a few months went far toward preventing a wholesale collapse in the overstrained credit of commercial banks, while they were slowly applying pressure to those who had obtained credit-accounts in exchange for collateral loans.

A private bank or a State bank in time of financial stress must look to the market for funds. To obtain money with which to maintain its credit-accounts, without curtailing loans to customers, it must convert some of its capital-assets. This may be done either by sale or by hypothecation. If by sale, then the bank must take the market price for securities, and on an unfavorable market must suffer an investment loss. If by hypothecation, then the bank must pay the market rate for money. The National bank, on Advantage of the other hand, if it has "gilt-edge" "emergency" loans securities "reserved," may obtain without interest funds from the Government by hypothecation free of charge - i.e., without payment of any interest at all. To illustrate this advantage: Let us suppose that the market for securities is five per cent below the price paid by the bank. To sell capital-resources under such conditions would entail a direct investment loss of five dollars per hundred. Again let us suppose that the market rate for money has risen to ten per cent in the market, then this extraordinary rate must be paid on hypothecation. Either circumstance would put the State bank or private bank at a disadvantage in competition with

the National bank, which may obtain "issues" or "deposits" from the Government on hypothecation of its investments.

"Issues not loaned in emergency

The "issue-privilege" might be used with the same advantage as the "deposit-privilege" if the banks chose so to do. The difference lies in the practice of the Government rather than in the nature of the right. The "deposit-loan" privilege has been an opportunity extended for the conversion of "invested-reserves" or reserve capital-resources in time of emergency, thus seeming to increase the banking power; the "issue"-privilege is an opportunity to use "money-reserves" for direct investment, which seems to permanently increase the money stock without adding anything to the banking power. This conclusion is drawn from present practice under the National Bank Act, and does not reflect on the possibilities of using both privileges to a much better result.

CHAPTER XIV

THE AMOUNT OF MONEY AND CREDIT FOR WHICH ELASTICITY SHOULD BE PROVIDED

AN essay on elasticity and sound banking would be without bearing if it failed to consider the amount of fluctuations and demands for current funds. And such a consideration, to be of value, must have reference to commercial and financial experience, rather than to arbitrary conjecture. The current funds for which demands are made in business are of two kinds, viz., money and credit. Each of these has its own peculiar history and importance. Of fluctuations in total money-demands the statistics published by the Department of the Treasury are the best record.

Fluctuations in Total Money Supply and

Variations in

total national

Demands of the Country

The general money supply is increased or decreased by coinage and redemption, by importation and exportation. Aside money-demands from these, the factors of variation are comparatively insignificant. From the Treasury statistics it is found that the greatest variation

within a period of a single year since 1890, allowing for the average rate of increase, is about $244,000,ooo, or about ten per cent of the National money supply. It would seem that the fluctuation in total money supply of the country is not a serious matter - that the increasing and decreasing need of the future, as in the past, may readily be met through present agencies of coinage, issue, and importation without seriously disturbing the world's markets.

But the fluctuations in total National money-demand with respect to total money supply are not as significant as are the variations of supply and demand with respect to the several financial groups and institutions of which the National system is composed. This is true for the reason that within the National group specific variations of much larger proportions Greater impormay be completely lost sight of. For tance of variations example: Within a period of a year the in specific demand Treasury may show a monetary loss of $250,000,000, while the bank-reserves may show a gain of equal amount. These fluctuations would not in any manner affect the total money supply of the country. Again, the banks might lose $250,000,ooo from their reserves and the money in circulation among the people might increase in like amount. Such fluctuations would be lost sight of in an exhibit of National money supply and demand. Each year just such fluctuations as these rise like a spectre before thoughtful bankers.

Three classes of specific demands

As between the several financial groups there are three separate inquiries: (1) What are the fluctuations in the money-demands made by the Federal Government and by the several State treasuries; (2) what are the fluctuations in money-demands made by banks for money-reserves with which to support their credit-accounts; and (3) what are the fluctuations in the demands among the people for "till-cash" and "pocket-change," etc. As to these several classes of fluctuations in demand we may never have complete data. Fortunately, however, we have reports and statistics from which a safe approximation may be reached. The Bureau of Statistics of the Department of Commerce and Labor furnishes monthly statements of changes in the money supply in the Treasury and in circulation. Five times per year the Comptroller of the Currency, makes public the changes in National bank-reserves; several inquiries have also been made with reference to the daily averages of deposits and withdrawals of National banks by months; the State banking and fiscal reports furnish supplementary evidence for different sections.

Fluctuations in Demands on the Treasury

Giving consideration first to the demands of the Treasury, the widest variation from the average increase in fiscal needs during the last fifteen years has been about $160,000,000. This amount is well