﻿THE PRICE LEVEL

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credits so released went to swell commercial deposits,
the volume of net deposits on which reserve is com-
puted actually declining $106,260,000. On the other
hand the banks increased their investments other
than in United States bonds and certificates and in
loans secured by such obligations, by $531,035,000.
Some part of this expansion was probably due to
“ loans and other investments made in the form of
currency, of which increasing amounts remain out-
side the banks in the pockets of the people.” 20 The
remainder can perhaps be best accounted for as
short-term investments made by the banks in prepa-
ration for renewed war borrowing, in face of a
stringent administrative policy toward the conserva-
tion of credit.

A reasonable interpretation of the foregoing ex-
hibits, imperfect and inconclusive as they are, would
seem to be the following: Certificate borrowing has
involved the creation of additional bank credits in
the form of government deposits rather than the
transfer to the new government account of existing
commercial credits. In so far as there has been
restraint upon the expansion of commercial borrow-
ing, it has been due to the reluctance of the banks to
increase commercial loans and discounts during a
period of heavy government short-term borrowing
culminating in a Liberty Loan, and to the pressure
put by the banks upon commercial borrowers, under
like conditions, to apply incoming funds to the
liquidation of existing loans. The primary stage in
the process has thus been an expansion of credit in
20 Federal Reserve Bulletin, July, 1918, p. 664.