Evening star., 1939-01-01
Deposits SET Record,
But Turnover Stays
Close 10 Lows
Basis for AII-Time
Prosperity Peak Seen
In Idle Funds
By Cambridge Associates.

In Idle Funds
By Cambridge Associates.
College students in economics, hav-
ing been introduced to the intrica-
cies of supply and demand, gener-
ally next proceed to the considera-
ton of a formula-MV M'V'=PT
which is the erudite way of saying
that the sum of the turnover of cur
rency in circulation and of credit
equals the total value of goods and
services dispensed. Today our econ
omy Is faced with acute stasis of
NV. In other words, the volume
of transactions represented by checks
Is abnormally low in relation to the
total of bank deposits.
Deposits are now at record highs,
but they are not being pushed
around fast enough. Given the rate
of activity they enjoyed in the year
1929, they would produce an unpar-
alleled degree of prosperity, one
which would produce tax revenues
sufficient even to pay the cost of all
the services which we now demand
from our Government. No longer do
we think of the problem in such
academic terms, however. We are
now engaged in trying to increase
the national income.
Without the benefit of industries
which are obviously on the make,
as the automobile industry was in
the '2Os, it is difficult to point to
any one factor which viii. provide a
solution to the problem. Either
some revolutionary new develop
ment must capture the public fancy
or we must develop more intensely
the resources we now have and dis
tribute their advantages to larger
sector of the population. This is
the dream of every sincere politician
in these days of larger social con-
sciousness.
Prospects of New Capital.
Every age of general prosperity
has witnessed a substantial invest
ment in new producing equipment.
The building of machinery and
equipment for the fabrication of
other things, superimposed on
healthy flow of goods into the hands
of the ultimate consumer, is neceS-
sary to create the flow of money and
deposits which characteriZeS a pc
riod of prosperity. So far in the
recovery of the last six years the
production Of capital equipment has
been confined largely to replace
ments and modernization of obsolete
facilities. which has been helpful but
not broad enough.
With a substantial amount of re-
funding of bond issues completed,
the financial world is looking for
ward to a possible opening of the
new capital market which will au-
tomatically provide the answer
There is no paucity of new ideas
which a moderate capital invest
ment could develop into useful and
appealing products, but the imagi-
nation to see their potentialltieS has
been temporarily misplaced.
"SnowbalT Effect on Spending.
In addition to the building boom
which 1888 figures strongly indicate
is finally in the advancing stage,
and prospective large expenditures
for armament. the utility industry
is expected to contribute substan-
tally to 1889 expenditures for new
equipment. The net gain in volume
of circulation which will be occa-
stoned by these two developments
will be much larger than the cost
of the materials and wages, for on
one end the production of the mate
rials will be translated into still
more wages, and on the other end
the wages will be expended for still
more goods. The SNOWFALL effect
of even a relatively small expendi-
ture may thus be quite substantial.
Less certain, but within the realm
of easy probability, are expansion of
aircraft manufacturing facilities,
purchase of new equipment and rails
by the railroads, and modernization
of paper mills, cement mills and
other heavy equipment similar to
the recent regeneration of the steel
industry.
Possibilities for Expansion.
The reduction of the relief load,
which will be direct result of eX-
penditures for new capital equip
ment, also will feed upon itself with
beneficial results, since it will tend
to bring the Federal budget into
balance and distribute taxes over a
wider base. Relief payments are
designed to provide the necessities
of life for the unemployed; employ
ment generally provides not only for
necessities, but for amusements and
luXuries as we'll, which further stim-
ulate industrial production and plans
for expansion.
Expansion Of the velocity of de-
posits, which began soon after in
dusctrial recovery got under way in
1888, continued to 1887, when a we'll
defined interruption of the progress
was observed. The peak probably
represented levels close to the max
imum which can be expected with
out substantial expansion of our
capital equipment. But at that peak
the ambition of the American peo-
pie for higher standards of living
and security for all had not been
achieved. We are now on the next
leg of the recovery; its strength
will soon be registered by the mag
nitude of the increase in bank
clearings in relation to total deposits.