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CO IN A N D CURRENCY IN CIRCULATION In the past four years coin and currency in circulation have increased at rates much higher than in previous years. FEDERAL RESERVE BANK OF RICHMOND JULY 1965 Changes in coin and currency in circulation in the United States during recent years raise some in triguing and exceedingly difficult questions. Y earto-year increases are continuing at a very high rate and there are 110 obvious explanations for either their cause or their significance. T his brief study de scribes the changes in some detail. A later article will attempt to find some explanation of causes and significance. T o provide some background and perspective for the large changes of the past four years, data are given for the seven years immediately preceding— 1954 to 1961. This period may be considered as n o rm a l; it started soon after the close of the Korean W a r and covered approxim ately tw o complete busi ness cycles. M idyear figures— end o f June or daily averages for June— are used in an effort to escape the effects of strong seasonal forces usually present at the end of the year. F or this reason, figures for annual changes measure the changes from June to June. Figures for June 1965 are estimated on the basis of figures for nine or ten months. T w o series are used in an effort to explore as many facets of the problem as possible. T he first is the series “ M oney in Circulation” contained in the “ Circulation Statement of United States M on ey” issued by the Treasury Department. T his series shows total money in circulation 011 the last business day o f each month, excluding that held in the Treas ury or Federal R eserve Banks, but including vault cash held by com m ercial banks. It also shows the amount of coin by type and paper m oney by de nominations. A lthough it is not adjusted for sea sonal variations, this does not present any sub stantial problem since most data are for the same date each year. T he second series is the “ currency com ponent” of the money supply as com puted by the Board of G overnors o f the Federal Reserve System. T his is seasonally adjusted and gives monthly averages of daily figures. It excludes vault cash held by com m ercial banks and thus measures coin and currency held by the public. Thus, this series shows changes in the circulation net of any changes made by banks in their holdings of vault cash in response to regulations o f the B oard of G ov ernors in 1959 and 1960 which permitted them to count vault cash as part of their legal reserves. These series will be identified as “ Treasury series” and “ currency com ponent.” Scope of the Changes A s p o p u la tio n g r o w s and incomes rise, it is normal to expect that money in circulation will increase. T he rate o f increase may vary with the rate of population grow th, economic conditions, and, especially in the longer run, changes in m onetary habits and practices, particularly the use o f checking accounts by individuals. In recent years, at least, the upswing and recession phases of the business cycle are clearly reflected in the grow th o f circulating currency. W a rs and other periods of great tension almost always cause great increases in the currency. RATES OF CH A N G E IN C O IN A N D CURRENCY IN CIRCULATION TREASURY SERIES, 1954-1965 In the period from June 1954 to June 1961, total m oney in circulation, according to the Treasury series, m oved up from $29,922 million to $32,405 million. Annual increases varied from a low of $90 million in 1958 to a high o f $742 million in 1959. T he average increase was $355 million and the average annual rate of grow th was 1.2% . In other w ords, on the average, the supply o f coin and cu r rency increased by a little m ore than a billion dollars every three years. Since June 1961, however, as Table I shows, the grow th rate has risen very sharply and in the past tw o years the annual increase has been m ore than $2 billion. T he chart on the cover shows the monthly figures for three years before and fou r years after the sharp upsurge began in 1961. T he wide intervals between the lines for the most - 2 ------ 1------ 1------ 1------ 1------ 1------ 1____ !____ I____ I____l_ '54 Source: '56 '58 '60 '62 '64 U. S. Treasury Department. recent years show quite vividly the extent of the increases. TABLE I Coin and Currency in Circulation in the United States, 1954-1965 (Treasury series) CURRENCY COMPONENT OF THE MONEY SUPPLY M o n th ly , Coin 195 9 -1 9 65 $ Bil. Year Annual Change ($ m il.) Average, 1954-61 1962 1963 1964 1965 (est.) 95 190 226 327 495 Currency Annual Growth Rate (%) Annual Change ($ m il.) 4.6 7.7 8.5 11.4 15.4 259 1,174 1,475 1,937 1,971 Annual Growth Rate Total (%) Annual Change ($ m il.) 0.9 3.9 4.7 5.9 5.7 355 1,365 1,700 2,264 2,466 Annual Growth Rate (%) 1.2 4.2 5.0 6.4 6.5 During W o rld W a r II, o f course, the circulation rose by amounts much greater, both absolutely and relatively, than the increases o f the past fou r years. But in no year during the K orean W a r was the rise as great as in any one of the four most recent years in absolute amount nor, except for 1962, in relative amount. In other words, the rise we are now e x periencing is greater than that of a m inor war but much less than that of a m ajor wTar. O n a per capita basis, the changes in m oney in circulation reveal quite a different pattern. A s shown in Table II, the per capita figure was $183.50 in Source: Board of Governors, Federal Reserve System. 1954. W ith only one exception it then fell each year until 1961, when it stood at $176.30, for a total decline of $7.20. In the four years 1961-65 it rose sharply to $206.00, for an increase o f $29.70, or about 3 four times the amount by which it had declined in the previous seven years. T he behavior of coin and paper currency was significantly different. T he per capita amount of coin rose regularly but at varying rates in every year. T he total rose from $11.00 in 1954 to $19.00 in 1965, or 73% . Per capita paper currency steadily from $172.50 in 1954 to before beginning the sharp rise to O ver the whole period there was of 8 .5 % contrasted with the 7 3 % fell $162.90 $187.10 a small increase quite in 1961 in 1965. increase in coin. T A B L E II Per Capita Money in Circulation in the United States, 1954-1965 (In dollars; Year Money in Circulation Coin Total Currency 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 (est.) 183.50 182.20 181.90 180.70 178.20 179.50 177.50 176.30 180.90 187.30 196.50 206.00 172.50 171.00 170.30 168.90 166.20 167.00 164.50 162.90 166.70 172.10 179.80 187.10 11.20 11.50 11.90 12.00 12.50 12.90 13.40 14.20 15.20 16.70 19.00 reach 2 1 .8 % of 1950. M ovem ents in the currency com ponent showed essentially the same pattern as in the Treasury series in 1965, which was about the level T A B L E III Changes in the Currency and Demand Deposit Components of the Money Supply, 1954-1965 (D aily averages for June; $ billions) Year Treasury series) 11.00 a few years just after W o rld W a r II the currency com ponent com prised m ore than 2 3 % o f the money supply. By 1954 it was only a little m ore than 2 1 % and from there it drifted dow n irregularly to a low of 2 0 .2 % in 1961. Thereafter it rose each year to Average, 1954-61 1962 1963 1964 1965 (est.) Currency Component Amount Per cent 0.2 1.2 1.4 1.9 1.6 0.9 4.2 4.7 6.0 4.8 Demand Deposit Component Amount Per cent 1.4 1.8 2.2 3.0 2.7 1.7 2.1 2.5 3.5 3.3 W h ile the currency com ponent has recently grow n faster than the demand deposit com ponent o f the money supply, it has not increased as fast as time deposits. F rom 1954 to 1961, time deposits at com mercial banks grew at an average annual rate of 7 .6 % . F or the past four years the rate has been 16.0% in 1962, 15.5% in 1963, 13.3% in 1964, and 14.4% in 1965. These are much higher rates than Table those applying to the currency com ponent and, as a result, the currency com ponent has continued to de cline in relation to time deposits. It stood at 58.8% I I I gives the changes in the currency and demand deposit com ponents which, together, constitute the in 1954, wras dow n to 3 7 .0 % in 1961, and reached 2 5 .8 % in 1965. but they were somewhat smaller in amount. m oney supply. F rom $27.5 billion in 1954, the cu r rency com ponent m oved up to $28.9 billion in 1961, for a total increase of $1.4 billion. T his was equal to an average increase of $200 million and an average annual grow th rate of 0 .9 % . In the last tw o years of this period— from m id-1959 to m id-1961— there were only minimal changes, the figures varying from $28.9 to $29.1 billion. But beginning in July 1961, the figures (w hich are seasonally adjusted) started m oving up steadily and rapidly. In the next C h a n g es b y S e g m e n ts A s m ig h t be e x p e cted when far-reaching changes are g oin g on, different segments of the m oney circulation have changed at different rates. T hose varying rates may afford some clues to the causes and the significance of the changes. T A B L E IV Annual Rates of Change in Segments of the Currency Supply in the United States, 1954-1965 (Treasury 47 months they m oved up in 41 months, were un changed in six, and did not register a single decline. By June 1965 the total reached $35.0 billion for a total increase of $6.0 billion. The average annual Total Coin and Currency Coin Total Paper Currency series) Average 1954-61 1962 1963 1964 1.2 4.6 0.9 4.2 7.7 3.9 5.0 8.5 4.7 6.4 11.4 5.9 3.8 3.2 3.0 5.0 3.4 4.3 --2 .7 3.4 2.2 2.4 4.6 6.3 8.5 0.4 7.2 4.4 3.9 6.2 6.2 8.2 0.0 increase was about eight times that o f the preceding Paper Currency by Denomination seven years. $1 and $2 $5 $10 $20 $50 $100 Over $100 A s Table III shows, in the 1954-61 period the demand deposit com ponent grew at a rate m ore than 5 0 % greater than the currency com ponent. In the ensuing four years this was sharply reversed and the currency com ponent grew about twice as fast as the demand deposit com ponent. These changing rates of growth have appreciably changed the com position o f the money supply. 4 F or 3.3 0.8 0.4 1.3 0.6 1.1 -5 .5 Throughout the period, coin increased at a faster rate than the total and at a much faster rate than paper currency. A s Table I V shows, coin increased at a rate of 4 .6 % per year between 1954 and 1961. T hen the rate rose from 7 .7 % in 1962 to 15.4% in RATES OF C H A N G E IN CO M PO N EN TS OF THE M O N E Y SUPPLY 1965, or more than three times the average for 1954-61. It is possible that the supply of coin might have grow n even faster if the M int had been able to supply all dem an d s; on the other hand, that might 1954-1965 Per Cent +8 not have been true. +6 If it were know n that the M int was prepared to meet all requests, the demand might have been smaller. Demand Deposit Component W h ile coin had a higher rate of grow th than paper currency in the 1954-61 period, that rate did not in crease as rapidly after 1961 as did the rate for paper currency. F rom an average of less than 1.0% in the base period, the grow th rate of all paper currency rose rapidly to 5.7 % in 1965. This was m ore than a sixfold increase. O ne and tw o dollar notes had a higher rate of growTth than any other denomina tion in the base period, and by 1964 that rate had doubled. (I t is not feasible to estimate the break dow n of currency by denomination for 1965 so this analysis ends with 1964.) E ven so, however, that was the smallest increase in the grow th rate e x '54 '56 Source: '58 '60 '62 '64 Board of Governors, Federal Reserve System. perienced by any denomination. M ost other de nominations showed increases ranging roughly from fivefold to tenfold. T he $50 note had an increase of a little m ore than tenfold, but the $100 note ended up with the highest grow th rate, with 8 .2 % in 1964. C U R R E N C Y C O M P O N E N T O F M O N E Y SUPPLY A N D TIM E D EPO SITS IN C O M M E R C IA L B A N K S 1954-1965 Notes above $100 declined between 1954 and 1962; in 1963 and 1964 they showed slight increases. T he above figures show a fairly distinct trend tow ard higher rates of grow th am ong notes of larger denominations. But when the dollar amount of the increase in coin and currency is shown according to the contribution of each type or denomination, as in Table V , the picture is changed somewhat. A lm ost a third of the total increase was accounted for by $20 notes, while $100 notes contributed about a fourth. Coin was responsible for less than a seventh. These three groups contributed about 7 1 % of the total increase. (Continued on page 8) TABLE V Changes in Amount of Coin and Currency in Circulation by Type and Denomination, 1961-1964 (Treasury series) Type and Denomination 1954 Source: 1956 1958 1960 1962 .-ro*. Board of Governors, Federal Reserve System. Total Change Coin Paper Currency Denominations: $1 and $2 $5 $10 $20 $50 $100 over $100 Amount ($ millions) Per Cent of Total 5,329 743 4,586 100.0 13.9 86.1 233 217 642 1,733 460 1,314 13 4.4 4.1 12.0 32.5 8.6 24.7 0.2 - 5 D u r in g 1 9 6 3 , a p p r o x im a t e ly 681 m illio n p o u n d s of s h e llfish a n d o th e r ty p e s o f fis h w e r e la n d e d at Fifth D istrict ports. The catch h a d a total v a lu e o f o v e r $ 3 9 m illio n w h ic h re p re se n te d m o re th a n 1 0 % o f the in c o m e fro m all U. S. fish e rie s, in c lu d in g the p ro lific w a t e r s o f A l a s k a a n d H a w a ii. E v e n so, the D is trict catch w a s w e ll b e lo w the 9 5 5 - m illio n - p o u n d catch in 1 9 5 9 w h e n V i r g in ia a n d N o r th C a r o lin a fis h e rm e n h a d re co rd ca tch e s to ta lin g a b o u t 8 7 0 m il lio n p o u n d s. In 1 9 6 2 , the latest y e a r fo r w h ic h d e ta ile d in fo r m a t io n is a v a ila b le , m o re th a n th re e fo u rt h s o f the in c o m e fro m s e a f o o d in the Fifth D istrict w a s d e r iv e d fro m o yste rs, c ra b s, m e n h a d e n , a n d sh rim p . O n a v a lu e b a s is , o y ste rs a n d c r a b s a c c o u n te d fo r m o re th a n 7 0 % o f the catch in M a r y la n d , w h ile o y ste rs a n d m e n h a d e n c o m p ris e d a b o u t 6 0 % o f the V ir g i n i a catch. In N o rth C a r o lin a , s h r im p a n d m e n h a d e n a c c o u n te d fo r o v e r h a lf the g r o s s p ro c e e d s o f fish e rie s, a n d in S o u th C a r o lin a , s h r im p a n d o y ste rs p ro d u c e d 8 0 % o f to tal in com e . The D istrict h a d a p p r o x im a t e ly 2 5 , 0 0 0 fis h e rm e n a n d 1 6 ,0 0 0 v e s s e ls e n g a g e d in c o m m e rc ia l f is h in g in 1 96 2 . Th e re w e r e so m e 8 0 0 s e a f o o d a n d fis h p ro d u c t p ro c e s s in g p la n ts a n d w h o le s a le fir m s in the District, e m p lo y in g a p p r o x im a t e ly 1 7 ,0 0 0 p e o p le . In 1 9 6 2 , the v a lu e o f m a n u f a c t u r e d fis h p ro d u c ts to ta le d $ 6 9 m illion . VitfrUct Seafood wttduafay VALUE OF FIFTH DISTRICT CATCH FIFTH DISTRICT CATCH 1953-1963 1953-1963 Million Pounds $ Million VALUE OF CATCH BY M A J O R SPECIES FIFTH DISTRICT STATES, 1962 Value (In thousands of dollars) Species Fifth District Md. Per Cent of Total Value Va. N.C. S.C Fifth District Md. Va. N.C. S.C. 45,102 11,926 21,701 6,755 4,720 100.0 100.0 100.0 100.0 100.0 31,606 10,441 13,651 3,420 4,094 70.0 87.6 62.9 50.6 86.7 17,609 6,182 9,774 485 1,168 39.0 51.8 45.0 7.2 24.7 Crabs 6,321 2,548 2,952 528 293 14.0 21.4 13.6 7.8 6.2 Clams 2,629 1,697 813 99 20 5.8 14.2 3.7 1.5 0.4 Shrimp 4,852 2,239 2,613 10.8 33.1 55.4 Total Shellfish Oysters All other Other Fish Croaker Menhaden Shad Striped bass 195 14 112 69 13,496 1,485 8,050 3,335 444 3 294 146 5,325 77 3,884 1,364 738 203 312 191 1,041 642 279 120 0.4 0.1 0.5 1.0 626 30.0 12.4 37.1 49.4 1 1.0 0.1 1.4 2.2 11.8 0.6 17.9 20.2 1.6 1.7 1.4 2.8 2.3 5.4 1.3 1.8 32 13.3 * 0.7 Alewives 664 29 492 143 1.5 0.2 2.3 2.1 Flounder 797 158 385 227 27 1.8 1.3 1.8 3.4 0.6 4,487 373 2,404 1,144 566 10.0 3.1 11.1 16.9 12.0 All other * Less than 0.1 per cent. Note: Source: Items may not add to totals due to rounding. U. S. Department of the Interior, Fish and Wildlife Service. RECENT CHANGES IN M O N E Y IN CIRCULATION (Continued from page 5) T he estimates for 1965 show that the total in crease in coin and currency between 1961 and 1965 was $7,795 million, of which $1,238 million, or 15.9% , was in coin. Coin and $100 notes made up 2 5 .7 % of the total circulation in 1961 but they were responsible for nearly 3 9 % of the increase between 1961 and 1964. T he $10 note was the principal denomination which did not increase in proportion to its relative im portance in 1961. O ne result of the rapid increase in paper cu r rency since 1961 has been an increased requirement for gold reserves at a time when the total gold stock of the country was being depleted by outflows. W e may assume that all requirements for It is evident from Table V I that the amounts of currency in the tw o countries have follow ed sub stantially different patterns in recent years. In the earlier years Canada had a higher grow th rate in coin than the U . S. but in recent years the U . S. rate has risen so rapidly that in 1965 it surpassed the Canadian rate. U . S. rate clim bed to 15.4% . TA B LE VI Changes in Money in Circulation Canada and the United States, 1954-1965 additional amounts of paper currency must be met bv Federal Reserve notes since the other and m inor form s of paper currency have no elasticity. T he additional paper currency in circulation on June 30, 1965, co m pared to what would have been in circulation if the 1954-61 grow th rate had continued unchanged, was $5,465 million, which tied up additional gold re serves amounting to $1,366 million. In addition, how ever, as a means of conserving silver, Federal R eserve notes have been issued in a program to sub stitute them for silver certificates with the aim that eventually they will replace all such certificates. U p to M arch 31, 1965, that substitution had proceeded to the extent of about $1,352 million, requiring an addi tional $338 million in gold reserves. T he sum of these tw o additional requirements is thus $1,704 million. Canadian Experience T h e C anadian e c o n o m y is similar in many respects to, and is closely inter meshed with, the United States econom y. M any of the statistical series which measure the same phases of the tw o economies show approxim ately similar patterns. A brief com parison of the behavior of coin, currency, and the m oney supply in the tw o countries should, therefore, be of interest and per haps some analytical assistance. T he available statistics covering the relevant items are not exactly com parable in the tw o countries but they are sufficiently similar to afford a valid basis for general com parison. T he Canadian series “ Notes and Coins in Circulation Outside Banks” includes In the 1954-61 period, Canadian coin grew at an average annual rate of 6 .6 % com pared to a rate of 4 .6 % in the U . S. T he Canadian rate m oved up to 11.6% in 1962 and thereafter rose slow ly to 14.1% in 1965. In the latter year the Canada Coin Amount ($ mil.) Per Cent Notes Amount ($ mil.) Per Cent Total Amount ($ mil.) Per Cent United States (Treasury series) Per Cent Coin Notes Total Average, 1954-61 1962 1963 1964 (est.) 1965 7 6.6 17 11.6 20 12.3 23 12.6 29 14.1 67 4.0 82 4.0 61 2.9 70 3.2 108 4.8 74 4.2 99 4.6 81 3.6 93 3.9 137 5.6 4.6 0.9 1.2 7.7 3.9 4.2 8.5 4.7 5.0 11.4 5.9 6.4 15.4 5.7 6.5 T he contrast is much m ore marked with notes. In the base period the rates were 0 .9 % in the U .S . and 4 .0 % in Canada. In the past fou r years the rate of grow th has multiplied sixfold in the U . S. while in Canada it wras low er in 1963 and 1964, and only slightly higher in 1965. Since 1961 total Canadian notes and coin have show n only moderate variations from the 1954-61 grow th pattern, con trasted with the fivefold increase in the U . S. By denominations, Canadian $50 and $100 notes (end of year data) showed moderately low er grow th rates in 1961 and sharply low er rates in 1962 and 1963 before rising to approach the pre-1960 rate in 1964. In the U . S. those denominations showed greatly in creased rates of growth. Generally, Canadian $20, $2, and $1 notes increased somewhat m ore rapidly than total paper currency from 1960 to 1964. holdings of the Bank of Canada and the Department In summary, Table V I shows a striking difference of Finance, but as these are very small they would in the behavior o f m oney in circulation in the two not affect the degree of comparability to any sig countries. nificant extent. little change in the grow th rate since 1961. 8 In Canada, there has been comparatively (T h e RATES OF CH A N G E IN M O N EY IN CIRCULATION C A N A D A A N D THE UNITED STATES fairly large rise in 1962 and the somewhat larger drop in 1963 were probably associated with Canada’s monetary crisis in 1962.) But in the U . S., where in 1954-61 the grow th rate was only a little m ore than one fourth of the Canadian rate, the grow th rate has m oved up steadily and rapidly and in the latest year was m ore than 10% greater than the Canadian rate. The behavior of coin and currency in relation to bank deposits has also differed in the tw o countries. There is not in Canada an equivalent to the demand deposit com ponent of the money supply in the U . S. Dem and deposits in Canada are relatively much smaller than their counterpart in the U . S. while personal savings accounts are much larger, perhaps in part because these savings accounts are used to a limited extent as checking accounts. In the U . S., the currency com ponent of the money supply in creased m ore slowly than the demand deposit com ponent from 1954 to 1961 and m ore rapidly since then. In Canada, the opposite happened. F rom 1954 to 1961 coin and currency increased in about the same proportion (3 1 .6 % ) as demand deposits '54 Source: '56 '58 '60 '62 '64 U. S. Treasury Department; Research Department, Bank of Canada. PER CAPITA M O N EY IN CIRCULATION C A N A D A A N D THE UNITED STATES 1954-1965 Dollars (3 1 .7 % ) , but from 1961 to 1964 demand deposits grew by 19.2% while m oney in circulation rose by only 13.2% . Dem and deposits and personal savings deposits com bined increased by 4 1 .8 % in the earlier period and 17.3% in the later period— both rates being well above the grow th in the circulation. Thus, both deposit totals grew more rapidly than money in circulation while in the U. S. the currency com ponent was grow in g faster than the demand deposit com ponent. T A B L E V II Per Capita Money in Circulation Canada and the United States, 1954-1965 (Dollars) Canada Notes and Coin Outside Banks Year 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 (est.) United States Currency Component of the Money Supply 89.55 90.53 92.91 93.42 96.32 98.85 99.06 98.80 101.88 103.62 106.07 110.96 168.70 166.30 165.20 164.60 161.80 163.10 160.50 157.30 161.30 166.30 173.90 179.40 O n a per capita basis also there was a sharp d if ference in m oney behavior in the tw o countries (see Table Source: Board of Governors, Federal Reserve System; Research Department, Bank of Canada. V II). In Canada, with the exception of only one year, per capita m oney in circulation out side banks increased steadily from $89.55 in 1954 to $110.96 in 1965, for a total increase o f 2 3 .9 % . 9 In the U . S., again with the exception o f one year, the per capita amount of the currency com ponent of the money supply declined steadily from 1954 to 1961 for a total decline of 6 .8 % . A fter 1961, however, there was a sharp reversal and in four 3 ) Beginning at the middle o f 1961, money in circulation has increased steadily and at a very high rate. F or the year ended June 30, 1965, the rate years the figures rose m ore than twice as much as (fo r the currency com pon en t) was 4 .8 % — m ore than five times the average rate for 1954-61. 4 ) T hroughout the past ten years coin has in it had declined in the previous seven. T he increase was 14.0% and brought the total to $179.40, which was 6 .3 % above the 1954 figure com pared to the creased at a faster rate than paper currency but paper m oney has had by far the greater increase in its rate of grow th since 1961. N otes of $100, $50, and $20 Canadian increase of 2 3 .9 % over the same period. denominations have shown the greatest increases, British Experience while $10 and $5 notes have increased less than all paper currency. A v a ila b le B ritish fig u re s— which are not fully com parable with those for Canada and the U . S.— suggest that the British experience has been different from Am erican. T he best both the figures Canadian readily and available— those published regularly by the International M on e tary Fund— show the behavior of coin and currency outside Banks.” banks and deposits in “ Deposit M oney T he figures used here are for the end of the respective years. Table V I I I shows that in the period 1954-61 cu r rency outside banks grew m ore than tw ice as fast as deposits. Since 1961, however, the grow th rate of deposits has risen sharply to a level, in 1964, almost four times the 1954-61 average. Currency experienced a small decline in 1962 and then in 1963 and 1964 grew at rates moderately above the average for the earlier period. B y 1964 currency and de posits were increasing at about the same rate. These changes might be regarded as fairly normal but in sharp contrast with developments in the United States where currency was grow in g about twice as fast as demand deposits. T o the extent that these com parisons are relevant, they only emphasize the unusual nature of the U . S. experience. T A B L E V III Changes in Money in Circulation and Bank Deposits in the United Kingdom, 1954-1964 (M illions of Pounds Sterling) End of Year Currency Outside Banks Amount Per Cent Average, 1954-61 1962 1963 1964 78 -1 8 91 156 3.9 -0 .8 4.1 6.8 Deposits in Deposit Money Banks Amount Per Cent 81 320 449 527 1.7 4.1 5.6 6.2 5) Because they constitute only a m inor part of the circulation, coin, despite its higher rate of growth, has contributed less than one sixth o f the total in crease in m oney in circulation since 1961. 6 ) F rom 1954 to 1961 m oney in circulation in creased at a substantially slow er rate than the demand deposit com ponent of the m oney supply. and the U nited K ingdom there were no changes corresponding to the sharp change which took place in the U nited States in 1961. In summary, the money circulation of the United States behaved in a way which may be considered normal fo r peacetime between 1954 and 1961. The behavior was normal with respect to total amount, per capita amount, and relationship to demand de posits. But almost precisely at the middle of 1961 a sharp reversal occurred in all of these and since that time the behavior has been the opposite of that prevailing in the previous seven years. R educed to a single sentence, the central problem might be stated in this w a y : W h a t happened about the middle o f 1961 to cause a sharp and accelerating rate o f increase in paper currency, especially in notes o f larger denom inations? A broad look at developments suggests tw7o gen eralizations which may afford som e guidance in the search for causes. First, this is not a random fluctua tion. T he size o f the movement, the length of time covered, and the fairly definite pattern it has assumed all argue against a random erratic aberration. Second, the sharp reversal which occurred in 1961 probably was not caused by institutional changes. Summary In the past four years it has increased about twice as fast. 7 ) R ough com parisons indicate that in Canada Rarely, if 1) M o n e y in circu la tio n in the U n ited ever, do institutional habits and practices change States increased at a very moderate rate between quickly enough to produce such a pronounced effect. 1954 and 1961— a rate o f a little more than 1 % per O n the basis of the above brief com parisons it w ould seem that in looking for causes o f the recent changes in the U nited States w e should look for de year for the gross series and a little less than 1% for the currency com ponent o f the money supply. 2) T he currency com ponent showed practically no velopments which happened here and did not happen change from the middle of 1959 to the middle of — or, at least, did not have the same magnitudes— in 1961, and changes in the Treasury series were small. Canada and the United K ingdom . THE FIFTH DISTRICT J R Fifth District business has continued to im prove, although the rise has slowed somewhat since earlier sales slowed a little in June follow in g a new high in M ay and averaged 6 % above 1964 levels for the first in the year. ment and accom panying declines in insured unem half of the year. Seasonally adjusted employm ent in trade declined slightly in M ay after increasing in ploym ent have been slightly in excess of the usual each except two of the previous twelve months. Recent increases in nonfarm em ploy seasonal changes. Seasonally adjusted factory man- hours rose very slightly in M ay as gains in non durables offset some slight declines in durables. Continuing strength has been somewhat m ore evi dent outside the manufacturing area. Seasonally adjusted bank debits have remained at a high level, som e 12% above a year ago. The District index of new passenger car registrations has continued to rise, averaging 14% above last year’s figures. C on tracts awarded for new construction, after lagging behind last year’s level during the first quarter, in creased nearly one third between M arch and A pril to reach a new record level, topping by 3 % previous high reached last July. the Department store Steady Growth in Services E m p lo y m e n t in se rv ices and miscellaneous enterprises rose quite briskly in M ay, maintaining a pattern of strong and steady improvement. T he seasonally adjusted count of jobs in this sector has not declined since last September. Regional results of the Census of B usiness sum marizing service industries in 1963 have appeared only recently, and the data show interesting trends in the Fifth District. Som e of these are summarized in the chart below using figures for 1954, 1958, and 1963. T he left panel o f the chart shows receipts of service establishments in Fifth D istrict states and the District of Columbia. T he right panel distributes the same District totals according to type of service. TOTAL RECEIPTS OF SERVICE ESTABLISHMENTS FIFTH DISTRICT GEO G RA PH ICAL TYPE OF SERVICE Personal Maryland District of Columbia Business Virginia Auto Repair and Garages West Virginia Amusements North Carolina Hotels, Motels, etc. South Carolina Miscellaneous Repair 200 400 $ Mil. Source: 600 0 200 400 $ Mil. U. S. Department of Commerce, Bureau of the Census. 11 Maryland Leads B etw e e n 1954 and 1963 total receipts of service establishments grew faster and reached a higher level in M aryland than anywhere else in the District. A t $706 million in 1963, re ceipts in M aryland were nearly two and a half times the 1954 figure. F or a rough com parison with grow th in manufacturing, value added by manufac ture rose 58 % in M aryland between 1954 and 1963. M aryland service enterprises employed about 94,000 in 1954, 12% o f all nonfarm wage and salary workers, but by 1963 the number of job s in services had risen to 150,000, m ore than 15% of paid nonfarm workers. Since many self-em ployed persons p rob ably provide some type of service, data on total em ployment, if available, would probably give service industries an even larger fraction o f total jobs. One third of M aryland’s 1963 service enterprise revenues was in the miscellaneous business category, which includes management consulting, advertising, equipment rentals, building maintenance, credit and collection agencies, and many others of less im por tance. Other m ajor categories in order o f im por tance in M aryland were personal services, which tive im portance of services in the District of Colum bia and their relative grow th in the Fifth District as a whole. T he follow in g table shows wages and salaries paid by service enterprises as percentages of total personal incom e for the years 1954, 1958, and 1963 in the U nited States, the Fifth District, and the D istrict’s geographical su bd ivision s: United States __________ Fifth District District of Columbia Maryland __ Virginia _____________ South Carolina _________ North Carolina ___ _______ West Virginia ________ 1954 1958 1963 6.1 6.0 9.4 6.8 5.5 5.1 5.5 4.5 6.7 6.4 10.0 7.3 6.5 5.5 5.6 4.5 7.4 7.4 10.1 8.8 7.6 6.5 6.3 5.1 T he figures in the table understate the fraction of in com e originating in services by such amounts as were included in the category of proprietors’ income. T his figure for proprietary businesses o f all types was $207 million ( 8 % of personal in com e) in the District of Columbia in 1963. Points of Interest W 'h ile re ce ip ts g r e w ra p id ly accounted for about one fifth of all 1963 receipts; in M aryland, establishments increased quite slowly. automobile services, the source of about one sixth of receip ts; and amusements, which produced som e Service establishments in M aryland w ere only 3 1 % m ore num erous in 1963 than in 1954 com pared to thing less than one sixth o f total service revenues. 6 6 % in N orth Carolina, 4 9 % in V irgin ia, and 6 3 % State Patterns Differ in South Carolina. In the D istrict o f Colum bia and W est V irgin ia the number o f new establishments In N orth C arolin a, receip ts of service establishments totaled $598 million in 1963. Personal services, the largest category, accounted for fully one third o f the state total and consisted mainly of laundries and cleaning plants, beauty and barber shops, funeral parlors, and photographic studios. Other groups of importance were automobile repairs, business services, lodging establishments, amuse ments and recreation, and miscellaneous repairs. V irginia closely follow ed N orth Carolina with $589 million in 1963 service enterprise revenues. A s in the T ar H eel State, personal services were first, but business services came second follow ed by lodging facilities, autom obile repairs, ments. and amuse W est V irgin ia ’s service industries in 1963 rose even m ore slow ly than in M aryland. In amusements and recreation, except fo r motion pictures, receipts have increased sharply. In 1963, amusements other than m otion pictures grossed m ore than twice as much in M aryland as in any other part of the District, and M aryland receipts in this category represented 3 7 % of the D istrict total. C om mercial sports accounted for much o f the difference with $31 million of total revenues in M aryland com pared to $5.5 million in N orth Carolina, $4.0 million in V irginia, $3.8 m illion in the District of Columbia, and $2.2 million in South Carolina. Sports were relatively m ore important in W est V irginia, h ow produced $256 million o f revenues of which more ever, where receipts totaled $14.2 million, 4 1 % o f all than half were classified either business or personal. amusement revenues other than for m otion pictures. In South Carolina, 1963 receipts for services totaled M aryland service $254 million with personal services heading the list boost from coin-operated amusement devices, which in a pattern quite similar to N orth Carolina’s. Services Strong in W ashington In the D istrict o f Columbia in 1963, service establishments had re ceipts of $432 million, with three quarters of the total revenues received a substantial produced $15.4 million in 1963, 4 2 % o f the District total for this category. In the Fifth District, receipts of service enter prises m ore than doubled between 1954 and 1963 derived from three principal ca tegories: business services, hotels, and personal services. Personal in com pared to a rise of less than nine tenths in the com e statistics perhaps best reflect the greater rela 4 3 % in the District com pared to 3 7 % nationally. 12 nation as a whole, and em ploym ent in services rose
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