banks in New York
City
Loans by Federal Re
serve Banks to Mem
ber Banks
Federal Reserve Notes
in Circulation
MONTHLY REVIEW
THOUSANDS
OF CARS
PER CENT,
125
1000 r
1
1922
1914AVERAGE
1?£2
mi
750
/A
19S1
75
50
250
JAR
WR
MAY
JULY
SEPT.
NOV.
Workers Employed in New
York State Factories
JAN.
MAR. MAY
JULY
SEPT.
NOV.
Average Weekly Loadings of
Freight Cars
about 3 5 p er cent, of the total rail movement, but so
R a t e o f T u r n o v e r o f B a n k D e p o s its
great has been the increase in the movement of m er
chandise and miscellaneous goods this year, that the
decrease in coal loadings has been larg ely offset.
The total volume of checks draw n, as reflected in
figures collected b y the F e d e ral Reserve banks showing
the debits to individual accounts, are a good index of
the activity of trade and industry.
A lo n g with greater activity in business, has gone an
increase in prices as illustrated above.
In the light of the increases shown b y these various
indices o f business activity, it now seems probable that
the recent rise in interest rates and in the commercial
loans of banks, has a deeper origin than the usual tem
p o rary demands of the autumn.
NORMAL
100 PER CENT.
AUG.
19ZZ
SUGAR MELTINGS
CEMENT
WHEAT FLOUR
PETROLEUM
I n the A p r il 1 M on th ly R eview , there w ere published
computations showing fo r a group of cities the velocity,
or rate of turnover, of bank deposits. Th e accom pany
ing table and diagram s b rin g this stu d y up to date.
A lth o u gh the available evidence from other sources
is clearly to the effect that in the past y e a r there has
been a distinct increase in business activity, that in
crease in a ctivity has not yet been reflected to a n y large
degree in a greater ra p id ity in the turnover of bank
deposits, ow ing p a rtly to the m uch increased volume of
deposits now reported b y the banks.
The figures fo r N ew Y o rk C ity are sh arp ly upw ard,
probably la rg e ly a result of a ctivity in the security m ar
kets. The only other center, however, which shows an y
marked increase between A u g u st 1 9 2 1 and A u g u st 19 2 2
is Buffalo, an industrial center, in which m an ufactu ring
a ctivity w as at an u n usually low point a y e a r ago. In
San F ran cisco, Boston, and A lb a n y the most recent
figures are all somewhat low er than for the correspond
ing month a y ea r ago, and m arkedly lower than in 1 9 1 9
and 19 20 . Th e figures fo r A u g u st in successive years
are as follow s:
WOOD PULP
MEAT SLAUGHTERED
Velocity in August
LUMBER
COTTON C£N*5UMPTW!
PAPER
COPPER
T IN
5TEEL INGOTS
PIG IRON
Z IN C
BITUMINOUS COAL
Production of Basic Commodities in August, 1922, and the Low
Point in 1921 Compared with Normal Production
New York...................................
Albany................................. ..
Buffalo.........................................
Rochester....................................
Syracuse......................................
Boston..........................................
Chicago*.....................................
San Francisco.............................
*July Figures.
1919
1920
1921
1922
72.6
28.9
17.5
17.7
9 .9
33.8
50.2
43.1
62.7
32.1
19.9
19.8
11.4
30.8
48.2
35.4
58.7
22.5
16.1
18.3
7.0
25.9
43.6
36.7
65.2
22.1
18.3
17.8
7.3
24.8
41.7
34.4
FE D E R A L R ESE R V E AGENT AT N E W YORK
ANMJAL
ANNUAL
ftATE
iwe
Annual Rate of Turnover of Bank Deposits
The available data for past years indicate that great
business a ctivity is u su ally accompanied b y a rapid
turnover of bank deposits, as credit resources are kept
constantly occupied. The recent increase in the volume
of business has not yet been sufficient to call fo r the fu ll
est employment of credit facilities available in the form
of bank deposits.
B ill M a r k e t
A ft e r three weeks of slack sales dealers advanced of
ferin g rates fo r prim e unindorsed bills from 3 p er cent,
to 3 14 per cent, in the latter p a rt of September. P r e
vailin g firmer money conditions and the relatively low
yield on bills as compared w ith the rates of return on
other short term investments, p a rticu la rly certificates of
indebtedness, were m ainly responsible fo r the advance.
B id rates were increased proportionately from 3 % per
cent, to 3 % per cent.
A fa ir su p p ly of new bills was available to the dealers
throughout the month. O f new bills coming into the
m arket, those draw n against exports of cotton and
grain, and against im ports of silk and sugar, were most
numerous. The range of commodities covered b y bills
now in the market is indicated b y the fact that bills
recently purchased b y the F e d e ral Reserve B an k of
N ew Y o rk , were draw n against about 2 50 different
commodities.
C o m m e r c ia l P a p e r
Com m ercial paper dealers in, Septem ber advanced
their selling rate for prim e p aper from 4 per cent, to
a range of 4 *4 to 4y 2 per cent.
The advance w as
initiated in the N ew Y o rk market, but w as followed
by corresponding increases in the M iddle W est and on
the Pacific Coast.
H igh er rates appeared to be due more to fallin g off
in demand at the lower levels than to increase in the
su p p ly o f p aper ,as most dealers reported little or no
increase in offerings.
B u y in g increased only slightly
in result of the rate increases. N ew Y o rk banks con
tinued to be only occasional purchasers, and country
bank demand w as still relatively restricted.
D u rin g
the e arly p a rt of the month, a good demand was re
ported from Chicago and St. Louis at rates in m any
cases 14 of one per cent, lower than in N ew Y o rk , but
later slackening in bu yin g in those markets w as reflected
in a rise in rates to the levels prevailing in N ew Y ork.
The following diagram shows a fu rth er slight rise
during A u g u st in the outstanding commercial p aper of
the twenty-seven dealers which report reg u larly to this
bank.
MILLIONS OF
DOLLARS
1500
1256
IOOO
730
500
Z50
Oi
Commercial Paper Outstanding— Twenty-seven Dealers
S to ck M a r k e t M o n e y R a te s
The stock exchange money market became distinctly
firmer in Septem ber, and call loans were generally 4
per cent, or higher, compared w ith 3 to 3 % per cent,
freq u en tly quoted du rin g A u g u st. O n ly on one occa
sion did the rate drop below 4 p er cent., and that was
following Septem ber 1 5 , when h eavy Governm ent p a y
MONTHLY REVIEW
4
ments in meeting m aturing certificates and other obli
gations tem porarily exceeded receipts. A ccom pan ying
the collection of the q uarterly ta x checks and other re
ceipts, and h eavy p rivate transfers of funds to the in
terior, rates rose quickly to 6 per cent., for the first time
since F e b ru a ry .
Tim e money rates likewise rose in September, and
by the third week were quoted at 4^2 to 4 % per cent.,
the highest since last M arch.
S to ck
M arket
The conclusion of the coal strike and the p artial set
tlement of ra ilw a y labor difficulties were accom panied in
early Septem ber b y a fu rth er rise in stock prices, to
new high levels and more active trading. D a ily tran s
actions frequen tly exceeded a million shares for the first
time since early summer.
The advance was followed
a fte r the middle of the month b y a period of reaction,
arisin g p a rtly from developments in the N ear Bast.
B ond
M arket
Despite higher money rates in Septem ber and some
reduction in the investment holdings of reporting mem
ber banks, the corporation bond m arket m aintained its
firm tone un til the latter p a rt of the month when there
was some weakness. The broad character of the demand
early in the month w as reflected in fu rth er advances in
public u tility, industrial, and high-grade railroad groups
of the W a ll Street Jo u r n a l's index of fo rty bonds.
Prim e State and m unicipal issues shared in the
strength of corporation bonds, and prices in some in
stances were the highest since the w ar. Fo re ig n bonds
w ere generally steady, except F re n ch and B elgian is
sues which were sensitive to developments with respect
to reparations. A feature of the m arket was the return
to p a r of C an adian Governm ent 5s of 19 5 2 , a fte r having
fallen below 98 upon dissolution of the distributing
syndicate this spring.
B razilian issues also strength
ened a fter recent weakness.
T ra d in g on the N ew Y o rk Stock E x ch a n ge during
A u g u st in bonds other than U nited States Governm ent
securities totaled $226,000,000, an increase over both
J u l y and Ju n e , and approxim ately five times the low
total o f A u g u st last year.
T ra d in g continued active
in September.
U n ite d
S ta te s
N ew
F in a n c in g
A fte r fallin g to the lowest point of the yea r in A u g u st,
new financing showed the custom ary seasonal increase
in September, and du ring the second and th ird weeks
reached $256,786,00 0, the largest amount fo r a two
weeks ’ period since spring. Corporation offerings, which
were w id ely varied and included several large industrial
and public u tility issues, were in good demand. Rates
on the better grade of notes and bonds rem ained 5 y 2
per cent., or somewhat lower. N ew issues fo r the p u r
pose of enlarging capital stock, rather than fo r refu n d
ing purposes, continue to appear w ith greater frequen cy
than earlier in the year.
State and m unicipal issues were also numerous and
p a rticu larly well bought, even though prices in some
instances reached new high levels. Prim e issues of this
class are now offered generally around 4 per cent., with
some issues quoted as low as 3.80 per cent. Prospective
scarcity of new offerings, together with reduced yield
in other bond groups, have been factors contributory
to this strength.
On Septem ber 25, an issue of
$75,000,000, F e d e ral L a n d B an k 4 14 per cent. 10 -20 yea r
bonds, were offered and quickly sold on a 4 .30 to 4.50
basis.
5Z1
NEW YORK
LONDON
G o v e r n m e n t S e c u r it ie s
A f t e r losing from a h a lf to nearly 2 points during
A u g u st, L ib e rty bond prices steadied somewhat e arly in
Septem ber. Renewed declines later in the month, how
ever, carried three of the 4 % issues below p a r fo r the
first time since Ju n e .
Total transactions in L ib e rty and V ic to ry issues on
the N ew Y o rk Stock E x ch a n g e du rin g A u g u st were
$93,000,000, the smallest in a y e a r and tradin g con
tinued light in September.
Offering rates fo r outstanding issues of T rea su ry cer
tificates and notes w ere sligh tly higher in Septem ber
in sym p ath y w ith generally firm er money rates. A new
offering, however, of one-year certificates dated Septem
ber 1 5 , and bearing 3 % per cent, interest, the same
rate as that o f a one-year issue sold in Ju n e was heavily
oversubscribed.
O f total subscriptions amounting to
$570 ,4 76 ,50 0 , allotments were $227,000,000, of which
$94,840,000, or 4 1.8 per cent, w as alloted in this district.
The issue was quoted im m ediately in the open m arket at
a slight premium.
MAY to SE PT to J A N . to
M A Y to
AUG.
DEC.
APFL
AUG,
Volume of Foreign Financing in the United States and in the
United Kingdom, in Millions of Dollars in 1921 and 1922 (Pounds
Converted at Current Rates of Exchange)
JAN. TO
APR.
FE D E R A L R E SE R V E AGENT A T N E W YO RK
In contrast with a ctivity in other groups, foreign
financing in this m arket continued light, reflecting the
unsettlement in outstanding foreign issues. Total offer
ings during the first three weeks of Septem ber were
$19 ,16 3,0 0 0 .
A comparison of foreign capital issues in N ew Y o rk
and London b y fou r month periods since the beginning
of 1 9 2 1 , illustrated in the accom panying diagram , shows
that foreign financing has fallen off recently in both
markets, but that the decrease has been most m arked
at N ew Y o rk . Sin ce previous presentation in this R e
view, figures fo r G reat B rita in have been revised to cover
p a r values of securities offered, in order to make them
more com parable w ith figures for this country. B ritish
figures are converted into dollars at current rates of
exchange.
F o r e ig n
E xchange
Sterlin g declined about five cents in Septem ber, due
in large p a rt to somewhat heavier offerings o f commer
cial bills in N ew Y o rk , combined w ith increased bu ying
of dollars in London, both incident to seasonal p u r
chases o f A m erican cotton and foodstuffs. Discontinu
ance of purchases of B ritish coal a fte r the settlement
of strikes here and a reduction in the volume of gold
im ports from E n g lan d also tended to cause a reaction
in sterling.
L a te in the month sterling declined to
around $4.40, follow ing political developments in the
N ear E a st.
Rates on most other E u ro p ean countries also reflected
seasonal bu ying of cotton and foodstuffs, but showed
somewhat smaller losses than sterling. Germ an m arks
which had declined to 5 cents per hundred in the latter
p art of A u g u st advanced to 7 cents per hundred. The
Greek drachm a declined from 3 cents to 2 cents follow
ing the defeat of the Greek arm y in A s ia M inor. P a r
E a stern and South A m erican exchanges also closed the
month sligh tly lower, with the exception of Ja p an ese ex
change which showed a small increase.
The following table compares changes in the prin cipal
rates from a month ago and a year ago.
Change
from
Aug. 19
Change
from
Sept. 20,
1921
Per Cent ,
depre
ciation
from par
-.0 4 6 2
England........................... $4.4313
.0766
-.0 0 3 0
France..............................
.0424
-.0 0 2 9
Italy................................. 1
-.0 0 0 1
Germany.........................
.0007
.0714
-.0 0 4 2
Belgium...........................
.3870
-.0 0 2 0
Holland............................
.1869 ; -.0 0 3 8
Switzerland.....................
- .0 0 4 9
.1513
Spain................................
+ .0004
.2651
Sweden (Stockholm). . .
- .0 0 9 1
.3528
Argentina.........................
.1206
- .0 1 2 0
Brazil...............................
+ .0033
Japan (Yokohama). . . .
.4813
- .0 1 0 0
.5713
China (Hong Kong)... .
-.0 0 5 0
.7713
China (Shanghai)..........
-.0 0 6 2
.2 8 6 3
India............ ....................
+ .0 0 0 9
.9 9 9 7
Canada.............................
+ .0013
.6 9 6 3
Bar Silver in New York
+ .7 1 8 8
+ .0064
+ .0006
-.0 0 8 6
+ .0012
+ .0724
+ .0149
+ .0213
+ .0489
+ .0535
- .0 0 4 2
0
+ .0475
+ .0400
+ .0238
+ .1 0 2 8
+ .0400
8.9
60.3
78.0
99.7
63.0
3 .7
3.2
21.6
1.1
16.9
62.8
3.5
*
*
41.2
.03
Country
* Silver exchange basis.
Sept. 20
Last
G o ld
M ovem ent
Gold im ports du ring A u g u st amounted to about $ 19 ,000,000, of which over $13,0 0 0 ,0 0 0 came from En glan d.
E x p o rts w ere approxim ately $956,000.
The following
table shows the sources o f imports.
(000 Omitted)
June
1922
Country
England...........................
Sweden.............................
China and Hong Kong..
France..............................
Denmark.........................
Mexico.............................
Colombia.........................
July
1922
August
1922
Total
1922
$4,009
16
389
337
667
4,090
594
423
2,444
$38,066
246
580
342
1,688
467
619
979
$13,270
583
393
870
890
1,115
333
642
996
$75,999
32,388
8,714
4,841
14,900
17,769
3,850
5,004
21,580
$12,969
$42,987
$19,092
$185,045
F o r e ig n T r a d e
Im ports into the U nited States rose $19,000,000 during
A u g u st to $271,00 0,000 , the largest total in nearly two
years, reflecting in p a rt w ithd raw al of goods from bond,
and a rush of new shipments in anticipation of the new
tariff. A s exports increased only slightly, the excess of
exports fell to the lowest for a n y month since Septem ber
19 1 4 .
The h eavy im ports du rin g A u g u st included an in
crease over J u l y of 14,000 bales of ra w silk, to the largest
amount since Ja n u a r y . F o r the y e a r ended last Ju n e,
ra w silk im ports were 4 8,179 ,0 0 0 pounds, valued at
$300,000,000, the largest q uan tity ever im ported in a
sim ilar period.
Th e follow ing table shows b y months the totals of
exports and im ports and the excess of exports since
Ja n u a r y . Im ports du rin g the period have shown a dis
tinct u p w ard tendency, while exports have risen only
slightly.
(Millions of Dollars)
1922
Exports
Imports
Excess
Exports
January.......................
February.....................
March.........................
April............................
May.............................
June.............................
July..............................
August.........................
279
251
330
318
308
335
301
302
217
216
256
217
253
260
252
271
62
35
74
101
55
75
49
31
Reports from exporters as to current orders v a ry
considerably according to commodities handled and m ar
kets served, but in general ap pear to indicate some fa ll
ing off in buying. The steel m arket continues to suffer
from dulness in the F a r E a st, and the latest figures,
show that J u l y shipments were 26 per cent, below those
6
M ONTHLY
of Ju n e. Cotton exports in A u g u st were the smallest
in about two years, but increased in September. B u y in g
of A m erican wheat has been slow, affected somewhat by
competition of Canadian wheat.
F irm s doing business w ith South A m erica, on the
other hand, report somewhat increased demand, p a r
ticu la rly fo r cotton goods, foodstuffs, jo b bers’ supplies,
and some construction m aterials. A u stra lia is reported
a good market, and there is a scattering of new business
from South A fr ic a , the W est Indies, and the Philippines.
Copper is again in somewhat larger demand, chiefly from
E n glan d , Germ any, and F ran ce.
W o r ld
R E V IE W
Domestic Prices
A ft e r rising 1 2 per cent, since Ja n u a r y , the D ep a rt
ment of L ab o r index number of wholesale prices for
A u g u st was identical w ith that fo r J u ly . Declines in
farm products and other foods offset advances in other
groups, including fuel and metals, which continued to
advance sharply. The follow ing table shows the detailed
changes in the index between J u l y and A u gu st.
(1913 average = 100 per cent.)
Value of Index
Commodity Group
June
1922
July
1922
August
1922
July
Cloths and clothing........
Fuel and lighting.............
Metals...............................
Building materials..........
Chemicals and drugs.. ..
House furnishing goods..
Miscellaneous...................
131
140
179
225
120
167
122
176
114
135
142
180
254
121
170
121
173
114
131
138
181
271
126
172
122
173
115
+ 3.1
+ 1.4
+ 0 .6
+ 1 2 .9
+ 0 .8
+ 1.8
- 0 .8
- 1.7
0 .0
3 .0
2.8
0 .6
6.7
4.1
1.2
0 .8
0.0
+ 0.9
All groups.................
150
155
155
+ 3.3
0 .0
P r ic e s
The prospect of good yields of the w o rld ’s prin cipal
crops this year was reflected in some low ering of the
general level of w orld prices du rin g A u g u st. The Statist
index of B ritish prices fell 8.6 per cent., the sharpest
drop since the peak of prices in 19 20 , due in considerable
p art to a decline in vegetable foods. In Ja p a n , reap p ear
ance of a sharp price decline w as caused b y a conspicuous
fa ll in rice, accom panying prospects of a large crop.
W hile the F re n ch price index rose slightly, the move
ment was despite a lower average of food prices.
Germ any w as again the exception to the general
tendency. A n advance in the price index to a level more
than double the A u g u st 1 figure accompanied h eavy
increases in note circulation. The follow ing table shows
recent price changes fo r the various countries.
(1913 average = 100 per cent, unless otherwise noted)
Per C e n t . C hange
D u r in g
Country
Latest
Quotation
July
+
+
+
+
+
A n index more im m ediately sensitive to price ten
dencies, composed of 20 basic commodities and com
puted w eekly b y this bank, reacted rather a b ru p tly late
in J u l y and in A u g u st, a fter an advance since the first
of the y ea r approxim ating that o f the D epartm ent of
L ab o r index. Losses were caused chiefly b y cuts in oil
prices, weakness in farm products, and some reaction
in cotton from highest prices touched follow ing publi
cation of reduced crop estimates. B y the middle of
September, however, a substantial recovery brought the
index to the highest level for the year. P ig iron, lum
ber. hides, and cattle were p articu lar points of strength
and sold at highest prices fo r the year.
August
+ 1.8
+ 1.4
+ 2.2
+ 1.7
+
+
-
+
+
+
+
+
+
-
+ 0.1 3.1
- 1.7 8.6
+ 2 .8 + 0 .2
0.0 +
1.7
2.9
+ 1.9 + 0.5 1.2p
+ 0.6
2.2
4- 0.9 + 0.6
1.1
0.0 - 4.2
+ 5 2 .5 + 10 7 .5
- 1.1 1.7
- 0.6
+
+
+
-
0 .4
0.1
1.4
2 .6
1.5
0 .8
0 .6
0 .4
0 .0
0 .6
0 .6
16.6
2.1
1.2
0.1 3.3
0.1 0.3 +
2.3
0 .0
0.6
0.1
Computed by this bank. 2Julv 1914 = 100. 3Dec. 31, 1913—
June 30, 1914 = 100. 4July 1, 1913— June 30, 1914 = 100. 5Julv
1912— June 1914 = 100. 6July 1914 = 100. 7End of July 1914 = 100’
8September 1919=100. p — Preliminary.
Farm products.................
August
PER CENT.
June
United States:
145 (Sept. 23)
II20 basic commodities *
Dept, of Labor.........
155 (Aug.av.)
143 (Sept. 1)
Dun’s ..........................
131 (Sept. 1)
Bradstreet’s ...............
Great Britian:
158 (Sept. 1)
Economist.................
143 (Sept. 1)
Statist.........................
20 basic commodities1
136 Sept, 23)
331 (Sept. 1)
France......... ..................
Japan.............................
195 (Aug.av.)
164p(Aug. 15)
Canada...........................
157 (July av.)
Australia2. ......................
Norway3......................... ! 227 (Sept. 1)
Sweden4.........................
165 (July 15)
Denmark5.......................
178 (Sept, 1)
159 (Aug. 1)
Netherlands..................
Germany.6...................... 128,919 (Sept. 1)
Calcutta.7...................... 1 178 (Sept. 1)
Shanghai8....................... | 108 (Aug 1)
Per Cent.
Change During
Weekly Changes in the Prices of Basic Commodities in the United
States and England (1913 Average=100 per cent.)
FED ER AL RESERVE AGENT AT N E W YORK
The course of this bank s 20 basic commodity index
since the first of the year, in comparison w ith a sim ilar
index of B ritish prices, is indicated in the accom pany
ing diagram . The two lines show much the same trend,
but that for E n g la n d has fluctuated less widely, and
has lagged somewhat behind the A m erican index.
C o s t o f L iv in g
The cost of livin g index compiled b y the N ational
Industrial Conference B o ard declined less than 1 per
cent, during A u gu st, A n increase of 4 per cent, in the
cost of fuel and light w as offset b y a decrease of 2 per
cent, in the price of food and of .6 per cent, in the price
of clothing. The index number w hich is based on the
cost of m aintaining a w o rkingm an's fam ily in 1 9 1 4 has
remained p ractically station ary fo r the past 6 months
and is now 15 4 .5 .
The decline in the index fo r the retail price of food
was due to a general decrease in the price of meats and
vegetables. S u g a r was somewhat higher.
The A u g u st levels of the different elements m aking
up the cost of livin g index w ere as follows compared
w ith the figures fo r A u g u st, 1 9 2 1 :
(July 1914 = 100 Per cent.)
Element
August 1921
August 1922
Per Cent. Change
Food....................
Clothing.............
Shelter.................
Fuel and Light..
Sundries..............
148
159
169
179
183
139
153
165
181
172
-6 .1
-3 .8
-2 .4
+ 1.1
-6 .0
Total...............
162
154.5
-4 .6
Wages
The past month has been m arked b y probably the
largest number of advances in w age rates since the be
ginning of the period of dow nw ard readjustm ent in
the autum n of 19 20 . A compilation b y the N ational
Industrial Conference B o ard shows that between A u g u st
1 5 and Septem ber 1 5 , out o f 1 2 3 concerns reported, 1 1 9
showed some increase in w age rates and 4 showed some
reduction. A sum m ary of the changes since A p r il 1 5
follows.
Date
April 15 to May 15.....................
May 16 to June 15.....................
June 16 to July 15......................
July 16 to August 15..................
August 16 to September 15. .
Concerns Concerns
Reporting Reporting
Reductions Increases
54
23
25
7
4
9
26
21
8
119
Total
Changes
63
49
46
15
123
The largest number of increases during the past month
occurred in iron, steel, and miscellaneous metal m anu
factu rin g plants, and on the average these amounted to
20 per cent., the amount of increase p u t into effect by
the U nited States Steel Corporation in its u p w ard re
vision announced on A u g u st 22.
M an y N ew E n g la n d cotton mills in which wage reduc
tions in F e b ru a ry of 20 per cent, were followed by
general strikes, have restored the scale prevailing prior
to that reduction.
The coal m in ers’ strike was also
settled on a basis of the restoration of the wage scale
existing before the shut down of the mines in the spring.
W a g e advances have been most numerous in the case
of common labor. A large employment agency in New
Y o rk inform s us that it is now placing unskilled laborers
at 4 5 to 50 cents an hour as compared w ith 3 5 to 40 cents
an hour a few weeks ago. Unskilled building laborers
have likewise been advanced in certain localities from S
to 10 per cent, in recent weeks.
The N ew Y o rk State Departm ent of L ab o r reported
an increase of 1 .3 per cent, from $ 2 4 .7 7 in J u l y to $25.0 9
in A u g u st, in average weekly earnings of fa c to ry w ork
ers in N ew Y o rk State. These earnings are now 1 . 3 per
cent, below those of A u g u st a y e a r ago.
E m p lo y m e n t
Settlem ent of the coal and textile strikes and partial
settlement of the railroad strike during the past month,
coupled w ith a larger demand fo r m anufactured goods
and a continuation of a ctivity in building and other
construction have resulted in a large gain in em ploy
ment. W h ile a relatively small number of the workers
who had been out on strike and who returned to their
jobs during the month are employed in this district,
the assurance of an adequate su p p ly of fuel and improved
ra ilw a y service has caused m anufacturers to proceed
with plans fo r larger production and their working
forces have been correspondingly increased.
The N ew Y o rk State D epartm ent of Labor, in its
monthly su rvey of employment in factories, found that
between J u l y 1 5 and A u g u st 1 5 there was an increase of
2.4 per cent, in the number of workers, the largest in
crease in a single month since ea rly in 19 20 . On A u g u st
1 5 there were about 1 3 per cent, more workers employed
in the S ta te 's factories than there were one ye a r ago.
The gains in the number employed in railroad repair
shops and equipment factories, which followed the p a r
tial strike settlement, are not reflected in this survey,
as the data w ere collected before the settlement. The
p rin cipal gains occurred in the miscellaneous metal
m an ufactu ring and clothing industries.
Em ploym ent agencies in this city report a larger de
mand for workers of all types, but to date the sup p ly
has been ample to meet the demand, with the exception
of common labor and certain types of clerical help.
P r o d u c tio n
o f B a s ic
C o m m o d itie s
C rip p lin g effects of the coal and railroad strikes con
tinued to be visible in coal and steel production figures
during A u gu st, although p artial resum ption in the bitu
minous in d u stry late in A u g u st, brought the m onth’s
total production above the low point of production which
w as reached in J u ly . In September, however, final settle
ment of the strike in both the soft and hard coal fields,
and m itigation of railroad strike difficulties, brought
8
M O N TH LY R E V IE W
bitum inous output back to about 9,600,000 tons weekly,
while anthracite m ining expanded from p ractically zero
to about 1,8 50,000 tons weekly. These figures are close
to norm al production.
Sin ce the first of Ja n u a r y anthracite production has
been sligh tly over 23,000,000 tons, about 70,000,000 tons
less than the annual rate of consumption during the p re
ceding five years. Bitum inous production since the first
of the y ea r is 100,000,000 tons behind the average output
for the same period in recent years.
In the steel ind ustry, reopening du ring Septem ber of
m any blast furnaces that had been forced to close during
A u gu st, accompanied im provem ent in the fuel supply.
Continued d rift of cotton mill workers back to work
du ring A u g u st was reflected in a rise in this b an k ’s index
of cotton consumption to the highest point since N ovem
ber 1 9 2 1 . The revision of w age rates in Septem ber to
the basis p revailing before the cut this sp rin g has en
abled the mills to complete their recovery to fu ll time
operation.
A c tiv e operation of the lumber and cement industries
continues to reflect the large volume of building through
out the country, and copper production keeps up its
steady gain. The follow ing table shows fo r successive
months the production of a number of basic commodi
ties in terms of estimated normal, allowance being made
for yea r to y ea r grow th and seasonal variation.
(Normal Production = 100 Per Cent.)
1922
Commodity
Mar. Apr. May June July Aug.
Anthracite coal mined p ..........
Bituminous coal minedp........
Pig iron production.................
Steel ingot production.............
Copper production, mine. . . .
Tin deliveries............................
Zinc production*......................
Crude petroleum production. .
Portland cement production. .
Wheat flour production..........
Meat slaughtered.....................
Sugar meltings..........................
Cotton consumption...............
Lumber production.................
Wood pulp production............
Tobacco consumption.............
Paper (total) production*.. ..
Gasoline production................
105
89
65
71
47 r
103
50
111
104
114
112
142
91
93
100
83
100
97
0.3
34
67
74
59
100
48
109
111
95
96
124
80
75
92
79
89
95
0.4
41
73
81
71r
92
51
111
119
100
108
146
88
96
108
91
100
96
1.0
43
79
82
75 r
90
53
110
120
104
112
135
92
82
110
97
100
101
1.4
1.9
32
45
82
61
79
70
75 r 86p
75
77
60
59
110p . . .
128 121
142 117
99
131 i44
84
97
76
98
105
90
93
r— Revised.
p — Preliminary.
* Seasonal variation not allowed for.
Coal
S h ip m e n ts
The rapid resumption of coal m ining in Septem ber is
illustrated in the diagram above, showing coal loadings
by weeks from Ja n u a r y to the middle of Septem ber, in
1 9 2 1 and 19 2 2 .
Total loadings in 19 2 2 through the
middle of Septem ber were about equal to the total up
to A u gu st 1 last year.
THOUSANDS
OF CARS
C o m m o d ity
S to ck s
on H an d
Increased industrial a ctivity and increased consump
tion are indicated b y recent figures fo r stocks on hand of
prin cipal basic commodities.
Stocks of ra w sugar
diminished as a result of heavy meltings and sm aller
imports.
Coffee was affected b y somewhat restricted
imports, especially from B razil. P ortlan d cement stocks
were low^er in spite of v e ry h eavy production.
The following table shows index figures fo r stocks on
hand on the first d a y of the month expressed as p er
centages of normal. In the calculation o f the normal
stocks, allowance has been made fo r y e a r to y e a r growth
and for seasonal variation.
(Normal Stocks —100 Per Cent.)
1922
Commodity
Apr. 1 May 1 June 1 July 1 Aug. 1 Sept. 1
Sugar, raw cane, Atlan
tic ports.....................
Coffee, visible supply in
U. S .*.........................
Flour, in chief centers.
Cotton...........................
Portland cement..........
Wood pulp*...................
Paper, total*.................
Leaf tobacco.................
124
89
70
63
88
79
66
85
94
109
112
142
109
58
89
91
116
122
140
64
96
87
105
133
140
60
103
85
93
141
144
109
62
136
86
79
137
138
50
132
93
62p
^Seasonal variation not allowed for.
p —Preliminary.
W h o le s a le T r a d e
W holesale trade in this district du ring A u g u st, al
though retarded somewhat b y the coal and railroad
strikes, showed a distinct increase in a num ber of lines.
FED ER AL RESERVE AGENT AT N EW YORK
Com pared w ith figures fo r A u g u st last year, sales were
larger in eight of the ten groups of commodities. G ro
cery sales showed a loss of 7 per cent, but although
groceries are the most h eavily weighted commodity in
our index, this loss was not sufficient to prevent an
increase of 2.4 per cent, in the total weighted average
of sales. Shoe sales were 1 8 per cent, lower than last
A u g u st m ainly on account of labor troubles in Rochester.
The largest increases in sales were reported b y dealers
in machine tools and diamonds. Sales in these lines were
exceptionally small last A u g u st and the gain this year
has not been sufficient to bring them up to w hat is con
sidered a normal volume. A m arked increase w as shown
in sales of hardw are, and when allowances are made for
price changes, it is evident that these sales w ere fu lly
as large as du ring A u g u st 1 9 1 9 or 19 20 .
Sales of
jew elry, stationery, and drugs, showed moderate gains,
and sales of d ry goods were the same as last A ugust.
Sales of clothing were irre g u la r; m anufacturers of m en’s
suits and overcoats reported sharp advances, while sales
of wom en’s apparel were smaller.
Detailed figures are shown in the table that follows.
1
Commodity
Machine T ools. ...............
Diam onds..........................
Hardware...........................
Clothing..............................
(a) M en’s.......................
(b) Women’s ...........
Jewelry................................
Stationery..........................
D rugs..................................
Dry Goods.........................
Groceries............................
Shoes............ ..................
Total (weighted)........
Number
of Firms
Reporting
4
7
11
22
8
14
6
6
6
8
42
10
122
Aug.
1919
565
559
143
103
92
117
227
122
96
127
124
161
128
Aug.
1920
620
151
179
130
155
99
179
158
99
128
117
123
130
Aug.
1921
100
100
100
100
100
100
100
100
100
100
100
100
100
Aug.
1922
202
156
123
121
140
96
111
104
103
100
93
82
102
V*—
^
|
i
G R O C E R IE S
s A
July
1922*
127
143
114
105
107
103
123
101
106
97
105
79
102
F
AUG.
i
T otal N et S ales
(in percentages)
DRUGS
Y
\ # V
*
- } < 0\
\ J
'h /
w y
\ \
r
%
/
v
\
DRY
:
1
j
|
GOOD5
,
S H O E s \ ^ y \ ^ N
k
V
7
V
.
AUG.
/
‘
v
i
!
;
/
\jv\
D 1A M O N
\
JE W E L R Y
]
{
|
i
a
L
y ^ / \ A
«
Sj /
yA u oA
.
I .
R
j k
a
a
W /AU& .
X
v /
t
* Expressed in percentages of sales in July 1921.
D e p a rtm e n t S to re
T rade
A n increase in A u g u st of 5 .3 per cent, in the sales of
64 departm ent stores in this district com pared w ith
sales in A u g u st 1 9 2 1 , was the largest year-to-year in
crease reported since Novem ber 19 20 . In each of the
past three years sales in A u g u st were below those of
J u l y , but this year they were larger.
Th is gain has been due m ainly to larger sales of house
furn ish ing goods and ready-to-w ear clothing. Alm ost
without exception m erchants reported that fu rn itu re
sales du ring A u g u st were well above those of last year, a
reflection of the completion of large numbers of new
homes in all parts of the district. A m ajo rity of m er
chants reported better sales of ready-to-w ear clothing
and stores that sell apparel and accessories exclusively
showed a gain in sales of 6 per cent.
A s average prices of commodities sold b y department
stores are now about the same as a y e a r ago the increase
in the dollar amount of sales probably reflects accurately
Monthly Sales of Representative Wholesale Dealers in the Second
Federal Reserve District (Average Sales in 1919=100 per cent.)
M O N TH LY R E V IE W
10
the increase in the amount of goods sold. F o r the first
month since late in 19 2 0 the average amount of indi
vidual transactions shows an advance, from $ 2 .4 3 in
A u g u st last ye a r to $ 2 .4 5 this year.
The follow ing diagram compares the sales of depart
ment stores last ye a r w ith those of the present year to
date. I t shows that du ring the first three months of
19 2 2 sales were behind those of last year and that d u r
ing the next three months they were sligh tly larger.
The first m arked increase was recorded in A u gu st.
Stocks of departm ent stores are p ractically the sarne
as a y ea r ago, both in physical volume and dollar value.
There was an increase of 4 per cent, between A u g u st
1 and Septem ber 1, a normal change at this season of
the year because of the receipt of fall and w inter m er
chandise. However, as sales are larger than last year
the turnover of stock is somewhat more rapid.
PC?.
Sales b y mail order houses increased 1 per cent, d u r
ing the month, but continue much below the high levels
reached in 1 9 1 9 and 19 20 .
Detailed figures are shown in the following table.
S to c k on H and
T o t a l N e t S a le s
(in percentages)
All Dept. Stores..
New Y ork. . . .
Buffalo..............
N ewark.............
Rochester.........
Syracuse...........
Bridgeport. . ..
E lsew h ere in
2nd District
Apparel Stores...
Mail Ord. Houses
Aug.
1919
94
98
88
84
77
93
102
96
89
144
Aug.
1920
106
105
107
107
103
110
120
109
105
139
Aug.
1921
100
100
100
100
100
100
100
100
100
100
Retail Price
(in percentages)
Sept. Sept. Sept. Sept.
1,
1,
1,
Aug. 1,
1922 1919 1920 1921 1922
105 93 125 100 99
108 95 128 100 100
102 98 128 100 97
99 89 125 100 93
107 85 134 100 87
92 96 133 100 83
96 101 116 100 98
108 85 108 100 96
106 86 111
**
** 100
** 107
101
!
M erchants still hesitate to order for fu tu re needs an y
fu rth er ahead than necessary. In those markets where
prom pt deliveries are assured the tendency remains to
buy fo r immediate sh ip m en t; but in others, where delay
in shipments has been frequent, advance orders are being
placed more freely. O utstanding orders on September
1, amounted to 7 .3 per cent, of the total purchases last
year, compared w ith a corresponding figure of 8.3 per
cent, on Septem ber 1 , 1 9 2 1 . A p p a re l stores, whose out
standing orders amounted to 1 1 . 5 per cent, of last y e a r ’s
purchases, have been the largest buyers of fall and
w inter merchandise.
C h a in
S to re
S a le s
A n increase in the number of chain stores du ring the
past y e a r caused a gain of 1 1 per cent, in A u g u st sales
b y the system s that report to this bank. A v e ra g e sales
per store declined 1 1 per cent.
G rocery concerns, which have opened more than 2,000
new stores du ring the past twelve months, reported a
gain of 16 per cent, in total sales, but individual store
Sales and Stocks 011 Hand of Representative Department Stores
in the Second District (Average Sales in 1919=100 per cent.)
sales showed a loss. F iv e and ten cent stores reported
increases in sales per store as well as in total sales.
Sm aller gains were recorded by apparel and drug stores.
A loss of 3 per cent, in total sales b y shoe stores
appears to have been due solely to lower prices. The
number of pairs of shoes sold increased more than 1 2
per cent, and the average price per p air declined 13 .6
per cent, from $ 3 .5 9 in A u gu st, 1 9 2 1 to $ 3 .1 0 in A u g u st
of this year.
Detailed figures are shown in the follow ing table.
Number
of Stores
Type
of Store
Grocery. ..
Ten C en t..
D rug..........
Apparel. ..
C igar..........
T otal. . .
C rop
Aug.
1921
6,073
1,600
254
369
2,123
184
10,603
Aug.
1922
8,161
1,664
255
373
2,591
213
13,257
T o t a l N e t S a le s
(In Percentages)
Aug.
1919
82
82
91
69
78
119
82
Aug.
1920
114
96
103
99
101
105
104
Aug.
1921
100
100
100
100
100
100
1 100
1
Aug.
1922
116
112
104
104
99
97
111
Per cent.
Change
in Sales
per Store
from
Aug. 1921
to Aug. 1922
- 1 3 .6
+ 8.1
+ 3.6
+ 2 .8
- 1 8 .5
- 1 5 .9
- 1 1 .4
C o n d itio n s
The farm value of p rin cipal crops this year, calculated
by the D epartm ent of A g ricu ltu re on the basis of S e p
tember 1 prices and crop estimates, w ill be ap p ro xi
m ately $6,200,000,000, about $1,200,000,000 more than
the amount realized b y producers from 1 9 2 1 crops. W ith
the exception of w heat the aggregate value of each i 1 portant crop is estimated above 1 9 2 1 figures.
FEDERAL RESERVE AGENT AT NEW YORK
The following diagram compares the approxim ate re
turns from the 1 9 2 1 crops with the present estimated
values of the 19 2 2 crops.
4-—
6.Z00
TO TAL
5 ,0 0 0
/ / >
ALL OTHER f 2 3 6 [ / ' /
APPLES 1------ --------'
OATS
'
/
,
POTATOES
11
The average condition of all crops on Septem ber 1 was
about 1 per cent, under the ten-year average and about
2 y 2 per cent, under A u g u st 1 estimates. The estimated
cotton crop declined du ring the month of A u g u st from
11,40 0 ,0 0 0 bales to 10,600,000 bales, while the probable
corn yield declined from 3,017,000,000 bushels to 2,8 75,000,000 bushels.
In connection w ith its estimates of the 1 9 2 2 crops
the Departm ent of A g ricu ltu re has calculated the prob
able w orld production of wheat exclusive of R ussia and
Mexico for w hich data are not available. The total yield
is expected to be m oderately above the average fo r the
pre-w ar years, 1 9 0 9 -19 1 3 , but sligh tly under that of last
year. The data are given b y continents in the table
below. Favo rab le crop conditions are reported in R u s
sia, which, according to reports from various sources,
w ill be able to subsist on its own crops this year.
(Millions of Bushels)
WHEAT
!|
1922
1921
Average
1909-13
North America.........................................
Europe........................................................
Asia.............................................................
Africa..........................................................
South America..........................................
Australia and New Zealand...................
1,126
1,101
393
66
191
143
1,096
1,238
282
89
203
151
884
1,275
376
78
185
93
Total......................................................
3,020
3,059
2,891
Continent
COTTON
HAY
B u ild in g
A u g u st building aw ards in twenty-seven northeastern
States, as reported b y the F . W . Dodge Com pany, were
about 8 per cent, under those of J u ly . A decline of
nearly one-third in the value of aw ards in the Chicago
district offset slight increases in most other districts,
including N ew Y o rk and N orthern N ew Je rse y .
In
recent months there has been a gain in industrial con
struction, only p a rtly explained b y seasonal tendencies.
1,306
CORN
1922.
1 9 2 .1
Estimated Value of 1922 Crops Compared with 1921 Crops.
Millions of Dollars
In
MILLIONS
OF DOLLARS
The increased value of the total crop is due in p art
to an increase in the general level of prices over last
year, of about 2.8 per cent., but more largely to heavier
production. Probable yields of all im portant crops w ith
the exception of corn are above the 1 9 2 1 figures. The
following table compares the Septem ber 1 estimate of
the Departm ent of A g ricu ltu re of yields this year, with
the final figures for the 1 9 2 1 crops, and with a five-year
average.
(000 Omitted)
Crop
Unit
Estimated
Crop
1922
Final
Estimate
1921
Average
1916-20
Corn...................
Wheat.......................
Cotton......................
Potatoes.. . . . . . . . .
Tobacco...................
Apples......................
Barley.....................
bushel
bushel
bale
bushel
pound
bushel
bushel
2.875.000
818,000
10,575
546.000
1.353.000
207.000
194.000
3.081.000
795.000
7,954
446.000
1.075.000
98,000
151.000
2.831.000
799.000
11,862
462.000
1.378.000
179,000
197,000
Contracts Let Each Month in 27 Northeastern States for Resi
dential, Business and Industrial Construction
The Relation of Gold Movements to the Reserve Banks.
H E inflow of over a billion dollars of gold in the
past two years, and the receipt of a sim ilar amount
in the two years ju st preceding A m e ric a ’s en try
into the w ar, are the two greatest gold movements in
history. J u s t how such additions to our gold su p p ly act
upon the volume of credit, now that the F e d e ral Reserve
system is in existence, is not clearly understood.
It
m ay be made clearer if we review briefly fou r periods.
T
I. B efo re
the
R eserv e S y s t e m .
B efo re the F e d e ral Reserve system, when gold flowed
into the U nited States, it found its w a y into banks,
increased the proportion of gold to deposits, and as the
banks kept as legal reserve only a certain portion o f
their deposits in gold, perm itted them to increase their
deposits b y an amount several times the amount of the
gold imported. Th is increase in deposits w as m ainly
brought about b y increasing loans. L a rg e amounts of
gold usu ally stim ulated business a ctivity and a rise in
commodity prices. Conversely, an outflow of gold usu ally
produced the opposite result, and reduced loans and de
posits several times the amount o f the gold exported.
II.
T h e G old I n f l o w
of
J anuary
1 9 1 5 to
A pr il
19 17 .
The F e d e ra l R eserve system w as established in N o
vember 1 9 1 4 , and un til Ju n e 1 9 1 7 , member banks, while
keeping a substantial p a rt of their gold w ith the Reserve
Banks, were required b y law to c a r ry considerable gold
in their vaults. Furtherm ore, but fe w o f the State in
stitutions, which represent about one-half the banking
resources of the country, were at that time members
of the system and they were ca rry in g gold reserves ju st
as before the system began. F ro m Ja n u a r y 1 9 1 5 , to
A p r il 1 9 1 7 , when A m e rica entered the w ar, more than a
billion dollars of gold flowed in, representing paym ent
for urgent purchases b y belligerent nations which were
unable either to ship goods in paym ent fo r ours, or to
obtain credits here in sufficient amounts. These p u r
chases introduced the element of competitive bidding
for the goods required. P a r t of the gold went into
circulation and the rest went into the vaults of the
banks, where it increased their reserves, enabled them
greatly to increase their deposits and loans, and created
ju st such a situation as under sim ilar conditions it would
have created before the F ed e ral Reserve sy ste m ; that is,
credit volume rising, prices rising, and intense business
a ctivity. B u t there was not a large or in a n y degree
corresponding increase in the volume of goods pro
duced.
The F ed eral Reserve system, only recently established,
and h aving but a small volume of loans and investments
through the repaym ent of which the effect of the im
ported gold m ight have been offset, was in no position
to exert an y influence upon these conditions.
III.
T h e W ar P e r io d *. A pr il
1 9 1 7 — A u g u st 19 20 .
P ro m p tly upon A m e ric a ’s entry into the w a r gold
ceased to flow in, as our credit became available to our
allies. A n d an embargo w as placed on the outflow of
gold. Im m ediately the credit needs of our own G ov
ernment began greatly to exceed the current savings of
the people. Between A p r il 1 9 1 7 and A u g u st 19 20 , w ith
out an y increase in our gold supply, exactly the same
economic phenomena occurred as in the two preceding
years of h eavy gold inflow. The Fed eral Reserve sys
tem, whose credit power, ow ing to the inflow of gold, had
hitherto lain dormant, w as called upon to provide the
additional bank reserves and the hand to hand cu r
ren cy required b y the credit and price expansion of the
w a r period. The use of F e d e ral Reserve credit fo r this
purpose culm inated in October and Novem ber 19 20 , a f
ter several months o f credit strain du ring which the
F ed eral Reserve reservoir was draw n down almost to
the legal lim it,— a strain which was accentuated b y a net
outflow of about $400,000,000 of gold between Ju n e
1 9 1 9 , and A u g u st 19 20 .
A comparison of these two periods of credit and price
expansion un der w a r pressure, one based on gold im
ports, and the other on the use o f F ed eral Reserve cred
it, shows th at the additional credit or lending power
derived from the two sources w as p ra ctica lly identical
in its effect on the general credit and price structure.
In both instances the banks were provided w ith the ad
ditional reserves and hand to hand curren cy required
fo r a general expansion of bank deposits and lo a n s; and
it is well known that if such expansion is not paralleled
b y a corresponding expansion in the production of
goods, a rise in commodity prices u su ally results.
IY .
T h e S eco nd G old I n f l o w : S in c e A u g u st
19 20 .
In the period from A u g u st 19 2 0 to the present, an
other great movement o f gold, n early equal to that of
1 9 1 5 - 1 9 1 7 , has occurred, but under v e ry different in
dustrial conditions. Im perative bu yin g and borrow ing
b y governm ents had ceased; and in the ea rly p a rt of
the period prices were falling, business w as depressed.
Three and a h a lf billions of Fe d e ral Reserve credit had
been extended, and the banks were h eavily in debt to
the Reserve Banks. In the past two years, accordingly,
the billion of gold which came in was deposited as usual
w ith the member banks, and turned over b y them to the
Reserve Banks.
B u t instead of using the fresh re
serves thus created as a basis fo r fu rth er expansion, the
member banks took advantage of them, a fter the strain
of 19 2 0 w as over, to p a y off their indebtedness to the
Fe d e ral Reserve system. Thus, broadly speaking, when
this second inflow of gold occurred, conditions were u n
favorable to its use in fu rth er expansion, and it actu ally
helped liquidate the expansion of the preceding period.
I t w ill be seen from the analysis of these fo u r periods
that whether or not the F e d e ra l R eserve system is able
to absorb an inflow of gold of such dimensions as those
of the second and fourth periods depends la rg e ly upon
whether, at the time, it has a large volume of loans and
investments w hich, if conditions are favorable to such a
course, w ill be repaid w ith the new gold so received.
The less loans and investments of the system are in a
period of gold inflow the less its influence w ill be upon
the conditions produced b y the added gold.
I t should also be understood that the expansion of
credit from the inflow of gold, as above discussed, is
that p rim a ry and somewhat autom atic expansion result
ing from the direct increase of member and other bank
reserves which the gold creates, in an amount several
times as great as the amount of the gold itself. The dis
cussion has not touched upon the fu rth er expansion
which the same gold m ay support a fte r it reaches the
R eserve banks, should member banks have occasion, as
in the th ird period, to borrow h eavily from Reserve
banks.
@FedFRASER