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grain bills. There is also a demand on the part of western bankers for currency to meet the spring needs of the western farmers. The first of March in many sections of the Middle West is the commonest time for making settlements of interest and principal on farm mortgages. It is also a common date for paying farm rents.

This spring advance in the value of money in Chicago as compared with New York reaches its maximum early in March. The demand then falls off rapidly and with only temporary interruptions (the most noteworthy being about May 1) until it reaches the low level of the early summer, the latter part of May. It continues at a low level until early in July, when the crop-moving advance begins.

The average domestic exchange rate rose from 29.5 cents discount in the ninth week to 16 cents premium in the twenty-first week. In nine of the ten years the rate for the twenty-first week was higher than that for the ninth. The average rate then fell to 4 cents premium in the twenty-fourth week. These two latter movements, however, were minor ones and not regular in their occurrence, the former taking place in six and the latter in five of the ten years.

Chicago reported relatively small receipts of cash from the East during these months. The shipments east, however, were high, the totals for four years being as follows: March, $6,287,000; April, $10,936,000; May, $12,212,000; June, $12,628,000.

Money, having served its purpose in meeting the spring needs of agriculturists, flows into the reserves of the Chicago banks, and Chicago bankers, not having a great demand for it at this time, move a portion of it to New York for the purpose of obtaining the 2 per cent which New York banks pay upon bankers' balances.

About July 1 the relative demand for money in Chicago begins to increase, advancing rapidly, with minor interruptions, until early in September and then maintaining a high level until the fore part of November. During this period exchange rates rule low and money moves in large quantities from the Eastern states to Chicago. The average exchange rate fell abruptly from 11.5 cents premium in the twenty-sixth week to 16.5 cents discount in the twenty-seventh week, a decline taking place in every one of the ten years. After a minor reaction to the twenty-ninth week, which took place in seven years, there was a continuous decline until the thirty-fifth week, when the lowest point of the year was reached. The average rate fell from 11.5 cents premium in the twenty-sixth week to 37.5 cents discount in the thirty-fifth, a very substantial decline taking place in

every year. Exchange then continued at a low level until about the forty-fourth week (fore part of November), the average rate for this week being 29 cents discount.

The primary cause for this is of course the anticipated and actual crop-moving demand. For the twenty-seventh week (about July 1) the striking fall in exchange may be due in part to the efforts of western banks to maintain their reserves (or strengthen them) in preparation for their half-yearly statements, which are generally published.

The receipts of cash by Chicago banks from eastern banks from June to October were as follows: June, $2,500,000; July, $2,704,000; August, $17,910,000; September, $11,789,000; October, $21,843,000. Shipments by Chicago to the East were very low in all these months.

During the last six to eight months of the year, the demand for money being stronger in New York than in Chicago, the average exchange rate rose from 29 cents discount to 13 cents premium in the forty-seventh week; it then declined to 11.5 cents discount in the forty-ninth week. The rate for the forty-seventh week was higher than that for the forty-fourth in every one of the ten years, that for the forty-ninth week was lower than that for the forty-seventh in eight years and the same as the forty-seventh in the other two years, while that for the fifty-second week was higher than that for the fortyninth in six years and the same as that for the forty-ninth in two years. The general upward tendency in rates at this time, as well as the two lesser movements noted, appear, therefore, to be fairly regular in their occurrence.

Reported receipts of cash by Chicago from the Eastern states fell off in November and December from their maximum figure for the year in October. On the other hand, shipments to the Eastern states reported by Chicago rose from $2,134,000 for October to $3,213,000 for November, then fell to $3,021,000 for December.

Money becomes relatively cheap in Chicago and vicinity during these last six weeks of the year, principally because of the return flow of currency previously shipped to the country districts for cropmoving purposes. There is also considerable demand at this time for New York exchange to meet payments in certain lines of goods, such as hardware and dry goods, that are due New York and New England houses by western establishments, and to make purchases for the holiday trade.

The decline in exchange rate from the forty-seventh to the fortyninth week may perhaps be attributed to the fact that by this time

foreign exchange made by cotton and grain shipments to Europe has been sold in New York in considerable quantities. The advance from the forty-ninth to the fiftieth week and the comparatively high exchange rates until the end of the year are largely due to preparations for the January disbursements, which western concerns are called upon to make in New York City.

65. INTEREST ON DEPOSITS AND SEASONAL DISTURBANCES1 BY WILLIAM A. RICHARDSON

The practice of paying interest on deposits is pernicious and fraught with danger and embarrassment to borrower and lender as well as to the general business interests. If deposit accounts are employed as temporary investments, the interest attracts a large amount of money to those cities where such interest is paid, and where speculation is most active, at seasons when as much profit thereon cannot be secured in legitimate business, these temporary investments are called in and jeopardize in their sudden withdrawal the whole business of the banks, both affecting the legitimate depositors on the one hand by excitement and distrust, and on the other creating a condition of things in which the borrowers on call are also unable to respond. The banks have borrowed their money of depositors on call. They have loaned it on call to speculators, who by its use have contributed to inflate prices of the stocks or merchandise which have been the subject of their speculations. The speculator wants it till he can dispose of them without a loss. This he is unable to do in a stringent money market. The banks, their depositors, and the borrowers all want it at the same time, and of course a stringency is developed which spreads distress throughout the country.

The system creates an immense amount of debts payable on demand, all of which thus suddenly and unexpectedly mature at the first shock of financial or commercial embarrassment in the country and at the very time when most needed by debtors and when they are least able to respond.

Without attributing the stringency in the money market which is experienced every autumn and occasionally at other seasons of the year solely to this practice of paying interest upon deposits in the large cities, it is evident that when money is less needed in legitimate business the practice encourages overtrading and speculation, always

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detrimental to the best interests of the country, and the bad effects of which upon those interests become more apparent and the disaster more widespread when the necessary contraction begins to be felt.

66. SEASONAL FLUCTUATIONS AND COMMERCIAL FAILURES' BY EDWIN WALTER KEMMERER

The figures for commercial failures for the years 1890-1908 published by Dun's and Bradstreet's show a striking seasonal movement. First to attract attention is the very large number of failures during the fore part of January. The first three weeks of the year are clearly the highest three. After the fore part of January there is a rapid decline in the number of commercial failures until the fore part of April. With the exception of a minor upward movement during July, followed by a decline throughout August, the curves of commercial failures tend to be low from early April until the fore part of September, when they begin a strong upward movement which does not culminate until after the opening of the new year.

What is the explanation of this marked seasonal swing in the number (and also the liabilities) of commercial failures? Obviously one of the chief causes for the large number of failures in December and January consists in the custom among business concerns of taking account of stock in December and of closing accounts for the year's business. Many small concerns really do not know where they stand until about this time of the year. Many financial obligations, moreover, become due January 1, and it is customary in many places for banks to require statements of customers at about this time. In early January business concerns are commonly facing a period of inactive business. Similar conditions in general exist, although on a much smaller scale, during the few weeks before and after July 1, and probably account for the movements in commercial failures noted as occurring at that time. Concerns which survive the December-January strain are likely to be able to continue during the spring and the slack summer months. As the fall approaches and the money market hardens in response to crop-moving demands, as interest rates rise, bank reserves decline, and loans are curtailed, as securities tend to decline and increased margins are called for, the

I

Adapted from Seasonal Variations in the Relative Demand for Money and Capital in the United States, pp. 231-32, 221–22. (National Monetary Commission, 1910.)

strain on the weaker business concerns is liable to become more tense. While, of course, it would be rash to say that the tightened money market in the fall is the cause of the large number of failures at this period, it seems reasonable to expect that the strained money market at this time would tend to push over many concerns which were already near the verge of failure. I know of no other explanation for the large number of failures during October and November. The period of the spring trade revival is so brief and such a short time after the "cleaning-up" period of December and January that it normally occasions few failures. In March, however, there is a slight decrease in the number of commercial failures.

67. SEASONAL VARIATIONS IN SUPPLY OF CURRENCY'

BY EDWIN WALTER KEMMERER

By "money in circulation" is meant all money outside of the Federal Treasury vaults. The forces influencing the amount of gold and gold certificates in circulation are (1) the bullion deposits at the United States mints and assay offices; (2) the net imports and exports of gold in settlement of foreign balances; and (3) subtreasury payments and receipts. The rapidly increasing gold production in 1890-1908 would of course show a steady increase in gold circulation from January to December.

The substantial increase in gold circulation from July to December is due to the large deposits of gold at the mints and assay offices in these months, by net importations of gold from abroad in consequence of heavy exports at this season, and to a decrease in the treasury balances. The deposit of large amounts of bullion at the mints at this season is due merely to the conditions surrounding the production of gold. It is not brought about to any extent by the great demand for moneyed capital at this time of the year. It has been the policy of the Treasury Department during the latter months of the year to aid the banks in meeting the crop-moving demand by decreasing subtreasury holdings and increasing government deposits in national banks.

The national bank note circulation curves do not exhibit any considerable seasonal elasticity. There is a general increase from

'Adapted from Seasonal Variations in the Relative Demand for Money and Capital in the United States, pp. 146-53, 173. (National Monetary Commission,

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