The Challis messenger. (Challis, Idaho) 1912-current, 1925-06-17
EshNING HONEY
FIT BUSINESS
When Times Are Active the Sup
ply lncreases-ContTaction Fol-
lows Seasonal and Periodic
SIackening.


New York. Demonstration that
/ COM lete elasticity has been impaired
to the currency in the United States
( BY the Federal Reserve System de-
| spite assertions to the contrary is Civ
ed in the American Bankers AssOcia-
tion Journal by " Randolph Burgess,
assistant agent at tie New York Fed
eral Reserve Bank.
"Of all the money in circulation in
the United States. Federal Reserve
notes now make up almost one-half."
h. says in part in 1920 they were
/ 70 per cent The increase in curren-
cy which the war and high world
/ prices made necessary was provided
almost wholly by Federal Reserve
notes. Just as the increase was Who'll
/ Is through Federal Reserve notes, so
eeain the decrease was altogether in
Federal Reserve notes. Reserve notes
in circulation decreased from 81 .300,-
Geo 600 in November, 1920, to s1,700.-
100000 in March 1925 Between the
Eas dates other currency increased
from S1500 100000 to S2,300G00.e00,
due to an increase in gold certificates
There are still some few WHO pro
duce theoretical arguments to show
that for some reason the Federal Re
serve note is not elastic. These va
rious arguments raise interesting
Questions but they make little head
way against the facts. for the facts
show that the Federal Reserve note
has been elastic
How Currency Changes Volume
THE amount Of currency the conn
try requires reflects changing prices.
wage levels. employment and volume
@. trade. AS an example, retail trade
a. Christmas time is always larger
than at other times This results in 3
considerable increase in the need for
hand TO hand currency. Currency
withdrawals and receipts at the Fed
ersl Reserve Banks illustrate the way
this special demand was met. Prior
to Christmas there was paid out about
$500 900 900 of currency, all Of which
was returned to the bank within the
two or three weeks following Christ
mas
'eThe mechanism is that when Fed
eral Reserve member banks need cur
rency for their customers they draw
it from the Reserve Bank. Member
banks can secure additional currency
by borrowing at the Reserve Bank.
Conversely, whenever currency in cir
culation becomes larger than is re-
CURED by business il begins to return
to the banks and they Immediately
utilize it to pay off Indebtedness at the
Reserve Banks, on which they are pay
ing interest.
1.-THE Federal Reserve System has
made all types of currency, except ma
tional bank notes, elastic because all
except those notes can be issued in
amounts required and they all tend to
flow back to the Reserve Bank when
they are not required. There is an
other phase Of currency elasticity A
500 Federal Reserve note may repre-
sent only $40 in gold. because a gold
reserve of only 40 per cent is required
against Federal Reserve notes. On
the other hand. a 500 gold certificate
must represent 500 in gold. Thus
the Federal Reserve Banks can issue,
in response to commercial demand,
two and one-half times as many Fed
eral Reserve notes as gold certificates
before the reserve ratio reaches the
legal minimum
ea-on1.,>v Stretch
"This secondary elasticity was H.
Illustrated during the war, when in re
Spouse to war demands Federal Re
serve notes we're issued to the amount
OF 5000 GOO. The Federal Re
serve System could have issued more
than sSOO.000,OOe additional without
lowering the reserve against notes be-
low 40 per cent, or the reserve against
deposits below 50 per cent. In any
emergency the power to issue these
notes increases by $50 per cent the
amount of cash which might be sup
piled to the country.
Federal Reserve currency has
proved itself flexible in war expan
sion and in postwar reductions Since
the establishment Of the System the
currency has been responsive to the.
seasonal and emergency needs OF
business. The Federal Reserve Act
obtained currency elasticity by plae-
ing the country's reserve cash "a instr
tutions not organized for prodt from
which currency might be Withdrawn
or to which it might be returned in
response to the country's needs
While the existence OF the Reserve
System gives aoxibility to almas all
forms OF currency. the Federal Re
serve notes, secured in part by com
mercial paper, provides a possible sec
ondary expansion in readiness for an
emergency N