detrimental to the best interests of the country, and the bad effects of which upon those interests become more apparent and the disaster more widespread when the necessary contraction begins to be felt.

66. SEASONAL FLUCTUATIONS AND COMMERCIAL FAILURES1 BY EDWIN WALTER KEMMERER

The figures for commercial failures for the years 1890-1908 published by Dun's and Bradstreet's show a striking seasonal movement. First to attract attention is the very large number of failures during the fore part of January. The first three weeks of the year are clearly the highest three. After the fore part of January there is a rapid decline in the number of commercial failures until the fore part of April. With the exception of a minor upward movement during July, followed by a decline throughout August, the curves of commercial failures tend to be low from early April until the fore part of September, when they begin a strong upward movement which does not culminate until after the opening of the new year.

What is the explanation of this marked seasonal swing in the number (and also the liabilities) of commercial failures? Obviously one of the chief causes for the large number of failures in December and January consists in the custom among business concerns of taking account of stock in December and of closing accounts for the year's business. Many small concerns really do not know where they stand until about this time of the year. Many financial obligations, moreover, become due January 1, and it is customary in many places for banks to require statements of customers at about this time. In early January business concerns are commonly facing a period of inactive business. Similar conditions in general exist, although on a much smaller scale, during the few weeks before and after July 1, and probably account for the movements in commercial failures noted as occurring at that time. Concerns which survive the December-January strain are likely to be able to continue during the spring and the slack summer months. As the fall approaches and the money market hardens in response to crop-moving demands, as interest rates rise, bank reserves decline, and loans are curtailed, as securities tend to decline and increased margins are called for, the

Adapted from Seasonal Variations in the Relative Demand for Money and Capital in the United States, pp. 231-32, 221-22. (National Monetary Commission, 1910.)

strain on the weaker business concerns is liable to become more tense. While, of course, it would be rash to say that the tightened money market in the fall is the cause of the large number of failures at this period, it seems reasonable to expect that the strained money market at this time would tend to push over many concerns which were already near the verge of failure. I know of no other explanation for the large number of failures during October and November. The period of the spring trade revival is so brief and such a short time after the "cleaning-up" period of December and January that it normally occasions few failures. In March, however, there is a slight decrease in the number of commercial failures.

67. SEASONAL VARIATIONS IN SUPPLY OF CURRENCY1

BY EDWIN WALTER KEMMERER

By "money in circulation" is meant all money outside of the Federal Treasury vaults. The forces influencing the amount of gold and gold certificates in circulation are (1) the bullion deposits at the United States mints and assay offices; (2) the net imports and exports of gold in settlement of foreign balances; and (3) subtreasury payments and receipts. The rapidly increasing gold production in 1890-1908 would of course show a steady increase in gold circulation from January to December.

The substantial increase in gold circulation from July to December is due to the large deposits of gold at the mints and assay offices in these months, by net importations of gold from abroad in consequence of heavy exports at this season, and to a decrease in the treasury balances. The deposit of large amounts of bullion at the mints at this season is due merely to the conditions surrounding the production of gold. It is not brought about to any extent by the great demand for moneyed capital at this time of the year. It has been the policy of the Treasury Department during the latter months of the year to aid the banks in meeting the crop-moving demand by decreasing subtreasury holdings and increasing government deposits in national banks.

The national bank note circulation curves do not exhibit any considerable seasonal elasticity. There is a general increase from

'Adapted from Seasonal Variations in the Relative Demand for Money and Capital in the United States, pp. 146–53, 173. (National Monetary Commission,

SEASONAL VARIATIONS OF VARIOUS KINDS OF MONEY AND OF DEPOSITS IN THE
UNITED STATES, 1890-19081

Chart made from Kemmerer's chart, p. 146, and table, p. 161.

Dec.

Jan.

National
Bank Notes

$340

335

330

325

320

315

310

305

300

Amounts of
Clearings
(000,000)

$4,075

2,000

1,925

1,850

1,775

1,700

1,625

1,550

1,475

1,400

Months

year to year, as would be expected because of generally expanding business, but there is virtually no rise and fall according to the seasonal variations in the demands of trade. It is noteworthy, however, that the increase in circulation each year takes place largely in the fall and early winter. Apparently banks intending to increase their circulation postpone doing so until the crop-moving season approaches. There is no evidence of contraction, however, when the crop-moving demands are over, the national bank note elasticity being (to use a rather inelegant expression) of the chewing-gum variety.

Deposit currency exhibits a high degree of seasonal elasticity, expanding and contracting in accordance with variations in trade demands. It is the only truly elastic element among our media of exchange. In some cities, like New York and Chicago, the general movement of the curves for the circulation of deposit currency follows fairly closely those for the relative demand for loanable capital. In other cities, like St. Louis and San Francisco, while the parallelism is not so close, there is, however, a tendency for the general seasonal swing of the deposit currency circulation and of the relative demand for moneyed capital to be similar.

68. INELASTICITY OF CURRENCY FOR SEASONAL NEEDS1

The autumn of each year makes more apparent the urgent necessity of some additional facility or means by which the demand for crop-moving funds can be supplied to the people without derangement of all the business and financial affairs of the country.

As has been so often said, there is no flexibility or elasticity in our currency. The necessity for this is always most acutely felt in the late summer and early autumn, or at the crop-moving time. The two ways in which the demand for funds then manifests itself are in a demand for an increase of deposits requiring more reserve money and for cash or currency to make cash payments. This latter demand has to be largely met by money which would otherwise be available for reserve. The withdrawal of this reserve money reduces the reserves when they should increase, and after it is no longer needed for cash payments the money returns to reserves and tends to inflate loan credits and induce speculation.

The real solution of the problem is to enable the banks to supply for the cash transactions bank notes not available for reserves, and

which therefore do not contract loans when paid out and do not inflate them when they return.

Consider for the moment the supply of crop-moving funds, which is the really critical point in this question. When the harvests first begin in the South and Southwest, the banks at once feel two demands: first, for loans to the people who must provide funds to buy the products of the farm and plantation; second, for currency to pay the wages of labor and to pay for such products as must be paid for in actual cash, and not by a transfer of credits by check. This demand for loans to be kept on deposit makes more reserve money necessary for the banks to hold, and at the same time they must supply more currency for cash transactions. It would seem, therefore, perfectly axiomatic to anyone that the best way to meet the situation would be to keep in the banks all the money which can properly be used for reserve and to supply for cash transactions currency which will answer all necessary requirements, be just as safe, just as convenient, and just as good in every way, but which is not available as bank reserves. This can be done simply, easily, and automatically by the proper use of the right kind of bank notes, and in no other way.

69. THE TREASURY AND THE BANKS: HISTORICAL

SUMMARY'

BY DAVID KINLEY

1. The policy of the government with reference to the safekeeping of its funds has been variable. For the first few years after the adoption of the Constitution, before the subject attracted serious public attention, there was no specific place for the custody of the public money, and it was left largely in the hands of collecting and disbursing officers.

2. During the existence of the first and second United States banks, that is, from 1796 to 1811, and from 1816 to 1833, the date of the "removal of the deposits," the public money was kept mainly in these institutions and their branches. Nevertheless, even during these periods some state banks were employed.

3. In the interim between 1811 and 1816 the public money was kept mainly in the state-chartered banks. These banks were also used between 1833 and 1846, the date of the establishment of the independent treasury.

Adapted from The Independent Treasury of the United States and Its Relation to the Banks of the Country, pp. 323-30. (National Monetary Commission, 1910.)