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- FED ik/U tfR E SERVE BANK/? f )r ICHMOND

Ags 15
uut 92

The Nation's Money Supply
and

Consumers' Prices

Also In This Issue
A Ithough the nation's money supply has been
. / j L growing rapidly since 1915, the expansion
during the last decade has greatly overshadowed all
past increases. Interestingly, the movement of
consumers' prices over the jour-decade period has
closely paralleled changes in the money supply.
The article on page 3 attempts to clarify the na­
ture and composition of our money supply and
recent significant changes in it.




—

Fifth District Trend Charts____________ __Page

2

Farm Production and
Income Prospects___________________ Page

5

Recent Developments in Municipal
Bond Financing_____________________Page

7

Business Condition and Prospects________Page

9

Statistical Data___________________________Page 12

F e d e ra l Reserve Bank of Richmond

F if t h

d is t r ic t

T r e n d s

BUSINESS FAILURES

DEPARTMENT STORE SALES

Reduced soft goods production over the past 12 months has not
found more than a token reflection in business failures.
Failures
which have been in a general downward trend since 1949 leveled off
thus far in 1952. June failui*es were 3 7 % under a year ago.

Department store sales in June (adjusted) were up 5 % from May
and 11% ahead of June 1951. The June figure (adjusted) was w ith­
in 2 .4 % of the all-tim e peak established in January 1951. Substantial
recovery in sales of m ajor household appliances, radios and television
aided materially in the sales rise.

------- <. *
&

CIGARETTE PRODUCTION

DEPARTMENT STORE OUTSTANDING ORDERS

Latest figure, May, which is up 6% from April, but 3 % under
May, 1951. Five months output down 1 % . The trend in consump­
tion to king-size varities gives an extra filip to the demand for fluecured and Burley tobacco.

H igh level June sales in department stores gave considerable im­
petus to store purchases in that month with outstanding orders (ad­
justed) up 4 5 % from May to a level 1 0 % above a year ago. Store
inventories (seasonally corrected) rose 7 % from May to June, but
were 3 % under a year ago.

ACTIVE

COTTON SPINDLE HOURS

RETAIL FURNITURE STORES NET SALES

Improved sales of cotton goods and yarns late in M ay and June
brought mill operations during June to the highest level of the year.
Spindle hours operated in June were 1 5 % higher than in May and
within 8% of the high plateau in late 1950 and early 1951.




Furniture store sales aided by the improved demand for house­
hold appliances (adjusted) rose 4 % from M ay to a level 19% ahead
of a year ago.
June sales (adjusted) were within 3 % of the alltime peak established in July 1950. Store inventories (adjusted) in
June rose 2 % from May but were 5 % under a year ago.

i

2 h

Ags 15
uut 92
Comments on the Rising Money Supply
h a t is money?
Ask Mr. Average Man and the
answer is spontaneous and to the point, “ It is what
I use for payment when I buy things.” W hen pressed
to be more specific, he may add “ It’s cash— paper money
and coins.” Ask an economist what money is and he
will probably identify it by its functions including me­
dium of exchange, measure of value, standard for de­
ferred payments, and store of value. H e may then name
the things that serve these functions, being careful to
give proper qualifications to each.

W

The x\verage Man and the economist should not be
parmitted to go their separate ways each content in his
own understanding of money, probably the most im­
portant economic tool a modern society possesses. M on­
ey is basically important, of course, in its role as a me­
dium of exchange. It may assume even greater im­
portance when changes in the amount available do not
keep pace with changes in the quantity of goods offered
for sale as, for example, when the supply increased by
two and a third times during W orld W ar II, a period
when the production of many consumer goods had to
be sharply curtailed or discontinued altogether.
T h e N ation ’s M on ey Supply Since 1939
The nation’s privately held money supply at $184 bil­
lion in May 1952 was almost three times its 1939 level.
This spectacular increase may be broken into two major
periods based on the nature of money creation. From
1939 through 1945, new money came primarily from
expansion in the public debt. Since 1945, additional
money was created as a result of growth in private debt.

From December 1945 to May 1952, loans and securi­
ties other than Governments at all commercial banks in­
creased from $33 billion to an estimated $72 billion, a
twofold increase, while holdings of Government securi­
ties declined sharply. A s seen in the chart the money
supply during the postwar period increased by $34 bil­
lion, to a level 22% above 1945. Private economic ac­
tivity over the period has thus been the cause of a sig­
nificant increase in the money supply.
The public may at times decide to hold a larger share
of its money in the form of currency and coin and a
smaller share in the form of demand or time deposits.
The factors influencing the extent to which different
types of money are used may be of a seasonal nature,
such as the increased use of currency and coin during
the Christmas season, or they may represent longer
range influences related to the level and nature of eco­
nomic activity. The increased use of currency and coin
during the war years illustrates this latter influence. At
the end of 1939 currency and coin in circulation made up
only 10% of the total money supply. A t the end of 1945
this proportion had jumped to 18% . This may be ac­
counted for in part by the greater mobility of the popu­
lation in war-time as compared to more normal periods
and the use of cash to pay military personnel during the
period.
During the war years demand deposits increased ill
importance from 47% to 50% of the total money supply
while time deposits declined from 43% to 32%;. By
Mav of this year, currency and coin had declined from
the high point of 18% in 1945 to 14% of the total. De­
mand deposits had continued their increase and in May
were 52% of the total money supply while time deposits
had climbed only slightly to 34% .

Money creation through incurring debt is brought
about in this m anner: The credit of a business firm is
generally restricted in its use to the purchase of goods
from a limited number of suppliers who are willing to
sell to the firm on time. W hen the firm needs immediate
purchasing power outside the limited range of its own
credit, it seeks to convert its credit into money. It may
do this by borrowing from its bank, that is, asking the
bank to give money in exchange for the firm’s credit.
The money so received is generally in the form of a de­
mand deposit, which is simply a credit entered on the
books of the bank representing a legal obligation to pay
on demand. Thus, the firm’s credit has been exchanged
for the bank’s credit which is very widely accepted in ex­
change and is, therefore, classed as money. Private debt
has increased and with it the money supply. Similar
principles are invoked when Government borrowing
(public debt) is substituted for private borrowing.

W e have been speaking of the money supply as though
it consists of currency and coin, demand deposits, and
time deposits. The nature of these three components
and the question as to whether all three should be classed
as money need to be explored in some detail.
B usiness A ctiv ity and Spendings
The spending or the flow of money is closely related
to business activity. A s a matter of fact it varies di­
rectly with changes in the level of business activity. In
the United States today almost every business transac­
tion is expressed in terms of money and completed by
the use of money. Thus, the total flow of money in the
nation is an important indicator of the level of business
activity and changes in the flow may well reflect the
trend of coming economic events. A foreknowledge of
the effects of changes in the money flow provides the ba­
sis for monetary and fiscal actions to combat undesirable

The financing of the war effort was by far the most
important of the factors which caused increases in the
money supply since 1939. A s shown in the accompany­
ing chart, the total money supply at the end of 1945 was
two and one-third times its 1939 level. Commercial




bank’s holdings of Government securities increased dur­
ing the period from $16 billion to $91 billion, fivefold.

i 3y

F e d e ra l Reserve Bank of Richmond

inflationary or deflationary developments.

cepted without question as meeting liquidity require­
ments. A t present, they are universally and immediately
accepted in exchange for goods and services. T o de­
termine the supply of currency and coin held by the
public, holdings by the Treasury, by the Reserve banks,
and by private banks, for the reasons given below, are
deducted from the total outstanding.
M ore than 85% of all payments in the United States
are estimated to be made by checks drawn against de­
mand deposits in commercial banks. Because of their
ready acceptability, demand deposits give immediate pur­
chasing power to their owners and, therefore, must be in­
cluded in a definition of the money supply. T o arrive at
demand deposits held by the public, all interbank de­
posits, United States Government deposits, and items in
process of collection are deducted from total demand de­
posits of commercial banks.
Interbank deposits are
deposits by one bank in an­
other bank and are, there­
fore, b a n k e r s ’ d e p o s it s .
They are excluded because
they fall in the same cate­
gory as money not yet cre­
ated. Banks create deposit
money when individuals or
business firms borrow from
them. They also create de­
posit money when they
make payments on their
own account with checks
drawn against themselves,
since the banks can and do
c r e a t e d e p o s it m o n e y
(within limits prescribed
by law) amounts actually
on hand have no more sig­
nificance than any possible amount they may create. The
distinction is between actual money and potential mon­
ey. Potential money is excluded from the nation’s mon­
ey supply. The same reasoning applies to currency and
coin held by banks.

Because of the close relationship between the flow of
money spendings, the flow of goods and services to the
market place, ahd the prices which result from these two
flows, bankers and businessmen have a strong and valid
interest in the nature of money, its origins, its uses, and
its influences on economic behavior. The amount of
money that an individual spends is affected by many
factors. One important factor is the amount of money
he has on hand. M ore important than his supply of
money is the individual’s income, the periodic money
flow to him which he expects to continue uninterrupted
for some time. So it is with the nation as a whole— the
total money spendings in the nation will be determined
in part by the supply of money available and by the rate
at which money is being used. This article is designed
to throw light on an old
but ever interesting ques­
tion : W hat is the basic na­
ture of money and exactly
what serves this purpose
today ?
W h a t is M on ey ?
There is some difference
of opinion as to just what
things should be included
in a definition of money.
T w o of the most commonly
used definitions, however,
include the follow ing: (1 )
Demand deposits and cur­
rency and coin in the hands
of the public. (2 ) Demand
d e p o s it s , c u r r e n c y and
coin, and time deposits in
the hands of the public.
Cut-and-dried definitions by themselves, though use­
ful, hardly explain. T o understand the role of money,
one needs to know the characteristics perculiar to mon­
ey, those things which place it in a category by itself.
A ny article which is widely accepted in exchange for
goods and services is in a limited sense money. Defini­
tions of money, however, usually attempt to identify the
most readily exchangeable things. The term liquidity is
applied to this concept of ready exchangeability. Thus,
the most liquid assets are those which are most widely
acceptable in exchange. A ll assets can be listed in the
order of their liquidity, say, from the most liquid to the
less liquid, e. g., from coins to houses. The problem is
to draw a line, in terms of liquidity, which separates
money from non-money. Since interest is primarily in
the effects of changes in the money supply on prices, em­
ployment and production, we also need to identify that
portion of the money supply which is available for spend­
ing by consumers and business firms.

Interbank deposits serve a number of functions which
cannot be readily foregone. They serve as clearing ac­
counts and must be adequate for this purpose. In the
case of non-member banks, a portion of their interbank
deposits serve as reserves required by state law. In­
terbank accounts provide correspondent relationships
which many banks find essential to efficient operations.
Such factors tend more or less to freeze these deposits in
place, making them unavailable for immediate use.
Items in process of collection are excluded to avoid
double counting. W hen a check is deposited by an in­
dividual in his bank a certain interval elapses between
the time when his account is credited with the amount
involved and the time when the deposit is reduced in

Currency and coin in the hands of the public are ac­




C o n tin u ed

-{ 4 f

on

page

8

j f b /t e u *

August 1952

Farm Production and Income Prospects
income in this District was running well ahead
of last year in the early months of 1952. The
smaller production of some crops coupled with slightly
lower farm prices suggests, however, that the lead over
a year ago may not be maintained in the remaining
months of 1952.
In view of the changing situation, it may be well to
review these and other agricultural developments in
some detail as a basis for anticipating what may be
ahead.

F

a r m

M arketings and In com e
H igh er— P rices L o w ­
er Than in 1951
Through June of this year
American farmers received
about $13.2 billion from the
sale of farm products. This
was 3 % more than in the
corresponding p e r io d la st
year. The physical volume
of farm products sold was
7% larger, but prices aver­
aged a little lower. Mean­
while, prices paid by farmers
for production items, inter­
est, taxes, and wage rates
have a v e r a g e d a b o u t 3%
higher than during the first
half of 1951.
During the six-month pe­
riod, January-June, receipts
from livestock and livestock
products for the country as
a whole totaled $8.9 billion, or 4 % less than a year ago.
Crops, on the other hand, produced receipts totaling
$4.3 billion, or 21% more than from January through
June 1951. Sharp increases in receipts from wheat, cot­
ton, and potatoes accounted for most of the increase.
State income data are not available on as current a
basis as are data for the entire country. Up to May 1,
however, income from livestock and livestock products
in Fifth District states was up 4 % , income from crops
was 25% greater, and total cash receipts from farm
marketings were running 11 % ahead of the correspond­
ing months of 1951.
A s an aid in interpreting these data, it is helpful to
bear in mind the composition and seasonal pattern of
farm income. W hile there has been a long-time upward
trend in the relative importance of livestock and live­
stock products, farmers in this District still receive near­
ly two dollars from crops for each dollar received from
their livestock enterprises.




Care should be exercised in projecting the gains in
farm income in the early months of 1952 over the cor­
responding levels in 1951. Livestock income is dis­
tributed rather evenly through the year, whereas there
is a strong seasonal movement in the income from sale
of crops. Normally, Fifth District farmers receive only
about one-fifth of the income from crops in the first half
of the year. In contrast, they receive nearly one-half of
the income from livestock and livestock products by mid­
year and just over one-fourth of the total income from
the sale of all farm products.
On the o t h e r hand, the
months of September, O c­
tober, and November ac­
count for 57% of the income
from crops and 4 7% of the
total from all sources.
The best sources of basic
information for assessing the
prospective level of farm in­
come this fall are to be found
in the monthly crop and
farm price reports issued by
the Bureau of Agricultural
E c o n o m ic s (B A E ) . The
prospects for 1952 crop pro­
duction and farm prices are
developed in the following
sections.
C rop P rodu ction B elow
1951
M ost of the income from
crops received by farmers in
this area in early 1952 resulted from sale of crops pro­
duced in 1951. Income from crops during the remainder
of 1952 will, for the most part, however, represent this
year’s production.
Tobacco leads all other products as a source of farm
income in Fifth District states, accounting for 48% of
the total income from crops and 31% of the total in­
come from both crops and livestock during 1945-49.
A s of July 1, prospects in Fifth District states were
for a smaller total production of tobacco than in 1951.
A ccording to estimates of the B A E , flue-cured produc­
tion in Fifth District states is down 3 % , Burley produc­
tion is off 4 % and Maryland 18% . Estimates for V ir­
ginia fire-cured are 20% smaller, and Virginia suncured is 8 % below 1951 levels. These reductions are
attributable to lower yields, since acreage is the same or
larger than in 1951 for all types except Maryland.
Cotton ranks second to tobacco as a source of farm in­

F e d e ra l Reserve Bank of Richmond

come among Fifth District crops and, together with
cottonseed, accounts for 18% of the income from crops
and 12% of the total income from farm marketings.
Since the first official estimate of cotton production (due
August 8 ) is not available as this is written, the best in­
dication of the size of the 1952 crop available at the time
of writing is the estimated acreage in cultivation on July
1. Fifth District cotton acreage on that date was 5,000
acres larger than in 1951 with Virginia accounting for
most of the increase. For the country as a whole, cot­
ton acreage is 7% below 1951.

year compared with 38% of the total during the decade
of the 1940’s.
Feed crops production will be nearly as large this year
as last in the Fifth District. Indications as of July 1
were that corn production would be about 3 million
bushels, or 2% lower than in 1951. Smaller crops of
barley and rye also were indicated. The oat crop, on the
other hand, is about 5% above 1951 and the sorghum
acreage, though comparatively small, is somewhat larger
this year. Total hay production is expected to be a lit­
tle smaller this year, but slight increases are expected in
alfalfa and lespedeza.
W hile the actual outturn of the various crops may be

Peanuts, though tremendously important in certain

Drought— The

Bankers' Problem

which has a way of upsetting the most
carefully calculated of man’s plans, has done it
again. W ithering drought and abnormally hot weath­
er over much of the Fifth District during late July
played havoc with crops on many farms and, in spite
of scattered rains toward the end of the month, it ap­
pears that over-all crop production will be below the
estimates in the July crop report, on which the ac­
companying article was based.

N

a tu re ,

A spot check of several sections of the Fifth Dis­
trict on August 1 brought discouraging n ew s: Many
corn fields are too far gone for later rains to revive.
Tobacco fields in some areas have smaller crops and
the quality of the leaf has been hurt. Dry pasture
land has caused some dairymen to begin feeding their
meager supplies of hay to the cattle, making it sure

that they will have to buy hay in quantity during the
winter months. Vegetable crops have been hurt in
both quantity and quality. Many fruit growers re­
port unusually small fruit with consequent lower
yields.
The drop in production will mean that many farm­
ers will have lowr incomes this year than in several
er
recent years. Not all of the area’s farmers have been
unlucky, of course, and, with lower over-all produc­
tion, some will doubtless get higher prices for the
fruits of their labors. But the farmers who fail to
make a crop will benefit little from higher prices, and
many who usually grow enough feed for their own
livestock, with some left over for sale, may have to
buy feed this winter— an unhappy combination of
lower income and greater outlay. Some entire com-

Continued on pape 11

quite different from that indicated on July 1, there is the
possibility that marketings from 1952 farm production
in the last half of this year may run somewhat below
the corresponding level a year earlier. Whether market­
ings of livestock and livestock products will continue to
run ahead of last year, and thus offset such weakness as
may be found in crops, remains to be seen.

areas of the District, accounted for only 4 % of the in­
come from crops and 3% of total cash farm income for
the District during 1945-49. The sharp cut in peanut
acreage allotments in 1952 largely accounts for the 15%
reduction in Fifth District peanut acreage.
W heat production in the District was estimated in
July as 1% larger than in 1951. This aggregate in­
crease, however, fails to reveal that production in South
Carolina increased more than enough to offset the sub­
stantial decline in Maryland and the moderate reduc­
tions in Virginia and North Carolina.
It is worthy of comment that Maryland, Virginia
and W est Virginia are currently producing less wheat
than during the decade of the 1940’s. North and South
Carolina, on the other hand, are producing substantially
larger quantities of wheat. A s a consequence, these lat­
ter two states produced 48% of the District total this




Prices R eceived and Paid
Prices received by farmers in June were about 3%
below the level a year ago for the country as a w^hole.
The decline of 9% in the prices of livestock and live­
stock products was partially offset by a 5% increase in
the price of crops.
The price of Maryland tobacco has been running sub­
stantially under that in 1951 despite the improved quality
Continued on page 11

i 6y

Ag s 15
uut 92
Recent Developments in Municipal Bond Financing
P u blic Credit Finds N ew U ses and V olu m e Reaches N ew H ighs
n all-time record year of state and municipal bond
financing is in the making. In 1950, when the fullyear record for new issues was set, offerings through­
out the nation reached the $2 billion level by the
end of the first six months. This record was erased
during the first half of the present year by a volume
that raced past the $2 billion mark and reached $2.5 bil­
lion. This huge total was attained despite the excep­
tionally heavy flotations of the past five years and the
restrictive influence of the Voluntary Credit Restraint
Committee during the first quarter of 1952.
W ith W est Virginia leading the way with two un­
usually large issues— $96 million of turnpike bonds and
$30 million of veterans bonus bonds— the Fifth District
states and municipalities offered investors $298 million
of new bonds in the first half of this year, the largest
amount ever borrowed by these public bodies in a com ­
parable period. This was 34% greater than the previous
record-amount for the first half of 1950 and well above
the corresponding national gain of 21% .
Indications are that the annual volume of tax-exempt
securities in the nation will be lapping at high-tide marks
for some time to come. A recent meeting of the M u­
nicipal Forum of New Y ork was told that the backlog
of state and municipal capital projects, excluding public
housing, for the next decade is estimated at around $100
billion. It is not likely that all the projects will materi­
alize or that such an amount of new indebtedness will be
incurred in this period. Inhibiting factors, it was ex­
plained, would likely be found in national defense re­
quirements, inflation control, and limited fiscal resources.
Nevertheless, this tremendous amount of financing re­
quirements can hardly be called imaginary. One has
but to observe the crying needs for more and better
school facilities, for extensive street and highway im­
provements, for water and sewerage extensions to sub­
urban areas, for hospitals, housing, and dozens of other
public services and facilities to realize what a lot of
money is sorely needed to meet growing demands from
a social-minded public for more and better services.
There is an important angle to this vast backlog of
capital requirements easily overlooked in the shuffle of
attention given to defense spending and to the record
outlays for corporate plant and equipment A s the im­
pact on business activity of defense spending tapers off
and if, as some authorities expect, investment by cor­
porations in plant and equipment declines markedly in
the next year, some of the slack could be taken up by
increased spending by state and local governments.

tory, but since the opening of the Pennsylvania Turn­
pike in 1940, the forerunner of 20th century toll roads,
millions of persons have become familiar with high­
speed, continuous-traffic expressways. Although only
a small number has been constructed, considerable inter­
est in turnpikes as the answer to chronic problems of
congested highways and inadequate highway finances has
developed— largely as a consequence of the better-thanestimated success of the New Jersey Turnpike.
Toll roads are presently being constructed in Colo­
rado, New York, and Oklahoma, and plans in Ohio and
Indiana are nearing the construction stage. In the Fifth
District, W est Virginia issued $96 million of revenue
bonds last March for construction of an 88-mile toll
turnpike southward from Charleston to Princeton near
the southern W est Virginia-Virginia line. And in V ir­
ginia and North Carolina, legislation was enacted dur­
ing the past year providing authority for financing fu­
ture construction of turnpikes with revenue bond issues.
Is all this indicative of another Turnpike Era— with
public agencies acting in place of the private interests of
the first Turnpike Era? This is a moot point, but even
if, as is likely, only a modest number of toll roads is con­
structed, it would effect a very substantial increase in
the amount of outstanding revenue bonds. It has been
pointed out that the single record-setting issue of $326
million of Ohio Turnpike revenue bonds last June nearly
equaled the year’s total of all revenue bonds issued in
the country as recently as 1947. Aside from such giant
issues, there has been an increasing resort to revenue
bonds for financing a wider range of public projects. In
the Fifth District, as in the United States, a larger
amount of revenue bonds was issued in the first half of
1952 than in any previous six or twelve-month period.

A

R evenue B onds and Turnpikes
Until a few years ago, the word “ turnpike” was fa­
miliar only to those who had read early American his­




i

. . . and M unicipal-Industrial P rojects
It has been said that the revenue bond is no longer
something new and different, but as already indicated,
there have been new uses of funds derived" from such
bond issues. One of the more controversial uses is the
construction and equipment of industrial plants for lease
to private industry. N o permissive laws for such bonds
exist in the Fifth District, but several other states—
Alabama, Illinois, Kentucky, Mississippi, and Tennes­
see— have enacted such enabling legislation.
Opposition to such issues came to a head last year
when the Investment Bankers Association, the Munici­
pal Finance Officers Association, and the Chairman of
the Securities and Exchange Commission registered
their objections to the practice. In general, opposition
is based on the following points: (1 ) Municipal bonds,
unlike private corporation securities, are not subject to
the jurisdiction of the SEC, but if thev continue to be
7 :
>

F e d e ra l R eserve Bank of Richmond

issued to finance property used by private concerns, a
plausible argument could be made that they should come
under the authority of the SEC for the protection of the
investing public. (2 ) The use of public credit in con­
junction with industrial projects may weaken municipal
credit in general. (3 ) If an increasing volume of such
tax-free bonds is issued, Federal revenue may suffer and
courts 111a}' decide that income from these bonds should
be taxed. Or, as expressed by the Chairman of the
SEC, “ if the practice referred to is continued it will
be only a matter of time until Congress will attempt to
put an end to it” — possibly by adopting legislation re­
moving the tax exemption from municipal-industrial
bonds. It has been argued also that once one type of
municipal bond is taxed, it will open the door to taxa­
tion of all municipal bonds.
. . . Raise Im portant Q uestions
A point not spelled out in the preceding statement of
objections to the use of revenue bonds for industrial pro­
motion is that generally they are payable solely from the
rentals of the property involved. It has been charged
that this fact might not always be made known to pur­
chasers of the bonds and that they might not, therefore,
be aware that taxes or other revenues of the municipality
would not be available for payment of the bonds.
In Mississippi, however, the law permits municipali­

ties to finance industrial projects by issuing general ob­
ligation bonds which are backed by the taxing power of
the locality floating the bonds. In such cases, any de­
fault 011 the part of the private company leasing public
property would become a liability of the community and
payable from general funds of the municipality.
W ill this practice, if extended to other states, tend to
change or lessen the importance of the fundamental point
that an industrial project sponsored and financed by a
municipality should stand or fall on its own merits and
financial strength? And if private investors shun partic­
ular municipal-industrial issues, is there a possibility—
because of the enthusiasm of the parties to the project
and the extent to which negotiations and efforts on the
project had already proceeded— that pressure would be
exerted to get the state to purchase the bonds ? W ould
this be a favorable or an unfavorable development?
It would be well if these and other questions, along
with the basic problem of whether construction and fi­
nancing of industrial facilities are proper or suitable
functions of local governments, could be resolved satis­
factorily before too long. States and municipalities have
too much at stake to risk developments that might weak­
en their credit, obstruct the smooth placement of their
bonds, or threaten their tax-exemption privilege.
E. M. D.

Comments on the Rising Money Supply
Continued from page 4

the bank against which the check is drawn. The check
is in “ process of collection” during this period and ap­
pears as deposited funds on the book of both the banks.
These items are deducted to avoid this duplication.
Deposits of the U. S. Treasury are, of course, not a
part of the privately held money supply. Although they
are immediately available to the Treasury for spending,
they are generally excluded from definitions of the mon­
ey supply on the basis that their level is not a determi­
nant of Treasury spending. Congressional action in the
last instance determines this. Furthermore, within limits
prescribed by law, the Treasury can create money. The
reasoning given above as to bank created money applies
h ere: money in the hands of a money-creating agency
is not in any significant respect different from money
which may lie brought into being. The line is drawn
between actual money and potential money.
Up to this point, the discussion has been within the
limits of both definitions given above. The second defi­
nition, however, includes time deposits which are made
up of time (or savings) deposits in commercial and mu­
tual savings banks and Postal Savings deposits. The
reasoning for including time deposits in the definition
of the money supply is that, in practice, time deposits
are almost as readily available for spending as demand
deposits or currency. Most banks make time deposits




available to their customers on demand although they
may require a waiting period of from 30 to 60 days.
Those who exclude time deposits do so, in part, on
the basis that such deposits must be converted into
either currency or demand deposits before they can be
spent. Many other assets also possess high liquidity, for
example, shares of Savings and Loan Associations,
short-term Treasury securities, and prime commercial
paper. All of these may be converted immediately into
demand deposits or cash with little risk of loss. A n­
alysts who exclude time deposits argue that it is illogical
to draw the line short of these other very liquid assets.
Whatever definition is used, there need be little con­
fusion if the component parts are clearly stated. A n in­
terpretation of the influences stemming from changes in
the money supply, however, will be significantly affected
by the component in which the change occurs. For ex­
ample, the interpretation of a given change in the total
money supply may be different if the change is found
entirely in demand deposits than if the change is entirely
in time deposits. The former may indicate increasing
business activity, the latter decreasing. The prudent
banker and businessman will follow changes in the mon­
ey supply bv its component parts, not as a single figure
representing a homogeneous economic factor.
R. P. L.

8^

August

1952

Business Conditions and Prospects
was nearly $30 million. Some fairly substantial indus­
trial facilities have been projected in both June and July,
amounting in value to nearly $140 million.

I mprovement both in trade levels and in soft goods pro­
duction was in evidence during June, but the steel
strike put selective crimps in several segments of the
District’s industrial activity. The primary impact of the
strike was in the steel producing plants and in so-called
captive coal mines. T o a lesser extent it has adversely
affected steel fabricating industries and railroads and has
slowed down some construction activity.

The long steel strike has reduced steel supplies even
in plants 011 defense production, and it is more than like­
ly that defense plants will receive the first steel ship­
ments until their supplies are at workable levels. It is
probable, therefore, that further effects of the strike will
be witnessed in the construction industry, particularly
those projects outside of defense and military require­
ments.

The steel strike is over, but its consequences will con­
tinue to be felt for some months to come with construc­
tion and steel fabrication probably being held at lower
levels than would hold if ample steel supplies could be
expected.
Widespread television coverage of political conven­
tions, together with the extremely high temperatures in
many sections of the country adversely affected store
traffic in many lines of trade in July. Abnormal tem­
perature, however, markedly improved sales of air con­
ditioners, refrigerators and electrical fans, and the po­
litical conventions probably influenced the better level of
sales of television sets.

T extiles
New business in cotton goods is termed slow in trade
circles but occasionally a fairly substantial volume of fu­
ture orders continues to be placed. Expectations are that
during August a substantial improvement in commit­
ments will take place, even though recovery in employ­
ment levels throughout the country may be slowed be­
cause steel pipe lines need to be filled to attain pre-strike
employment levels.
Cotton spindle hours operated in the District snapped
back substantially in June and have risen 15% on an ad­
justed basis from May to a level within 8 % of a year
ago. Cotton consumption, which had not fallen as sub­
stantially as spindle hours from April to May, showed
an adjusted rise of 1% from May to June to a level also
within 8% of a year ago. The June recovery in the in­
dustry’s operations put it back to the level that prevailed
early in the year. Anticipations for fall and winter seem
to point to a considerably better level than that prevail­
ing in June.

Aside from the industries affected by the steel strike,
employment levels in the District improved during June.
United Mine W orkers have given notice of termination
of their contract which will become effective late in Sep­
tember. There are no indications as yet whether an­
other paralyzing strike will take place, but the fact that
coal stocks in most users’ hands are at a high level would
at this time seem to suggest that settlement could be ar­
ranged without too much interruption.
The soft goods industries of the District seem ready
for recovery, though the amount and speed of that recov­
ery are somewhat contingent 011 the ability of steel-using
industries to get back into full employment. The out­
look for the District, even if recovery nationally is slow,
is for an improving level of production, employment and
trade.
C onstruction
Total construction contract awards in June (adjusted)
were up 3% from May and 2% ahead of a year ago. In
the first half of the year, total awards were down 48% ,
but if the Savannah River Atom ic Project is eliminated,
the first six months would show a drop of 12% from a
year earlier. Residential construction in June rose 11%
(adjusted) from May to a level 15%; above a year ago
and in the first six months of the year was 1% higher
than a year ago.
Certificates of necessity were issued between June 13
and July 10 for construction in the amount of $44 mil­
lion which was somewhat higher than in several past
months. Contract awards for military construction in
June were $38.4 million, and as of July 25 the July total




The hosiery industry is in an optimistic frame of mind.
Concensus of opinion is that the price structure 011 fullfashioned hosiery has readied bottom and hope continues
for improvement in the price level in the fall. Interest­
ingly, one producer which had been prominent in price
reductions has made its first advance in more than a year
and a half. The seamless branch of the industry appears
more optimistic than the full-fashioned. Sales of men’s
and children’s hosiery are considered at a good level and
still further improvement is anticipated in coming
months. Chain stores have been important buyers in
the men’s hosiery field, as well as in children’s anklets.
Business of yarn spinners has picked up notably with
knitting yarns accounting for the bulk of the rise. This
reflects the improvement in seamless hosiery and in the
knit underwear business. Yarn spinners did not profit
very much from recent government contract awards,
since most of these went to the integrated producers.
There has, however, been a good demand from the nar­
row goods industries, particularly those making web­
bing.

{9 y

F e d e ra l Reserve Bank of Richmond

are operating at full tilt and expansion in some of these
installations is under way.

W ork clothing industries are seasonally slack at the
present time, but there is a considerably better feeling
among the producers, and the outlook is not without
promise.

B anking D evelopm ents

D urable G oods Industries
Although the lumber industry is operating at levels be­
low a year ago, the price structure is showing moderate
firmness. W ith stumpage and other costs high, many of
the small mills remain shut down while those remaining
in operation are enjoying a fairly good volume. The
housing outlook continues to show substantial strength
and, as a consequence, the demand for lumber continues
at a good level.
The status of steel inventories at the shipyards is not
known, but the length of the steel strike probably left in­
ventories insufficient to continue operations at the high
level of the first five months of the year. Firms operat­
ing on merchant ship contracts see little business ahead
on completion of present contracts. Those working 011
naval ships, however, will probably continue to expand
their employment levels.
Another atomic energy plant is projected for the Ohio
River Valley. From the viewpoint of desirable site fac­
tors, a river location between W heeling and Huntington
might well be chosen. Ordnance works in the District

D E B IT S T O

IN D IV ID U A L

Deposits of member banks continued to rise during
June with a gain of 2.9% over May and 8.9% over a
year ago. Time deposits during June rose 0 .5 % — a level
8.1%-. ahead of a year ago— attesting to the continuing
savings trend.
Total loans of member banks were up 1.3% in May to
a level 4.5% over a year ago. The weekly reporting
hanks have shown a less than seasonal decline since
spring in their commercial, industrial and agricultural
loans. Consumer loans, on the other hand, have shown
a rather sharp increase since the spring months and a
considerable jump took place during May and June.
Loans on real estate have continued their moderate up­
ward trend, and total loans early in July were at an alltime high level. Business loans appear to be bottoming
out and the time is at hand for the expected seasonal
rise. Trade loans, loans to sales finance companies, pub­
lic utilities and construction firms have been rising per­
sistently since spring. These gains have been more than
offset by decreases in loans to manufacturing and mining
concerns and to commodity dealers.

50 R E P O R T I N G M E M B E R B A N K S — 5 T H D I S T R I C T

ACCOUNTS

(000 omitted)
June
1952
Dist. of Columbia
W ashington

$1,109,632

June
1951
$1,097,041

6 Months
1952
$ 6,633,415

(000 omitted)

6 Months
1951
$ 6,385,810

Maryland
Baltimore _____
Cumberland
Frederick _____
Hagerstown

1,370,940
30,347
22,785
34,683

1,252,493
26,418
22,767
34,982

7,713,367
157,606
135,715
211,740

7,410,070
148,913
123,987
194,102

North Carolina
Asheville _______
Charlotte ._ ___
_
Durham ________
Greensboro ____
Kinston ________
Raleigh _______
W ilm ington
W ilson _________
W inston-Salem

59,729
342,124
118,317
107,798
19,910
164,876
45,972
17,084
192,777

62,833
331,191
100,196
104,447
16,583
227,776
46,572
16,430
177,314

367,8S5
2,076,081
631,748
647,876
114,832
1,065,863
271,667
107,042
1,026,236

357,499
2,023,938
586,880
611,434
95,692
1,005,902
253,976
108,374
991.818

South Carolina
Charleston
Columbia ______
Greenville ...
Spartanburg _
_

87,206
140,474
106,221
65,260

76,767
129,786
116,792
66,197

481,705
864,369
625,467
407,417

■146,661
751,968
673,902
401,020

Virginia
Charlottesville .
Danville _ _____
_
Lynchburg
New port News
N orfolk ________
Portsmouth
Richmond _____ ____
Roanoke _
_

28,909
31,533
48,385
49,083
253,582
33.186
586,168
116,757

28,081
34,501
47,419
43,832
228,256
26,709
595,192
118,477

166,569
198,655
276,728
287,359
1,476,242
173,426
3,433,525
697,973

161,530
199,176
280,323
251,332
1,285,505
150,658
3,272,601
678,563

47,725
170,782
34,411
64,403
30,223
—....... $5,531,282

49,058
155,883
34,026
67,030
32,475
$5,367,524

299,870
1,024,997
220,141
432,882
182,873

IT E M S

282,999
910.171
207,404
400,080
182,976
$30,835,264

W e st Virginia
Bluefield ________
Charleston
......
Clarksburg
Huntington ..
Parkersburg ___ ____
D istrict Totals




$32,411,271

July 16,
1952

Change in A m ount from
June 18
July 18,
1952
1951

$1,217,459**
Total Loans ____ ,__ ____ _ _
561,228
Bus. & A g ric. -----------------249,032
Real Estate Loans --------423,098
A ll Other Loans ________
1,920,325
Total Security Holdings
307,205
TJ. S. Treasury Bills ___
U . S. Treasury Certificates ....
175,076
273,765
U . S. Treasury Notes ______
928,742
U . S. Treasury Bonds ______ .
235,537
Other Bonds, Stocks & Secur. .
283,518
Cash Items in Process of Col. .
184,943*
Due From Banks _________ ____
74,484
Currency and Coin ------------------580,578
Reserve with F . R. Banks
54,145
Other Assets
_________________
Total Assets _________________ . 4,315,452

+
—

8,246
2,399
2,118
+
8,649
+
+ 88,724
+ 38,401
9,840
+
—
864
+ 39,256
3,091
-r
+
2,715
—
3,331
189
+
—
8,887
443
+
+ 88,099

+ 58,091
+ 10,151
+ 15,011
+ 34,383
+ 2 5 9 ,5 2 6
+ 130,838
+ 128,681
—
82,406
+ 15,174
67,239
+ 41,511
971
+
3,703
+
+ 38,469
997
+
+ 4 0 3 ,2 6 8

3,333,049
2,414,089
Deposits o f Individuals
212,263
Deposits of U . S. Government:
195,832
Deposits of State & Local Gov..
457,872*
Deposits of Banks _________ .
Certified & Officers’ Checks
52,993
Total Tim e Deposits _________
653,587
Deposits o f Individuals ____ .
573,977
79,610
Other Tim e Deposits ______
39,100
Liabilities for Borrowed Mone
31,169
All Other Liabilities _________
258,547
Capital Accounts ______________
$4,315,452
Total Liabilities ___________

+ 68,819
— 15,033
+ 91,547
5,775
+
1,654
+
—
15,124
2,851
+
2,663
+
188
+
17,500
+
—
900
—
171
+ 88,099

+ 315,904
+ 157,779
+ 102,188
+ 21,679
+ 32,406
1,852
+
+ 35,659
+ 18,682
+ 16,977
+ 38,600
2,499
+
+ 10,606
+ 403,268

*N et figures, reciprocal balances being eliminated.
**Less losses for bad debts.

i

10 V

August 1952

Farm Production and Income Prospects
Continued from page 6

of the crop being marketed. The level of support for
Prices of most other farm products that are important
flue-cured tobacco will be 50.6 cents per pound this sea­
to this area are about the same as, or slightly below, last
son— practically the same as
year. Potatoes are a notable
the 1951 support price of
exception b e in g s h a r p ly
50.7 cents per pound. A c ­
higher than a year ago—
cording to The Tobacco Sit­
though b e lo w th e re c e n t
FARM PRICES DOWN, COSTS UP
uation, issued by B A E , the
spectacular levels.
Other
UNITED STATES
price of flue-cured tobacco is
exceptions are meat animals
not expected to be much dif­
and poultry and eggs which
ferent this year than the 52.4
are well below levels at this
cent average received for the
time last year.
1951 crop. This estimate is
In summary, it seems un­
based on the belief that con­
likely that over-all market­
tinued strength in domestic
ings can continue to run
demand will about offset the
ahead of 1951 for the re­
weaker export demand.
mainder of the year and thus
offset the lower prices that
It is rather meaningless to
have prevailed this year.
compare the level of cotton
prices on any given date in
On the basis of current
production and price indica­
July 1952 with the level on
the corresponding date of
tions, many farmers will
1951. Readers may recall
sustain rather sharp reduc­
that prices fell sharply a
tions in gross farm income
year ago when it became ap­
this year. These and many
parent that cotton produc­
more are also likely to ex­
perience rather marked re­
tion would be much greater
ductions in net farm income as a result of the increase
than in 1950. It might be noted that, whereas the acre­
in the cost of producing this crop. Even so, 1952 prob­
age estimate in July 1951 was associated with distinct
ably will be remembered in years to come as a year of
price weakness, this year’s acreage report was associated
favorable farm income.
H . G. P.
with only moderate price response.

Drought—The Bankers' Problem
Continued from page 6

munities may be hard hit by the drop in farm income.
W hile the Fifth District states, Maryland, Virginia,
North Carolina, South Carolina, and W est Virginia, are
not likely to turn into a dust bowl, the matter is still one
of great concern to many farmers— and to many bank­
ers. For the farmers’ problems are frequently the
bankers’ problems, too.
Bankers know that the hot, dry weather this summer
and consequent drought-curtailed income will mean less
business on Main Street this fall and winter. Farmerowned deposits in many seriously affected communities
will tend to lag below last year’s. Some farmers who in
recent years have had enough capital of their own to fi­
nance their needs will now find it necessary to borrow
before another crop is made. Some who are already




borrowers will find their incomes so reduced that they
will have to seek to carry over some of this year’s debts
into 1953, as well as borrowing more funds for the year
ahead.
If this unfortunate situation means added problems
for bankers, though, it does not mean problems they are
unwilling or unable to tackle. Over the past several
years, Fifth District bankers have been giving more and
more attention to the special needs of farmers, and con­
sequently are able to help farmers meet the particular
difficulties of the drought.
Most of them will agree with the editor of the Rich­
mond Times-Dispatch, who wrote on August 1: “ It is
in the interest of the local banks to keep the farmers
solvent.”

i 11 Y

F e d e ra l R eserve Bank of Richmond

SELECTED
AV G . D A IL Y

F IF T H

D IS T R IC T

B U IL D IN G P E R M IT F IG U R E S

IN D E X E S

June
1952
Maryland
Baltimore
.ii 6,045,185
?
Cumberland
50,249
173,950
Frederick . ___
Hagerstown ....
205,545
Salisbury ______
174,843

1935-39 = 100— S E A S O N A L L Y A D J U S T E D
% Chg.—
Latest Mo.
June
1952

Prev.
Mo.
- 2
— 1
— 4
+ 3
+20
+ 13
+ 15
+ 5
0
— 1
+ 4
+ 1

June

May
1952

1951
199
423
157
507
86
242
160
110
341
152
199
289

166
Automobile Registration* ______
455
Bank Debits -------------------------------- 452
131
136
Bituminous Coal Production —
503
Construction Contracts ------------- 516
54
45
Business Failures— N o. ------------246
Cigarette Production ----------------- 278
129
Cotton Spindle Hours --------------- 148
116
Department Store Sales** --------- 122
379
Electric Power Production
150
M anufacturing Em ploym ent* ..
227
Retail Furniture: N et Sales .... 237
339
L ife Insurance Sales ___________ 341
*N ot seasonally adjusted.
**1947-1949 = 100. Back figures available on request.
--------------

♦

6 Months
1952

6 Months
1951

$ 6,377,255
56,800
157,625
145,550
73,555

$ 32,136,305
179,124
1,372,423
843,633
762,199

$ 41,448,400
434,285
968,260
991,150
948,099

Virginia
Danville _______
Lynchburg ___
N ew port News
N orfolk _______
Petersburg ___
Portsmouth ....
Richmond ____
Roanoke ______

507,797
380,118
239,026
881,427
126,007
330,343
1,142,260
906,148

198,203
197,819
84,431
863,440
675,992
173,765
1,373,697
3,616,960

3,367,057
1,410,698
5,893,516
11,483,265
903,001
5,437,340
8,934,119
5,265,418

1,443,925
2,050,747
781,960
10,239,148
2,233,100
3,843,280
9,892,949
11,474,858

W est Virginia
Charleston
Clarksburg ___
Huntington ....

5,848,140
111,160
542,806

421,698
186,057
625,836

8,824,324
471,357
2,314,981

2,654,134
650,547
4,136,430

North Carolina
Asheville ______
Charlotte ______
Durham _______
Greensboro
High Point
Raleigh _______
Rocky M ount
Salisbury
W inston-Salem

219,792
935,541
660.092
1,425.185
340,115
1,558,636
340,763
69,167
943,878

432,587
1,336,153
260,560
630,623
236,680
472,869
78,974
90,940
6,334,188

1,716,627
11,312,012
4,586,660
4,403,853
1,776,345
9,094,919
1,868,176
1,126,335
5,052,983

3,853,775
11,883,564
2,862,063
4,361,719
1,781,394
6,654,394
1,503,160
782,531
11,518,612

South Carolina
Charleston
Columbia ______
Greenville ____
Spartanburg ...

188,871
588,154
505,163
114,800

103,265
3,346,565
407,150
178,700

827,508
6,077,398
4,897,968
1,455,767

905,724
8,517,017
6,529,379
704,940

Dist. of Columbia
W ashington ....

3,987,466

3,749,273

24,153,346

33,931,271

District Totals ... $29,542,627

♦ ---------

$32,887,210

$167,948,657

$189,980,815

D IS T R IC T

W H O L E S A L E T R A D E — F IF T H

L IN E S
A uto supplies ( 6 ) -----------Electrical goods ( 6 ) ---------Hardware (10) ------------------ ...
Industrial supplies (7 ) ...
Drugs & sundries (11) ... ...
D ry goods (10) -----------------Groceries (54) ------------------ ...
Paper & products ( 6 )
Tobacco products (10) .
Miscellaneous (97) ---------- ...
District Totals (217) ......

Yr.
Ago
-1 8
+ 7
— 17
+ 2
— 37
+ 15
— 8
+ 11
+ 15
0
+ 19
+ 18

June
1951

Stocks on
June 30, 1952
compared with
M ay 31,
June 30,
1952
1951

Sales in
June 1952
compared with
M ay
June
1952
1951
+ 11
—
p28
+ 11
— 2
— 7
+ 4
- 8
— 6
— 4
+ 6
— 12
— 1
— 1
+ 3
— 1
-1 3
- 3
+ 9
+ 9
+ 7
+ 6
+ 1

+
—
—
—

+ 3
— 12
— 18
— 4
0
— 20
+ 7

—

+

+ '2
— 14
— 11

1
7
1
3
1
9
0
"o
i
0

+

Number of reporting firms in parentheses.
Source: D epartm ent of Commerce.

D E P A R T M E N T S T O R E O P E R A T IO N S
(Figures show percentage changes)
Rich.

Balt.

W ash.

Other
Cities

Sales, June ’52 vs June ’ 51 Sales, 6 Mos. ’ 52 vs 6 Mos. ’5 1
Stocks, June 30, ’ 52 vs ’51 ..

+ 7.7
+ 2.9
— 9.9

+ 5.7
+ 2.2
— 3.3

+ 0.2
— 2.0
— 4.9

+ 7.1
+ 1.6
— 5.9

+ 4.0
+ 1.7
— 5.4

Outstanding Orders,
June 30, ’ 52 vs ’ 51 —..........

+ 13.9

— 6.2

+ 12.2

+ 24.9

+

Current receivables June 1
collected in June 1952 -----

23.1

45.5

42.4

40.2

Instalm ent receivables June 1
collected in June 1952

13.1

17.6

ADDITIONS TO PAR LIST

Dist.
Totals

Md.
Sales, June *52 vs June ’51 + 5 .7

- ♦

D
+ 0 .2

♦

♦

14.9
W .V a ,

+ 7 .8

+ 9.6

N.C.
-| 9.8

8.6
38.2

17.3

Va.

T h e B a n k o f M a n , M a n , W e s t V ir g in ia , a
n e w ly c h a r te r e d n o n m e m b e r b a n k lo c a te d
in th e te r r ito r y s e rv e d b y th e R ic h m o n d
H e a d O ffice , h as a g r e e d to re m it a t p a r , e f ­
fe c t iv e J u ly 15, f o r c h e c k s d r a w n on it
w h e n r e c e iv e d f r o m th e F e d e r a l R e s e r v e
B a n k . T h e c o m b in e d A .B .A . tra n sit n u m ­
b e r -r o u tin g s y m b o l o f th e b a n k is -^ 4 ^ -

15.0
S.C.
“—0.2

--------------

R E T A IL F U R N IT U R E S A L E S — F IF T H D IS T R IC T
Percentage comparison of sales in
periods named with sales in same
periods in 1951
STATES
Maryland (7 ) _______________
Dist. of Col. (7 ) ___________
V irgin ia (1 8 ) ^ _______________
W est V irgin ia (10) _______
N orth Carolina (15) ---------South Carolina ( 6 ) _________
District (63) _____________
I N D I V I D U A L C IT IE S
Baltimore, Md. (7) ________
W ashington, D. C. (7)
Richmond, V a . ( 6 ) _________
Charleston, W . V a . (3 )

June 1952
+ 14
— 9
+ 16
+ 21
+ 20
— 23

T h e C h a th a m B a n k , S ile r C ity, N . C., in ­
c lu d in g its b r a n c h e s at G o ld s to n a n d L ib ­
e rty, h as a g r e e d to re m it at p a r e ffe c tiv e
A u g u s t 1, 1 952 f o r a ll c h e c k s d r a w n on it
w h e n r e c e iv e d f r o m th e F e d e r a l R e se rv e
B a n k . A ll th r e e o ffice s o f th is b a n k a re l o ­
c a te d in th e C h a r lo tte B r a n c h te r r ito r y .
T h e c o m b in e d A .B .A . tra n sit n u m b e r -c h e c k
r o u tin g s y m b o ls a re as f o l l o w s : S iler C ity

6 Mos. 1952

5

+ 6
— 7
+ 8
+ 21
+ 15
— 6
+ 3

+ 14
— 9
+ 18
+23

+ 14
+28

+

+

6

, G o l d s t o n - ^ - , a n d L ib e r ty

N um ber of reporting firms in parentheses.




i

12

y


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102