tural products sold to wholesalers or retailers for retail distribution, over a billion from direct exports and approximately a third of a billion from the sale of products direct to consumers, leaving approximately a quarter of a billion of farm receipts in 1929 not accounted for. The gross total of farm receipts from all sources appears to have been over 15 billion, while the net total of receipts by agriculture from sources other than agriculture amounted to approximately 10 billion.

By reading down the first column in the table it is possible to see roughly the disposal of agricultural funds. The 5 billion already referred to was paid by farmers to other farmers, an insignificant amount was paid to mining enterprises presumably mostly for coal, threequarters of a billion was paid to utilities mostly to the railroads for the transport of farm products, nearly two billion was paid to manufacturers for agricultural machinery, fertilizer, fuel, processed feed, and other things necessary to farm operation. Over 6%1⁄2 billion was paid out by farmers to consumers in the form of wages, rents, and interest or represented the income of farmers derived from their farm operations. Less than half a billion of farm expenditure remains unaccounted for, a part of which must have been taxes paid to government. The gross total of such items amounted to over 15 billion while the net total of payments made by farmers to other parts of the economy or received as income by farmers amounted to nearly 10 billion. The money payments and receipts of each segment of the economy except government and finance can similarly be read from the table.

This table should not be treated as anything more than a very crude first approximation to the volume of the money flows overlying production." For most segments it shows the relative magnitudes of the money flows, not their precise amounts. It is weak as a representation of all the money flows in 1929 in three major respects. First, it gives only a single item in the case of government and in that of finance. Second, for trade it gives only the minimum money transactions which are estimated to have been involved as commodities were purchased by wholesale trading enterprises, sold to retailers, and in turn sold to consumers or as commodities were purchased directly from producers by retail enterprises and sold to consumers. It does not cover secondary wholesale transactions such as arise when there is more than one middleman between producer and retailer and it does not include in any way such trading transactions as arise when producers

11 In developing the data underlying this fable Dr. Leontief was concerned primarily with the money value of goods and services produced by private or corporate enterprise and the money payments made in that connection. He made no attempt to cover all financial flows. The incompleteness of the table given above as a representation of all money flows results from the quite different purpose involved in the compilation of the data on which it is largely based. This incompleteness in no way reflects on Dr. Leontief's work.

purchase commodities from wholesale or retail trading enterprises, the sales by one producer to another through middlemen being treated as though they were direct sales. Finally the table is primarily concerned with the money flows overlying physical production and does not cover the money flows involved in the process of saving and investment. As more complete statistical data become available it would be desirable to complete and make more precise this representation of the money flows involved in production.

The more important of the money flows shown in the table are made graphic in chart VI. For each segment, the money flows between consumers and producers are indicated in gray while the flows between pairs of producers are indicated in black. At the left of each segment the money flowing to consumers as income is represented at the top and money flowing to producers in the form of consumer expenditure is indicated at the bottom. At the right of each segment the money flowing from one producer to another producer in the same segment is indicated. In addition the most important money flows between producers in different segments are indicated. If the remaining money flows were also shown the chart would become too complex to follow. For that reason only their magnitude is indicated under the caption "other." As can be seen from a glance at the chart, the main trunk of money flows runs from consumers to trade, then to manufacturing and in turn to agriculture and to mining, but becomes smaller at each stage as it is reduced by the payments made to consumers as income from labor or capital and those made to the segments supplying services to the whole economy, the utilities, financial institutions, and governmental units. It is this money flow as money moves from consumers into the channels of trade and back to consumers again or from producers to consumers and back to producers through the channels of trade that keeps production going in the American economy.

Factors Associated With Money Flows

The flow of money through these channels is associated with a variety of factors of which the four most important are changes in the total supply of money, the building up or depleting of money balances held by particular economic groups, shifts in the relative flow of funds into current consumption and capital formation, and, finally, changes in price relationships. The last of these will be discussed in chapter VIII. In this chapter a beginning will be made toward delineating the characteristics, magnitude, and changes in (1) the total money supply, (2) the money balances held by different economic groups, and (3) the proportioning of money flows between current consumption and capital forma

mately 26.5 billion dollars.12 This was composed of approximately 4.8 billions of dollars in currency (bills and coins outside of banks) capable of being used as a means of payment in hand-to-hand circulation and 21.8 billions of dollars of demand deposits carried as book entries in banking records and capable of being transferred in these records from the name of one depositor to that of another through checks. 13 By far the larger proportion of the money supply is thus composed of demand deposits, currency contributing only 18 percent of the total.14

The variations in the money supply from 1921 to 1937 are indicated in chart VII. The money supply expanded fairly steadily from 1921 to 1929, then contracted sharply to the bank holiday in 1933, and expanded again so that by the end of June 1937 it amounted to over 32 billion dollars. The bulk of this variation took the form of changes in the outstanding deposits. Between the middle of 1929 and 1933, demand deposits dropped over 8 billion dollars, or more than one-third, while most of the increase in money supply after 1933 was in the form of demand deposits.

The wide variations in the total money supply are of considerable importance to the structure of the American economy though there is no general agreement as to the exact role that these variations have played in connection with the variations in the level of production and of prices. Since this report is concerned primarily with the structural characteristics of the American economy rather than its operating characteristics, the exact effect of changes in the money supply on changes in the level of economic activity does not

12 The term "money" has been given many different meanings in economic literature, some more comprehensive than others. In terms of the structure of the whole economy, the significant meaning is whatever is customarily given in exchange for goods, securities, or in payment for labor. In this country most goods, securities, or labor transactions involve payment in currency or the transfer of demand deposits from the name of one person or institution to that of another. Some transactions involve barter of goods for goods, as when the farmer swaps butter and eggs for farm supplies at the village grocery. Some transactions involve payment in securities, as when a corporation exchanges its own securities for those of another over which it seeks some measure of control or when Liberty Bonds were used to pay for a new automobile or parlor furniture. But the bulk of transactions involve currency or demand deposits as one of the things exchanged in the transaction and the term "money" in this report will be limited to these two media of payment.

Time deposits are excluded from the category "money" chiefly because they are seldom used as a basis for payment in transactions, usually having to be converted into demand deposits or currency before they can be spent, just as a short-term government note usually has to be converted before it can be the basis for expenditures. Time deposits, call loans, and short-term paper have certain of the characteristics of money but not other characteristics. All represent highly liquid assets, but only currency and demand deposits are customarily used to pay for goods, labor, or securities 13 Checks are often thought of as money, but in practice, except when funds are being withdrawn in currency, a check is essentially a letter to a bank asking the bank to transfer the book entry in the name of one depositor to the name of another depositor, or to a different account of the same depositor, in the same or another bank. It is the bank obligation represented by the book entry and referred to as a deposit which constitutes a part of the money supply, not the check by means of which title to the deposit is transferred.

14 Gold ceased to be part of the currency supply in March 1933 when gold was retired from circulation. From that time on no part of the internal money supply of the United States has consisted of gold.

need to be discussed. What is significant for the economic structure is first, that such wide variations in the volume of money outstanding can and do take place within relatively short periods of time,15 and second, that these changes in money supply necessarily alter the buying power of individuals or institutions.

The great bulk of the money supply in the United States is provided through three channels, bank credit, gold inflow, and government issue. Of these, bank credit is by far the most important while the volume of money outstanding as a result of direct government issue is relatively small consisting mostly of silver certificates, subsidiary coins, and a relatively small volume of United States notes.16 Likewise the major variations in money supply derive from changes in bank credit. When the banking system expands its loans and investments and thereby increases the money supply, it is providing individuals, enterprises, or government units with buying power without at the same time reducing the buying power of anyone else.17 Likewise, when bank credit is contracted, the buying power of some economic units is reduced without any

15 This is a characteristic which sharply distinguishes the American from the Engish economy, in which no serious contraction in the money supply occurred in the depression.

16 Both Federal Reserve notes and national bank notes come into circulation primarily as a result of the extension of bank credit or the flow of gold into the banking system.

17 This is true whether the money supply is expanded by making loans or by purchasing securities. In the latter case, if the securities are newly issued and purchased by the bank directly from the issuer the effect on buying power is the same as if the bank had made a loan to the issuer, though the legal effect is different. If the securities purchased have been previously issued, the bank purchase provides the seller with money which the latter can spend on consumption or investment, or hold as addition to his money balance.

corresponding increase in the buying power of other units. The effect of such changes in buying power presumably depends on the particular conditions under which they occur. The magnitude of their possible effect is suggested by the fact that between 1929 and 1933, the money supply was reduced by practically 7 billions of dollars through the contraction of bank loans and investments while between 1933 and 1937 it was expanded by 12 billion dollars primarily through the expansion of bank credit. Such extensive withdrawals or injections of buying power cannot fail to have an effect on the flow of money and on economic activity.

Money Balances Held by

Different Economic Groups

Whatever the magnitude of the money supply at any given time, all the money outstanding must be in the possession of individuals, enterprises, governments or other economic units in the form of money balances. 18 These balances are important to the structure of the American economy because they reflect the power of the holders to put money into circulation by reducing their money balances and to withdraw money from current circulation by expanding their money balances. This power to start and stop the flow of money by varying money balances can have much the same effect on money flows and on production as have changes in the total money supply.

From the point of view of money flows, the most significant money balances are those held (1) by government, especially the Federal Government, (2) by producing enterprises, (3) by financial institutions other than banks, and (4) by individuals.

Actual data on the money balances of different economic groups are surprisingly scarce, considering their importance to the economy. The Federal Government regularly publishes its holdings of currency and demand deposits but for other groups only the very crudest data are available on the total money balances. Estimates are, however, available for 1933 and 1935 covering that part of money balances that is held in the form of demand deposits. Since demand deposits constituted over 75 percent of the total money supply in both these years, the figures on deposit holdings give a rough indication of the distribution of total money holdings even though currency was presumably not distributed in exactly the same proportions as demand deposits.

18 The terms "possession" and "held by" are used in this chapter to refer to al forms of money even though bank deposits cannot be in the possession of their owner or held by them in the physical sense that coins or notes can be in their owners' possession or holding.

It should also be noted that the money outstanding performs two quite different functions. It not only enters into transactions, passing from hand to hand in exchange for goods, labor, or securities, but between transactions it acts as a store of value in the form of a money balance which represents to its possessor a liquid asset which can be exchanged at a moments notice for other things.

The balances estimated to have been held by each of the different economic groups on December 31, 1933 and 1935, are given in table III. Of the total demand deposits of 21.9 billion outstanding in December 1935 approximately 7.6 billion were held by business enterprises, 5.0 billion by financial institutions and enterprises, 4.1 billion by public bodies and less than 5.2 billion by individuals. Of the amount held by individuals, over 430 million was held in deposit accounts of over $100,000 presumably for the most part the holdings of persons with larger incomes, while a very considerable sum must have been held by persons with intermediate incomes. Only a relatively small part could have been held by the individuals or families. with smaller incomes who constitute the main source of consumer expenditure. Probably less than 14 percent 19 and possibly less than 10 percent of the total of demand deposits was held by consumers with incomes under $5,000 who provided over 88 percent of consumer expenditure in 1935-36. In contrast, business enterprises, financial institutions and investors between them held the great bulk of deposit money. Just how currency was divided between these groups can only be surmised. It is probable that a very much larger proportion of currency outside of banks was held by consumers than the proportion of demand deposits held by them. But even if half of the currency were held by individuals or families with incomes under $5,000, their total money holdings, deposits, and currency combined would amount at the very most to a fifth of the total money supply outstanding.

funds and likely to use their money balances only to a minor extent to purchase goods for consumption. Only a relatively small proportion of the total money supply was held by the individuals who provide the bulk of consumer expenditures. Nearly a fifth was held by public bodies capable of directing funds either into current consumption or capital formation. It is thus apparent that the bulk of consumers live on a more or less hand-to-mouth basis so far as their money holdings are concerned. As a group their money holdings could not have been sufficient to finance much more than a month of consumer expenditure at the 1935-36 rate. A very great percentage change in the money holdings of this group could occur without a very large contribution to current buying power. This is important for the functioning of the American economy because it means that great increases in expenditure on the bulk of consumers could not arise directly out of the use of money balances already held by consumers. They could arise only if consumers received increased incomes or if they either borrowed or trenched on previous investments. On the other hand, the small increases in consumer expenditure such as might arise if consumers depleted their money balances might have very important stimulating effects on economic activity much greater than their absolute magnitude, just as a relatively small increase in money holdings involved in what has sometimes been called a buyers' strike could have a cumulative depressing influence.

The very large changes which can occur in the relative money balances held by different economic groups is suggested by the comparison of the demand deposits of different groups in 1933 and 1935 already given in table III. While the total demand deposits increased nearly 7 billion or 45 percent between these two dates, money holdings of financial companies more than doubled, while the holdings of individuals increased only onethird. Of the total increase in money holdings nearly two-fifths was absorbed into the balances of financial institutions, less than one-fifth into those of consumers, and a fifth each by business and government. The magnitude of these shifts emphasizes the need for more extensive and exact information on money balances. The significance of the shifts will be discussed in the next section in connection with the proportioning of money flow between current consumption and capital formation.

The Proportioning of Money Flows
Between Savings and Consumption

The expansion or contraction of the money supply and the building up or depleting of money balances are not the only characteristics of the system of money flows which are of significance to the economic structure. The direction of money flows as between current con

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sumption and capital formation is a factor of major significance. As money flows through economic channels, there are certain points at which it is directed in such a way as either to finance current consumption or to finance new plants, equipment, and additions to inventory. Sometimes the determination is simple and direct, as where a consumer spends his income on consumption goods or invests a part of it in the construction of a new house or when a corporation invests undistributed income directly in the construction of a new plant. Sometimes the determination of the money flow is a complex matter involving a combination of decisions at many points, as when a consumer saves part of his income and hands it over for investment to some financial institution which, in turn, passes the money savings on to some business enterprise that uses the funds either to expand its plant or to extend credit to consumers. Or the funds may be loaned to some government unit and the latter may determine whether they will be used for public works, for social expenditure on consumption, or in some other manner. However complex the process by which funds are directed into one or the other use, the direction is of significance to the structure of production because it conditions the volume of productive activity going respectively into the supply of goods currently consumed and into new plant, equipment, and inventory.

No attempt can here be made to disentangle all the different channels through which money flows in the process of financing production nor can all the different points be indicated at which discretion can be exercised to direct the flow into the financing of one or the other of the two basic types of productive activity. The most that can be done in this report is to indicate certain major points at which such discretion can be exercised and to suggest some of the ways in which that discretion is exercised.

The groups having discretion over money flows that are of major significance for the structure of the whole economy are (1) consumers in their disposal of consumer income, (2) financial institutions through the direction in which they lend or invest funds, (3) business enterprises through the acquisition and disposal of funds, and (4) governmental units, particularly the Federal Government, through their acquisition and disposal of funds.

Directing of Money Flows by Consumers

In chapter II, the expenditure of consumers on current consumption was examined in considerable detail as an indication of the structure of wants. But little attention was given to the factors which affect the magnitude of the total expenditure on consumption, or on the other ways of disposing of consumer income such as through