THE  PRICE  LEVEL

191

credits  so  released  went  to  swell  commercial  deposits,
the  volume  of  net  deposits  on  which  reserve  is  computed ­
  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  outside ­
  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  preparation ­
  for  renewed  war  borrowing,  in  face  of  a
stringent  administrative  policy  toward  the  conservation ­
  of  credit.
A  reasonable  interpretation  of  the  foregoing  exhibits, ­
  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  borrowing, ­
  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.