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which finds expression in such phenomena as large bank reserves, low interest rates, gold exportations, and high security prices, naturally brings its own corrective to some extent.

DEPOSITS AND BANK-NOTE CIRCULATION OF THE NEW YORK CITY CLEARING-
HOUSE BANKS, 1890-1908

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The crop-moving period is the fourth period. This period, the discounted beginnings of which are evidenced by the upward turn of interest rates on sixty- to ninety-day commercial paper and four months' time paper as early as the first week in July, may perhaps

best be dated from the first week in August, when call rates begin their upward movement and when bank reserves begin their decline. Under the pressure of the crop-moving demand for cash in the West and South bank reserves are depleted and the money market tightens rapidly until about October 1.

RESERVES AND RATIOS OF RESERVES TO DEPOSITS OF THE NEW YORK CITY
CLEARING-HOUSE BANKS, 1890-1908

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The fifth and last seasonal period in the New York money market extends from about the first week in October to the opening of the new year. It is a period of considerable uncertainty and of many minor fluctuations, but the demand for moneyed capital continues large until after the holiday season and January settlements. The westward movement of cash falls off rapidly in November and December, and by the latter month the return flow has set in. The southward movement declines in November, but shows some signs of increasing temporarily in December. Gold imports reach a low point in December. Throughout October, November, and December the Federal Treasury Department normally continues to increase its deposits in national banks, of which New York City gets its share.

62. SEASONAL VARIATIONS IN OTHER CENTERS1

BY EDWIN WALTER KEMMERER

Chicago, as might be expected, shows a striking similarity to New York. There are the same five principal seasonal movements taking place at approximately the same times of the year and influenced largely by the same causes.

The St. Louis seasonal swing differs from those of New York and Chicago principally in the fact that it exhibits a sharp decline in November, followed by a reaction extending until the latter part of December. There are considerable differences, moreover, in the times at which the different seasonal movements begin and end. Being in the midst of the great agricultural section which creates the "cropmoving demand for money," St. Louis naturally relaxes from the crop-moving strain earlier than do the cities farther east.

The movements in New Orleans differ from those of New York and Chicago even more than do those of St. Louis. The January decline is of such short duration as to be almost negligible. Bank reserves decline rapidly from early in January until the beginning of May, but this is apparently not due so much to a demand for funds at home as to the transfer of money for deposit and investment to other markets during the slack season in the region contributory to New Orleans. The New Orleans market, like those of other cities studied, is weak during the hot summer months of June and July, but begins to grow stronger by August and reaches its strongest point of the year during the crop-moving months of September, October, and early November. The last period of the year in the New Orleans money market is one of readjustment and liquidation, following the heavy demands of the crop-moving period. It extends from the fore part of November to the end of the year, and is a period of comparatively strong though gradually weakening market, and seems to resemble more closely the markets of New York and Chicago for this period than that of St. Louis.

The San Francisco market is probably more largely influenced by purely local conditions than any of the other money markets studied. It exhibits seven fairly pronounced seasonal movements, as follows: (1) The usual January decline. (2) A progressive "hardening" from about the first of February until nearly the middle of

Adapted from Seasonal Variations in the Relative Demand for Money and Capital in the United States, pp. 224-25. (National Monetary Commission, 1910.)

March. In addition to the forces bringing about this spring revival in other cities, such as the natural reaction and readjustment after the January decline and the spring demands of agriculturists, the local tax situation in California is an important factor. (3) The third period is one of an easier money market. It begins about the middle of March, and continues until the last of April, being temporarily interrupted at the time of quarterly disbursements, about the first week in April. This movement, like the former, is largely the result of the local tax system. (4) From the last of April until the latter part of June the San Francisco market is comparatively strong, under the influence of the demands for the annual fruit-packing business and of fishing companies preparing for long fishing trips. (5) The fifth period extends from the last of June to about the last of September. Like the summer months in the other cities studied, it is a period of comparatively small demand for loanable capital. (6) The sixth seasonal period is the crop-moving period, extending from about the last of September until the latter part of November. It is a period of rapidly increasing or large relative demand for moneyed capital. The demand comes largely from the need of funds for moving dried fruits and canned fruits and for financing the hay and grain crops. An important factor in the market at this time is the local tax situation. (7) The seventh and last seasonal movement in the San Francisco market covers the last few weeks in the year and begins anywhere from the latter part of November to the middle of December, according to the lateness of the season. It is a period of reaction and decline after the strong market of the preceding period.

63. THE THEORY OF DOMESTIC EXCHANGE1

BY WILLIAM A. SCOTT

Commercial relations between communities are revealed most clearly by what is called the balance of trade, by which is meant the difference between the totals of the sales to and the purchases from outsiders. When the total of sales exceeds the total of purchases, the balance of trade is said to be favorable, and in the opposite case unfavorable. Credit relations are revealed by balancing mutual loans and investments, and gift relations by balancing gifts and other transfers of property for which no return is expected. A combina

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Adapted from Money and Banking, pp. 121-25. (Henry Holt & Co., 1910.)

tion of these balances results in making a given community either a debtor of or a creditor to other communities. It is for the adjustment of these debit and credit balances that shipments of money from place to place are made.

At this point the queries naturally arise whether the money funds of a community may not be completely exhausted by the payment of adverse balances and how much is required for this purpose. An examination of the various elements which determine the balance of indebtedness will show that there is no danger either of the exhaustion of money funds or of their reduction below minimum requirements. The balance of trade, the balance of loans, and the balance of investments are all three adjustable. Long before a community could be deprived of the minimum amount of cash needed for bank reserves and hand-to-hand money, prices, interest rates, and opportunities for profitable investments would have so changed as to annihilate the unfavorable balance. The first effect of shipments of currency to other centers is the decline in the reserves of banks, which, if continued, will result in a rise of interest rates and a contraction of bank loans. The withdrawal from business men of the loan accommodations to which they have been accustomed will force them to diminish their purchases and will stimulate their efforts to sell. If this is not sufficient to redress the unfavorable balance, loans from outsiders may be increased or the fall in local values due to the increased anxiety to sell property may induce outsiders to increase their investments in the town. The proper adjustment will ultimately be brought about by a change of prices. If those of the place at which the balance of indebtedness is adverse are sufficiently reduced, increased sales to and increased investments by outsiders will remedy the difficulty, and such a reduction will result from the pressure to meet obligations caused by the currency drain.

The influence of currency movements on relative prices must not be confused with the fundamental causes of price changes. We are here concerned with the adjustment of the relations between the demand and the supply of the same goods in different places. Movements of currency from place to place are but one phase of the operation of the general principle that people sell in the dearest and buy in the cheapest market, the result of which is a tendency toward the equalization of the prices of the same commodity in different markets.

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