New-York tribune., 1918-06-23
Initiation as Method of War Finance.
Leads to Self-Delusion Of the Public
Makes People Think All Going Well When Large
Regardless of How Much Munitions Supplies Money
Command Evidence of Undue Currency Expansion Here

of the Federal reserve system. Certain
features of that revision have enabled
the average dollar in active circulation
to do more money work than formerly
"This result has been further pro-
moted by the creation of the Fedora
reserve clearing and collection system
We may conclude, therefore, with
reference to the money OF active hand
to-hand circulation, namely, the proper
tion of our total money supply that is
normally outside of bank vaults, that
since 1918 it's supply has increased 4C
per cent, as contrasted with an increase
of 21 per cent in the physical volume of
the country's business, and that the
average dollar is probably more eff
ficient to-day than it was in 1918. This
conclusion points to imitation.
Much more important from the
standpoint of imitation than the money
in active andto-hand circulation is
that in banks which serves as the cash
basis of our vast deposit or check cur
rency To what conclusions do our sta
tistical inquiries lead upon that sub
ject? In the first place, we may note
that slightly larger proportion of the
total money of The country (outside
of the Federal Treasury is held in
bank reserves against deposits now
than in 1913, the proportion having in
creased from 44 per cent to 46 per cent.
1t Is in bank reserves that money finds
it's most efficient use. In the second
place, 1t is to be noted that the amount
of money held in bank reserves against
deposits has increased enormously
since 1918. For that year the average
amount was $1,4S8,0oo,0oo, while for
1917 it was $2,254, 100000, an increase
OF 81 per cent, as contrasted with 21
per cent in the physical volume of the
country's business. Not only has the
amount of reserve money greatly in
creased since 1918, but each dollar in
reserve is carrying s greater burden
of deposits than it was prior to the
war. In 1913 the average cash reserve
to deposits for the entire country was
III per cent, and in 1917 it was 10.6
per cent. In other words, in 1918, lit
cents provided the cash support for a
dollar of check deposits, while in 1917
l0.6 cents supported the same load.
The last item alone represents an in
creased efficiency of the dollar, acting
as reserve money, of 9.4 per cent.
Heightened Efficiency
In Deposits Currency
ut is probable that the efficiency
of bank deposits themselves circulat-
ing through the instrumentaity of
checks has also increased since 1913
under the speeding up" pressure Of
war needs, but on that point the avail
able evidence is inadequate to Justify
very positive judgment. Pointing in
the direction of greater deposit cur
rency efficiency is the fact that in 1918
the entire clearings of the country's
clearing houses were 1874 times the
average bank deposit, while in 1917
they were 14.4 times that figure. If
one excludes New York clearings. the
respective figures are SO and 81.
THE evidence therefore shows that q
slightly larger proportion of the money
OF the country was in bank reserve in
1917 than in 1913, that the amount of
cash in reserve increased much more
rapidly than the business of the coun
try during that period, and that each
dollar in reserve provided the cash
basis for a larger amount of deposits
IN 1917 than in 1913. Furthermore. the
evidence makes it appear probable that
the average bank deposit had higher
rate of turnover in 1917 than in 1918.
or, in other words, that a larger
amount of check business was done in
1917 than in 1918 for each dollar of
average. daily deposit. Each of these
conclusions points to imitation"
IN making the banking system Of the
country more efficient, the Federal Re.
serve system indirectly contributed to
hnatlon,. according to Professor KEN
merer, who says:
All this has greatly improved our
banking system. It has made our cash
reserves much more efficient than be-
lore; but in making them more efficient
~ y; mas enabled a given amount of cash
IN IN reserve to do more work than be-
tore, and has therefore made money
cheaper as compared with goods. In
otner words, it has caused imitation.
=. Inc excess currency in normal
times soon finds its way out of
the country through the exporta-
tlon OF gold, for which the country
receives the equivalent in Other GOODS
and securities. The gold so released
acts like new gold coming from The
mines, and is apportioned, through ont ont
the world, bringing about a new anJ
slightly higher world eauiIibr;,r iw anf nf
prices. For the country imnrovina @ the
efficiency of its banking system, the
cnange has been profitable one. It
is using less expensive exchange
mechanism, than before, and the work
is done equally we'll. The unneces-
sary part of the old mechanism II has
swapped for little less than a billion
dollars worth of other goods that +
needs. A temporary currency imitation
was necessary step in the proceed
ure." f~0se"
Imitation in the popular mind means
chiefly higher prices. An index number
OF prices shcws that the trend inward
has been marked. 1t shows an increase
OF rs per cent from 1918 to 1917
The following table summarizes tbe
changes, and is based on the Federal
bureau OF Labor Statistics. The table:
Index Numbers of Wholesale Prices
lhoex Index