it 18 per cent above this average. The depression of recent months has been a more extreme movement. From January to June, production ran consistently between 20 and 25 per cent below the 1919 average and in July it touched the lowest point recorded, of 31.5 per cent below."

9910

Examination of the figures for the individual groups shows that there are differences in the timing of the significant movements of the production of various industries. "Thus the leather group was the first to experience the larger cyclical reaction after passing the post-armistice sag. As early as November-December, 1919, production in this group was receding. The food group followed suit almost immediately. Textiles broke in May. Upon the other hand, the most important group of all, iron and steel, after a temporary relapse in April, ran production upon a high level until October, 1920. The paper group likewise suffered no marked decline until November. And the petroleum trade did not show weakness until mid-winter."

"Similar differences appear in the periods at which the several groups of industries reached and passed the trough of the prevailing depression. The textile, lumber, leather, and tobacco groups apparently touched bottom between last December and February. All of these except leather have since returned nearly, if not fully, to the average level of 1919. The petroleum trade showed production well above the 1919 average even after its mid-winter weakness. Only iron and steel and paper, the last two to decline, failed to turn the corner toward recovery during the first six months of the year.'

9911

Comparison of prices and production of commodities in 191921 shows agreement in the general movements of the two. Prices and production rose to a maximum in the spring of 1920. Exorbitant prices, maximum unfilled orders, and the cry of "underproduction" were leading features of the situation immediately preceding the crisis. Then the market broke, orders were cancelled, stocks accumulated and both prices and production fell precipitately to a minimum in the spring of 1921. In the autumn of 1921 the volume of manufacture increased, but to a point 20 per cent below the 1919 average.

The figures for the average volume of manufacture during the 10 Special Letter of the Harvard University Committee on Economic Research for September 23, p. 3.

"Ibid., pp. 4-6.

first nine months of 1921 and 1920, relative to the volume for the corresponding period in 1919 as 100, are 80 and 111, respectively." For manufacture, as for mining, it is probable that the complete figures for 1921 will show output relative to estimated normal at a new low record. The monthly figures up to October indicate, however, that after a sidewise movement in the summer of 1921 both prices and production are now showing an unmistakable though halting tendency to rise from the depths of depression.

THE VOLUME OF DOMESTIC AND FOREIGN TRADE

The dollar value of domestic trade for the first eleven months of 1921, as revealed by bank clearings of 190 cities excluding New York City, shows decreases of 22 per cent and 10 per cent, compared with the corresponding periods of 1920 and 1919, respectively." This decline in 1921 is of course primarily the result of the collapse of prices. Much more significant than the change in the value of domestic trade is the change in physical volume. An index of the physical volume of goods moving is available in the figures for freight car loadings. In 1921 the shipments of grain and grain products, merchandise, and "less than carload lots" are greater than in 1920 while the shipments of coal, coke, and forest products are very much less than in 1920. The numbers of freight cars loaded during the first 48 weeks of 1921, 1920, and 1919, are, respectively, 37,200,000, 43,000,000, and 39,500,000. That is, freight-car loadings for the first eleven months of 1921 and 1920 are 94 and 109 per cent, respectively, of those for the corresponding period of 1919. Comparing these indices of the volume of freight moved with the indices of the volume of manufacture, quoted above, we find that manufacture and transport of goods increased 11 and 9 per cent, respectively, in 1920 compared with 1919 and decreased 28 and 13 per cent, respectively, in 1921 compared with 1920. In other words, it appears that the manufacture of goods declined very much more after the crisis of 1920 than the distribution of goods.

Total sales of the two leading mail-order houses, SearsRoebuck and Montgomery Ward, for the first ten months of 1921 were $206,000,000 compared with $301,000,000 for the

12These figures are the averages of the monthly indicies of production relative to corresponding period for 1919 as 100. See Special Letter of November 26, 1921.

"Commercial and Financial Chronicle, December 10, 1921, p. 2435.

corresponding period of 1920, a decline of 32 per cent. The sales of five leading "chain" stores actually increased over 4.3 per cent during the same period. The sales of department stores, reporting to the federal reserve banks, for the four months JulyOctober, 1921, were 12.4 per cent less than for the corresponding period of 1920. A fair inference from these figures seems to be that, considering the price declines of the year, the volume of goods being distributed by retail is not far below that of a year ago."

The subject of foreign trade occupies a leading place in current discussions of the business situation. Many writers hold that the large volume of our foreign trade in 1919 was mainly responsible for our business prosperity in that year and that the recent decline of our foreign trade is largely responsible for the present depression.

In 1919 our total foreign trade reached the record figure of $12,154,000,000, with merchandise exports at $8,161,000,000 and imports of $3,393,000,000." Despite the decline of prices in 1920, our foreign trade reached a new record figure of $13,711000,000 with merchandise exports of $8,343,000,000 and imports of $5,368,000,000." The figures for 1921 show a spectacular decline in values. During the first ten months of 1921 our total foreign trade has averaged little more than half of the 1920 monthly average. The value of goods imported turned downward definitely in September, 1920, but a significant decline in exports did not appear until February, 1921.

To determine the real significance of this reduction of our foreign trade to about one-half of its former value indices of the physical volume of exports have been computed by Professor John H. Williams. The index based on 175 selected commodities, representing about three-fourths of our exports in 1919, "shows that the physical volume of exports in 1920 was 94.1 per cent of the volume exported in 1919. In other words, there was a fall of 5.9 per cent in the quantity of exports last year compared with the year before. An index, similarly constructed, but based on 50 selected commodities comprising 63 per cent of the exports in 1920, shows that the physical volume of exports in the first "Bradstreet's, December 3, 1921, p. 791.

15These figures include merchandise and silver. See Supplement to the Review of Economic Statistics, April 1920, p. 5.

See Supplement to the Review, July 1921, p. 170.

three quarters of this year (1921) was 94.0 per cent of the quantity exported in the same period last year.

That is to say, the increase in the value of our exports in 1920 over 1919 resulted from an increase of prices and in spite of a decline of about 6 per cent in quantity, whereas the "pronounced decline of our export trade this year has been for the most part but the expression of falling prices." This is a fact of the greatest significance.

Analysis of the quantity figures for merchandise exports reveals clearly the reason for the moderate decline in the physical volume of exports in 1921. There were very large increases in the exports of agricultural commodities such as, corn, wheat, lard, cottonseed oil, barley, and rice, so that in 1921 Europe bought our foodstuffs in great physical volume than ever before. Cotton, our leading export, increased 6 per cent in quantity although it decreased 63 per cent in value, while wheat, our next most important export, increased 82 per cent in quantity and only 4 per cent in value in the first nine months of 1921 compared with the similar period of 1920.

Pointing out the stability of the trade balance in the figures for 1920 and 1921, Professor Williams justly remarks, "it seems clearer than ever that there will be no radical disturbance of the trade balance until Europe begins the payment of the interest charges, now amouting to about $522,000,000 a year, upon our government's credits advanced during the war and early post-war period."

CREDIT AND BANKING

At the end of November, 1918, the reserve ratio of the combined federal reserve banks was an even 50 per cent, total cash reserves were $2,120,000,000, federal reserve notes in circulation amounted to $2,569,000,000, the minimum rate of rediscount was 4 per cent, and the prevailing rate on commercial paper was 6 per cent. After recovering to 53.7 per cent on June 6, 1919, the reserve ratio declined during the remainder of 1919 and until the spring of 1920, when the ratio reached a minimum of 42.2 per cent.

Although cash reserves and the reserve ratio reached minimum in the spring of 1920, the peak of expansion of the banking system

"Special Letter of the Harvard University Committee on Economic Research, December 10, 1921, pp. 2-3.

18 Ibid., p. 3.

19 Ibid., p. 6.

of the United States did not occur until late autumn of that year, as is evident from Chart III. The maximum expansion of loans and investments of member banks was reached on October 15. On November 5 the figures for total earning assets, paper discounted by the federal reserve banks, and accommodations extended to member banks reached the peak, although federal reserve notes in circulation did not reach maximum, $3,405,000,000, until December 24, 1920.

The reserve ratios, before interbank accomodation, of the various federal reserve banks show that the strain was felt first in the East (Boston, New York, and Philadelphia) and then in the West and South, although San Francisco has only been slightly affected. Recovery has been in reverse order, but it is marked for all banks.

During 1921 there has been a steady decline in earning assets, bills discounted, and accommodations to member banks. The re

serve ratio has risen to 73 per cent and total cash reserves to three billion dollars.

The great improvement of the reserve ratio in 1921 has been, primarily, the result of two factors, a decrease in federal reserve