Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-07-14
Industrial Production Up.

Atusust 2: 1911. Is4ss i.7as
Nay T. lSSSo ..'.,.. 2o1ss i,s0a
Industrial Production Up.
"As against these figures Of credit
outstanding the index numbers Of in
dustrial production compiled by the
Federal Reserve Board show that the
volume of output stood at lot in Au-
gust, 1927: at l09 throughout the Spring
of 1928, and at 100 in May Of this cur
rent year. If the test Of normally in
the rate of credit expansion is the re-
lationship which it bears to the rate of
growth of industry and trade then we
are confronted. not with imitation, but
with its exact opposite-deflation.
This has been true both during the
last l3 months and during the last two
years. Since the Summer of 1927 there
has been an increase in industrial pro-
the credit outstanding has expanded less
than l per cent.
IF the test of credit expansion as
compared with industrial production is
applied over q longer period. the EVIL
dence is likewise against imitation. In
the postwar deflation OF 1s20-2l all
reporting member bank reached the low
point for deposits in August, 1921, when
they fell to $12,s27 eco 900. The index
of production stood ct 81.
ut may be noted in passing that this
was likewise the average Of production
for 1921. Between that date and May,
1928 the high point OF deposits, bank
credit increased 81 per cent and pro-
duction So per cent. BY May, 1929, bank
credit outstanding was SO per cent
higher than in August, 1921, while pro-
duction stood 76 per cent above the
earlier level.
Why Call II Imitation?
How, then, does any one arrive at
the conclusion that the condition OF
credit today is one of imitation? 1t is
based upon the assumption that the
measure of credit outstanding Is to be
found In the loans and investment hold
ings of the banks. rather than in their
deposits The loans and the securities
owned by the banks show no such de.
months. They are down only 1851 ,00O.-
900. Instead of being lower than they
were In August, 1927, they are $685.
100000 higher.
Not only are these items taken as
the measure Of credit expansion, instead
of deposits, but loans to brokers for the
account of others are sometimes added
to the bank loans. In this manner one
arrives at a great expansion in bank
credit outstanding during the last two
years. This is an improper procedure
with respect to both items.
THE Federal Reserve act Itself fur
fishes the most conclusive evidence
that credit expansion is represented by
deposits and not by loans and invest
ments. It requires every member bank
to keep a legal reserve with the Federal
Reserve Bank. This reserve is COM
puted on its deposits, not on its loans.
This reserve acts As check upon the
expansion of bank credit.
Net Demand Deposits Lower.
During the last 10 months the re-
serve deposits of the member banks have
declined more than s150,o0o,0o0. This
decline Is a measure of the defiation
which has taken place. Some writer's
have been inclined TO attribute 1t to a
shift from demand deposits to time
deposits. This Is not the explanation,
as time deposits have not expanded but
have actually declined slightly during
are due etiT primariiy to shpinksgs en Of
over S1,o00,oo0,oo0 in net demand de-
posts.
I'VE have now debated the credit
structure to the point where we are
using $200,000,000 less reserve credit
than year ago, and the reserve ratio
has increased from 10 per cent to rs
per cent. II is probably the first time
in financial history that credit has
actually been debated in the boom
phase of the business cycle. Usually,
that operation is left for the depression
which follows the boom. This time it
has been dore in anticipation of bust
ness recession, and it should exert an
important effect upon the future course
OF industry and finance"
Distinguished Banker Coming Here.
The impending visit to Washington of
Sir Montagu Norman, governor of the
Bank of England, to discuss world
finances with United States Govern
ment officials, recalls a similar con-
ference In New York two years ago in
which he participated with the leading
financers of two continents when the
growing gold reserves Of this country
were upsetting the monetary equilibrium
of the world.
While the object Of Sir Montagu's
visit has not been revealed, 1t Is as
sumed that the gold situation is bring
ing him here again.
Pays Initial Dividend.
The Investment Corporation Of North
America has Just paid It's initial divi-
dend on the outstanding class A stock
to shareholders OF record June 80. ThlS
payment was made on the basis of $3.50
per share per annum, or at the rate
Of z per cent on the offering price Of
the stock.
This corporation will be remembered
as a local investment trust, of which
former Secretary of Agriculture VIII
liam M. Jardine is chairman and Rolfe
E. Boiling Is president.
New Bank CIearings Record.
The largest volume of exchanges ever
cleared by an individual bank in the
history of the New York Clearing House
was recorded by the Chase National
Bank in New York on July with q
turnover Of $815, 1851, 462.69.
This tremendous volume of clearings
reflects the magnitude of the opera
tons carried out in connection with
midyear settlements by the countrys
leading banks, of which the Chase Ma
tional Bank is one of the three largest.
A~aarIcaa canitaI In RAILWAYS oil.