Transcript
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F E D E R A L R E S E R V E B O A R D X-3?'d6'
STATEMENT FOP THE PRESS
F o r r e l e a s e i n Morning Papers,
Monday, April 3 0 , i g ^ m
The fo l lowing i s t h e Review o f th e Month a s
conta ined
i n t h e
fcr thco.ning
i s cu e o f th e
Federal Reserve Bullycin^
BUSINESS EXTENSION (rD.TKE RE5-R7Z BMJZS. Credit d eve lop me nts d ur ing t h e
pa st month have fu r t h e r emphasized t h e fact that current business expansion
i s being f inanced independently of reserve bank credi t . I n these circumstance^,
t h e
weekly statement
o f t h e
reserve banks
i s n o t
i n d i c a t i v e
o f
changes
i n
cr ed it cond itio ns* Changes i n r e s e r v e s , i n ea rn ing asse t s , a n d i n Federa l R e-
serve note ci rc ul at io n have been re la t i ve ly sl ig ht since la s t summer
an d
have
n o t
r e f l e c t e d
t h e
considerable growth
i n
bank credit*
T he
r e s e r v e r a t i o ,
a s
was po in ted o u t last month i n a d i scuss ion o f t h e e f f e c t of gold imports on
o u r c r e d i t s i t u a t i o n , h a s a t p r e s e n t l i t t l e v a l u e a s a n i n d i c a t o r o f credi t
movements. I t w a s these gold imports that enabled member banks t o meet t h e i n -
creased credi t
a n d
currency demands
of
t he ir customers without obtai ning
a
corresponding amount of accommodation a t t h e reserve banks„ Thus, under imme-
d ia t e ly p reva i l ing cond i t ions , i t i s t h e changes i n member bank loans and
investments rather than a n y item i n t h e reserve bank statement that roughly
measure t h e r a t e of inc rease i n t h e u s e o f bank cr ed i t . This ra te of growth i n
bank c r e d i t , compared wi th
t h e
r a t e
of
expansion
i n
product ion
an d
t rade ,
a f f o r d s ,
i n t h e
absence
of
such
a
t e s t
a s t h e
reserve ra t i o which
i s
dependent
upon free gold movement, a n important indicator of changes i n c r ed i t cond i t ions , .
The f ac t t ha t t h e recent growth of c r e d i t h a s been accompanied b y a f u r t h e r i n -
crease
i n t h e
physical volume
of
product ion
i s
favorable evidence
o f th e
economic
e f f e c t i v e n e s s o f th e c r e d i t i n u s e .
Comparat ive s tabi l i ty i n t h e volume of reserve bank credit while member bank
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c red i t i n c rea s ed h a s characterized credi t developments during t h e p a s t 1 5 months.
Sinoe t h o middle o f 1 9 2 2 , when renewed demand f o r c r e d i t was f i r s t r e f l e c t e d i n
lar ger commercial lo ans , t o t a l loans a,nd investments of member "banks i n leading
c i t i es have increased
by
$1*300,000,000, while earning assets
of the
Reserve
Banks have increased b y less than $100,000,000* A t t h e present t ime t h e t o t a l
of member bank credit i s n ea r l y a s l a r g e as in 1920 and the volume of goods being
produced,
a n d
marketed exceeds
t h e
peak reached
i n
t h a t y ea r ,
y e t t h e
volume
of
reserve bazik credit i s $2,200,000,000 less .
PKEBENl GUHKENCY KEQPIES.HMTS» During
t h e
p a s t
two
months Fed era l Reserve not e
' o n h a s d ec l i n ed s l i g h t l y a n d t h e growing demand f o r cu r rency h a s been
met by an increase i n other forms of money i n c i r c u l a t i o n . I n f a c t , t h e t o t a l
y ' n c i r c u l a t i o n is now $242,000,000 lar ge r than a year a g o , while Federal
eserve notes during this period have increased by only $52,000,000 a n d Federal
. notes have dec l ine d b y $58 ,000 ,000 . Gold an d g o l d c e r t i f i c a t e s i n
n
have increased
by
$127,000,000, s i lver
a n d
s il v e r c e r t i f i c a t e s
by
^100,000,OX, National Bank notes b y $11,000,000, a n d Uni ted States notes by
$10,000,000. More than t h r e e - f i f t hs o f t h e y e a r ' s i n c rea s e i n c i r c u l a t i o n o c -
d between February 1 a n d Apr i l 1 o f t h i s y ea r . A p a r t of t h i s ad d i t i o n a l
ency h a s been suppl ied o u t o f t h e cash reserves o f t h e Reserve Banks, which
l i n e d s l i g i t l y d u r i n g t h e p a s t tw o months. B u t , l i k e t h e additional demand
' t , t h e recent demand f o r add i t iona l cu r rency h a s been m et wi thou t s u b -
s t a n t i a l i n c r e a s e i n t h e u s e o f Beserve Bank credit ,
While increases i n other forms of money i n c i r cu l a t i o n h av e l a rg e l y s u p -
p l i e d
t h e
recent dernnd
f o r
more currency,
t h e
f a c t
i s
t h a t
t h e
present volume
n c y i s much l e s s tha n i n 1 9 2 0 , even though pr od uc ti on , t r a de , employment,
and
member-bank credit
a r e n ow a t o r
near
1920
l e v e l s .
On
Apr i l
1 , 1 9 2 3 , t h e
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total volume of money i n c i r c u l a t i o n was nearly $1,000,000,vOO less than a t i t s
peak
i n
November,
1 9 2 0 , an d
over $600,000,000 less than
o n t h e
corresponding date
o f 1 9 2 0 . Changes i n t h e demand f o r hand- to-hand currency a r is e ch ie f l y f rom
t h e
pocket-money
an d
t i l l -money requirements
of
r e t a i l t r ade , f rom pay- ro l l needs ,
and
from
t h e
h a b i t
of
accumulating
a n d
holding currency
a s
sav ings .
The
volume
of r e t a i l t r a d e , t a k in g t h e country a s a whole, i s approximate ly t h e same now as
this season
i n 1 9 2 0 ,
though re ta i l p r ic e s
a r e
lower .
I n
c e r t a i n a g r i c u l t u r a l
sections, however, where hand-to-hand currency i s l a rge ly used an d where busin
recovery h a s been slow and incomplete , t h e volume of bus iness i s s t i l l
m u c h
below
the 1920 l e v e l , a n d i t i s probable that it i those sections there i s a smaller
demand f o r currency* There i s a l so a t p re sen t a much reduced amount of currency
he ld
a s
savings .
The
extent
of
such ho ld in gs depends l e ss upon
t h e
current
volume of employment than upon th e dura t ion of the pe r iod of full employment; i n
1920 such holdings were doubtless a t a record figure , s ince full- t ime employment
and high wages h a d continued f o r sever al ye ar s . During t h e subsequent period of
slack employment much of the currency held a s savings was spen t , an d th e present
per iod of fuller employment h a s n o t y e t continued long enough t o r e s u l t i n
similar accumulation.
Of the var ious f luc tua t ing demands f o r currency t h e pay-rol l requirement i s
probably t h e most important because i t inc ludes t h e seasonal demand a t harves t
time
and
because
i t
in flu enc es othe r currenc y demands ar is in g from r e t a i l trade
and from savi ngs. During recent years t h e range of f l u c t u a t i o n i n p a y r o l l and
Federa l Reserve note c i rcula t ion h a s been similar , though t h e changes i n t h e
volume
of
currency have lagged behind
t h e
changes
i n p a y
ro ll * While
th e p ay
ro l l
increased since
t h e
beginning
o f 1 9 2 2 , i t i s
s t i l l much lower than
a t t h e
peak
in 1920} This , taken toge the r with t h e lower level of r e t a i l p r i c e s , i s probably
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t h e most important single fact i n account ing f o r t h e smaller volume o f
cur rency now in c i rc ul a t io n . This le ss er demand f o r cur rency, together wi th
t h e go ld i mp or ts which .have su pp li ed member bank s wi th a b a s i s f o r loans
without addit ional borrowings from t h e Reserve Banks., accounts f o r t h e
present reduced volume o f Reserve Bank credit compared with 1920*
I f t h e r e l a t ion be tween p a y r o l l a n d Federal Reserve notes which held
dur ing previous years cont inues ,
t h e
r ap id inc rease
i n t h e p a y
ro l l s ince
t h e middle of 1922 wi l l soon re su l t i n a s u b s t a n t i a l i n c r e a s e i n demand f o r
cur rency, a n d i n order t o secure t h e additional currency member banks will
seek accommodation a t t h e Reserve Banks*
PRODUCTION AND CREDIT * The inc reased u s e o f c r ed i t , wh ich i s r e f l e c t e d i n
t h e l a rge r l oans a n d investments of member banks, b u t n o t i n t h e earn ing
a s s e t s of Federal Reserve Banks, h a s been pr imar i ly i n response t o t h e i n -
creased volume
o f
prod uct ion* Thus
f a r
business expansion
h a s
been cha rac t e r -
ized b y a r ap id inc rease i n t h e output of basic commodities* I n f a c t , t h e
growth in.the physical volume of product ion s ince t h e middle o f 1 9 2 1 ind ica t es
a r a t e o f in du s t r i a l r ecovery a lmos t wi thou t pa ra l l e l i n American business*
Within a year and a ha l f a f t e r recovery began t h e monthly output of 21 basic
commodities, a s measured b y t h e Federal Reserve Board's index of p roduc t ion ,
increased over 6 7 p e r c e n t . The volume o f goods produced and.consumed during
t h e f i r s t q u a r t e r of 1923 proba bly exceeds th at o f an y s imi l a r pe r iod i n t h e
h i s t o r y o f t h e countr y# Fu l l e r employment of equipment and of l a b o r h a s
produced
t h e
a dd it io na l income from which p r o f i t s
a n d
wages were realized*
I n f a c t , p r o f i t s , i n many lines o f industry have been dependent upon quantity
p roduc t ion , t h e lower production cost p e r un i t more than o f f s e t t i ng t h e i n -
creased cost o f m a t e r i a l s . I t i s p a r t l y i n consequence c?f larger output
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t h a t t h e p r i c e s of manufactured goods have n e t more fu l ly r e f l ec t ed t h e i n -
creases i n p r i c e s of raw ma te r i a l s . La rge r p a y r o l l s a l s o u n t i l q u i t e
re ce nt ly have res ul te d ch ie f l y from incre ased employment ra th er than from
advances
i n
wage r a t e s . These inc reas es
i n
product ion
a n d
employment have
thus f a r e c o n o m i c a l l y j u s t i f i e d t h e i n c r e a s e s i n t h e total volume of bank
c r e d i t s F o r c re di t ex ten sion does n o t r e s u l t i n overexpansion' s o long a s
t h e a d d i t i o n a l c r e d i t y i e l d s p r o p o r t i o n a t e r e s u l t s i n t h e larger product ion
an d market ing o f goods,
CREDIT CONDITIONS, 192 3 AHD 19 20 . The current volume o f wholesale a n d r e t a i l
t r ade ind ica t es tha t t h e goods now being produced a r e moving s a t i s f a c t o r i l y
in to t h e channels of d i s t r i b u t i o n . About 70 0 firms engaged i n var iou s l in es
of wholesale t rade an d r e p r e s e n t i n g p r a c t i c a l l y a l l s e c t i o n s o f t h e country
a r e now rep or t ing th e i r monthly sa l es t o t h e Fe de ra l Reserve Banks# Since
t h e opening o f t he year t h e total volume of s a l e s b y these concerns h a s been
about I S p e r cent lar ge r than dur ing t h e corresponding period a yea r a g o .
I n r e t a i l t r a d e t h e s a l e s of 30b department s tor es lo cate d in 100 c i t i e s
throughout t h e cou ntr y have al so exceeded t h e s a l e s of las t year by 15 pe r
c e n t . I n March, 1 9 2 3 . s a l e s of these stores were above t h e l e v e l of March,
1 9 2 0 , i n s p i t e o f t he lower r e t a i l p r i ces now p re va i l ing . Depar tment - s to re
s a l e s
a r e a t
p r e s e n t r e l a t i v e l y h i g h e r
i n t h e
. i n d us t r ia l d i s t r i c t s
o f t he
East
than i n t h e a g r i c u l t u r a l s e c t i o n s o f t he Souta an d West® The volume of
merchandise buying
i n
ru r a l d i s t r i c t s
i s
f u r t h e r i n d i c a t e d
b y t h e .
s a l e s
o f
mail-order houses, which during recent months have been approximately 37 pe r
cent above t h e s a l e s of a year a g o , though th e present dol lar volume of the i r
buying i s s t i l l much below t h e l e v e l o f 1920 .
The e x t e n t t o which var ious sec t ions o f t h e country have shared i n t he
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current/, growth
of
bus iness
and.
c r e d i t
may be
shown
i n a
general
way by th e
changes
i n t h e
volume
of
check payments
and of
member bank credit.
F o r
th i s
purpose a comparison i s made of the total volume of bank debits during the
f i r s t q u a r t e r of 1923 with t h e corresponding period in 192 0 , and a comparison
of the to ta l loans an d investments of member banks a t th e end o f th e year
1922
wi th s imi la r f i gur es
f o r
November,
1 9 2 0 .
This comparison
i n t h e
form
of
percentages , with ly20 f igures taken
a s 1 0 0 , i s
shown below
b y
Federal
Reserve Dis t r ic t s .
Mem-
Check b e r
Federal Reserve
p a y -
bank
D i s t r i c t
ments
.
c re d i t
P e r P a -
cent. cent.
Boston
IO9.5
lO^.O
New York
99*6
9 9 - 2
P h i l a d e l p h i a . . .
1 0 0 . 6 1 0 1 . 4
C l e v e l a n d . . . . . .
97*8
1 0 5 . 4
Richmond.- . . . . . .
8 5 . 6
9 6 . 4
A t l a n t a . . . . . . . .
SO.9 . 90»7
Chicago . 9 4 . 6 9 5 . 9
Mem-
Check
b e r
Federal He serv e
p a y -
bank
Dib t r i c t
ments
.
c r e d i t .
P e r
Pa r
cen t .
cen t .
9 6 . 9
1 0 5 . 0
8 8 . 2
9 0 - 5
Kansas City
' 81 .6
8 7 - 5
1 aj 1 a u
8 7 - 8
8 4 . 6
San F ra n c i s c o . . . •
. . . 1 0 1 . 9
1 0 4 . 0
System.v. 97 .51 9 8 . 6
r Both i n volume of bus iness a n d i n bank credit th e more recent figures,
taking t h e country a s a whole, show b u t a sl ig ht re du ct io n compared wit h 1 9 2 0 .
ihen (considered b y r e se rv e d i s t r i c t s t h e re i s a close correspondence in the
changes since 1920 in c r e d i t and in bu si ne ss volume. With b u t f e w except ions ,
b u s in e s s a c t iv i ty i n t h e i n d u s t r i a l E a s t and on the P a c i f i c c o a s t e i t h e r a p -
proximates or 'exceeds that
of 1920 and has
been accompanied
b y
corresponding
increases
i n
c r e d i t ;
I n
marked contrast
a r e
cond i t ions
i n t h e
South
and
Middle West, where both business volume
a n d
bank credit
a r e
considerably below
•the 1920 l e v e l .
This regional comparison emphasizes t h e fac t tha t , whi le t h e total volume
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of
bus iness
a n d
bank credi t
i s
nea r l y
a s
l a r ge
a s i n 1 9 2 0 ,
there
a r e i m -
por tant di f ferences between th e s i t u a t i o n a t. that time an d now. In 1$20
credi t expans ion way more pronounced i n ag r i cu l t u r a l t han i n i n d u s t r i a l
communities, while
a t t h e
present t ime
i t i s i r . t h e
l a r ge c i t i e s t ha t
t h e
volume of c r e d i t i s r e l a t i ve l y l a r ge r . Thus t h e Reserve Banks i n t h e South
an d
West
i n
meeting
t h e
demands
of
their member banks
in 1920
were obliged
t o rediscount large amounts with th e banks i n t h e i n d u s t r i a l s e c t i o n s ,
while
a t
present there
a r e n o
interbank rediscounts
an d n o
Federal Eeserve
Bank approaches t h e l i m i t o f i t s lending capaci ty .
T h e lesser dependence of the member barks upon t h e Beserve
Banks i s r e f l e c t e d i n t h e much smaller total volume o f Reserve Bank
earn ing as se t s a n d i n t h e smaller proportion which paper discounted
f o r .
member banks co ns ti tu te s
of
t h a t t o t a l .
On
October
15 , 1920 , o f
t h e to ta l earn ing as se t s he ld by Eeserve Banks, discounts f o r member
banks cons t i tuted g l p e r cent, while on April 1 1 , 1923» t h e p e r -
centage
was 55» and in the
middle
o f 1 9 2 2 ,
when discounts were
a t l o w
e b b , t h e
percentage
was as low as 35 per
cent .
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OPEF-#R"ET POLICY To ta l ea rn in g a s s e t s o f t he 12 Federal
Reserve Banks combined measure t h e volume of reserve bant , credi t
made avai lable
a n d a r e
cont inuously
i n
process
of
ad jus tmen t
t o t h e
demand
f o r
such c r ed i t .
I t i s
th i s t o t a l r a th e r t han
any
s ingle
c l a s s of asse ts which indica tes a t a. given time t h e ex ten t t o which
reserve bank credit i s b e in g u t i l i z e d a s a b a s i s of member bank
c r e d i t and as a source o f cur rency. The r e l a t ionsh ip be tween t h e
open-market operations
o f t h e
Federal Reserve Banks
a n d t h e
demand
f o r
discount accommodation
on t he
p a r t
o f t he
members
h a s
been
brought ou t c l e a r l y b y t h e experience of 1Q22 and t he f i r s t q u a r t e r
of 1Q2X.
Since t h e middle of January , 1 9 2 3 , t h e i n c r e a s e i n d i s -
counts a t reserve banks h a s been accomapnied by a d e c l i n e i n h o l d -
ings
of
open-market purchases,
4 th a
c o n s e q u e n t s t a b i l i t y i n
t h e
total volume of earn ing as s e t s . This i s i n c o n t r a s t t o t he
s i t u a t i o n i n t h e ear ly par t of 1Q22, - hen member banks were rapilly
l iqu ida t ing the i r i ndeb tedness
a t t h e
reserve banks.
/ . t
that
t ime, a l so , t h e volume of earn ing as se ts remained re la t i ve ly con-
s ta nt ,because t h e d e c l i n e i n d i scoun t s w as accompanied, b y a c o r -
responding increase
i n t h e
hold ings
of
Government securities. Thus,
f o r a pe r iod of more than a year t h e t o t a l of reserve bank credit
h a s f luc tuated around £1,200,000,000 and has remained within a
range
of
*1,000,000,000
t o
$1,3 50,0 00,0 00. During th at pe rio d
discounts have f luctuated between *1,000,000,000 a n d less than
<U00,000,000, a n d Government security holdings between $600,000,000
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and .
$22 5,0 00,0 00. Accep tance s have shown
a n
upward trend,
b e -
ginn ing wi th June ,1922 ,
and
recently have exceeded
t h e
Government
se cu ri ty ho ld in gs . Thus, during
1^ 22 and t he
f i r s t q u ar t e r
of
I 3 2 3 f l u c tu a t i o n s
i n t h e
volume
of
discounts
a n d i n t h e
holdings
of
open-market pu rc has es hcvVe o f f s e t each ot he r
an d
consequently
have
n o t
r e s u l t e d
i n
corresponding changes
i n t h e
total volume
of
rssorve bank credit i n use*
The
re la tion between open-market purchases
a n d d i s -
counts ricis n o t he ld t rue f o r reserve banks considered individually.
There have been la rg e pur cha ses
of
Government securities
b y r e -
serve banks
i n t h e
in te r io r wi thou t
a
corresponding decline
in t he
discounts f o r their member banks* P u t t h e f a c t t h a t f o r t h e 1 2 banks
combined earning assets have remained comparatively constant indicates
th a t
a
cor re sponding l iqu ida t ion
h a s
taken place
a t
other re ser ve banks.
A r e c o g n i t i o n o f t h e d e s i r a b i l i t y of coordinating more
c lo s e ly
t h e
open-market operations
o f t he
several reserve banks
l e d
t o a d i s c u s s io n of open-market policy a t t h e recent conference of the
Federal Reserve Board with
t h e
governors
o f t he
reserve banks.
The
Federal Reserve Board's posit ion
i n t h e
ma t te r
i s
i n d i c a t e d
b y t h e
adopt ion
o f t h e
fol lowing pr in c i pl e with respec t
t o
open-market
i n -
vestment operations
o f t he
Federal Reserve Tanks
"That
t h e
time, manner, character,
and
volume
o f
open-market
investments purchased by Federal Reserve Danks be governed with
primary regard t o t h e accommodation of commerce and bus ine ss and
t o t h e e f f e c t of such purchases o r s a l e s o n t h e gene ra l c red i t s i tu a t io n .
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- 10 - X-3706
By
pro vid ing tha t open-market investment ope rat io ns
a r e t o
b e
governed "with primary regard
t o t h e
accommodation
of
commerce
a n d b u s i n e s s ,
i
t h e p r inc ip le r e s t s upon t h e same gen era l con sid era -
t i o n s a s those provided i n t h e Federal Reserve A c t f o r t h e de te rmina-
t i o n of d i scoun t r a te s . S ince i n open-market operations t h e i n i t i a t i v e
can b e
taken
b y t h e
reserve banks ra ther than
by
member ba nk s, th es e
o p e r a t i o n s may b e used a s a gauge o f th e degree of adjustment between
t h e requirements f o r rese rve-bank c re di t an d th e volume of i t in
a c t u a l u s e . T he sa le of an investment b y a reserve bank i s a means
of t e s t i n g t h e demand f o r c r e d i t by p l a c in g t h e i n i t i a t i v e f o r a n d t h e
cos t
of
such cre d it d i r e c t l y upon borrowing member ba nks .
ADMl^ISTR^TIQF OF CRIP IT» To what e xt en t t h e member banks will b e
a b l e
t o
f i n a n c e
a
fur ther growth
o f
bus iness without addi t iona l
accommodation from t h e reserve banks depends mainly upon t h e s i z e of
gold imports i n t h e immediate future an d th e f u r t h e r p o s s i b i l i t i e s
of s hi f t i ng f rom inves tments a n d loans on s e c u r i t i e s t o loans f o r
commercial
a n d
in du st r ia l purp ose s. Gold imports have re ce nt ly been
small , t h e n e t imports f o r February being $7,000,000 a n d f o r March,
$5, 500 ,00 0, compared wi th
a
monthly average
o f
^20,000,000
f o r 1 9 2 2
and of ^5^,000,000 in 1 3 2 1* I f t h e gold movement continues a t t h e
present reduced sca le , t h e imported gold will n o t b e s u f f i c i e n t t o
form a b a s i s f o r a n y cons ide rab le inc rea se i n c red i t ex tens ion b y
member banks
an d
a l s o
t o
meet
a
growth
i n t h e
demand
f o r
currency.
Fur the rmo re, wh il e member banks si nc e t h e opening o f t h e year have
been able i n p a r t t o inc rea se the i r loans f o r commercial purposes
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~
l i
~ x 3706
b y th e u se o f funds withdrawn from investments a n d from loa ns on
s e c u r i t i e s ,
t h e
extent
of
such t rans fe r
i s
l im i t e d
b y t h e
fac t tha t
t h e
s a l e
of
s e c u r i t i e s
i n
excess
of
current savings indirectly leads
t o a demand f o r bank cr ed it . Since t h e opening of t h e , y e a r t h e
monthly rate of growth i n commercial loans a t member banks i n leading
c i t i e s h a s been nearly 2 p e r cent* A continuance of th is credi t
trend mast soon result i n increased borrowings by member banks a t t h e
reserve banks.
The
re la t ion between
t h e
expansion
of
bank credit
an d th e
expansion of b u s in e s s , a s well a s t h e r e s p o n s i b i l i t y of the banking
community f o r t h e economic u s e o f c r e d i t , i s c l e a r l y s e t f o r t h in a
recent report
of a
committee
on
unemployment
a n d
business cycles,
appointed
by
Secretary Herbert Hoover,
a s
chairman
o f t h e
P re s id e n t ' s
Conference
on
Unemployment held
i n
September,
192 1 . The
report
s ta tes : "Expansion
o f
bank credit
i s a
necessary condit ion
o f ex -
pansion ofbusiness operat ions .
*** But an
overextension
o f
credi t
may so
inc rease
t h e
purchasing power
of
business
men
tha t
i t
wil l
merely resul t
i n
enabling them
t o b i d
a g a in s t
one
another
f o r
l imited
supp l ies of goods a n d ma te r i a l s so as t o for ce pr ic es above what c o n -
sumers a r e w i l l i n g a n d able t o p a y . Bank cr ed it o f t e n expands s o
rap id ly tha t
i t
l i f t s
t h e
buying
o r
investment power
o f
business
men
out o f l ine with t h e general buying power o f t h e community. Because
of t h e i r s t r a t e g i c p o s i t i o n t h e banks* have an unusual duty an d an ex -
cept ional opportuni ty t o give sound information a n d counsel t o
business
men. ***
While
t h e
re la t ionship between
t h e
volume
o f
c red i t
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X-3?O6
a n d t h e
volume
o f
bus ine ss
a n d t h e
movement
o f
p r i c e s
i s n o t
always
simple t o i n t e r p r e t , i t appears t o b e s u f f i c i e n t l y c l o s e t o make i t
a ma t te r o f f i r s t importance tha t t h e volume and t he f low Of c red i t
should
& t a l l
t imes
b e
t e s t e d
b y t h e
contr ibut ion which addi t ions
t o
t h e
volume
o f
credit make
t o t h e
to ta l economic pr od uct io n. Additi ons
t o c redi t which can no t be economica l ly va l ida ted by a commensurate
e f f e c t i n ac tua l p roduc t ion a r e s p e c u l a t i v e , a n d a s such should b e
sub jec ted t o c o n t r o l , .so tha t bus iness a n d indus t ry can be maintained
i n a
h e a l t h y s t a t e " .
The
pres ent lending capac i ty
o f t h e
country 's banking system,
i n
view
o f t h e
great growth
o f t h e
r e s e r v e s
a t t h e
rese rve banks ,
i s
now f a r i n
excess
o f t h e
credit needs
o f t he
c o u n t r y
,
s productive
c a p a c i t y .
I n
such
a
s i t u a t i o n
i t i s t h e
a v a i l a b l e s u p p l i e s
o f
l a b o r
and
equipment
a n d n o t t h e
po t en t i a l supp ly
of
c red i t tha t
i n t h e e n d
must
f i x t h e
l imit which
may be
a t t a i n e d
by
aggrega te na t ion a l produ c t i on.
As
the se l imi t s
a r e
approached credit policy must
b e
inc rea s ing ly
in f luenced
b y
c a r e f u l c o n s id e r a t i o n
o f t h e
con t inued e f fec t iveness
of
f u r t h e r a d d i t i o n s
t o t h e
total volume
o f
c r e d i t
i n
con t r ibu t ing
t o
inc rea sed p ro duc t i v i t y .
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