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Atlanta, Georgia, May 31, 1949

Volume XXXIV

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Number 5

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the last seven or eight years, and especially during
If, for example, a thousand units of goods were offered for
the years since the end of the war, most people have sale and there were a thousand dollars with which to buy
become acutely money conscious. They have had the discon­
them, a unit of goods would tend to sell, on the average, for
certing experience of seeing the buying power of their money a dollar. On the other hand, if ten thousand dollars were
melt rapidly away as prices rose. Periodic and substantial available, assuming no change in the velocity of circulation,
increases in money income did not always enable one to get the average price would be ten dollars. Or, again, if there
ahead for prices often rose more than income. This was the were only five hundred dollars available and no change in
period of inflation.
velocity, the price would be fifty cents. Average prices, there­
Now the situation has changed. Prices are coming down. fore, and, consequently, the value of money, depend primarily
The decline has not been very large as yet, nor has it come on two quantities — how much we produce, and how much
about precipitately but the trend is unmistakable. When prices money we have to spend. Money could be made more stable
in general are falling, we have the pleasant experience of in value if one or the other or both of these quantities could
be brought under control.
seeing our dollars increase in buying power.
This variability in the purchasing power of money is to
Practically, the volume of goods and services cannot be
some extent an unavoidable characteristic of the function­ directly controlled. How much we produce is determined by
ing of our type of economic system. Moderate and gradual the collective reactions of businessmen to all the facts in their
changes in the purchasing power of money should therefore present situation as well as to their anticipations of what
be no cause for alarm. Extreme fluctuations in the value of conditions will be in the future. This will be the case as long
the dollar, however, are another matter. They not only create as we prize freedom—the freedom of everyone to engage in
serious problems for individuals in their personal finances, any legitimate occupation or business and to produce and to
but also make all business calculations uncertain and ex­ try to sell whatever he will. The only alternative would be the
tremely hazardous. Even though perfect stability in the value adoption of some kind of totalitarian regime that would plan,
of money is unattainable and perhaps not desirable, a reason­ organize, and coerce the production of whatever kinds and
able degree of stability is essential to the rational conduct of quantities of goods the regime decided upon. This is not the
economic affairs. The task of achieving such stability is one American way, however, and there is little likelihood that we
of the most important to which any society using money can shall ever so far lose our taste for freedom as to adopt it.
address itself.
There remains, then, the possibility of making the dollar
more stable in value by regulating the quantity of money.
W hy Dollars Change In V alu e
This is the only feasible way in our kind of society.
If anything is to be done to make the dollar more stable in
W ho Should Regulate the Supply
value, we must first of all have some idea of what makes it
of M oney?
change in value. Actually, a change in the value of money is
the result of all the economic activity that goes on in the If we believe that the best interest of all businessmen and
production, distribution, and financing of the goods and serv­ consumers requires some check on extreme changes in the
ices that we buy and sell. In overly simplified terms, however, value of money, and if we realize at the same time that in a
we can think of a change in the value of money as coming free society this can be accomplished only by regulating the
about because of a change in the relation between the quantity quantity of money, the question as to who should do the
of goods and services that have been produced and offered regulating becomes very important.
for sale and the quantity of money available for their pur­
Because every member of society has such a vital interest
chase, together with the rapidity with which dollars are spent.
An increase in the rapidity with which money is spent (its in the value of money, society itself must do the regulating.
velocity of circulation) has the same effect as an increase in In practice this means that the government, which represents
the quantity of money itself, and a decrease has the same and acts for society as a whole, must perform this function.
effect as a decrease in the quantity of money. The velocity of Indeed, wherever money has appeared historically, the power
circulation rests upon the buying habits of people and in to control its supply has always been one of the most im­
normal periods is subject to little change. For simplicity of portant powers reserved by the government to itself, what­
exposition it may be left out of account.
ever the form of government might be.
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It is true that this sovereign power has often been abused.
Kings, princes, and other rulers have frequently tampered
with the money of their respective realms for their own per­
sonal or political advantage. They have clipped it; abraded
it; debased it, and otherwise impaired its value to the detri­
ment of all legitimate business interests of the time. Wherever
power exists there is always the possibility that it may
be abused.
In spite of the fact that governments have often abused
their power to control the money supply, no one has ever
seriously proposed lodging this power in any other hands.
The only alternative would be to give it to private persons
who would be as subject to the temptation to abuse it for
their own ends as is government. The control of money, there­
fore, remains an attribute of sovereignty that a government
may itself exercise or that it may delegate to some agency
created for this purpose. In our own country the Federal
Reserve System has been created by act of Congress and has
been given certain powers by which it can affect the supply
of money, and hence affect its value. That is why the Federal
Reserve System is sometimes called a “monetary authority.”
The System, of course, renders various important services to
banks, to the Government, and to business. The ability to
affect the money supply, however, remains its most important
function. We shall see a little later just how the System per­
forms this monetary function.
W hat Constitutes the Money Supply?

Reach in your pocket and look at the kinds of money you
find there. You will find an assortment of various coins and,
if you are lucky, some paper money in various denomina­
tions. At the end of last year there was 28.2 billion dollars
in circulation in the United States. Of this, only a billion and
a half was in the form of coins and nearly 27 billion was in
the form of paper money. All this money is constantly being
passed around in the buying and selling of goods and services
and so is affecting the level of prices.
But this money you carry is not the only money that affects
prices. There is also the money you have in the bank, against
which you write your checks. This kind of money is called
“demand deposits.” At the end of last December there was
nearly 86 billion dollars of private demand deposits in the
banks of the United States as well as a little over two billion
dollars of Government deposits. These demand deposits are
also part of the money supply that affects the level of prices
and, what is the same thing, the value of the dollar.
“Money in the bank” also includes so-called “time depos­
its.” This is money that cannot be withdrawn by check on
demand but only after due notice has been given. Last Decem­
ber, banks held over 54 billion dollars of time deposits.
To all this should also be added what is called “consumer
credit.” When you buy something in a store and tell the clerk
to charge it, you are using consumer credit dollars; when you
buy a refrigerator or some other expensive appliance on the
instalment plan, you are using consumer credit dollars. Simi­
larly, when you get a loan from your bank to buy a new car,
you are again using consumer credit dollars. Last December
there was nearly 16 billion dollars of consumer credit out­
standing in this country.
These are not the only things that enter into the total sup­
ply of money or purchasing power that affects prices, but
they are the most important. It is the sum of all of them that



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affects the general level of prices. That sum has increased
enormously since 1940. The amount of coin and paper money
has grown by nearly 20 billion dollars since then; demand
deposits have grown by over 50 billion dollars; time deposits
by nearly 30 billion; and consumer credit has grown by
nearly seven billion. Since it was physically impossible to
increase the production of goods and services to anything
like the extent that the money supply was increased, the only
result that could be expected was a spectacular rise in the
general level of prices or, what is the same thing, a drastic
shrinkage in the value of the dollar.
W here Did the M oney Come From ?

When one stops to think of the great increase in the supply
of money that has occurred in recent years, it is quite natural
to wonder where it all came from. In one sense it can be said
that this money did not come from anywhere at all. It is in
large part new money created by the banking system for the
purpose of financing the war.
In order to understand just how the banking system can
create money we must first of all remember that banks exist
for the purpose of making loans to businessmen, to the Gov­
ernment, and to individuals and that deposits arise out of a
bank’s lending activity. Most people think that deposits rep­
resent money put into the bank by depositors. This, howpver,
is only partially true and then only with qualifications. Think,
for instance, of a businessman who wants to borrow a thou­
sand dollars to pay for a shipment of goods. He goes to his
bank and asks for a loan. If it is granted, he gives the bank
his promissory note and the bank agrees to give him the
thousand dollars. For simplicity we may here ignore interest
or discount. If the borrower wants it that way, he can take
his thousand dollars in the form of paper money, most of
which will be Federal Reserve notes. These notes make up
the overwhelming part of our paper money, and they repre­
sent bank-created money.
On the other hand, the businessman may not want the cash
but would rather have a checking account to draw against.
In that case the bank gives him a bank book that says he has
a thousand dollars on deposit with the bank. The thousanddollar loan appears on the books of the bank as an increase
of a thousand dollars in its demand deposits. The loan has
created the deposit. If the borrower now writes a check for a
thousand dollars against his account and gives the check to
a wholesaler, the wholesaler will deposit it in his bank where
it serves to increase deposits. What has happened is that the
deposit created by the original loan has moved from one bank
to another but it is still in existence. Taking all banks to­
gether, deposits are a thousand dollars greater than before,
because of the loan. Banks all over the country are con­
tinually making loans and so creating deposits which are
then shifted about from bank to bank by means of check
payments.
This business of creating the money that is loaned seems
to be a pleasant occupation and one wonders if there are any
limits to a bank’s ability to do this. There certainly are
such limits. When banking first started, it was discovered
that a bank did not need to keep on hand all the money that
had been deposited with it. It could keep just enough to meet
current withdrawals and could lend the rest. The amount
retained was called its “reserve” and was kept for the pur­
pose of meeting demands by depositors. Sometimes banks

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were careless and kept such a small reserve that in times of
emergency they could not meet their depositors’ demands.
It became necessary for the Government to prescribe the
amount of reserves that must be kept instead of leaving this
to the discretion of the banks themselves. When reserves are
fixed at some stated percentage of deposits, and when depos­
its are created by lending, it is easy to see that the power to
fix reserve requirements implies the power to control the
volume of bank loans. This power is one device that has been
given to the Federal Reserve System to enable it to affect the
supply of money and credit.
For a bank that is a member of the Federal Reserve System
(all national banks must be members, and state-chartered
banks may be members if they satisfy certain requirements)
the amount of the reserve is prescribed by the Board of Gov­
ernors of the Federal Reserve System within limitations fixed
by law. In New York and Chicago, member banks must at
present keep a reserve amounting to 24 percent of their de­
mand deposits; in 56 other large cities, designated “reserve
cities,” the ratio is 21 percent; in all other places the re­
quired reserve ratio is 15 percent. Banks that are not members
of the Federal Reserve System must, of course, abide by state
laws with respect to the amount of reserves they keep. In the
case of member banks, reserves must be kept in the form of
deposit accounts with their respective Federal Reserve Banks.
The amount of money that banks can create through the
extension of credit is therefore limited by the amount of
reserves they hold. If, for example, the required reserve ratio
were 20 percent, a bank could carry on its books demand
deposits to an amount five times as much as its own reserve
account in the Federal Reserve Bank. The total volume of
demand deposits in the System as a whole could be five times
the amount held as required reserves.
A bank, of course, is free to carry more than the legally
required minimum reserve. When it has more money in its
reserve account than is required, it is said to have “excess
reserves.” These excess reserves can be used to acquire cur­
rency (Federal Reserve notes) from the Federal Reserve Bank
in case cash is required; they can be used to expand the
bank’s loans still further, in which case the excess melts away
and becomes part of the required reserve to the extent needed
to cover the new deposits arising from the loans; or the
excess reserves can be used to settle balances due to other
banks.
The existence of a required ratio of reserves to demand
deposits does not, however, prevent a bank from accommo­
dating its customers. It can do so temporarily by letting its
reserve ratio fall below the legal minimum and paying the
penalty that will be charged against it. In order to avoid such
a penalty the bank will usually sell some of its assets — per­
haps Government securities — in order to raise the money
needed to restore its reserve position at least to the legal
minimum. Another way in which a bank can acquire addi­
tional reserves is to borrow from the Federal Reserve Bank.
The Federal Reserve Bank, of course, charges a certain rate
of interest on such loans, this rate being known as the “redis­
count rate.” The rediscount rate, like the reserve ratio, is
prescribed by the Federal Reserve authorities. The power to
raise or lower the rediscount rate and the power to vary the
reserve requirement within certain limits are two tools that
the Federal Reserve System possesses by which member
banks’ reserve position may be affected and thus their ability



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to extend credit to their customers. Since every dollar in
bank reserves can be multiplied approximately fivefold in the
form of bank credit, it is obvious that only a small change
in reserves is needed to produce a large change in the volume
of bank credit. Bank reserves may also be increased by an
inflow of gold and be decreased by an outflow, but this
source of reserves lies outside the sphere of control by the
Federal Reserve System.
How the System Creates Bank Reserves

All of these methods of adjusting a bank’s reserve position
except the last, however, have one thing in common — they
are taken at the initiative of the bank itself.
There are times when an expansion or contraction of bank
credit seems to be required for the good of the country but
when banks acting individually are either unable to take the
initiative or do not feel justified in doing so. Banks, for
example, may hold such large excess reserves that an unde­
sirable expansion of bank credit is threatened, an expansion
that would send the general price level sky-rocketing. Con­
versely, bank reserves may at times be so near the legal
minimum that banks are unable to accommodate business
with badly needed loans.
If a monetary authority is to regulate the supply of money
in accordance with the needs of business and the best interest
of the country, it should have the power to alter the reserve
position of banks at its own initiative. It should have the
power, in other words, to take reserves away from banks
when the situation seems to demand that kind of action, and
it should also be able to provide the banking system with
additional reserves when that seems to be the appropri­
ate policy.
In this country the power to provide banks with additional
reserves or to take reserves away from them is vested in the
Federal Reserve System under its statutory authority to en­
gage in “open market” operations as well as by varying
reserve requirements. By “open market” operations is meant
the buying and selling of approved securities, chiefly United
States Government obligations, from or to dealers and other
holders. These operations are another and a most important
source of reserve funds for the banking system.
Suppose that the Federal Reserve authorities have come to
the conclusion that the economic situation demands an expan­
sion of bank credit, and, to make this possible, banks must
be provided with additional reserves. How do they go about
providing these additional reserve funds through open market
operations? They do so by purchasing Government securities
from dealers. When a dealer receives a check in payment
for the securities he has sold to the System, he proceeds to
deposit it in some member bank. The member bank, in turn,
passes the check on to a Federal Reserve Bank for credit,
and the amount of the check is added to the member bank’s
reserve account with the Federal Reserve Bank. Although the
additional reserves first appear only in the accounts of a
comparatively few member banks, the flow of trade soon
brings about their redistribution throughout the whole bank­
ing system.
If the policy had been to deprive banks of reserves, the
Federal Reserve authorities would have sold securities instead
of buying them. The purchaser of the securities from the Fed­
eral Reserve would pay for them by drawing a check against
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Bank would in effect deduct the amount of this check from
that member bank’s reserve account, and bank reserves would
accordingly be reduced by the amount of the sale. Federal
Reserve purchases of securities in the open market thus create
bank reserves, whereas Federal Reserve sales of securities in
the open market reduce bank reserves.
W here Do the Federal Reserve Banks G et the M oney?

One may wonder at this point where the Federal Reserve
Banks get the money with which to purchase securities in the
open market. Are they perchance speculating in the securities
market with the reserve funds of their member banks? The
answer to the second question is No; and the answer to the
first question is that the Federal Reserve Banks are empow­
ered by law to create the purchasing power with which to
buy securities.
The creation of this purchasing power, which is called
“Federal Reserve credit,” is quite similar to the creation of
bank credit by commercial banks. Like member banks, Fed­
eral Reserve Banks are required by law to maintain a speci­
fied reserve against their demand deposits (which are the
reserve accounts of member banks) and against their Federal
Reserve notes in circulation. The present requirement is 25
percent against combined deposits and note circulation. In
other words, just as the banking system can balloon each
dollar of bank reserves into five or six dollars of bank credit,
so the Federal Reserve Banks can balloon each dollar of
their reserves into four dollars of Federal Reserve credit
which ultimately serves as reserves for member banks. Since
the Federal Reserve Banks ordinarily have reserves greatly
in excess of the legal minimum, they have considerable leeway
in the creation of Federal Reserve credit for the purchase of
securities in the open market. It is this credit, newly created
on the basis of their own reserves, that is used by the Federal
Reserve Banks for the purchase of securities in the open
market in order to provide the banking system with addi­
tional reserves.
This ability of the Federal Reserve Banks to create reserve
funds for the banks or to deprive them of such funds is the
most important way in which the Federal Reserve System can
affect the supply of money and, hence, the general price
level. The power to prescribe, within limits, the reserve ratio
for member banks and the power to fix the rate of interest
(rediscount rate) that the Federal Reserve Banks must charge
to member banks when they borrow from the Federals mere­
ly serve to buttress whatever general monetary policy is em­
bodied in the System’s open market operations.
Although open market operations are carried on for the
purpose of encouraging or discouraging the expansion of
bank credit by altering the banks’ reserve position, it must
not be thought that this result comes about immediately and
mechanically. Open market purchases do not suddenly flush
the banks with additional reserves and encourage them to
embark on a wild lending spree. Nor do open market sales
suddenly impoverish the banks’ reserve accounts to such an
extent that they must call loans and so embarrass their
customers.
It must be remembered that the impact of open market
operations falls first on only a comparatively few large mem­
ber banks. When such a bank finds its reserve position im­
paired through a reduction in reserves occasioned by open
market operations or other causes, its first reaction is not



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to contract its loans. It is much more likely to borrow from
the Federal Reserve Bank in order to restore its reserve posi­
tion, that is, to go into debt to the Federal Reserve Bank. On
the other hand, when open market operations put it into pos­
session of additional reserves, its first reaction will be to pay
off its indebtedness to the Federal Reserve Bank. Only then
will it feel somewhat freer to expand its loans. From these
relatively few banks the flow of trade communicates the
tightening or easing of credit throughout the whole banking
system. Open market operations, therefore, do not represent
a sudden jamming on or releasing of the brakes but rather a
gentle pressure in one direction or another.
Open M arket M achinery

Although it is the credit of the several Federal Reserve Banks
that is involved in open market operations, these banks do
not engage in buying and selling securities on their own
initiative. Since open market operations are undertaken in
the light of the credit needs of the country as a whole, it
would be unwise for each of the twelve Federal Reserve
Banks to pursue its own individual course in this matter. If
this method of affecting the money supply is to be used
effectively, it must be guided by only one policy, not twelve
different policies.
The policy-making organ for the System’s open market
operations is known as the Federal Open Market Committee.
It consists of the seven members of the Board of Governors
plus the presidents of five Federal Reserve Banks. This com­
mittee meets at least four times a year to discuss policy mat­
ters. Between meetings its Executive Committee acts in the
name of the whole Open Market Committee in authorizing the
purchase or sale of securities.
The actual buying and selling is done by the Federal Re­
serve Bank of New York, which acts as the agent for all the
Federal Reserve Banks. If, under a market authorization
from the Executive Committee, the Federal Reserve Bank of
New York buys, say, a million dollars worth of securities,
this purchase is prorated among all the Federal Reserve
Banks in accordance with an agreed formula, due account
being taken of each Bank’s reserve position. A similar pro­
cedure is followed in the case of the sale of securities. Each
Federal Reserve Bank is notified by telegraph that it has
purchased or sold such-and-such securities and its account
with the Interdistrict Settlement Fund is being so debited or
credited as the case may be. The Interdistrict Settlement Fund
is a pool of the gold and gold certificate reserves of all Fed­
eral Reserve Banks. It is quite like the pool of reserves of
member banks in their accounts with the Federal Reserve
Banks. Through this machinery, then, the Federal Reserve
Banks pool their power to create reserve credit and so act
as a unit in carrying out a uniform open market policy.
Making Open M arket Policy

It plight be thought that the making of open market policy
is an easy matter — that the Open Market Committee needs
only to sit down and talk over the general situation and then
decide that prices are getting out of hand and that the money
supply should be curtailed by selling securities; or that busi­
ness needs a fillip in the form of easier credit and that securi­
ties should be purchased. It is not as easy as that. Indeed,
the formulation of wise open market policy is a problem of
almost incredible complexity.

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In the first place, all segments of the economy do not dollars worth is held by the commercial banks of the country.
participate equally in any rise or fall in the general price A drastic deflationary policy of selling Government securities
level. It is very difficult to generalize about the credit needs would, of course, have driven down the value of Government
of the economy as a whole. To check an undesirable expan­ bonds while depriving banks of reserves. If, in order to main­
sion of credit in one place by such general methods may tain their reserve position, banks had been forced to sell
result in aggravating the problems of some other part of the their Government securities on a rapidly falling market, they
would have sustained serious losses.
economy.
The Federal Open Market Committee, therefore, has a most
There are still other difficulties. The Open Market Com­
mittee, of course, tries to base its policy on the most up-to- difficult and responsible job. It must weigh a great many
date facts available. For the purpose of collecting all perti­ factors in arriving at its policy decisions. It must consider
nent economic information, the Board of Governors maintains the effects of its action not only on the price level and on the
a large staff of professional economists and statisticians and economy as a whole, but must also take account of the effects
each Federal Reserve Bank has a similar but smaller staff. it may have on the Government’s ability to finance itself and
But in spite of everything that can be done, figures have a on the investments of the commercial banks in Govern­
way of always being old when they are finally assembled in ment securities.
usable form. No one can ever know with complete accuracy
Conclusion
just what the current situation is. The Open Market Commit­ It can now be seen that the Federal Reserve System affects
tee, however, must act not only for the immediate present vitally, if indirectly, the interests of everyone through its
but also for the future. It is in the position of having to take power to expand or contract the volume of bank-created
action today on the basis of yesterday’s figures for the sake money (credit) and hence to affect the value of money. It
of influencing what it thinks the situation will be tomorrow. does this by varying reserve requirements for member banks
This is a most difficult position to be in and no one should within limits fixed by law, by raising or lowering the redis­
think that the System authorities take their responsibili­ count rate, and by buying and selling securities in the
ties lightly.
open market.
Bankers and businessmen sometimes complain when they
Its underlying purposes are to bring about a reasonable
are asked by the Federal Reserve Banks to furnish them with stability in the value of money and thus moderate the vio­
certain information. This is only natural. What should be lence of business booms and busts. No one will contend that
realized, however, is that the System is bound to take some the Federal Reserve System has been as successful in this task
kind of action, and the more complete and up-to-date the as we would like. That it has been partially successful is
information upon which it acts the greater the likelihood that acknowledged in a “task force” report prepared for the
its action will be wise.
Hoover Commission on Organization of the Executive Branch
This is still not the end of the story. Throughout this of the Government where it is said that “beyond doubt, the
discussion we have spoken as though open market policy existence of the Federal Reserve mechanism has served to
and other corollary System policies are taken only with an mitigate the intensity of business and financial fluctuations
eye to their effect on the general price level. This is not true, in the economy, and to expedite the orderly, efficient handling
for other considerations enter into System policy-making. In of depression and war period Government finance.” Given
extraordinary situations, like that which has prevailed since more time and experience, it is to be hoped that the nation
the end of the war, these other considerations can place the may learn to use the machinery of the Fedefal Reserve Sys­
System on the horns of a dilemma. During the postwar infla­ tem more effectively in the future than it has in the past.
tion, for example, it might be thought that proper policy
E a r l e L. R a u b e r
would have been for the System to sell Government securities
heavily in the open market and thus check the expansion of
bank credit that was playing an important part in the infla­
tion of prices. If the System had deluged the market with
R e c o n n a is s a n c e
Government securities, however, their prices would have
S ix th D is tr ic t S ta tis tic s f o r A p ril 1 9 4 9 c o m p a r e d w ith A p ril 1 9 48
fallen sharply and interest rates would have risen. A rise in
P E R C E N T D E C R E A S E 'W ' P E R C E N T IN C R E A SE
interest rates, of course, would have helped somewhat to
check the inflation. Why, then, was this policy not pursued to
Department l l i e Sales
the limit ? There are at least two good reasons why this could
DepartaniilllStore Stocks
not be done.
The first of these reasons is that a rise in interest rates
would have increased the cost of carrying the national debt.
Gasoline
As the Treasury would come to refund maturing issues of
lllilllllllllliMi'iMnsumption
securities with new issues, it would have to offer higher and
higher rates of interest to attract investors. After all, the
Bank t>ebits
Federal Reserve System in the nature of things cannot pursue
Member Hank Loans
a policy that would prove embarrassing to the Government
Member Bax||c Investments
that created it.
A second reason for not adopting an all-out deflationary
Demand DepJHits Adjusted
policy lay in the effects that such a policy might have on
40
30
20
10
0
10
20
30
40
banks and other financial institutions. Out of over 250 billion
dollars of interest-bearing national debt, about 63 billion



mm *
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D is tr ic t

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Trends in Consumer Spending

the
season
of the
more
significant comparisons
be made
this
With year’sEaster buying can sales.out betweenway, year’s
and last
department store
Throughout the Sixth
District, the dollar value of sales for the first four months of
1949 was 3 percent less than it was during the correspond­
ing period of 1948.
Despite declines in dollar sales, the physical volume of
sales this year may have equaled or exceeded that of last
year because of the magnitude of price declines in some de­
partments. Although retail clothing prices throughout the
Sixth District, according to the Consumers Price Index, de­
clined only one percent between March 1948 and March this
year, prices of some textile items declined much more than
this. The Cotton Textile Institute, for example, finds that
retail prices of 15 mass-produced and mass-consumed cotton
textile apparel and household items averaged 19 percent
lower this April than in April 1948.
Although department stores receive only a small propor­
tion of the consumers’ dollar, their sales, as a rule, reflect
general trends in consumer buying because of the wide
variety of merchandise they sell. All types of consumer
spending, however, are not always measured with accuracy.
Last year, for example, consumers’ purchases at automotive
stores were almost one-third more than at department stores
and at food stores, they were about three times as much as at
department stores.
DEMAND DEPOSITS OF INDIVIDUALS, PARTNERSHIPS, AND
CORPORATIONS AT ALL SIXTH DISTRICT BANKS—1943-49

(In M s of D
illion
ollars)

F e d e r a l

R e s e r v e

AUTOMOBILE SALES UP. Reports from selected areas of the
District, according to the Department of Commerce, show
that first-quarter sales by the District’s motor vehicle dealers
exceeded those of the first quarter last year by more than 10
percent, and that food store sales were approximately the
same. Nevertheless, rather sharp declines in sales at other
retail stores, especially durable goods stores, brought total




o f

A t l a n t a

f o r

M

a y

1 9 4 9

C o n d itio n s

retail sales below last year’s level by an estimated 3 percent.
Available evidence indicates that these first-quarter trends
continued into April and May.
Although department store sales were 7 percent greater
in April this year than in April last year, furniture stores
reporting to this bank sold 18 percent less, and household
appliance stores 39 percent less. Jewelry store sales were
down 8 percent.
Shifts in Deposit Ow nership
u s in e s s

and personal demand deposits in all Sixth Dis­

trict commercial banks totaled
at the
Bof January this year, according$4,284,600,000annual end
to the Bank’s
survey.
This total was 125 million dollars less than it was on the
corresponding date in 1948.
Lower balances in personal deposit accounts and in the
accounts of nonprofit associations accounted for the decline
in the total deposits at the District’s banks. Personal deposit
holdings declined 140 million dollars and those of nonprofit
ESTIM A TED D EM A N D D E P O S IT S O W N E D BY IN D IV ID U A L S ,
P A R T N E R SH IP S , A N D C O R P O R A T IO N S IN ALL C O M M E R C IA L
BANKS IN TH E S IX T H FE D E R A L R ESER V E D IS T R IC T
(I n M illio n s o i D o lla r s )
J a n u a ry
1949

T y p e of O w n e rsh ip

M a n u f a c tu r in g a n d m i n i n g ___
P u b lic u ti lit ie s , tr a n s p o r t a ti o n
a n d c o m m u n ic a tio n s ................
R e ta il a n d w h o le s a l e t r a d e . . .
A ll o th e r n o n f in a n c ia l * ...............
T o ta l n o n f in a n c ia l..................
I n s u r a n c e c o m p a n i e s .....................
T ru s t fu n d s o f b a n k s .....................
A ll o th e r fin a n c ia l* * .......................
T o ta l f in a n c ia l............................
TO TAL B U S IN E S S .......................
N o n p ro fit o r g a n i z a ti o n s ...............
P erso n al
F a r m e r s ..............................................
O t h e r s ...................................................
F o r e i g n ......................................................
TO TA L IN D IV ID U A L S ,
P A R T N E R SH IP S , A N D
C O R P O R A T IO N S ....................
T y p e of O w n e rsh ip

Personal deposits at the end of January this year were 7 percent less than
they were on the corresponding date last year, but business deposits in­
creased one percent. Throughout the nation, personal deposits were down
7 percent and business deposits one percent.

B a n k

D o lla r
C hange
F ro m
Jan . 1948

509

+

258
865
262

+ 23
— 19
+ 3

1
,1

81
59
249

389

14

+

6.0
20.2
6.1
4 4 .2

1 .9
1 .4
5 .8

+ 2
+ 1
—1
1
—6

— 26
— 115

4 ,2 8 5

1 1 .9

3

+ 3
— 9
+ 4

+ 27
— 14

383
1 ,5 0 7
4

P ercen t
D is tr ib u ­
tio n
Jan . 1948

+ 1
0
—2
+ 1
+ 1

+2
1
+ 2
—6
+1
0
+ 6

2 ,2 8 3
1 08

P ercen t
C hange
Jan . 1948
J a n . 1 9 49

9.1

— 12 5

—

+ 2

5 3 .3
2 .5
8 .9
3 5 .2

7

.1

100.0

J u ly
1943

F eb.
1944

Jan.
1945

Jan.
1946

Feb.
1947

Jan.
1948

Jan.
1949

408

365

380

429

475

494

509

208

246

226

235

258

712

878

855

884

865

222
1 ,5 2 3
53
37
139
229
1 ,7 5 2
. 74
1 ,5 6 1
353
1 ,2 0 8
2

245
1 ,7 9 8
74
41
199
314
2 ,1 1 2
106
1 ,9 1 8
385
1 ,5 3 3
2

255
1,8 1 1
72
51
222
345
2 ,1 5 6
115
2 ,0 4 8
400
1 ,6 4 8
2

259
1 ,8 7 2
79
65
239
383
2 ,2 5 5
1 22
2 ,0 3 1
409
1 ,6 2 2
2

262
1 ,8 9 4
81
59
249
389
2 ,2 8 3
108
1 ,8 9 0
383
1 ,5 0 7
4

3 ,3 8 9

4 ,1 3 8

4 ,3 2 1

4 ,4 1 0

4 ,2 8 5

M a n u f a c tu r in g
a n d m i n in g .................................
P u b lic u tilitie s ,
tr a n s p o r t a ti o n , a n d
c o m m u n ic a tio n s .....................
R e ta il a n d w hole-*
s a le t r a d e ....................................
A ll o th e r
n o n f in a n c ia l* ............................
T o ta l n o n f in a n c ia l............
I n s u r a n c e c o m p a n ie s .............
T ru s t f u n d s of b a n k s ...............
A ll o th e r f in a n c ia l* * ................
T o ta l f in a n c ia l.....................
TO TA L B U S IN E S S ...............
N o n p ro fit o r g a n i z a ti o n s . . . .
P e r s o n a l ...........................................

181

17 4

480

575

200
1 ,2 6 9
58
30
101
189
1 ,4 5 8
67
937

210
1 ,3 2 4
65
53
93
211
1 ,5 3 5
77
1 ,1 9 2

F o r e i g n ..............................................
TO TA L IN D IV ID U A L S ,
P A R T N E R SH IP S , AND
C O R P O R A T IO N S .............

2 ,4 6 2

2 ,8 0 4

‘ I n c l u d in g c o n s tr u c tio n - c o n t r a c ti n g e s ta b lis h m e n ts , t h e a t e r s , a n d h o te ls ,
l a u n d r ie s , g a r a g e s , r e p a i r s h o p s , a n d o th e r s e r v ic e e s ta b lis h m e n ts .
‘ ‘ I n c l u d in g in v e s tm e n t, lo a n , a n d i n s u r a n c e a g e n c ie s ; r e a l - e s t a t e b u s i ­
n e s s e s , e tc .

M o n t h ly

R e v ie w

o f

t h e

F e d e r a l

R e s e r v e

B a n k

o f

A t l a n ta

associations 14 million dollars. Farmers’ personal deposits
declined 26 million, whereas other personal accounts declined
115 million. On the other hand, business deposits increased
33 million dollars during the same period.
b u s in e s s DEPOSITS h ig h e r . Deposits of every type of busi­
ness grew during the period, except those of trade concerns
which fell 2.2 percent. Moreover, the increase in District
business deposits was 1.5 percent in contrast with the de­
cline of 1.1 percent that took place throughout the nation.
Deposits of manufacturing and mining concerns were 2.8
percent greater; those of public utilities, 9.9 percent higher;
and those of insurance companies grew 2.5 percent.
The decline in personal deposits was not unexpected. A
drop, although small, had occurred between 1947 and 1948.
Consumer expenditures, then as now, had been concentrated
to an unusual degree upon the purchase of automobiles, ap­
pliances, and other durable goods, and farmers had also
made heavy purchases of farm equipment. These purchases
resulted to some extent in a transfer of funds from the Dis­
trict to areas specializing in the manufacture of such products.
l a r g e DEPOSIT ACCOUNTS EXPANDED. Corporate businesses
fared better than unincorporated businesses between the 1948
and the 1949 survey dates. Total corporate business deposits
in the District were up 3.4 percent, but noncorporate deposits
were down 2.2 percent. Even in retail trade, where total de­
posits had declined, corporate deposits dropped only 1.6 per­
cent while noncorporate deposits dropped 2.8 percent. In
every other major category of business, the rate of increase
in corporate deposits was greater than the rate of increase in
noncorporate deposits. Both corporate and noncorporate busi­
ness deposit accounts of less than $25,000 declined between
the survey dates. The rate of decline in noncorporate ac­
counts, however, exceeded that of corporate deposits. Ac­
counts of $25,000 and over, on the other hand, increased.
RECENT d e p o s it CHANGES. By the end of April, privately held
demand deposits at District member banks were approxi­
mately the same as they were at the end of January. Demand
deposits adjusted had increased 37 million dollars in Feb­
ruary, but this increase was almost entirely offset by a
decline of 27 million dollars in March and one of 9 million
dollars in April. Demand deposits adjusted at all member
banks throughout the country were 3.8 billion dollars less
at the end of March than at the end of January.
A greater decline in demand deposits adjusted occurred at
the District’s member banks during the first four months of
last year, however, so that the total at the end of April this
year was 45 million dollars greater than on the corresponding
date in 1948. Demand deposits adjusted were greater this
year at both the banks in the reserve cities in Atlanta, Bir­
mingham, Jacksonville, Nashville, and New Orleans, and at
the banks outside these cities.
Decrease in Member Bank Loans

In April for the first time in several years, loans outstanding
at the District’s reserve city banks were less than on the
corresponding date of the preceding year. This condition was
the result of a month-to-month decline in total loans at these
banks beginning in December. Between the first of the year
and the end of April, the decline amounted to 45 million
dollars. Generally, there is a seasonal decline in loans at
these banks during the first part of the year but the decline
this year was almost three times as great as that taking
place during the corresponding period last year.



f o r

M

a y

47

1 9 4 9

S ix th D is tr ic t S ta tistic s
IN STALM ENT C A SH LO A N S

L e n d ers

F e d e r a l c r e d it u n i o n s .............
S ta te c r e d it u n i o n s .....................
I n d u s tr ia l b a n k i n g c o m ­
p a n i e s ..............................................
In d u s tr ia l lo a n c o m p a n ie s . .
S m all lo a n c o m p a n ie s .............
C o m m e rc ia l b a n k s .....................

43

22
10

V o lu m e

O u ts ta n d i n g s

P e rc e n t C h a n g e
A p ril 1 9 49 fro m

P ercen t C h an g e
A p ril 1 9 4 9 fro m

M a rc h
1 9 49

A p ril
1 9 48

M a rc h
1949

—
+

N o . of
L e n d ers
R e p o r t­
in g

+
+

10
10

+
+

5

+ 31
+ 26

— 4
+ 11
+ 25
+ 16

3
3

— 4
+ io
+ 7
— 2

17
41
33

A p ril
1948

+
+
+
+

2
1

o

+ 7
+ 5
+ 9
+ 31

1

3

RETAIL JEW ELRY S T O R E O PE R A T IO N S
N um ber
of
S to r e s
R e p o r tin g

Ite m

M a rc h 1 9 4 9

36.
35
35
35
35

—2
+ 6
— 3
—1,
0

T o ta l s a l e s ........................................................
C a s h s a l e s ........................................................
C r e d it s a l e s ......................................................
A c c o u n ts r e c e iv a b l e , e n d of m o n th
C o lle c tio n s d u r i n g m o n t h .....................

P ercen t C h an g e
A p ril 1 9 4 9 fro m

+

A p r il 1 9 48

— 8
— 19
—2
+ 15
—0

3

W H O LESA LE SA L ES AND IN V EN TO R IES*
SALES
IN V E N T O R IE S
P ercen t C h an g e
P erc e n t C h an g e
N o . of
N o . of
Ite m
A p ril 19 49 fro m
F irm s
F irm s A p ril 3 0 , 1 9 4 9 fro m
R e p o rt­
M a r.
A p r.
R e p o rt­ M a r. 31
A p r. 3 0
in g
1949
1 9 48
in g
1 9 49
1 9 48
A u to m o tiv e s u p p l i e s .
5
— 28
+ 15
E le c tric a l g r o u p
F u ll l i n e s .......................
__ 14
3
— 24
W ir in g s u p p l i e s ___
3
3
— 2
— 'i
+ 9
— 16
A p p lia n c e s ..................
6
3
— 12
— 25
+ 2
0
G e n e ra l h a r d w a r e .. .
9
5
— 8
— 7
+ 15
— 14
I n d u s tr ia l h a r d w a r e . .
4
3
— 35
— 2
— 24
+ 13
J e w e l r y .................................
3
— 5
— 27
M ch . e q p t . &s u p p l i e s .
3
— 7
— 28
P lu m b in g a n d h e a t ­
in g s u p p l i e s ................
4
— 10
4- 21
C o n f e c tio n e r y ..................
4
— 8
+ 2
D ru g s a n d s u n d r ie s ..
7
— 11
— 2
D ry g o o d s ..........................
9
17
— 26
— 11
— 19
G r o c e r ie s
F u ll l i n e s .......................
23
— 14
9
— 20
— 5
S p e c ia lty l i n e s ..........
6
— 11
3
— 9
— 5
+ 5
S h o e s a n d o th e r
f o o tw e a r ..........................
__ 35
3
— 31
T o b a c c o p r o d u c t s ___
9
4
— 14
*6
— 6
M is c e l la n e o u s ................
12
— 9
— 13
13
— 1
T o t a l......................................
121
— 13
— 17
52
— 0
— 2

+

+ ii
_ o

_ §
+ 1

_

* B a s e d o n U . S . D e p a r tm e n t o f C o m m e rc e f ig u r e s
D EPA RTM EN T S T O R E SA L ES AND IN V E N T O R IE S
SA LES
IN V E N T O R IE S
P ercen t C h a n g e
P e rc e n t C h a n g e
N o . of
N o . of
P la c e
A p r. 1 9 4 9 fro m
A p r . 3 0 , 1 9 4 9 fro m
S to r e s
S to r e s
R e p o rtM a r.
A p r.
R e p o rt- M a r. 31
A p r. 3 0
in g
1949
1948
in g
1 9 49
1948
ALABAM A
B ir m in g h a m ___
+ 3
+ 7
— 5
— 4
M o b ile .....................
— 7
M o n tg o m e r y ___
+ 24
+ 3
F L O R ID A
J a c k s o n v il le ___
+ 4
—
M ia m i.......................
— 4
+ 9
+ 3
O r l a n d o ..................
+ 3
+ 5
T a m p a .....................
+ 4
—
G E O R G IA
A tla n ta .....................
+ 7
— 5
A u g u s t a ..................
+ 25
— 7
C o lu m b u s .............
M a c o n .....................
+ 9
R o m e .......................
—
S a v a n n a h .............
+ 13
— 5
LO U ISIA N A
B a to n R o u g e . . .
— 4
N ew O r le a n s ...
M IS S IS S IP P I
J a c k s o n ..................
4
M e r id i a n ................
3
T E N N ESSEE
B r is to l.......................
3
+ 27
— 5
C h a t t a n o o g a .. .
4
+ 23
+ 4
—
— 3
K n o x v ille ...............
4
+ 19
— 4
N a s h v ill e ...............
+ 16
+ 5
5
—
O TH ER C IT IE S * ..
+ 5
D IS T R IC T ..................
76
— 4

+ 21

+ 8
—8
+ 0

—*
8
0
+ 0
3

1
1

+ is

+ 20
+1
1
+ 6
—2
+1
1

6
22
11
1

+ 1
+ 1
1

+ 6

—2

22

—8
1
‘i
—2

—20

+ 'i
—1
0
+ 2

—1
1
+ 2

—1
1
—0

* W h e n f e w e r th a n th r e e s to r e s r e p o r t in a g iv e n c ity , t h e s a le s o r s to c k s
a r e g r o u p e d to g e t h e r u n d e r “ o th e r c i t i e s ."

M o n t h ly R e v ie w

48

o f

t h e

F e d e r a l

S ix t h D is tr ic t S ta tis tic s

M ay 19,
1948

P erc e n t C h a n g e
M a y 1 8 , 1 9 4 9 fro m

A p ril 2 0 ,
1949

2,278,857
812,856
823,865

2,276,619 2,300,577
829,636
820,491
831,476

+
—
—

o
1
1

—
—

1
2
1

C o m m e r c ia l, in d u s tr i a l,
a n d a g r i c u lt u r a l lo a n s
L o a n s to b r o k e r s a n d
d e a l e r s in s e c u r i t i e s . .
O th e r lo a n s fo r p u r ­
c h a sin g a n d c a rry in g

A p ril 2 0
1 9 49

M a y 19
1948

506,417

518,385

512,660

—

2

—

7,437

7,142

6,439

+

4

+ 15

39,837
69,035
4,807
196,332
1,466,001

42,905
67,863
4,570
190,611
1,456,128

58,145
75,427
5,964
171,001
1,470,941

—
+
+
+
+

7
2
5
3
1

— 31
— 8
— 19
+ 15
— 0

367,231
907 266
191 504
455,193
39,836

366,525
901,028
188,575
486,353
41,534

379,147
905,089
186,705
421,937
41,529

+
+
+
—
—

o
1
2
6
4

—
+
+
+
—

177,983
1,746,798
543,636
28,911
444,248
8,000

186,627
1,766,526
535,021
41,355
466,563
1,500

203,890
1,761,367
544,567
42,525
445,224

B ills, c e r tif ic a te s a n d

R e s e r v e w ith F . R. B a n k . .
C a s h in v a u l t .................. . ..........
B a la n c e s w ith d o m e s tic
b a n k s ............................................
D e m a n d d e p o s it s a d j u s t e d
T im e d e p o s it s
D e p o s its of d o m e s tic b a n k s
B o r r o w in g s ..................................

— 5
— 1
+i 2
— 30
— 5
+433

3
o
3
8
4

— 13
— 1
— 0
— 32
— 0

D EB ITS T O IN D IV ID U A L BANK A C C O U N T S
( I n T h o u s a n d s of D o lla rs )

P la c e

N o . of
B anks
R e p o r t­
in g

A p r.
1 9 49

M a r.
19 49

A p r.
19 48

P erc e n t C h an g e
A p r. 1 9 4 9 fro m
M a r.
1 9 49

ALABAMA
A n n is to n ...............
B ir m in g h a m ---D o th a n ..................
G a d s d e n ................
M o b ile .....................
M o n tg o m e r y . . .

3
6
2
3
4
3

19,375
305,165
11,955
17,822
127,240
67,693

21,983
333,599
12,658
19,302
141,350
71,514

19,904 — 12
303,512 — 9
11 ,,090 — 6
17,785 — 8
139,550 •— 10
67,639 — 5

FLO R ID A
J a c k s o n v il le ---G r e a te r M iam i*
M ia m i.......................
O r l a n d o ..................
P e n s a c o l a .............
S t. P e t e r s b u r g .
T a m p a .....................

4
13
7
3
3
3
6

267,424
352,037
237,831
52,833
32,837
61,329
126,390

290,537
429,481
284,195
59,506
34,364
65,666
141,677

258,103
365,845
252,454
54,833
30,745
57,992
120,453

—
—
—
—
—
_
—

G E O R G IA
A lb a n y .....................
A tla n ta .....................
A u g u s t a ................
B r u n s w i c k ..........
C o lu m b u s .............
E l b e r t o n ................
G a in e s v ille *
G riffin * ..................
M a c o n .....................
N e w n a n ................
R o m e * .....................
S a v a n n a h .............
V a ld o s ta ................

2
4
3
2
4
2
3
2
3
2
3
4
2

22,331
781,467
54,690
8,275
48,652
3,621
13,752
10,199
50,743
7,491
18,239
83,746
10,426

24,198
848,351
62,972
8,597
52,043
3,586
14,057
10,456
56,234
7,859
19,787
92,566
10,763

L O U IS IA N A .............
A le x a n d r i a * ---B a to n R o u g e . ..
L ake C h a r le s ..
N e w O r l e a n s . ..

3
3
3
8

28,605
115,695
35,502
658,633

M IS S IS S IP P I
H a t t i e s b u r g ---J a c k s o n ..................
M e r id i a n ...............
V ic k s b u r g ----

2
4
3
2

T E N N ESSEE
C h a t t a n o o g a . ..
K n o x v ille ..........
N a s h v ill e ..........
SIX TH D IST R IC T
32 C i t i e s ............
U NITED STA TES
333 C i t i e s . ------

A p r.
1 9 48
—
+
+
+
—
+

3
1
8
0
9
o

8
18
16
11
4
7
11

+
—
—
—
+
+
+

4
4
6
4
7
6
5

20,239
786,828
57,534
8,647
54,972
3,872
14,002
10,800
62,440
8,205
21,222
86,418
9,902

— 8
— 8
— 13
— 4
— 7
+
J
— 2
— 2
— 10
— 5
— 8
— 10
— 3

+
—
—
—
—
—
—
—
—
—
—
—
+

10
1
5
4
12
6
2
6
19
9
14
3
5

30,301
128,232
36,834
871,912

27,391
88,517
32,701
624,232

— 6
— 10
— 4
— 24

+

4

+
+

15,818
127,008
24,244
22,986

16,967
151,153
26,901
25,313

14,776
118,714
29,974
23,593•

— 7
— 16
— 10
— 9

+ I
+ 1
— 19
— 3

4
4
6

128,455
98,793
278,803

146,901
108,180
299,638

135,725
107,981
280,979

— 13
— 9
— 7

—
—
—

5
9
1

115

3,905,273

4,455,552

3,890,309i

— 12

+

o

—

3

9 9 ,6 9 7 ,0 0 0 109,735,000 102,349,0001 —

*N ot in c lu d e d in S ix th D is tric t to ta l.




o f

A t l a n t a

f o r

M

a y

1 9 4 9

Consumption of Peanuts

M ay 18,
1949

L o a n s a n d in v e s tm e n ts —
T o ta l ...........................................

B a n k

9

growers seek to reduce their production to con­
form to peacetime demands, domestic consumption con­
tinues to decline. Through March 31 of the current marketing
season, manufacturers used 288 million pounds of shelled,
edible peanuts compared to 306 million pounds up to the
same date last year. The quantity used for each of the
major products, except for salted peanuts, was less than
it was last year. Up to March 31 total consumption of the
principal products, peanut butter, candy, and salted peanuts,
was about one-fourth less this season than it was for the
same period during the 1946-47 season.
During the war, peanuts were substituted for such scarce
commodities as creamery butter, cashew and Brazil nuts,
and chocolate. Military procurements accounted for a rela­
tively large part of total consumption. From 1941 to 1945,
the commercial disappearance of cleaned and shelled peanuts,
as sold by the farmer to the processor, averaged 1,242 million
pounds annually. Although supplies of competing products
have been increasing and military requirements have been
declining since the end of the war, domestic consumption of
peanuts has not fallen to the prewar level. Unless domestic
consumption is kept far above the prewar level, however,
peanut growers must still further reduce their acreage or the
Government must continue extensive price support operations.
By the end of this marketing season, the Commodity Credit
Corporation will have purchased about half the crop.
In view of the sharp declines in prices of oils and oilseeds
during the past year, further reductions in the peanut acreage
may have to be made next year. Peanut growers and handlers,
therefore, have a vital interest in the current trend in domestic
consumption.
The present decline in consumption has not come as a sur­
prise to many of the leaders in the peanut industry. From
1920 to 1940, most of the annual variations in the consump­
tion of shelled and cleaned peanuts were related to the long­
time trends in consumption, the price of peanuts, and the
income of persons not living on farms. Although increases
in the population and the development of new trade outlets
will tend to increase consumption still further, these changes
usually occur rather slowly. Nonfarm income is not likely
to increase enough in the next few months to bring about a
marked increase in consumption. Some immediate increase
could be attained, of course, by lowering the support prices.
Because of the price support program, the price of peanuts
is high as compared to prices of most commodities that com­
pete with them. If future consumption bears about the same
relationship to peanut prices and nonfarm income as in the
period between the two wars, however, a very drastic price
reduction would be needed in order to induce an appreciable
increase in consumption. In the 1947 crop year, for example,
when 968 million pounds were consumed domestically, a
50-percent reduction in peanut prices would have been ac­
companied by an increase in consumption of about 30 per­
cent. According to these figures it would not be possible,
merely by reducing prices, to increase the consumption of
shelled and cleaned peanuts enough to use a 2-billion-pound
crop. Such a crop could be disposed of through commercial
channels and without Government purchases, however, if
prices were reduced to a point where peanuts could be profit­
ably crushed for oil.
S p ea n u t

C O N D IT IO N O F 2 8 M EM BER BANKS IN L E A D IN G C IT IE S
(I n T h o u s a n d s of D o lla r s )

I te m

R e s e r v e

+ i
6

A

M o n t h ly

R e v ie w

o f

t h e

F e d e r a l

R e s e r v e

B a n k

o f

A t l a n ta

f o r

M

a y

Industry and Employment

S ix t h D is tr ic t I n d e x e s

awarded in the Sixth
District in April was about one percent less than for March,
and more than a third less than for April 1948. In April
last year, which had the largest total for any peacetime
month, there was a sharp increase over March. In April this
year, residential contracts were about 4 percent over March,
while other awards were about 5 percent smaller. Total
construction contracts, amounting to 295 million dollars,
were 12 percent smaller in the January-April period this
year than in the same period in 1948. Residential awards
were down 14 percent, and other contracts about 11 percent.
In each of the six states of the District, total awards in the
January-April period were less than in the same period
last year, the decreases ranging from 6.5 percent in Alabama
to 36 percent in Mississippi. Residential contracts in Ala­
bama so far this year were nearly twice as large as last
year, but in the other five states there were decreases ranging
between 17 percent in Mississippi and 37 percent in Ten­
nessee. Construction costs have declined a little less than 2
percent from the high levels reached last fall.
COTTON TEXTILE MILL OPERATIONS in the Sixth District, re­
flected in the daily rate of cotton consumption, were off
12 percent from March to April. The April rate was 20
percent below that of last September and 24 percent below
the rate of April last year, and was the lowest for any month
since midsummer of 1940. For the country as a whole, the
decline from March to April was somewhat greater than for
this District^ and consumption in April was about 28 percent
less than in April 1948. The reduction in operations has been
accompanied by some reduction in employment. A number
of mills have dropped extra shifts and many have adopted
a shortened work week.
COAL p r o d u c t io n in Alabama and Tennessee during the
first quarter of the year was 19 percent less, than it was a
year ago. The work stoppage at the mines in the middle of
March lasted only two weeks this year, and April output
was considerably larger than it was in April 1948 when the
mines were idle a part of that month. In the two weeks ending
May 7, however, coal output was 21 percent less than in
those weeks last year.
MANUFACTURING EMPLOYMENT in the District declined slightly
in March for the fourth consecutive month. The March index
was down 1.2 percent from February, and it was 5.3 percent
lower than the index for last November, and 6.1 percent
lower than in March a year ago. The February-March de­
crease was shared by all the six states, and only in Louisiana
was employment greater than in March last year, the increase
amounting to only eight-tenths of one percent.
The March decline in manufacturing employment was
shared by all the leading industries in the District. Employ­
ment in chemicals and allied products, however, was 5.5
percent greater in March of this year than a year ago. There
was also an increase over March 1948 in the food and food
processing industries, and a slight increase in primary metals.
In textiles, employment was down 11 percent from March
last year; in lumber and wood products there was a decrease
of 6.5 percent; in apparel a decline of 3.7 percent; in trans­
portation equipment, including shipbuilding and repair, a
decrease of 16 percent; and in paper and paper products,
only a fractional decrease.

THE VALUE OF CONSTRUCTION CONTRACTS




49

1 9 4 9

D. E. M.

D EPA R TM EN T S T O R E SALES*
A d ju s te d *

U n a d ju s te d

P la c e

A p r.
1 9 49

M a r.
1 9 49

A p r.
19 48

A p r.
1 9 49

M a r.
1 949

A p r.
1 9 48

D IS T R IC T .............
A tla n ta .............
B a to n R o u g e .
B ir m in g h a m ..
C h a t ta n o o g a .
J a c k s o n .......... ..
J a c k s o n v i l l e ..
K n o x v ille ___
M a c o n ...............
M ia m i................
M o n tg o m e r y .
N a s h v i l l e .. . .
N e w O r le a n s ,
T a m p a ..............

389
440
454
370
336
377
382
402
297
385
375
419
395
460

365r
369
406
358
296
36 1
362
343
258
341
322
383
351
465

399r
455
407
374
35Q
374
437
450
284
352
375
396
366
478

393
42 1
469
365
350
379
378
400
301
393

339
363
393
341
274
338
349
324
241
396
289
366
326
451

366
394
391
341
338
358
411
416
276
359
346
395
363
485

373

439
403
488

D EPA RTM EN T S T O R E S T O C K S
A d ju s te d *

U n a d ju s te d

P la c e

A p r.
19 49

M a r.
1 9 49

A p r.
1948

A p r.
19 49

M a r.
1949

M a r.
1948

D IS T R IC T ............
A tla n ta .............
B ir m in g h a m ..
M o n tg o m e r y .
N a s h v i l l e .. . .
N e w O r le a n s ,

355
405
291
36 1
472
299

365
446
304
40 1
507
329

379
45 1
305
352
531
335

352
431
302
390
524
318

365
455
313
424
527
348

376
480
316
380
589
357

G A S O L IN E TAX C O L L E C T IO N S *
A d ju s te d *
P la c e

M a r.
19 49

A p r.
1 9 48

A p r.
1 949

M a r.
1 9 49

A p r.
19 48

210

SIX ST A T E S.
A l a b a m a .. .
F lo r id a .. . .
G e o r g ia ...
L o u i s i a n a ..
M is s is s ip p i
T en n essee.

206
197
204
18 2
218
174
238

182
192
1 95
171
167
171
191

216
217
233
1 99
229

191
181
214
167

1 87
195
209
176
164
175
193

214
218
193
233
218
196

C O T T O N C O N S U M P T IO N *

T O T A L ...............
A l a b a m a .. .
G e o r g i a ___
M is s is s ip p i.
T e n n e s s e e ..

M a r.
1949

SIX S T A T E S ..
A la b a m a . . .
F l o r i d a ..........
G e o rg ia . . . .
L o u i s i a n a ..
M is s is s ip p i.
T e n n e s s e e ..

116
125
115
65
1 02

13 2
141
132
79
113

15 4
165
152
104
132

Ite m

M a r.
1 9 49
SIX S T A T E S ..
H y d ro ­
g e n e ra te d
F u e l­
g e n e ra te d

F eb.
1 9 49

M a r.
1948

364

383

34 1

34 1

375

332

394

3.93

353

C O N S T R U C T IO N C O N T R A C T S
P la c e

M a r.
1 9 49

Feb.
1 9 49

M a r.
1948

144
151
141
139
148
135
145

146r
152
1 46
140
149
138r
1 4 7r

153
159
146
148
14 7
153
161

C O N S U M E R S P R IC E IN D E X

ALL IT E M S .. .
F o o d ................
C lo th in g .. .
F u e l, ele c .,
a n d r e f r ig .
H om e fu r­
n is h in g s . .
M is c ..................
P u r c h a s in g
po w er oi
d o l l a r ___

19 8

A p r.
1 9 48

M A N U FA C T U R IN G
EM PLO YM EN T***
P la c e

21
0
157,
210

222

E L E C T R IC P O W E R P R O D U C T IO N *

A p r.
19 49

P la c e

U n a d ju s te d

A p r.
19 49

A p r.
1 9 49

M a r.
1 9 49

A p r.
1 9 48

17 2
204
19S

173
203
198

173
214

137

13 9

133

190
154

192
154

196
148

21
0

.5 8
.5 8
.5 8
* D aily a v e r a g e b a s i s
* * A d ju s te d fo r s e a s o n a l v a r ia tio n
** 1939 M o n th ly a v e r a g e = 1 0 0
O th e r in d e x e s , 1 9 3 5 - 3 9 = 1 0 0

M a r.
1 9 49

F eb.
1 9 49

M a r.
1948

D I S T R I C T ....
R e s id e n tia l.

403
531
341
352
497
482
303
202
401

355
447
311
435
383
324
375
128
323

360
482
30 1
282
365
410
488
193
497

A l a b a m a .. .
F l o r i d a ..........
G e o rg ia . . . .
L o u i s i a n a ..
M is s is s ip p i.
T e n n e s s e e ..

A NNUAL RATE O F TU R N O V ER O F
D EM AND D E P O S IT S
A p r.
1 9 49
U n a d j u s t e d ..
A d ju s te d * * .. .
I n d e x * * .............

M a r.
1 9 49

A p r.
1948

1 8 .6
1 8 .8
7 6 .2

2 0 .4
2 0 .4
8 2 .6

1 9 .2
1 9 .4
7 8 .8

C RU D E PETR O LEU M P R O D U C T IO N
IN CO A STA L LO U ISIA N A
AND M IS S IS S IP P I*
A p r.
1949
U n a d j u s t e d ..
A d j u s t e d * * .. .

r Revised

M a r.
19 4 9

A p r.
1948

289
284

285
285

283
278

50

M o n t h ly

O a k

R id g e - T h e

R e v ie w

o f

t h e

F e d e r a l

N a t i o n ’s

R e s e r v e

A to m

B a n k

ic

o f

A t l a n t a

f o r

M

a y

1 9 4 9

C e n te r

A statement made by Dr. C. E. Brehm, President of The University of Tennessee,
before the Board of Directors of this Bank’s Nashville Branch.
n til

September 19, 1942, Oak Ridge, Tennessee, lying

present plant was 500 million dollars but within the next

some
was a
U more ortwenty-five miles from Knoxville, thousandquiet, oftwo years an addition will be constructed at a cost of 70
less isolated area consisting of 58
acres million dollars.
valleys, woodlands, and undeveloped farm land inhabited by
In the vicinity of the gaseous diffusion plant is located the
approximately a thousand families. Because of its isolation largest steam generating plant ever to be built in one oper­
and the protection which its hills and valleys would provide ation. This plant has a generating capacity of 238 thousand
for the projects to be located there, this area was selected k.w. and cost 34 million dollars to build.
with great secrecy by the Manhattan District of the Corps of
2. Electro-magnetic Separation Plant. This plant covers
Engineers, United States Army, for this country’s phases of 500 acres, and in January, 1944, was the scene of the first
atomic energy production.
mass production of Uranium-235 in history. The uranium
The first plans called for a community of 12,000 persons for one of the first two bombs was separated here. This plant
but, as the plant expanded, the population grew. At the peak also produces stable isotopes that are widely used in re­
of operations in August, 1945, when the first atomic bomb search and conducts studies looking to the improvement of
was dropped over Japan, Oak Ridge had a population of production methods.
75,000. Today the population is fairly stable at about 35,000.
3. Oak Ridge National Laboratory. Built at a cost of 12
The Oak Ridge area is divided into two parts. One part is million dollars, this laboratory was used during the war as a
the city which houses the personnel who work on the atomic pilot plant for the huge plutonium plant at the Hanford
energy projects, and the other is the site on which are located Works in the state of Washington. The laboratory’s chain
the various atomic projects, several miles away from the city. reactor is the world’s chief source of radioactive isotopes.
Construction was begun on the city of Oak Ridge early in At present, research programs are under way in chemistry,
1943 and proceeded with phenomenal speed. When completed, biology, health physics, metallurgy and allied fields.
4. Institute of Nuclear Studies. This institute is an edu­
the city cost 96 million dollars and covered approximately
ten square miles. Oak Ridge is a complete city in every cational enterprise sponsored by nineteen universities and
respect. The city’s 9,600 housing units are arranged in resi­ educational institutions in the South. Through it the Oak
dential neighborhoods on the wooded hillsides. The popula­ Ridge facilities are made available for graduate research,
tion is served by nine shopping centers. Education for the particularly in the field of nuclear energy; special train­
children of the personnel is provided by ten elementary ing courses are conducted in the handling of radioactive
schools, a junior high school, and a high school. The social isotopes; and methods of educating the public throughout
life of the community finds expression in a hundred organiza­ the South in the field of atomic energy are developed.
tions of one kind or another and in twenty-six church groups.
Because of its nearness to Oak Ridge, the University of
Ever since January 1, 1947, Oak Ridge has been under the Tennessee is in a particularly favorable position to take ad­
jurisdiction of the Atomic Energy Commission and continues vantage of the facilities for research that are there provided.
to be, as it was from the beginning, a government-owned The University has approximately 225 graduate students
and government-operated city. There are no elected officials. and four teachers in the area.
The possibility of incorporation, however, is being studied.
The Tennessee legislature now has under consideration an
Until March 19, 1949, the city was closed and the in­ appropriation to the University amounting to three million
habitants lived behind a fence. Entrance could be had dollars for the establishment of a research center and hos­
only by pass, and- this was very carefully scrutinized. On pital. The purpose of this research center and hospital is to
March 19, however, the city was formally opened to the collaborate with the Oak Ridge scientists and utilize the fa­
public. A master plan is now being worked out for its future cilities that are there available for research in medicine,
development and new business establishments will be erected agriculture, engineering, and industry. It has already been
under long-term leases.
found that certain radioactive isotopes are beneficial in the
For security reasons, the various atomic projects are treatment of cancer and some other diseases that have here­
located in secluded valleys some miles from the city of Oak tofore been considered incurable. Further research may lead
Ridge. They remain closed to the public. The chief atomic to a cure for cancer.
project at Oak Ridge is the production of Uranium-235. Oak
The University of Tennessee is also conducting a compre­
Ridge is the world center for the production of this material. hensive farm research program on a three-thousand-acre
It is also the source of virtually all the world’s radioactive tract. One phase of this project is a study of the breeding
isotopes that are now widely used in research, in medicine, records of cattle accidentally exposed to the effects of radia­
in agriculture, in engineering, and in industry. Oak Ridge is tion following the test explosion of the first atomic bomb at
thus the capital of the world’s peacetime atomic energy re­ Ala’ ogardo, New Mexico, on July 16, 1945. The purpose of
m
search and development.
this study is not only to study the effect of radiation on the
The following are some major installations at Oak Ridge: cattle immediately involved but also to study the possible
1.
Gaseous Diffusion Plant for the Production of Ura­ effects on succeeding generations descended from these cattle.
nium. This plant, covering 44 acres and extending for
The development of atomic energy promises to make man­
almost half a mile, is the largest industrial building of its kind’s future something quite different than was ever dreamed
kind in the world. Nearby is a second process building, one- of before. We are proud that Tennessee has been the scene of
fourth as large as the main structure. The entire cost of the some of the work done in this epoch-making endeavor.




M o n t h l y R e v ie w

o f

t h e

F e d e r a l

R e s e r v e

N a tio n a l

B a n k

o f

A t l a n ta

B u s in e s s

f o r

M

a y

1 9 4 9

51

C o n d itio n s

output declined further in April and the early
Employment
part of May. Prices of industrial commodities were re­ Employment in nonagricultural establishments continued to
duced further, while prices of farm and food products con­ decline in April, after allowance for seasonal changes, owing
tinued to show little change. Construction awards showed a mainly to further reductions in most manufacturing indus­
marked seasonal expansion. Value of department store sales tries. The average work week in manufacturing was also
increased close to the advanced level prevailing a year ago. reduced further. Construction employment, which had lagged
in March, rose somewhat more than seasonally in April.
Industrial Production
Employment
Industrial production, as measured by the Board’s seasonally little change. in most other nonagricultural lines showed
adjusted index, declined further in April to 179 percent of
Distribution
the 1935-39 average as compared with 184 percent in March
Value of department store sales increased more than season­
and 195 percent in November 1948. Present indications are
that in May, manufacturing has continued downward and ally in April and the first half of May. Allowing for the
that there has also been some decline in output of minerals, later date of Easter this year, sales in this period were only
about 3 percent below the high level in the corresponding
which had increased in April.
Open hearth steel production declined 3 percent in April period last year. Since retail prices were moderately lower
from the record March level and output at electric furnaces, than a year earlier, little change in over-all unit sales at
which accounts for only a small part of total steel output, department stores was indicated.
Carloadings of railroad freight were in larger volume in
was curtailed by 23 percent to the lowest rate since January
April and the early part of May, mainly because of the
1948. Activity at steel mills has continued to decline in
May. Assembly of passenger automobiles increased sharply recovery in coal shipments from the reduced March rate.
in April to the highest rate of the postwar period; a strike Loadings of most other classes of freight declined somewhat
at plants of one major producer, however, has curtailed further, after allowance for seasonal changes.
activity in May. Output of most types of machinery in April
Commodity Prices
declined considerably further. Deliveries of nonferrous metals
to fabricators were sharply reduced, as prices and pri­ Prices of agricultural commodities continued to show little
vate purchases dropped; refinery output of most nonferrous change from mid-April to the third week of May, while prices
metals, however, was maintained at high level, reflecting of industrial commodities generally declined further. Prices
in part, Government demands for stockpiling. Output of of scrap metals continued to weaken and refined copper was
most building materials, after allowance for usual seasonal cut from 23.5 cents per pound to below 18 cents. Prices of
changes, decreased somewhat further.
some other industrial materials, however, like burlap, hides,
Nondurable goods output declined about 4 percent in and wool tops, were quite stable in this period.
April reflecting mainly further marked reductions in the
The Consumers Price Index showed little change in April,
textile, paper, and chemical industries, as a result in part as further small advances in rents and in prices of meats and
of seasonal influences not currently allowed for in the Board’s miscellaneous items were largely offset by declines in prices
adjusted indexes. Rayon production and deliveries to textile of most other groups of goods and services.
mills decreased sharply, and, according to trade reports,
activity in the wool textile industry was reduced further.
Bank Credit
Cotton consumption declined 8 percent in April. Activity at
paper mills decreased about 5 percent, while paperboard pro­ Required reserves of all member banks were decreased by
duction was maintained at the reduced March level. News­ about 1.2 billion dollars in early May when the reduction
print consumption increased slightly, and output of manu­ in reserve requirements announced by the Board of Governors
in late April became effective. Banks used most of the re­
factured foods was maintained at the March level.
Mineral production advanced about 8 percent in April, leased funds to purchase both short-term and longer-term
reflecting chiefly the ending of the work stoppages at coal Government securities. Reserve bank holdings of Government
mines. Iron ore production was in exceptionally large volume securities declined by about 1.5 billion dollars during the
for this season. Crude petroleum output, however, was cur­ first three weeks of May. The market for Treasury bonds con­
tinued active and System sales of these issues amounted to
tailed further by about 4 percent.
about 500 million dollars.
Construction
Business loans declined by one billion dollars at banks
Value of construction contracts awarded in April, according in leading cities during April and the first half of May; some­
to the F. W. Dodge Corporation, was one-eighth larger than what over half the decline occurred at banks in New York
in March, reflecting increases for private residential building and Chicago. Real estate and consumer loans showed little
and public works and utilities. Private awards continued change.
considerably smaller than a year ago, while public awards
Security M arkets
were about one-third larger. The number of permanent resi­
dential units started in April, as estimated by the Bureau Prices of common stocks fluctuated within a narrow range
of Labor Statistics, rose from 62,000 to 86,000 but was still and high-grade corporate bonds changed little in the first
considerably below the postwar peak of 100,000 units in three weeks of May.
April and May 1948.
T H E BOARD OF GOVERNORS
n d u s t r ia l

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52

M o n t h ly R e v ie w

C r e d it
An editorial reprinted from the

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F e d e r a l

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B a n k

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A t l a n t a

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1 9 4 9

C o n tr o ls
W a s h in g t o n P o s t ,

August, when inflationary forces were in the ascendant,
Congress granted the Federal Reserve Board authority to
reimpose controls over consumer instalment credit and to
raise member bank reserve requirements. In his testimony
before the Senate Banking and Currency Committee this
week, Chairman McCabe of the Board presented strong argu­
ments for extension of those powers. They are due to lapse
at the end of June. Mr. McCabe emphasized the fact that
inflationary pressures have subsided and the economic out­
look has changed radically. As a result the Board has already
relaxed consumer instalment credit regulations, lowered
margin requirements, and quite recently reduced member
bank reserve requirements. If present trends continue, he
says, reserve requirements may be further reduced. In short,
the Board is not contemplating use of the authority for which
it asks to tighten credit restrictions at the present time. It
merely wants to be in a position to use these control powers
in case an emergency arises later on.
Opposition of leading private bankers to extension of
the Board’s temporary control powers appears to be based
chiefly on the contention that it is not only unnecessary but
positively dangerous to give the Federal Reserve Board the
power to impose the requested restrictions on credit. The
implication, of course, is that it will use them unwisely to
restrict lending and have an inopportune deflationary effect.
That argument conflicts with the evidence and leads logically
to the conclusion that the Federal Reserve authorities cannot
even be trusted to exercise the very extensive permanent
powers of control over credit that they have been granted
by Congress.
If they are to function with maximum effectiveness, the
Federal Reserve authorities must, as Mr. McCabe says, be
in a position to operate flexibly in counteracting deflationary
as well as inflationary trends. During a downward trend,
he considers the System’s present powers to be ample. But
they are limited in the “other direction.” In short, the
Board has to think about the future as well as the past. It
should be equipped at all times to deal with changing busi­
ness trends and not have to wait for congressional authority
to impose additional controls after an emergency arises.
AST

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t h e

May 15, 1949.

The Board’s commitment to stabilize the market for Fed­
eral securities makes it necessary for it to rely primarily
upon increases in reserve requirements to combat inflationary
trends. Forced purchases of Government securities by the
Federal Reserve Banks to support the market lead to an
increase in bank reserves and constitute a basis for bank
credit expansion. If this occurs at a time when the money
supply is already ample, it creates inflationary pressures
that can only be offset by mopping up reserve—that is, by
raising reserve requirements. The Board’s request for author­
ity to make supplemental reserve requirements applicable to
nonmember insured banks will, of course, encounter bitter
opposition, although, as Mr. McCabe points out, the ex­
clusion of nonmember banks impairs the effectiveness of
controls. Furthermore, these nonmember banks benefit from
the System’s policy of supporting the Government bond
market and should bear their fair share of the cost of such
operations. The Board’s Chairman gives assurance that the
proposal to bring all insured banks under the supplemental
reserve authority does not mean that they will have to carry
the same reserves as the member banks. Nor does the pro­
posal jeopardize the dual banking system.
Regulation of instalment credit is a form of selective
credit control that has proved its worth. For the time being
most, if not all such controls probably could be dispensed
with, although we think that at all times sound credit con­
ditions and protection of the consumer himself makes it
desirable to maintain certain restrictions on this form of
credit. In any case, the Board should have such powers in
reserve to be used at its discretion in order to curb undue
expansion of consumer credit. In periods of declining busi­
ness, such controls can always be relaxed or dropped.
To repeat: credit control is not a device for occasional
employment, aimed only at control of inflation. It is a con­
trol instrumentality that is constantly being employed in
good times and bad, in periods of inflation and deflation,
as a means of helping to stabilize economic activities. It is
extraordinarily shortsighted therefore, to hamper the re­
sponsible regulatory authorities by denying them the legis­
lative powers required to do an effective job.