ELASTICITY.

207. By the term "elasticity" as applied to a currency is meant the capacity to expand and contract with an increase or decrease in the demand for it-that is the adaptation of currency supply to currency need. Indeed, elasticity consists quite as much, if not more, in the capacity to contract as to expand.

Entirely apart and distinct from the occasional emergency demands for currency growing out of extraordinary or panic conditions, which it is not intended to discuss at this point, there are numerous variations in the demands for currency at different times in the year, arising from methods of doing business, and especially from the ebb and flow of industrial activity at different seasons. Where wages are paid weekly, for example, it is evident that there will naturally be a greater demand for currency, or a medium of exchange, on Saturday night and early in the week, than there would be a few days later when the amounts received in wages at the close of the previous week had been largely spent and returned to the banks in the stream of deposits from local tradesmen. If wages were paid only at monthly intervals, the variations on this account would be even greater. The amounts then required to make payments on the last day of each month, or the amount which the workmen of that community might hold on the evening of that day, would be much more than the amount of currency which would be in the hands of these same workmen four weeks later. In other words, there would be in such a community, material monthly fluctuations in the demand for media of exchange, due to the methods followed in making payments for labor.

Similarly, the practice of paying rents, settling accounts, etc., at monthly or quarterly intervals, wherever it prevails, leads to a considerable increase in the demand for media of exchange at certain periods, and a falling off at other periods; while the practice of paying dividends on stocks, and interest on bonds or

on mortgages at definite quarterly, or semi-annual, or annual intervals, which has become so marked in the development of these forms of investment, greatly intensifies the increased demand for some means of payment at such dates.1

But, perhaps the most marked instance of this periodically increased demand grows out of the marketing of the crops. Manufactured goods are, in general, capable of being marketed continuously throughout the year, and it is the aim of manufacturers so to adjust their production that this end will be secured. In the case of agricultural products, however, the circumstances are otherwise. The greater part of our immense agricultural crops is marketed within a period of three or four months. From the necessity of placing such large amounts of these products on the market at fixed recurring periods, arises one of the most marked seasonal demands for an increased medium of exchange.

208. Some of our ordinary media of exchange possess the characteristic of elasticity-the capacity of expanding and contracting with these varying needs of business-to a much greater

The Commercial and Financial Chronicle has furnished to the Commission an estimate of the payment of interest and dividends on railroad bonds and stocks in the United States in each month, from which it appears that the necessity for payments on account of these items alone, is more than five times as great in certain months as it is in others, and vastly greater on the first of each of such months than on any other date. The estimate is as follows:

degree than others. The deposit-currency by means of which the largest part of our commercial transactions is effected is particularly elastic. It expands and contracts automatically with every change in demand. If additional currency is wanted in a strictly commercial community for any of these extraordinary demands - by a railroad, for example, to provide for the payment of interest on its bonds-it is secured from an existing deposit, or by means of a loan granted in the form of depositcurrency against which checks for the interest are drawn; and to the extent to which those to whom the interest is paid likewise make use of the check and deposit system, the whole transaction is carried through without the least trouble or friction. This currency expands freely and automatically to meet any real need, and contracts as easily as it expanded when it is no longer desired.

209. But manifestly not all these needs which have been suggested for increased supplies of a medium of exchange can be met by an expansion of the deposit-currency. Whether or not any particular demand can be so met, will depend largely upon the business habits of the community and the commercial development of the individuals or the character of the transactions.

In the payment of weekly wages, for example, the depositcurrency is very rarely used, even in the more highly developed commercial centers; either coin or some form of note-currency is required. But in this case the periods are so frequent that the demand may be said to be practically constant, as the necessity of providing for it is always present, and there is little opportunity for making any other use of the funds required for this purpose in the brief intervals when they are not actually in

use.'

The parties to monthly payments on account of wages, rents and accounts, though still requiring a large use of the note-currency, do make a larger use of the deposit-currency than the classes just referred to. And when the quarterly and halfyearly settlement of accounts, rents, dividends and interest are

'It is worthy of note, however, that when the banks are able to provide freely for this demand by their note-issues, so that they need make no provision for it in advance, evidence of this weekly demand does appear in the expansion to meet it.

considered it is found that in all communities of high commercial development the deposit-currency is the form most used. And, as already suggested, so far as this particular medium of exchange is used, there is no ground for complaint on the score of inelasticity. The increased demands for currency arising from these transactions are in fact met by so automatic an adjustment of the supply that little visible evidence is left that there has been any fluctuation in the demand.

210. The most marked variations in demand for currency in this country occur in connection with the annual marketing of the crops. Owing to the fact that the agricultural classes involved in these transactions do not use the check and deposit system to any great extent, this demand is largely for a notecurrency. The farmer on selling his crops may indeed receive a check in payment; but as he and a large part of the community with which he deals do not find the check and deposit system convenient, he is not satisfied with that sort of payment. He cashes the check at the bank, or through some merchant, and thus secures the form of currency which he requires. If he cashes it with a merchant, a portion may be merely offset against his account at the "store" where he deals, and to that extent the demand may be satisfied without resort to note-currency. But not so with the balance; for that he must have coin or notes. Some of this currency is used at once in settling In April 1875, the Scotch banks made daily exchanges of notes, and it appears from the returns showing their notes outstanding at the close of each day, after giving effect to the daily exchanges, that there was a noticeable increase on Saturdays, in the circulation of notes under £5 ($25), due to the taking out of notes for payment of wages, etc. The return, as summarized, was as follows:

AVERAGE AMOUNT OF NOTES IN CIRCULATION AFTER EFFECTING DAILY EXCHANGES.

outstanding accounts, and thus gets back to the bank almost immediately through the deposits of the tradesmen. To this extent the demand is of short duration. The rest of the currency is paid out from time to time during the fall and winter for "help," and in the purchase of the winter's supplies, or is held in cash in many cases to meet spring payments on a mortgage. The net result is that the average farmer has in his possession for the three or four months after he has sold his crop, a much larger sum of money or notes than during the three or four months immediately preceding. Taken in the aggregate, this makes a largely increased demand for currency in the form of notes in the fall season of the year.

The question which most naturally arises upon noting these varying demands of currency is as to the way in which they are in practice met, both here and elsewhere.

211. In England the deposit-currency has perhaps attained its greatest perfection. Through the extension of the system of branch banks into every corner of the land, banking facilities have been placed close at hand and the community familiarized with their use. Owing to the extreme elasticity of this medium of exchange, therefore, the variations in demand meet with an automatic and immediate response. The following table and dia

LONDON CLEARING HOUSE EXCHANGES ON THE FOURTH OF EACH MONTH.