The main criticism here, however, relates to the figures themselves, rather than to their meaning. The figures given by Professor Fisher are concrete magnitudes to fill out his equation of exchange, MV + M´V´ = PT[381] for the years since 1896. Thus, for 1909, the figures are: M = 1.61 billions; M´ = 6.68 billions; V = 21.1; V´ = 52.8; P = $1; T = 387 billions.[382]
Now in what follows, I shall challenge all these estimates except P for 1909, V for 1896 and 1909, and M and M´ for all years. The figures for M and M´, being the results of fairly simple computations based on Governmental statistics, need not be questioned. P for 1909 is arbitrarily placed at $1.00. V for 1896 and 1909, for reasons which will later appear, is better based than for other years, though Kemmerer and Fisher have differed greatly in their estimates for V, the former placing it at 47 and the latter at 18 or 20.[383] My criticisms with reference to V, however, will relate to the years other than 1909 and 1896.
The sources from which these absolute magnitudes are drawn are, primarily, two investigations by Dean David Kinley, one in 1896 and the other in 1909, in coöperation with the Comptroller of the Currency.[384] The purpose of these investigations was to ascertain the proportions of checks and money in payments in the United States. Banks of all kinds, national and State banks, trust companies, private banks, etc., were requested by the Comptroller to supply data for a given day (March 16 in 1909) showing what their customers deposited on that day. They were asked to classify these deposits as cash, on the one hand, and as checks, drafts, etc. on the other. They were also asked to give a cross classification of the same deposits, as "retail deposits," "wholesale deposits," and "all other deposits." In 1909, over 12,000 banks of all kinds, out of about 25,000 banks, replied, and of these replies 11,492 were in available form. These replies showed a total of deposits of over 688 millions of dollars. Of this total, 647 millions were in checks, so that checks made up 94.1% of the whole. About 60 millions of this total were retail deposits, about 125 millions were wholesale deposits, and the rest, about 503 millions, were classed in the "all other" category. Kinley's use of these figures, for his purpose, seems to me in every way conclusive and safe. He was interested merely in the question of the proportions of checks and money in payments, retail, wholesale, and "all other." The absolute magnitudes of the elements in the equation of exchange he was not trying to measure. Professor Fisher's use of the figures presents a different problem.[385]
Let us consider, first, Professor Fisher's estimate of M´V´, taken together. M´V´ is considered to be equal to the total amount (in dollars) of checks deposited during the year.[386] To get this, for 1909, Kinley's figure, above, for checks deposited in 11,492 banks on March 16, 1909, is used. This figure is 647 millions. As half the banks had not reported, an estimate for the non-reporting banks was obtained from Professor Weston, who had aided Dean Kinley in the investigation, and who had access to the original data. Professor Weston estimated the total checks deposited during the day at 1.02 billions.[387] The question then arose as to whether this day was typical for the year. Professor Fisher found New York City bank clearings of March 17 (the day after, on which these checks would get into the clearings) to be 28% below the average for the year. He assumed the rest of the country to be half as abnormal as New York City, and increased the 1.02 billions to 1.20 billions, getting what he conceived to be the daily average of checks deposited in the United States in 1909. Multiplying this figure by 303, the number of banking days in New York City (and so, presumably, a fair average for the number of banking days in the country), he obtained 364 billions for the checks deposited in 1909. This figure he considered to be M´V´, the volume of bank deposits,[388] multiplied by its velocity of circulation. To obtain V´, therefore, his problem was simple: he divided the figure for M´V´ by the figure for M´ previously obtained from government statistics, and obtained V´.
Now I wish to call attention to three important errors involved in this calculation of M´V´ for 1909. (1) The assumption that the total check circulation is the same as the volume of checks actually used in trade is a violent one. Payments may be tax payments, loans and repayments, gifts, what not. Many checks may be used in a single transaction. Surely not all of this is properly to be counted in the M´V´ of the equation of exchange. But this topic is better discussed in connection with the estimate for T, and I reserve its fuller discussion till then. (2) The assumption that the rest of the country was abnormal in its clearings on March 17, 1909, is a pure assumption, which investigation does not verify. The rest of the country was, in fact, nearly normal! The error that comes for the year from increasing the total on this assumption amounts to at least 31 billions! The total for the year, on Professor Fisher's method of computation, with the correction to make the assumption regarding outside clearings correspond with the facts, is 333 billions, instead of 364 billions! As the figure for 1909 is a basic figure, on which figures for other years are calculated, this error is extremely significant.[389]
(3) A yet more serious error in this computation is the assumption that New York City was complete in Kinley's figures, while the rest of the country was incomplete. This error, as we shall see, largely neutralizes the error above, so far as the "finally adjusted" figure for 1909 is concerned, but it makes a vital difference in the figures for other years, as will appear, since it affects the "weighting" of New York clearings and outside clearings in the index of variation by means of which M´V´ for years other than 1909 is determined. The assumption that New York is complete, in Kinley's figures, and that all of the extra hundreds of millions added by Professor Weston in his estimate for the non-reporting banks belongs to the country outside New York, is made by Professor Fisher both on pp. 444-445, in estimating M´V´ for 1909, and on p. 446, in finding an index of variation for M´V´. The only reason given, so far as I can find, is the following: "This figure, being for New York, [Italics mine], is probably nearly complete." (Loc. cit., p. 446.) With this as a basis, Professor Fisher proceeds in his calculations to treat the figure for New York, 239 millions, as absolutely complete, and gives the rest of Professor Weston's 1.02 billions for the day, or 786 millions, to the country outside. The error above mentioned, of assuming the rest of the country to be abnormally low on March 17 in its clearings, still further increases the amount assigned to the rest of the country in the total figures for the year.[390] The conclusion finally is that New York had deposits of 93 billions in checks for the year, while the rest of the country had deposits of 271 billions in checks. As New York clearings for the year were 104 billions, while clearings for the rest of the country were only 62 billions, Professor Fisher concludes that New York clearings overcount New York check deposits, and outside clearings greatly undercount outside check deposits, so that, in the index of variation of check deposits, for years other than 1909 and 1896, New York clearings should be given a weight of only 1, while outside clearings should be weighted by 5. "That is, on the basis of 1909 figures, five times the outside clearings plus once the New York clearings should be a good barometer of check transactions." (P. 447.) All this rests on the assumption that New York figures for March 16, 1909, were complete, and the only reason assigned is, "being from New York!"
Now the figures from New York were not complete. And New York clearings do not overcount New York check deposits. Outside clearings do not undercount outside check deposits nearly to the extent that Professor Fisher assumes. For each of these three statements I shall offer what would seem to be conclusive evidence, and I shall attempt to get an estimate of the real relation between New York check transactions and check transactions for the rest of the country.
First, the figures for New York were far from complete. It may be noted that Dean Kinley, in his volume for 1909,[391] is very careful to repudiate the assumption that the cities were complete more than the country: "Moreover, it is a mere assumption that the non-reporting banks are mainly the small banks in the country districts. A great many city banks also did not report." (Italics mine.) That this is true for New York is abundantly evident from figures there given for the private banks and the trust companies, not to consider at all the State and national banks. New York shows only $1,751 in checks deposited in the "all other deposits" in private banks! This is a city which includes among its private bankers J. P. Morgan & Co., Kuhn, Loeb and Co., J. & W. Seligman & Co., and others! Figures from these banks appear nowhere in Kinley's totals, since deposits made by these banks in other banks are also excluded from Kinley's figures.[392] Of course, exact figures cannot be given to show how much New York would be increased had the private banks made full reports. We have no reports of any kind from these institutions. Every feature of their business is kept from the lime light, as far as possible—a practice which is much to be regretted, since it arouses hostility and suspicion, where a statement of the facts in the case would frequently entirely dispel them. We have, however, some information regarding the magnitude of their deposits, meaning by deposits, not what Kinley means in this investigation, namely, checks, etc., deposited on a given day, but rather, deposits in the balance sheet sense of demand obligations to depositors. In Nov. 1912, J. P. Morgan and Co. held deposits of $114,000,000, exclusive of 49 millions on deposit with their Philadelphia branch of Drexel & Co. About half of these were deposits of interstate corporations. Kuhn-Loeb held, on the average, for the six years preceding 1913 over 17 millions of deposits of interstate corporations. What their aggregate deposits were, we do not know. These figures are obtained from the report of the Pujo Committee.[393] Morgan's deposits were equalled by only three banks and two trust companies in New York (as of April 3, 1915), and Kuhn-Loeb's deposits for interstate corporations alone exceeded the total deposits of any one of the great majority of the New York Clearing House banks and trust companies. Of course, large deposits in the balance sheet sense need not mean large deposits made on a given day. Private bankers' deposits may be inactive. But we know, first, that half of these figures for Morgan, and the whole of the figures given for Kuhn-Loeb, represent the deposits of active business corporations, engaged in interstate business. They are not mere trust funds lying idle, or awaiting investment in securities. What the rest are we can only conjecture. That they are deposits of men and firms connected with the Stock Exchange in some way is highly probable. The whole drift of the statistics presented in this book, and of the argument developed in this book, would serve to show that such deposits are likely to be more than ordinarily active.[394] I refrain from assigning any figures as to the amount of checks deposited in private banks in New York on March 16, 1909. It must have run high into the millions.[395] It certainly exceeded the two thousands, or less, reported to Kinley! The figures for New York were, thus, incomplete.
But the trust companies were also incomplete. The national banks in New York reported checks totaling 186.5 millions, for all three classes of deposits; the State banks reported only 38.1 millions; the trust companies only 14.2 millions. With aggregate deposits, as shown by their balance sheets, exceeding the deposits of national banks[396] the New York City trust companies reported, as deposited on March 16, 1909, less than half as much as the State banks, less than a tenth as much as the national banks, and only 6.8% of the two combined—5.9% of the total from all three classes of institutions!
These figures are hard to reconcile with the assumption that the trust companies in New York were complete on that date.