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FEDERAL RESERVE BANK
O F NEW Y O R K

A N N U A L REPORT
1959

FEDERAL

RESERVE

BANK

NEW

YORK

March 8, 1960
To the Member Banks in the
Second Federal Reserve District:
I am pleased to send you our forty-fifth
Annual Report, reviewing the 1959 business and
financial scene in this country and abroad, and
also commenting on some of the developments of the
past decade and their implications for the 1960's.
The year 1959 is likely to be remembered as the
year of the four-month steel strike. Our Report
gives considerable attention to the immediate
impact of the strike and to the special problems
it posed in framing suitable credit policies for
an otherwise prosperous economy. The Report also
focuses attention on the changing role of the
United States in the world economy, forcefully
revealed in the sizable balance-of-payments
deficits of the past two years. Fortunately,
there are signs that the importance of this
problem and the related general problem of
inflation is receiving wider recognition and that
the country is at least making a start on an
effective effort to cope with them.

ALFRED HAYES
President

Federal Reserve Bank
of New York

FORTY-FIFTH
ANNUAL REPORT
For the Year
Ended
December 31,1959

Contents:
P age

The “Growing Pains” of a HighConsumption Economy ......................

THE AMERICAN ECONOMY IN 1959 .

A Year of Advance—With Interruption. 9
Expansion in breadth through the
first half of the yea r........................... 10
A strike-dominated second h a lf.......... 13
Mixed price movements..................... 14
The Pattern of Credit Demands..........16
Governments in the credit markets . . . 16
The role of business.............................17
The heavy demands of consumers... 18
The sum of the parts......................... .19
Credit Policy: From Neutrality
to Restraint........................................
Credit policy before the steel
strike ..................................................
Steady pressure in the second
half of 1959 ......................................
The year as a w hole...........................

Page

Financial Statements......................... 53
Statement of earnings and expenses... 53
Statement of condition....................... 54
Changes in Membership..................... 56
Changes in Directors and Officers.. . . 57
Changes in directors........................... .57
Changes in officers..............................58
Member of Federal Advisory
Council — 1960 ..................................61
Members of Industrial
Advisory Committee........................... .61
List of Directors and Officers.......... 62
CHARTS

22
23
26
28

Chart 1: Gross National Product
in Current and Constant Dollars ........

Chart 2: Changes in Gross Na
tional Product and Components ........ 11
Chart 3: Nonfarm Employment in
Nation and District ............................. 12

THE END OF THE FIFTIES................. 30

Chart 4: Price M ovem ents .................

THE UNITED STATES AND THE
WORLD ECONOMY............................... 35

Chart 5: Net Increases in Credit
Instruments Outstanding ................... 16
Chart 6: Changes in Holdings of
Credit Instruments by Major In
vestor Groups ..................................... 20

Deficit in the United States
Balance of Payments......................... 35
Payments deficit at an all-time
high in 1959 ...................................... 35
A longer view...................................... 39
The New World Economy................... 43
The changing trade and payments
system ................................................ 43
Foreign economies in the
process of change............................... 45
The Challenges of the Sixties............47

Chart 7: Money Supply and Deposit
Turnover ............................................ 21
Chart 8: Bank Credit and
Liquidity ............................................ 23
Chart 9: Member Bank Reserve
Positions .............................................. 24
Chart 10: Interest Rates and
Stock Yields ........................................

Chart 11: Growth in the 1 9 5 0 's .......... 31
Chart 12: Industrial Production .......... 36

THIS BANK'S OPERATIONS............... 49

Chart 13: Foreign Gold and
Dollar Holdings ................................. 39

Volume and Trend of the
Bank's Operations............................... 49
Domestic operations........................... 49
Foreign and international operations.. 52

Chart 14: United States Balance
of Payments ........................................

Chart 15: Export Shares ..................... 42
Chart 16: Member Bank Borrowings .. 50

Forty-fifth Annual Report
Federal Reserve Bank of N ew York

The “ Growing Pains” of a
High-Consum ption Econom y
In reaching new heights during 1959, the American economy encountered several
fundamental problems that had been in the making through the preceding decade
and seemed certain to be of crucial significance in the next. One of these was
dramatized by a steel strike, the longest in history, which tugged downward on
the economy through half of the year, weakening but not preventing a strong
expansion in most industries. Another set of problems, by no means unrelated,
was reflected in the record size of the deficit in the United States balance of pay
ments. Despite these strains, gross national product set new records, as indeed
had been true in eight out of ten years in the 1950’s. And that led to other kinds
of questions as the advance in economic activity generated demands for credit
which outran available funds, forcing interest rates to levels that had not been
seen for three decades. The United States was apparently experiencing the
“growing pains” that are inherent in a high-consumption economy characterized
by a widely and confidently held expectation of further rapid increases in both
income and consumption and by the pressing, but in part conflicting, need to
devote a very sizable proportion of national output to investment and defense.
The steel strike made clear, as perhaps never before, the paradox that the
drive for higher incomes and higher consumption—the basic incentives upon
which a free economy depends to evoke continued growth—can be self-defeating
when the procedures for dividing the national income among various groups
break down. The strike was, of course, of dominating importance in the events
of the year, both because of the production lost in steel and other industries and

because of the possible inflationary consequences that might flow from the settle
ment in this key industry. But, in a broader view, the strike raised searching
questions as to the responsibility of the various groups that wield concentrated
economic power—in industry, labor, agriculture, and elsewhere.
What should their obligation be, in a competitive market economy, for finding
ways of compromising their competing claims upon the income of the economy
without gravely damaging the general welfare? Shutdowns such as that experi
enced in 1959 are a serious drag on the economy. Yet quick and easy public
acquiescence to all income demands—whether exerted by labor in the form of
wage demands, by business in moving prices up rather than down, or by agri
culture through farm support programs—would lead only to quickening pressures
on prices, illusory money gains to all but the strongest economic groups, dis
torted production patterns that would impede or halt economic growth, and a
deterioration of the economy’s international position. While the problem of
inflationary income demands is not unique to the United States, the leading
position of this country in the Free World would seem to make it particularly
urgent here to find less wasteful and disruptive solutions than those employed
in the steel industry in 1959, but without impairing basic freedoms.
A generation that had grown accustomed to a world-wide dollar shortage was
disconcerted, even startled, by the appearance for the second year in a row of a
very large United States balance-of-payments deficit. And, while the deficit
diminished in the second half of the year, it was still large. This would not
have seemed a new type of problem to most other countries. Those of Europe,
indeed, had been shaping their economic policies around balance-of-payments
problems for generations. But with Europe on its feet after the long period of
postwar reconstruction, and becoming an aggressive competitor with the United
States for markets everywhere, an end had apparently come to the long insulation
of the United States from the influence and the “discipline” of the forces at work
through the balance of payments. Perhaps the Free World during the 1960’s
would be approaching a stage in which the vigorous stimulus of open com
petition, often dampened inside a country, could be reinforced by competition
among countries—that is, by the pressures for improved productivity, lower costs,
and attractive prices that arise from one need which nations share with indi
viduals, the need of keeping their external receipts in reasonably close balance
with their outpayments.
The fact that economic activity expanded strongly during 1959 despite the
steel strike was reassuring, but it also posed difficult problems. Following in
6

the wake of the recovery achieved during 1958, the expansion was further
evidence, though not of course conclusive, that the economy is sufficiently
resilient, so long as recessions are not allowed to cumulate into depression, to
bounce back quickly and vigorously from any dip in activity. The record of
1957-59, coming after the experience of two previous postwar recessions, sug
gested that the decade ahead would be marked by a preponderance of years in
which inflationary, rather than deflationary, pressures would be dominant. The
same record also suggested that the will to check and reverse even moderate
recessions was so strong that the problems of allocating scarce resources in a
full-employment economy would be more insistent than ever.
At the same time, the rising trend of interest rates, culminating in the swift
advance during 1959, was a signal that demands for credit were tending to run
ahead of the willingness of income recipients to forego current consumption.
Investment—whether in plant and equipment, or in such forms as housing,
better schools, or defense facilities—can ultimately be financed only as the
economy foregoes some current consumption, in order to release resources that
can be transformed into net additions to the stock of capital. In the final
analysis, the real resources to support investment, and thus economic growth,
must be provided through real saving. An attempt to prevent interest rates from
rising by creating more bank credit—and using it to finance additions to invest
ment that ran well beyond the dimensions of voluntary savings—could not in
fact avoid the inescapable identity between real saving and real investment.
Such efforts could only mean the use of monetary inflation to force a diversion
of real goods from consumption to investment.
As between high interest rates and the paralyzing effect of inflation, whether
“creeping” or “galloping”, the choice would seem to be clear. Yet, why should
the choice have to be made between only these alternatives? Leaving aside
the paradox that a continuing inflation, once it got started, would drive interest
rates even higher, the developments in 1959 nonetheless raised a troublesome
question as to how high interest rates might eventually go if monetary policy
were to carry as large a part of the burden of resisting inflation in the decade
ahead as it had in the decade just completed. The rise of between Vi and 2 per
centage points in almost all rates of interest during 1959, as the credit and capital
markets allocated an inadequate supply of savings among insistent demands for
credit, was undoubtedly a significant warning signal that undue burdens were
already being placed upon monetary and credit policy.
The Federal Reserve System, given the environment, had no choice but to

do what it could to defend the economy against the greater and more imminent
evil—inflation. But is it necessary in the decade ahead that the Federal Reserve
System should have to choose between policies that lead to disturbingly high
interest rates, on the one hand, or acquiescence in monetary inflation, on the
other? One conspicuous alternative, as a way of raising savings and at the
same time reducing pressure on market rates of interest, would be a sizable
Treasury surplus, derived from taxes upon an economy operating at high levels
of output and employment. Over a long period there has been a tradition in
this country that taxes are an evil per se. Of course, taxes that finance unnecessary
government expenditures may rightly be regarded as an undesirable burden.
But to the extent that they are used to provide for vital government programs
and for a surplus which would in effect add to total savings, they should be
recognized not as an evil but as a sometimes necessary and desirable alternative
to even greater consumer spending.
A sizable Treasury surplus would ease the pressure upon the capital markets
and supply the financial and real resources both to support the enlarged private
investment needed for balanced economic growth at home and to assist in the
progress of underdeveloped countries abroad. Treasury deficits in times of
prosperity, on the other hand, as the experience of 1959 amply showed, absorb
savings and compete in the capital markets for an already inadequate supply
of loanable funds. The record of the 1950’s suggests that an important step
toward achieving more rapid growth, broad price stability, and lower interest
rates would be an improved “policy mix”—in which monetary policy would
receive increased support from fiscal policy and in which there would be more
effective restraints upon abuses in the exercise of concentrated economic power
by private groups.

THE AM ERICAN ECO N OM Y IN 1 9 5 9
A Y ear of A dvance—W ith Interruption
When 1959 began, the economy was moving forward strongly. Total output in
real terms—that is, after allowing for price increases—had already risen sharply
from the April 1958 cyclical trough to a level slightly above the pre-recession
high. As growth continued during the first half of 1959, recovery blossomed
into expansion, and successive new records were set in the output of goods and
services and in personal income (see Chart 1).
In mid-July there began what proved to be the longest steel strike ever experi
enced by the nation. In time the impact of the shutdown began to be felt much
beyond the industries closely connected with the production and distribution of

G R O SS N A TIO N A L PRO DUCT IN CURRENT AND CONSTANT D O LLA R S.
G N P , w h e th e r m e asu re d in cu rre n t or co nstant d o llars, ro se on
b a la n ce d uring 1959, d e sp ite th e in te rru p tio n of the ste e l s tr ik e .

Note: S e a so n a lly a d ju s te d a n n u a l rates.
CHART 1

S ou rce : U n ite d S ta te s D e p a rtm e n t o f C om m erce.

steel, and the downward drift was halted only after the Federal Government
obtained a court injunction, which led to the reopening of the struck mills in
early November. As steel started to flow again, national output and income
resumed their upward course. Thus the year ended, as it had begun, on a
buoyant note.

EX PA N SIO N

BREAD TH

THROUGH

TH E

F IR S T

H ALF

TH E

YEA R.

During the first six months of 1959, the economic advance spread to include virtu
ally all types of demand and embraced the business, the consumer, and the
government sectors (see Chart 2). The main thrust from the business sector
took the form of faster inventory accumulation. Inventories had been rising since
the fourth quarter of 1958, but the rate of accumulation continued to acceler
ate, and in April-June 1959 it was the highest since the Korean war. This
build-up of inventories was heavily concentrated in metal-using industries, re
flecting precautionary stockpiling in anticipation of midyear strikes in the steel
and copper industries. Many other industries also increased their stocks, as
orders and sales rose rapidly, but few succeeded in catching up with the growth
in demand for their products.
Other types of business investment, which had been lagging during the earlier
phase of the cyclical upswing, also rose during the January-June period, although
by lesser proportions than investment in inventories. Expenditures for equip
ment had already started to move upward in late 1958, but spending for new
business plant did not begin to rise until early 1959. This lag reflected in
part the fact that production facilities had earlier been built up beyond current
needs. However, as rising output absorbed idle capacity, investment aimed at
increasing capacity also picked up.
Meanwhile, the economic expansion was also being fed by a continuing rise
in consumer demand for housing and other goods and services. Private residen
tial construction, one of the principal forces behind the cyclical turn-around in
1958, maintained its strength into the spring of 1959. The peak for such expendi
tures was reached in May, however. Thereafter, residential outlays subsided,
perhaps partly because the preceding record pace had swept through the backlog
of prepared projects carried over from the recession, and because some over-all
slowing down was inevitable as builders began to test new areas of demand. But
a much more conspicuous reason was the rising cost and lessening availability of
mortgage credit, reflecting the expansion of other uses for funds that might have
10

CHANGES IN G R O S S N ATIONAL PRODUCT AND COMPONENTS. A b ro ad
e x p a n sio n in the first h a lf o f 1959 g a v e w a y to m ix e d c h a n g e s in
th e second h a lf. The la r g e s t sh ift w a s in in v e n to r ie s , w hich w e re
d ra in e d a w a y during the s te e l s tr ik e .
F o u rth q u a r te r 1 9 5 8 to
s e c o n d q u a r te r 1 95 9

S e co n d q u a r te r 1 9 5 9 to
fo u rth q u a r te r 1 9 5 9

2 7 .4

TO TA L G R O S S
N A T IO N A L PRODUCT
C H A N G E IN
IN V EN TO R Y

PRODUCERS' EQUIPM ENT AND
N O N R ESID EN TIA L CONSTRUCTION
H O U SIN G
CONSUM ER DURABLES
CONSUMER N O N D U R A B LES
CON SUM ER SER VIC ES
STATE AND LO CA L
G O V ERN M EN TS
FED ER A L G O V ER N M EN T
NET EXPO RTS
0

B illio n s o f d o lla r s

-4

-2

B illio n s o f d o lla r s

N ote: S e a so n a lly a d ju s te d a nn u a l rates.
CHART 2

S ou rce : U n ite d S ta te s D e p a rtm e n t of Com m erce.

been used in housing.
The rising stream of consumer expenditures for other goods and services
was the greatest single growth factor in the January-June period. This demand
had declined only very slightly during the 1957-58 recession, as personal
income was supported by such “built-in” stabilizers as unemployment insurance.
And by the second quarter of 1959, consumption expenditures had advanced
to a record annual rate of $311 billion. In real terms, this amounted to 6 per
cent more than the peak level achieved before the recession. Taking account
of a population increase of almost 5 million in the interim, the per capita advance
over this period was, again in real terms, about 3 per cent.
The gains in the economy during the first half of the year were also evident in
the growth of employment. Early in the year there were relatively large numbers
of jobless workers; it was not until March that the seasonally adjusted ratio of

unemployment to labor force dropped below 6 per cent. However, the number
of workers unemployed for relatively long periods of time declined steadily,
as had been the case since the third quarter of 1958. By midyear, just before
the steel strike, total civilian employment had reached an all-time peak of
66.0 million persons (seasonally adjusted), about 2 V2 million more than a year
earlier. And the unemployment ratio, while still relatively high compared with
past periods of prosperity, had fallen to 4.9 per cent.
The recession had been about as severe in the Second District as in the
nation generally, but the upturn in the District’s nonagricultural employment
lagged behind the economy as a whole (see Chart 3). The situation began to
improve quite early in 1959, however, and until the steel strike intervened, there
were increases in nearly all industries, with the greatest gains in the durable goods
area. Still, in July, when the country as a whole passed the 1957 peak, employ
ment in the District was about 3 per cent below the pre-recession high. At the
beginning of 1959, over 6 per cent of the labor force was out of work in ten
of the District’s twelve major labor market areas; these areas were designated
N ONFARM EM PLOYM ENT IN NATION AND D ISTRICT. Second D istrict
em p lo y m en t sh o w e d a n e t ris e during 1959, but th e g ain w a s
sm a lle r than in th e r e s t o f th e n a tio n .

104

UNITED STATES

103

102

101

SECON D DISTRICT

100

CHART 3

Note: Computed by the Federal Reserve Bank of New York from data
supplied by the Departments of Labor of New York State, New Jersey,
Connecticut, and the United States. Seasonally adjusted; 1958=100.

by the Department of Labor as areas of “substantial labor surplus” . By early
July, the number of areas with “substantial” unemployment had fallen from ten
to seven. In the other five major areas, unemployment at this point ranged
between 3 and 6 per cent.

In the second half of the year,
public confidence in the basic strength of the economy was, in general, unim
paired, despite the adverse effects of the steel strike. As a result, there was a
continued high level of demand for many types of goods and services. Indeed,
in some sectors demand continued to rise with virtually no interruption.
The onset of the steel strike on July 15 had an immediate and sharp impact
on output and employment in the steel industry and closely associated transporta
tion and mining industries, but steel-consuming firms were not immediately
affected because of the heavy advance stockpiling of all kinds of steel. Only
after several months had passed did the effects of the prolonged strike become
more severe. Particularly important were the developments in the automobile
industry, where stoppages for model change-overs had delayed the bite of steel
shortages.
By the end of October, a total of almost 500,000 workers had been laid off in
the automobile, transportation, and other industries hit by the shutdown—about
equal to the number of workers who were actually on strike. When layoffs were
at their highest, about 6 per cent (seasonally adjusted) of the civilian labor
force was unemployed, not counting workers on strike. This compared with
just under 5 per cent in the late spring of 1959 and a recession high of IV2
per cent in the summer of 1958. Following the reopening of the steel mills in
early November, employment rebounded quickly and, by the end of the year,
was at a seasonally adjusted record of 66.2 million, 1.7 million more than at
the end of 1958. Unemployment (seasonally adjusted) had receded to 5.2 per
cent of the civilian labor force.
In this District, the greatest impact from the steel strike was in Buffalo, the
District’s steel center. Adverse developments among steel users were not very
severe and occurred mainly in the auto industry and among its suppliers. The
drop in the District’s total nonfarm employment amounted to only Vi of 1
per cent, compared with more than 1 per cent in the country as a whole. With
the return of the strikers to the steel mills in November, industrial output and
employment in the District began again to advance.

s t r i k e —d o m i n a t e d

seco n d

h a lf .

Despite the general maintenance of confidence, the strike inevitably slowed the
momentum of national growth. Investment outlays by business dropped sharply
during the second half of the year as a result of the liquidation of inventories.
Most of this liquidation was in iron and steel, and in automobiles and other durable
goods manufactured from steel. A much smaller part was in copper which, as
indicated earlier, also had been stockpiled heavily in anticipation of a strike.
That strike, which started in August and cut off 80 per cent of the country’s
copper output, also lasted for an unusually long period and indeed remained
unsettled in many areas even at the year end. Business expenditures for plant
and equipment continued to grow in the July-December period, although this
increase, hindered as it was by steel shortages, was smaller than anticipated and
proved too small to offset more than a minor part of the disinvestment in inven
tories. With the steel mills reopened, however, businesses were able, in the
closing months of the year, to reverse the decline in stocks and to increase
slightly investment in new plant and equipment.
Most types of personal consumption expenditures, on the other hand, con
tinued to rise during the second half of the year despite the temporary dip in
income, although the pace of the rise was much slower than during the first half
of the year. Spending on durables fell off somewhat in the last two months of
the year, not because of any faltering in demand, but because steel shortages
had slowed the output of new cars. Consumer spending in the Second District,
as evidenced by department store sales, also held up well through the strike
and in December was about 4 per cent higher than a year earlier.

m ix e d p r i c e m o v e m e n t s .
Broad price averages showed only a small net
rise during 1959, although the apparent absence of movement in the aggregates
masked significant changes for some important groups of products and services.
For most items there were only slight to moderate increases over the year;
strongly rising demand and some cost increases applied upward pressures, but
these were limited by the prevalence of ample capacity in most lines and in
certain instances by vigorous foreign competition.
Among consumer prices, as shown in Chart 4, the principal increases were
in prices of services and nondurables other than food. Service costs continued
a long-term rise that has reflected increasing rents and the pressures of rising
labor and other costs in areas where there seems to be comparatively little room
for productivity gains. In contrast, prices of consumer durables rose less than

PRICE M OVEM ENTS. The d e c lin e in food p rices in 1959 p a rtly
o ffs e t in c re a s e s in o th e r lin e s , but still th e re w a s a sm all n et
rise in o v e r - a ll p ric e s of consum er goods an d s e r v ic e s . P rice s
of prod ucer d u ra b le s ro se by about the sa m e sm a ll am ount as
in the p rece d in g y e a r .

Year ended

Year e nd ed

D ecem ber 1958

D ecem ber 1959

P er c e n t

CHART 4

Per c e n t

S ou rce : U n ite d S tates B ure a u o f L a b o r S ta tis tic s .

in other recent years; new cars, in particular, were nearly unchanged in price
over the year.
The outstanding exception to this general pattern was in the agricultural area.
At the wholesale level, prices of farm products fell by 5 per cent over the year
to the lowest point in nearly four years. Reflecting this decline, consumer food
prices dipped by 1 per cent during the year. Much of the drop centered in meat
prices, reflecting unusually heavy production and marketings that had been
stimulated by higher prices during 1958.

The Pattern of Credit Dem ands
Demands for credit were unusually heavy during 1959. In particular, the huge
new money needs of the Federal Government, at a period of the business cycle
when the Government should, ideally, be retiring debt out of surplus, were a
source of pressure upon the credit markets. Consumers also stepped up their
demands for new credit. Indeed, the single largest increase in borrowing dur
ing the year was the leap in mortgage indebtedness. Corporate business in the
aggregate cut back its use of outside funds in 1959, partly because retained
earnings and depreciation were large and partly because the decline in inven
tories in the steel and related industries freed funds for other uses. (See Chart 5.)
Nevertheless, the total effect of aggregate credit demands was such that credit
markets came under mounting pressure during the year.
in t h e c r e d i t m a r k e t s .
The new debt shouldered by
all governments combined was about as large in 1959 as in the year before.
g o v e rn m e n ts

NET IN CREA SES IN CREDIT INSTRUMENTS OUTSTAN DIN G . Strong
dem an ds for cre d it from g o v e rn m e n ts, co n su m e rs, an d b u sin esses
co n v e rg e d on the fin an cial m a rk e ts in 1959.
B illio n s o f
d o lla r s

FEDERAL
G O V ER N M EN T

20 -A N D A G EN C Y

STATE
AND LO CA L
-S E C U R IT IES -----

M O RTGAG ES

CO N SU M ER
CREDIT

CO R PO R A TE
SECU R ITIES

ISSU ES

B A N K LO A N S
OTHER THAN
-R E A L ESTATE AND
CONSUM ER

JlJ
1957 1958 1959
C HART 5

195719581959

1957 1958 1959

S ou rce : B o a rd o f G o v e rn o rs o f th e F e d era l R eserve System .

The Federal debt went up more than in 1958, when the immediate impact of
the recession was being felt. But State and local governments, whose expendi
tures have marched up with mechanical regularity for a decade and longer, were
able in 1959 to finance a larger fraction of these outlays out of current income
and hence increased their debt by a smaller amount than in 1958. Even so, the
magnitude of government borrowing was impressive. Taking all governmental
units and agencies together, total indebtedness rose by about $13.7 billion over
the year, a figure slightly exceeding the previous peacetime record of $13.5 billion
posted in 1958.
For the Federal Government, revenues rose appreciably but cash expenditures
also advanced considerably over the year before, chiefly because of delayed effects
of the recession. Moreover, Federal agencies (the various institutions pro
viding supplemental credit facilities for housing and agriculture, in particular)
floated a record volume of issues during the year, an amount nearly double their
new borrowings in 1958. All told, the publicly held debt of the Federal Govern
ment and its agencies was higher by $8.7 billion at the end of the year, compared
with a rise of $7.8 billion in 1958. The rise for all other units of government
was $5.0 billion this past year and $5.7 billion in 1958.
Along with the difficulties of so much new borrowing, the Treasury faced a
vexing problem in scheduling the maturities of both new flotations and refunding
issues. As the year wore on and market rates of interest moved higher, the
statutory ceiling of 4V\ per cent on new Treasury issues maturing after five
years created a genuine problem for the first time since Congress established
this rate in 1917. Accordingly, the Treasury in the latter half of the year found
it necessary to finance exclusively with shorter maturities. The average maturity
of outstanding marketable debt moved down during 1959 from four years and
nine months to four years and four months, the shortest year-end average in the
postwar period. And, more important for its impact on the capital markets, the
volume of outstanding marketable debt maturing or callable within five years
rose by $7.8 billion, of which $7.3 billion was due within one year.

While businesses increased their indebtedness
appreciably during 1959, the business sector was also a major supplier of credit
to other segments of the economy. The combination of rising profits, relatively
low tax payments (based partly on the low 1958 profits), and growing deprecia
tion allowances generated a large volume of funds internally that could be used

th e

r o le

o f b u s in e s s .

to finance larger inventories and higher outlays on plant and equipment. Of
course, many business concerns found it necessary to turn to “outside” financing,
either in the capital market or from the banks. But this financing was counter
balanced for the aggregate of all business concerns by increased tax reserves and
other types of cash accrual which were invested in short-term Government securi
ties and other liquid money market instruments. To a significant degree, the
availability of corporate cash for short-term investment supplied the funds which
the Treasury borrowed to finance its cash deficit. The position of corporations
in 1959 as relatively large suppliers of funds to the capital markets was similar
to the 1955 experience, suggesting that this pattern of business cash flows may
perhaps be emerging as typical of the earlier phases of business recovery and
expansion.
The net new issue of debt and equity instruments by corporate business
was quite modest for a period of economic expansion, with the total actually
falling well below the $8 billion of 1958, a recession year. Apart from the
cutback in size, there was also a shift in financing methods. With bond yields
moving higher and stock prices advancing, thus cutting the relative cost of equity
financing, the net new issue of corporate bonds fell to $3.1 billion, the lowest
since 1955. At the same time, new equity issues rose to about $2.1 billion,
the first time since 1955 that corporations have raised so large a share of
new capital through stock issues. Although tapping the capital market for
relatively moderate amounts, business (corporate and other) borrowed heavily
from commercial banks. The $5.3 billion rise in business loans proceeded
unevenly over the year, spurting during the period of heavy inventory build-up
in the spring, tapering off in the late summer and early autumn when seasonal
slackness and the steel strike caused demands to subside a bit, but accelerating
again toward the close of the year as business activity rebounded and liquidity
positions came under more pressure.

Along with business firms, indi
vidual investors also absorbed Government and other securities on a large scale
during 1959, although it is difficult to be sure of the exact amount from avail
able figures. Whatever the facts on individuals as investors, however, it is clear
that they also demanded extensive new credit for themselves during the year.
They seem indeed to have added substantially to the over-all pressure for new
credit. For, while incomes were rising during most of the year—personal in

th e

h eavy

d em an d s o f co n su m e rs.

come after taxes rose from $323 billion in the fourth quarter of 1958 to $341
billion a year later (at seasonally adjusted annual rates)—expenditures on the
whole rose still more rapidly.
With the rebound of the economy, the flow of new instalment credit turned
sharply upward in the latter months of 1958 and rose very rapidly through
most of 1959. By the end of 1959 the total of such debt outstanding was, in
fact, more than $6 billion higher than at the beginning of the year, an increase
nearly equal to that of 1955. An important portion of the expansion over
the year was attributable to consumer borrowing for the purchase of automo
biles. But of perhaps more significance was the strong upsurge in the remain
ing portion of instalment credit, which was much more pronounced than in 1955.
While information on credit terms is unfortunately too fragmentary to establish
any general trends, growth in automobile credit appears to have been encouraged
to some extent by easier contract terms, particularly longer maturities. This
tendency was much less important, however, than in 1955.
The growth of mortgage debt set a new record in 1959 and housing starts
rose 14 per cent above 1958, despite a slower pace in the second half of the year.
Total mortgage indebtedness rose by a resounding $19 billion, a figure more
than a fourth again as large as in 1958 and almost 20 per cent above the old
record set in 1955. Some of the funds went into apartment housing and into
corporate building programs. But much the sharpest advance occurred in the
financing of one- to four-family residences. A part of the tremendous surge was a
delayed response to the Emergency Housing Act of 1958. This legislation had
modified the terms of Federally underwritten mortgages—raising maximum inter
est rates and relaxing discount controls—and so helped to place a large volume
of these mortgages with private investors. Under the same Housing Act, the
Federal National Mortgage Association (FNMA) had received additional
authority to purchase mortgages on low-cost housing. The $1 billion actually
spent by FNMA during the first half of 1959 reflected to a large extent the take
down of commitments made earlier under this special legislation. In the later
months of the year, there was some leveling-off in the rate at which new mortgages
were recorded, but the volume continued high.

th e sum o f th e p a r t s .
Taking together the behavior of these different
segments of the economy—governments, businesses, consumers—it is not sur
prising that pressure on the capital and credit markets was heavy during the year.

On the basis of the flow-of-funds estimates constructed by the Board of Gover
nors, net growth in credit outstanding during 1959 was more than $50 billion and
exceeded the previous peacetime record year by more than one third. There
were, to be sure, large amounts of new savings to be channeled where needed.
Indeed, as Chart 6 indicates, the growth in holdings of capital and credit instru
ments was most pronounced outside the banking system—in contrast to 1958—
as savers supplied funds either directly or through nonbank financial institutions.
The process of allocating the supply of loanable funds among strong com
peting demands undoubtedly resulted in some downward revision of borrowing
plans, although it is not possible to estimate the total of such reductions. On the
one hand, some would-be borrowers found that the availability of borrowed funds
had become increasingly restricted, or that costs had reached a point at which they
overbalanced the anticipated profitability of the credit. On the other hand,
holders of cash or near-cash balances found that the rate of return available on a
less liquid asset had made these balances, in effect, too costly to hang on to.

CH AN GES IN HOLDINGS O F CREDIT INSTRUM ENTS B Y M AJOR
IN VESTO R G R O U P S . Credit d em an ds w e r e m et p rin c ip a lly
by non b an k le n d e rs a s th e reco rd in c re a s e in bank lo an s
w a s la r g e ly o ffse t b y bank liq u id a tio n o f se c u ritie s holding s.
B illio n s o f
• it

dollars
25

v
COM
vm m
MsERCIA
n v i M iL.

b a n k i n g SYSTEM
IN CLUDIN G
FED ER A L R ES ER V E

1957 1958 1959
CH ART 6

OTHER
FIN A N C IA L
IN STITU TIO N S

1957 1958 1959

CON SUM ERS AND
N O N P R O FIT
O R G A N IZA TIO N S

1957 1958 1959

N O N FIN A N C IA L
C O R P O R A T IO N S

1957 1958 1959

ALL OTHER
IN V EST O R S

1957 1958 1959

S ource: B oa rd o f G o v e rn o rs o f th e F ederal Reserve System .

M ON EY S U P P LY AND D EP O SIT TU R N O V ER . For a y e a r of strong
b u sin e ss e x p a n sio n th e m o n ey su p p ly (c u rre n c y an d d em and
d e p o sits) ro se o n ly m o d e ra te ly in 195 9, w h ile the tu rn o v e r of
d em an d d ep o sits p u shed s u b s ta n tia lly h ig h e r.

1957

CHART 7

1958

1959

N ote: B oth d e p o s it tu rn o v e r and m o ne y s u p p ly are se a so n a lly
a d ju ste d and are show n as q u a rte rly averages, 1958=100.

For example, many individuals and others made this substitution by financing
the purchase of Treasury 5 per cent marketable notes (the “Magic Fives”
offered in October) out of withdrawals from savings accounts. Further, business
concerns, State and local governments, and others were given substantial induce
ments to economize cash balances by the concentration of Treasury financing
in the less-than-one-year maturity sector, and the associated upsurge of short
term interest rates to around 5 per cent.
In sum, the process of mobilizing funds through the financial markets to
service the huge demands for capital and credit in 1959 entailed heavy drawing
upon the banking system’s stock of liquid assets and a moderate reduction in
the liquidity of the economy at large. A further manifestation of this process
was a pronounced increase in the velocity of money, as a much larger volume
of business was transacted with a money supply that had grown only moderately
(see Chart 7). The only way in which credit could have been supplied in such
volume without these effects upon liquidity, given the savings habits of the

public, would have been through permitting the commercial banking system to
supply a larger share of credit requirements through further expansion in the
money supply. This could have prevented the reduction of liquidity, but only
by courting inflation.

Credit Policy: From Neutrality to Restraint
Credit policy in 1959 shifted from neutrality to restraint. Confronted with large
and growing demands for credit, Federal Reserve policies were designed to place
firm limits on the liquidity of both the banks and the nonbank public.
The central problem for credit policy in 1959 arose from two related facts.
First, while the economy had recovered to the pre-recession level of output by
the beginning of the year, the productivity gains meant that fewer people were
employed in turning out the same, or even greater, total product. Moreover, the
labor force continued to grow. Thus, wholly apart from the usual desire for fur
ther growth, there was a vital need to reduce unemployment through further
expansion of economic activity—which the Federal Reserve wished to encourage.
But, second, with a strong expansion already under way, the monetary authorities
had to be alert for any outburst of demand for credit that would suddenly swell
total spending beyond immediate capacity, either in general or in major sectors
of the economy. In short, expansion always carries with it the potentialities of
a credit boom, with attendant pressures on prices, which may, if not carefully
watched, break out into a “demand-pull” inflation. To be ready for such an
eventuality, the banking system had to be brought into such a position that credit
could not balloon out of control, even for short periods.
This broad sketch of the problem fails, of course, to depict in full color and
dimension the dramatic events that occurred within the year—in particular, the
interruption to expansion that resulted from the steel strike. Not only did the
steel strike stop production in a key industry, but it also befogged most of the
current economic indicators throughout the year. Even before the strike, pre
cautionary stockpiling of steel was a strong influence in the rapid expansion of
output. And after the strike began—indeed, through the end of the year—
steel shortages acted as a check on business investment, on consumer spending,
22

and on production. In addition to these conspicuous developments on the
domestic scene, the adverse United States balance of payments was another
factor to be taken into account in shaping credit policy.

c r e d it p o lic y b e fo r e t h e s t e e l s t r ik e .
As the year opened, the
economy had pretty well passed through recovery and seemed well on its way
to a new boom. But the picture was not entirely clear. The level of employment
was moving up only slowly toward pre-recession levels, and unemployment was
still sizable. This uncertainty of pace in the employment data also seemed to
be reflected in commercial bank credit. Total bank loans went into their usual
January-February slump, and at the same time commercial banks began to
reduce their securities holdings (see Chart 8). Total loans and investments
thus fell more than they typically do in these early months. In spite of the slack
demand for bank credit, the capital markets remained under rather considerable
pressure, and interest rates in the middle- and long-term maturities inched

BANK CRED IT AND L IQ U ID IT Y . In 1959 b a n k s cut b ack in v e stm e n ts — m a in ly
in T r e a s u r y issu e s — to m a k e room for lo a n s. This lim ited the ris e in b an k
credit an d pushed up th e lo a n -d e p o sit ratio to the h ig h e st point in m a n y
y e a r s — a rough indication of th e b an k in g s y s te m ’s cu rtaile d liq u id ity .

CHART 8

N o te : L o a n -d e p o s it ra tio is th e ra tio o f lo a n s (a d ju s te d ) to
to ta l d e p o sits less ca sh ite m s in process o f co lle c tio n .

MEMBER BAN K R E S E R V E P O SITIO N S. B y the sprin g of 195 9, bonk
r e s e r v e s had come u nd er co n sid erab le p r e s s u r e , n e c e s s ita tin g
su b sta n tia l b o rro w in g a t th e discount w in d o w .

CHART 9

N ote: M o n th ly a v e ra g e s o f d a lly fig u re s.

upward through most of January, before backing down again somewhat in
February. The Treasury found it necessary to borrow large amounts of money,
and borrowing by State and local governments also grew to substantial propor
tions. The frequency with which the Treasury, in particular, had to return to
the market for funds was a potent influence on credit markets.
In view of the continuing high rate of unemployment in these early months
of the year, and the more-than-seasonal decline in bank credit, greater reserve
pressures on commercial banks did not seem to be called for. The seasonal flow
of reserves into the banking system that is normal early in the year was sopped
up, as usual, through the System’s open market operations, but no new action
to restrict credit was undertaken. Commercial banks became less liquid, as
their holdings of short-term liquid assets declined, but the over-all availability
of member bank reserves remained relatively constant. As one rough measure
of this, banks’ net reserve positions fluctuated narrowly in the neighborhood of
zero throughout January and most of February, approximately unchanged from
the last two months of 1958 (see Chart 9).
24

By late February and early March it began to be evident that businesses
were laying in inventories at an accelerated pace and recalling their workforces
more rapidly than earlier. And, as the spring months passed, the economic data
increasingly confirmed this sense of quickened activity. By the end of June, the
economy seemed clearly at the threshold of a full-scale boom, if not already
into one. The renewed vigor of business activity had a pronounced effect on bank
credit. Loans bounded up sharply in March, and in April and May they expanded
at rates not seen at this season for a decade or more. The advance in June,
while not quite so spectacular, was also pronounced.
Treasury borrowing continued in relatively large volume during this period,
and a heavy volume of municipal offerings continued to flow into the capital
markets. In addition, corporate flotations rose somewhat from the relatively low
level recorded early in the year. All these demands combined to push market
rates of interest even higher (see Chart 10). And on May 18, major commercial
banks around the country raised the “prime” rate—the interest rate charged to
borrowers of the highest credit standing—from 4 per cent to AV2 per cent. Stock
market prices advanced rapidly, probably reflecting both the broadening business
upswing and a spreading concern over new inflationary pressures.
The accelerating pace of economic activity and the accompanying burst of
demand for credit of all types necessitated more aggressive efforts by the Federal
Reserve System to keep a checkrein on the growth of bank credit and to head
off inflationary credit expansion. Reserve funds were not supplied to support
the large volume of new loans banks put on their books, and banks’ liquidity
was subjected to a progressive squeeze as they found it necessary to sell money
market securities to raise funds for their new loans. As a result, the increase in
total bank credit and in the money supply was moderate. Not all of the sharp
spurt in bank loans was financed, however, by divestment of securities. Banks as
a whole also obtained funds by reducing excess reserves and by increasing the
outstanding total of their changing individual borrowings from Federal Reserve
Banks. The upshot was that net borrowed reserves of member banks moved up
almost continuously from late February, rising to about $550 million in June.
In addition, discount rates at the Federal Reserve Banks were raised twice during
the four-month period—from 2Vi to 3 per cent in early March and to 3V^
per cent in late May and early June. These moves followed increases in market
rates of interest, but System policy was partly responsible for the higher market
rates, so that increases in discount rates were part of a program of establishing
firmer restraint.

IN TER EST R A T ES AND STOCK Y IE LD S . S u sta in e d d em an d s for funds an d
lim its on b an k cred it g ro w th p u sh ed in t e re s t ra te s to p o stw a r h ig h s in
1959. S h o rter term r a t e s r e g is te re d the g re a te st r is e , p a r t ly b e ca u se
the T re a su ry w a s o b lig ed to co n cen tra te its b o rro w in g in th is a r e a .

PRIME
LO A N RATE

TR EA SU R Y ISSU ES
3-5 year

D ISCO U N T RATE
F.R.B. o f N .Y .

3-M O N TH * s .
TR EA S U R Y BILLS ■
A verag e issuing rate

Aaa
C O R P O R A TE
BONDS ^

TR EA SU R Y B O N D S
Long term
_
^
Aaa
M U N ICIP A L
BONDS
1957
C H A R T 10

1959

Sources: Board of Governors of the Federal Reserve System,
Moody's Investors Service, and Standard and Poor's Corporation.

The Steel Strike
lasted from mid-July to early November, but not until about halfway through this
period did the drag on economic activity begin to be evident in total bank lending.
Business borrowing at banks tended to be less buoyant after July, as the steel
strike wore on and inventories were gradually depleted. Consumer and real
estate loans, on the other hand, continued to rise very steeply until late in the
year.
The volume of new corporate securities flotations was much reduced during
the summer and early fall months, but there was still no letup in borrowing by
S T E A D Y P R E S S U R E IN T H E SECO N D H A LF O F 1959.

governmental units. The third quarter is typically a time of heavy borrowing by
the Federal Government, and in 1959 the month of October also found the
Treasury in the market. New borrowing by the Treasury in these four months
amounted to $10.9 billion, and issues that had to be refinanced totaled an addi
tional $13.9 billion.
For a time, interest rates held steady in the face of these demands upon the
market. But by late August they were heading up again. The prime lending
rate at major commercial banks was again advanced by

percentage point on

September 1, bringing it to 5 per cent. And, by the middle of September, market
rates of interest on obligations of almost all types had climbed to the highest
levels in nearly three decades. Rates of interest generally drifted lower for a time
after mid-September, as an enlarged flow of new funds into the market provided a
breathing spell. Also, the market may have begun to reflect some concern that
the steel strike, by running on and on, might have lessened the upward thrust
in the economy.

The impressive success of the Treasury’s “Magic Fives” in

attracting vast numbers of new investors into the Government securities market
was also an important influence at this time.
Throughout the steel strike, but particularly as it stretched from weeks into
months, the Federal Reserve authorities were alert to the possibility that the shut
down might dampen the economy for a considerable period after the return of
workers to their jobs. It was important for the Federal Reserve during these
months to be prepared to move either way. In the meantime, with most economic
data continuing to signal underlying economic strength, the indicated policy for
the monetary authorities was to keep the banking system under about the same
pressure that had prevailed when the steel mills first shut down. Reserves were
supplied through open market operations in each month of the four, principally
to take care of seasonal requirements. In adjustment to the renewed upward
movement of short-term interest rates in late August and early September, the
twelve Federal Reserve Banks raised their discount rates from 3Vi to 4 per cent
in the first half of September.
Once work was resumed in the steel industry, the economy began quickly
to move back to a high plane of performance. Business borrowing from commer
cial banks increased only seasonally in November but rose much more rapidly
in December— by an amount second only to the huge 1958 increase for that
month. In the capital markets, the movement of yields was somewhat irregular
but on the whole tended upward. By the year end, in fact, interest rates on debt
instruments of most types were at record levels since the early 1930’s.

The Federal Reserve System provided a part of the seasonal need for addi
tional bank reserves in the closing weeks of 1959 by allowing member banks to
count part of their vault cash toward meeting reserve requirements. Acting under
legislative authority granted by Congress earlier in the year, the Board of Gov
ernors permitted central reserve city and reserve city banks to count all vault
cash in excess of 2 per cent of their net demand deposits for this purpose, while
for country banks the amounts over 4 per cent could be counted. Other minor
changes in the method of computing required reserves also had the effect of
supplying member banks with additional reserves.
The year-end period normally brings with it a large-scale shuttling of funds
about the country, with a consequent loss of available funds from the central
money market.

The underlying liquidity position of New York banks came

under particularly strong pressure toward the end of 1959.

In the latter part

of the year they had expanded their loans much more rapidly than banks else
where, while their time deposits declined steeply.
generated by these contrasting movements,

Reflecting the pressures

the New York banks liquidated

their securities holdings several times as fast as other banks.
In the face of divergence between statistical indications of somewhat reduced
pressures on reserves and the fact of continued tightness in the money markets,
the System sought, through its open market operations, to keep the tone of these
markets from changing significantly in either direction. As the year came to a
close, the especially hectic period had passed, although the uncertainty hanging
over the economy had not been dispelled. The threat of a renewed steel shut
down was not removed until after the end of the year, and even then uncertainties
over the effect of the strike on the future pace of economic activity and over the
effect of the settlement terms on prices were important influences on the outlook.

th e

y e a r

a s

a w h o le .

Over 1959 as a whole, credit policy thus moved

from neutrality to outright restraint in the first half of the year and then main
tained restraint during the uncertain, strike-dominated second half. Nonethe
less, lending by commercial banks over the year supplied a record $12 billion to
businesses and consumers, thus providing the wherewithal for a real expansion
in economic activity.
At the same time, the very small increase in total reserves supplied to the
banking system— amounting over the year to only about $30 million— and the
fact that member banks had to seek reserves through the “discount window”
28

forced banks to finance the loan expansion primarily by disposing of Government
securities. Total bank credit— that is, loans and investments taken together—
in fact showed the smallest rise in ten years. This near stability of total bank
credit held down the increase in the publicly held money supply (i.e., demand
deposits adjusted and currency outside banks) to less than 1 per cent.
To look at 1959 by itself, however, is to take too narrow a view. For when
1958 and 1959 are considered together, the total increases in bank credit and
money supply were quite large— $18.5 billion and $6.9 billion, respectively.
Thus, the liquidity created by the banking system during the recession and
recovery months of 1958 was in large measure available in 1959 to meet the
special needs of an expanding economy. Moreover, the nonbank public acquired
a large volume of Treasury securities in 1959 and thus increased substantially
its holdings of highly liquid assets. Despite the increasing intensity with which
money was used and the higher level of debt incurred, the nonbank public was
probably only slightly less liquid at the end of 1959 than it had been a year earlier.
The liquidity position of commercial banks also takes on new dimensions
when the two years are considered together. To be sure, the ratio of loans to
deposits at all commercial banks had risen to 54 per cent at the end of 1959,
the highest year-end level since the 1920’s. But it is important to realize that
the $8.1 billion reduction in bank holdings of Governments during 1959— the
means by which much of the loan expansion was financed— was almost exactly
equaled by the large increase in such holdings in the previous year. Banks might
be said to have drawn heavily during 1959 on the high degree of liquidity that
they possessed when the year began.
The events of 1959 did, however, bring the liquidity positions of banks under
increased pressure and, by the year end, these were becoming a more active
influence on bank portfolio practices. As a result, the System’s ability to control
further advances in bank lending was increased substantially in 1959.

T H E EN D O F T H E F IF T IE S
When the 1950’s began, the economy was just beginning to make its way out of
the first postwar recession. Although the gloomier of the appraisals of postwar
business prospects had already proved unduly pessimistic, there still was fairly
widespread apprehension as to whether the business community would muster
the confidence and vitality needed to maintain full employment.

As we now

know, business investment in capital goods and research reached unprecedented
and at times inflationary rates during the fifties, and played a central role in
making the decade a period of unequaled prosperity.
Dramatic growth in technology and in productive capacity occurred despite
the intrusion of another unanticipated, and unwelcome, factor: resumption of
the arms race. An extrapolation of the early postwar developments might have
suggested that the 1950’s would be years of reduced military outlays and lower
tax burdens. Defense spending in the fiscal year ended in June 1950 was $13
billion, in a total budget of not quite $40 billion, while GNP was running at
about $265 billion (all in the then-current dollars).

Even when the Korean

struggle began, it was widely expected that the increase in military expenditures
would last only for the duration of active combat. In fact, of course, the intensity
of the subsequent “cold war” permitted relatively little retrenchment in defense
spending, or tax relief. The fact that the proportion of national output devoted
to private fixed investment during the 1950’s was almost equal to that maintained
in the early postwar years of retooling and expansion was a truly remarkable
achievement. Investment by various public bodies, in such forms as school and
highway construction, also expanded enormously, as could have been expected
after years of wartime restriction and in response to the huge growth and move
ment of population.
Despite these massive withdrawals of resources for purposes other than the
satisfaction of current consumer wants, these years also brought a prodigious
and widely diffused improvement in material welfare (see Chart 11). It is easy
to forget, in 1960, that ten years earlier the housing shortage was still acute
(now the proportion of “doubled-up” families is at an unprecedented low); that
only about one in every ten homes had a television set (now nine in ten have one);
or that there were only about 35 million passenger cars on the road (compared
30

G R O W T H IN TH E 1 9 5 0 ’S . T o t a l r e a l o u tp u t g r e w s u b s t a n t ia lly
o v e r th e d e c a d e , w it h o n ly b r ie f a n d m ild in t e r r u p t io n s , th o u g h
s o m e m a jo r co m p o n en ts o f d e m a n d u n d e r w e n t s iz a b le f lu c t u a t io n s .
B illio n s of
1 9 5 4 d o l la r s

B il lio n s of
1 9 5 4 d o lla r s

40
1949

I
50

I
51

I
52

I
53

CHART 11

I
54

I
55

I
56

I
57

I
58

I
1949 5 0

I
51

I
52

I
53

I
54

I
55

I
56

I
57

I
58

10
59

S o urce: U nited States D e p a rtm e n t of C o m m erce.

with close to 60 million currently). Nor have improvements in the standard of
living been confined to readily measurable tangible goods. Such developments
as the advances in medical care, broadened travel, and a wide range of cultural,
recreational, and educational pursuits which have emerged from the search for
fruitful employment of increased leisure time have also added to personal well
being.
These are only some among the major accomplishments of the 1950’s that
observers standing at the threshold of the decade might have hesitated to predict.
And even more difficult to anticipate would have been the timing of particular
developments. Demand pressures emerged first in one sector and then in another.
One after the other, major shifts of labor and adaptations of production patterns
had to be made— and largely were made. Indeed, the relative smoothness with
which these repeated adjustments were accomplished was itself an impressive
achievement.
Certainly, the most obvious shifts in demand, and resulting shifts in resources,
arose from changing military needs. The Korean conflict of course compelled

an enormous step-up in military drafts on the economy, both for manpower in
the armed forces and for war materials. And, while the end of the open conflict
permitted a release of military manpower, the levies on the country’s industrial
capacity and civilian labor force largely continued. But these, too, were con
tinually changing in amount and character. Jet aircraft replaced piston aircraft,
and now missiles are crowding out manned aircraft. Dramatic events such as
Soviet nuclear-weapons developments, and the sputniks and their successors, all
had their impact on military needs.
The volume of business capital formation also was in continuous flux.
Such investment was already on the advance in the first part of 1950 and was
further stimulated by the sharp increase in both military and civilian demand
associated with Korea.

In the mild recession of 1953-54 that followed the

partial unwinding of the war economy after the Korean truce, most indus
tries curtailed capital outlays in the usual cyclical pattern, but an accelerated
expansion in various types of commercial building (including prominently the
modern “shopping center” ) held the over-all decline in business fixed invest
ment to modest proportions.

There followed, in 1955 and 1956, a burst of

fresh investment in new plant and equipment extending to virtually all major
industries. This surge gave way in late 1957 and 1958 to a sharp and quite
general cyclical setback, to be succeeded in turn by renewed capital expansion in
1959 as described earlier in this Report. And as business capital investment and
the accompanying drafts on the capital markets waxed and waned, mortgage
money became alternately tighter and easier, contributing to an inverse pattern of
cyclical fluctuation in home-building activity.
But throughout the decade,

regardless of the phase of the business

cycle, business expenditures on research were being maintained or increased.
Government-sponsored research in electronics and other fields initiated for mili
tary purposes also contributed many results with nonmilitary applications. Pro
ductivity of capital goods and labor continued to progress. Though the rate of
productivity advance varied widely over the period, the aggregate gains were
large and go far to explain the production feats of the decade. As 1959 closed,
for example, the output of the manufacturing, mining, and utility industries was
some two-thirds greater than ten years earlier with only about 10 per cent
more employees.
The consumer, too, proved variable in many of his demands, as the growth
of income and of credit facilities expanded opportunities to purchase— and to
decline to purchase— many more goods and services, including what formerly
32

were luxuries reserved for a few. Korea touched off a buying spree in fear of
shortages; when these did not materialize to the extent feared, buying tempers
sobered. Rising incomes, easy credit terms, and attractive products and prices,
the latter reflecting primarily the spread of discounting and discount houses,
produced another surge of consumer demand in 1954-55. But consumer prefer
ences were far from stable; thus, sales of conventional American automobiles
boomed to over 7 million in 1955 but fell back to only about 4 million in 1958,
while sales of smaller foreign and American cars jumped sharply. In 1959, the
industry responded to the changing preferences of the public by introducing
several models of smaller and more economical cars. In contrast to “discretionary”
or “deferable” purchases, however, demand for staple items such as food dis
played a nearly steady growth, even in the face of recessions, and the expansion
of outlays on “services” seemed to be virtually unaffected by cyclical swings.
The economy of the 1950’s was thus one of high and quite persistent pres
sure on the nation’s economic resources. The equivalent of less than two full
years of the ten were years of business recession. At most times the economy
was challenged by a pace of demand that was close to its capacity to produce,
and that also required a continuous adaptation of production to meet the chang
ing demand mix.

One symptom of the strains that inevitably ensued was a

marked rise in prices and costs over the period. Indeed, at times there was a
spreading expectation that the rise could continue indefinitely in a “creeping
inflation” .
Sustained pressure was evident in the financial as well as the industrial struc
ture. The high rate of investment— by consumers, businesses, and government
units alike— necessarily entailed a rapid expansion of debt.

And since the

monetary authorities were obliged during most of the period to lean against the
prevailing inflationary winds by limiting the growth of credit, there was also a
need for economizing on cash assets. For the banking system this meant that,
during periods of intensive loan demands, these demands could be met only
through liquidating Government securities— if they were met at all. Commercial
bank loans increased by $67 billion over the decade, but their total investments
barely changed on balance, and their holdings of Government securities shrank
by some $9 billion. One consequence of this massive shift seems to have been
that the banks have had to place greater reliance, for liquidity needs, upon the
shiftability and maturity of earning assets, and on automatic amortization
features of loans, and less on merely tapping their now-depleted reservoir of
Treasury securities.

A corollary of restraint on bank credit growth was that the nation’s money
supply (currency and demand deposits) increased by a modest 30 per cent
during the period, compared with the near doubling of GNP. But growth of
a variety of near-money assets proceeded swiftly. Shares in savings and loan
associations grew by a spectacular 333 per cent, time and savings deposits in
commercial banks and mutual savings banks grew by 80 per cent, and short
term Treasury securities owned by the nonbank public were up by 170 per cent.
In dollar amounts, these near-money assets alone added more than $100 billion
to nonbank holdings of liquid assets.
Heavy credit demands and the limitations upon money supply growth led
to a substantial rise in interest rates over the period.

Ten years ago, when

Treasury bond yields were below 2 X
A per cent and Treasury notes yielded less
than W 2 per cent, few citizens would have ventured to predict that in 1959 the
Government would have to offer 5 per cent on a five-year note and would be
unable to market longer maturities because of the AVa per cent interest ceiling.
No doubt, moves of this size in market interest rates caused some dislocations—
but there is little doubt also that even greater dislocations would have resulted
from an effort to hold rates at an artificially low level when credit demands
were rising.
The world being what it is, the 1960’s may well bring as many or more
challenges, crises, and surprises as the 1950’s. Inventiveness, the willingness to
take risks, and the whole range of social attitudes embodied in the concept of
“mobility of resources”— qualities which the American economy demonstrated
in abundance during the 1950’s— will be no less vital. At the same time, the
need to make difficult choices and sometimes to accept personal sacrifices will
be no less pressing.

T H E U N IT E D S T A T E S
AN D T H E W O R LD EC O N O M Y
In 1959 the United States found itself in a strikingly transformed world economy,
as various changes in international economic conditions and policies that had
been developing for some time appeared to crystallize. Foreign industrial coun
tries left behind them the postwar era of United States-assisted recovery, of
“dollar shortage” , and of stringent restrictions against dollar-area products, and
moved forward under their own power into a period of dynamic growth. The
world trade and payments system revealed itself as stronger than many had
suspected— and indeed stronger than in decades.

Largely because of these

changes new problems emerged, and old problems, partially submerged in earlier
postwar years, came into sharper focus.

Most dramatic was the persistence for

a second year of a large deficit in the United States balance of payments, which
remained a matter of concern despite signs of improvement in the second half
of the year. At the same time, the need of underdeveloped countries for wellbalanced and rapid economic growth received intense attention and was exposed
as the prime problem facing the West. At the onset of the 1960’s, the Free
World was in a stronger position than ever before to meet the economic issues
confronting it.

Deficit in the United States Balance of Payments
P A Y M E N T S D E F IC IT A T A N A L L -T IM E

H IG H

IN 1 9 5 9 .

The United States

incurred a record payments deficit with the rest of the world in 1959. Receipts
from abroad had exceeded outpayments in 1957, largely because of the abnormal
demands for our exports stemming both from the Suez crisis and from the infla
tionary boom abroad, but before the end of that year the balance had turned
around, and in 1958 a $3.4 billion deficit was registered. In 1959, the deficit

grew to a record $3.7 billion (excluding payments to the International Monetary
Fund of $344 million in gold and $1,031 million in noninterest-bearing notes
to cover this country’s increased quota).
The change in our payments position reflected, in part, differences in the
timing of business recovery here and abroad.

While the recovery from the

1957-58 recession was definitely under way in the United States by mid-1958,
the upturn abroad began later in the year and became general only in 1959
(see Chart 12). With expansion in the United States ahead of the rest of the
world, it was natural that demands for foreign goods in this country should
outpace foreign demands for United States products. At the same time, however,
the earlier and generally more rapid rise in interest rates here than abroad—
also associated with the differing cyclical patterns— helped to mitigate the pres
sure on the United States balance of payments from trade accounts by reducing
the net outflow of private capital. As the upswing abroad became more pro
nounced during the course of the year, United States exports began to pick up
and the rise in our imports leveled off. Along with some special loan repayments,

IN D U S T R IA L P R O D U C T IO N . T h e r e c e n t e x p a n s io n a b r o a d h a s b e e n
s t r o n g , b u t it s t a r t e d la t e r t h a n t h e u p s w in g in t h e U n ite d S t a t e s .
Per cent
175
225

1957
CHART 12

1958

1959

1957

1958

1959

Note: S ea sonally adjusted; 1953=100; fo u rth q u a rte r 1959 p a rtly estim ated .

the improved trade balance helped reduce our over-all payments deficit in the
second half of the year.
One of the most dynamic elements in our international transactions in 1959
was the enlarged demand for foreign goods. Spurred by a combination of factors,
United States merchandise imports jumped by 19 per cent over 1958. Record
domestic income and production led to increased demand for imports of all kinds.
Greater foreign penetration of some United States markets was reflected in
expanded sales here of a number of foreign manufactured products, notably auto
mobiles and textiles. Finally, the prolonged strike in the steel industry stimulated
demand for iron and steel imports. The industrial countries abroad, particularly
in Western Europe, were the main beneficiaries of our import rise and thereby
received a major stimulus for their own business upswing.
The business recovery abroad affected United States exports only with a
considerable delay, and, as a result, merchandise exports for the year as a whole
barely matched the 1958 level. The first signs of a general revival in exports
came at midyear, reflecting further increases in purchases by Canada and the
stepping-up of imports by Western Europe and Japan. In the fourth quarter,
total exports were running (on a seasonally adjusted basis) some 10 per cent
above the low reached in the first quarter of 1959. At the end of 1959 there
was evidence that United States exports were well along the recovery path, but
the extent of further export expansion could not be predicted with any certainty.
The delayed recovery of United States exports, together with the sharp rise
in United States imports, cut back the merchandise trade surplus for 1959 by
$2.5 billion to a postwar low of $0.9 billion. At the same time, other major
elements of our international accounts— investment income and other service
transactions, military expenditures abroad, private remittances, and Government
grants— showed little or no change. Only a sharp drop in the net capital outflow
prevented a major worsening in our over-all international payments position.
Movements in all three principal capital accounts— United States Govern
ment capital, United States private capital, and long-term foreign capital—
tended to offset the deterioration in the trade balance. The net outflow of United
States Government capital was reduced by more than half to $0.4 billion in 1959.
The drop was mainly attributable to sizable advance debt repayments by West
Germany and the United Kingdom rather than to any significant curtailment
in the outflow of new funds. The faster rise in United States interest rates, com
pared with those in foreign markets, helped to reduce the outflow of United
States private capital despite a pickup in direct investments. Flotations of foreign

bonds in the United States fell back by about $0.4 billion, and the outflow of
short-term capital, including loans by United States commercial banks, was
reversed.

The inflow of long-term foreign capital reached an estimated $0.5

billion, as against an insignificant amount in 1958, reflecting both the relaxation
of capital movement controls abroad and the increase in interest rates here.
Higher domestic interest rates were also a factor, although not the most
important one, behind a major change in the means of settling the United States
payments deficit. In 1959, less than one fifth of the dollar gains of foreign coun
tries and international institutions was used to purchase gold from the United
States, as against two thirds in 1958. Taking account also of the $344 million
gold transfer to the IMF to meet the increase in the United States gold subscrip
tion, the United States gold stock fell by $1.1 billion in 1959 as against $2.3
billion in 1958. The United States gold loss would have been reduced even more
but for the increase in foreign countries’ demand for gold— in part satisfied
through purchases from the United States— to meet obligations to the IMF
stemming from the Fund quota increases, as well as to repay Fund borrowings.
Aside from $300 million of gold that the IMF sold to the United States in order
to buttress the Fund’s income by enlarging its income-earning assets, the easing
of the gold drain in 1959 appears to have been due principally to two develop
ments. First, most of the Western European countries that traditionally hold the
bulk of their official international reserves in gold gained substantially smaller
amounts of reserves in 1959 than in 1958, or actually lost reserves as against
gains in 1958. Secondly, private foreign holdings of liquid dollar assets were
built up at an unprecedented rate (by $1.1 billion in short-term assets plus an
undetermined amount in United States Government bonds and notes), as exchange
controls were further relaxed abroad and foreigners were attracted by investment
opportunities here.
While the United States continued to supply dollars to the rest of the
world at a very high rate in 1959, the pattern of gold and dollar flows and gains
outside the United States changed sharply. All told, foreign countries and inter
national institutions added some $5.7 billion to their gold and dollar holdings
in 1959— $3.7 billion from the United States cash deficit, $1.4 billion from the
increase in the United States subscription to the IMF, and about $0.6 billion in
gold from new production, Russian sales, and other lesser sources. Of this, some
$2.8 billion went to increase the gold and dollar holdings of international organ
izations (mainly reflecting the rise in IMF quotas as well as foreign repayments
of borrowings from the Fund), as against only $0.5 billion in 1958. The increase

F O R E IG N G O L D A N D D O L L A R H O L D IN G S . W e s t e r n E u ro p e h a s
b e e n t h e p r in c ip a l b e n e f ic ia r y o f th e b u ild - u p in fo r e ig n g o ld
a n d d o lla r h o ld in g s s in c e 1 9 4 9 , bu t in 19 59 E u r o p e ’s g a in s
w e r e o n ly o n e h a lf o f th o s e in 1 9 5 8 .
PRIMARY
PRODUCERS

n_n

1949 57 58 59

SWITZERLAND

OTHER
CONTINENTAL
W . EUROPE___

1949 57 58 59

Note: H o ld in g s c o m p ris e o ffic ia l gold re s e rv e s (e xce p t th o se of th e U .S .S .R .,
oth e r E a ste rn Europ ean co u n trie s, and C h in a M a in la n d ) and official and
p riva te d o lla r h o ld in g s (p rim a rily bank deposits, U n ited S ta te s G o ve rn m e n t
secu rities, and bankers' a c c e p ta n c e s ). F re n c h h o ld in g s show n exc lu d e gold
h o ld in g s of the F re n ch E xch a n g e S ta b iliza tio n Fu n d . O th e r Continen tal
W estern Europ e in c lu d e s B ank fo r In te rn a tio n a l Settlem ents.

in Western Europe’s holdings was cut back to about $1.8 billion from $3.6
billion in 1958, reflecting smaller gains from the primary-producing countries
as well as the large transfers to the IMF. At the same time, the previous decline
in the primary-producing countries’ international currency reserves was reversed
(see Chart 13) as their exports rose, partly in response to the economic recovery
in the industrial countries.

lo n g e r

v ie w .

The 1958 and 1959 deficits in the United States balance of

payments have attracted a great deal of attention because of their size and the rela
tive importance of the gold movement involved in their settlement. But the United

States has been running deficits— and thus adding to the international liquidity
of the rest of the world— in every year since 1949 except 1957 (see Chart 14).
During the ten years 1950-59, foreign countries added almost $21 billion to
their gold and liquid dollar holdings, while international institutions gained $3
billion; of the total, about $18V^ billion came from the United States— some
$13V2 billion in dollars and roughly $5 billion in gold. In the last two years,
however, the United States deficit has averaged more than double the average
of the seven previous deficit years— $3.5 billion as against $1.5 billion.
Since the interactions among the various components of the balance of pay
ments are extremely complex, it is difficult to link the deterioration in our over-all
balance directly to specific payments items.

Some of the longer term forces

at work can nevertheless be discerned— veiled though they are by cyclical and
special factors that dominate year-to-year changes (see Chart 14).

Notwith

standing an uptrend in the outflow of private capital and the jump in military
expenditures abroad, counterbalanced by growing investment income and by a
U N ITED S T A T E S B A L A N C E O F P A Y M E N T S . F lu c t u a t io n s in fo re ig n
r e s e r v e g a in s fro m t h e U n it e d S t a t e s h a v e m a in ly p a r a lle le d
s w in g s in o u r t r a d e s u r p lu s . In c r e a s e s in b o th m i li t a r y e x p e n d it u r e s
a b r o a d a n d p r iv a t e c a p it a l o u t flo w s h a v e b e e n o f f s e t b y e n la r g e d
s e r v ic e r e c e ip t s a n d re d u c e d G o v e r n m e n t g r a n t s a n d lo a n s .

CHART 14

N o te: In c lu d e s tra n s a c tio n s w ith in te rn a tio n a l in s titu tio n s , e xc e p t fo r initial
U n ited States s u b s c rip tio n s to th e In te rn ationa l M oneta ry F u n d and the
In te rn a tio n a l B a nk fo r R ec o n stru ctio n and D e ve lo p m e n t in 1946-47 and
th e ad d itio n a l su b s c rip tio n to th e In te rn a tio n a l M o n e ta ry Fu n d in 1959.
S o urce: U n ite d S tates D e p a rtm e n t of C o m m e rc e ; fo u rth q u a rte r o f 1959
estim ated .

drop in Government loans and grants, probably the most fundamental changes
have been those in our merchandise trade. Cyclically, an apparently increased
sensitivity of our exports to business conditions abroad, together with a greater
steadiness of our imports, seems to have made our trade position more vulnerable
during world-wide recessions.
More important, however, is the question of the competitive position of
United States products. Responsible observers have expressed views that range
from extreme alarm to rather surprising complacency. Clearly, the proper assess
ment lies somewhere between these extremes. It is only natural that our goods
should now encounter greater foreign competition than in the first postwar years.
The relative position of the other major exporting countries had to improve if
the goals of postwar recovery were to be met. The inevitable narrowing of the
technological gap between United States and foreign producers has ended the
unique position of many American products, but it has not in most cases rendered
them uncompetitive. There are, of course, conspicuous areas of weakness, but,
as some of our products have lost out to foreign goods, others embodying
advanced research and technology have continued to gain new markets. Such
shifts in the composition of a country’s foreign trade are not unusual, represent
ing as they do the free market adjustment to changes in the productive structure
of individual countries that make first one country and then another excel in
this or that product.
What seems to have happened is that the shifts in comparative advantage in
the postwar period have been so rapid that many of the necessary adjustments
here have lagged behind. An examination of the statistical record of the recent
past, however, shows no serious deterioration in the competitive position of
United States manufactures as a whole. Our share of world exports of manu
factures, it is true, has declined, but only slightly, and the decline appears
to have been to an important degree in response to the comeback of West
Germany and Japan (see Chart 15).

Moreover, and perhaps surprisingly,

comparisons of price and labor-cost changes in recent years reveal that over
all percentage increases in United States prices have been no larger than in other
industrial countries, while United States wage rates and labor costs in manu
facturing have actually increased less percentagewise than in the other countries.
The change has come instead from a rapid expansion abroad of capacity to
produce those goods for which the absolute level of costs has long been lower,
or at least no higher, there than here. American producers no longer have the
advantage of being able to quote earlier delivery dates than their competitors,

E X P O R T S H A R E S . T h e U n it e d S t a t e s s h a r e o f in d u s t r ia l c o u n t r ie s ’
m a n u fa c t u re d e x p o r t s h a s d e c lin e d in th e p a s t d e c a d e , p r im a r ily
b e c a u s e o f t h e co m e b a c k o f W e s t G e r m a n y a n d J a p a n , b u t it
r e m a in s h ig h e r t h a n p r e w a r .
Per cent

UNITED STATES

1937 50 55 58 59
CHART 15

UNITED KINGDOM

1937 50 55 58 59

WEST GERMANY

1937 5 0 55 58 59

FRANCE

1937 50 55 58 5 9

JAPAN

1937 5 0 55 58 59

N o te: Data fo r 1959 p a rtly estim ated .

nor of being able to offer standard items which others were not even equipped
to produce. Instead of having foreign customers clamoring for its products more
or less indiscriminately, United States industry must now devote the same efforts
to meeting competition abroad as it does at home. This is a lesson that other
countries, under the pressure of circumstances, learned much earlier than could
have been expected of the United States with its large domestic market. But
today there is a real need for American ingenuity to develop designs and prod
ucts, as well as production, selling, and servicing methods, that will meet a favor
able response abroad. There will have to be flexibility and mobility, on the part
of both management and labor, if the need is to be met effectively.
Meanwhile, of course, United States imports have exhibited a steady long
term growth that appears to have been faster than the uptrend of exports. The
lifting of the consumer horizon to include more and more foreign goods, the
reductions in tariffs, as well as the growing need for foreign raw materials, have
all spurred this growth. United States imports remain low in relation to domestic
production, when compared with pre-World War I years or with other countries,
but the rapid import expansion may well continue in the years ahead, a possibility
that makes a determined export drive all the more imperative.

Th e New W orld Economy
th e

c h a n g in g

tr a d e

an d

p a y m en ts

sy ste m .

The emergence of

large United States balance-of-payments deficits in the last two years is but one
sign of the recent transformation of the world economy. By 1959 it had be
come clear that the era of postwar discriminatory restrictions on international
trade and payments was drawing to a close. The easing of restrictions dates
back, of course, to the early 1950’s and the waning of the world-wide inflationary
boom that had followed the outbreak of the Korean war. By that time Western
Europe had become economically strong enough to begin dismantling the whole
cumbersome apparatus of control. However, the renewed inflationary pressures
that beset Europe in 1955-57, the Middle East political difficulties, and the
related European balance-of-payments crises obscured the extent of Europe’s
recovery and interrupted the advance toward a freer payments system.
The advance wras resumed in 1958, and the successful establishment of
nonresident convertibility of most Western European currencies at the end of
that year brought general recognition that financial reasons for dollar discrimi
nation had disappeared. During 1959 a great many countries in Western Europe
and elsewhere joined those that had already removed virtually all discriminatory
trade controls, or announced additional plans to do so. Some discriminatory con
trols on so-called invisible transactions, and even on some capital movements,
as well as many general quantitative restrictions on trade and payments, were
also abolished.

As a result, world trade has moved steadily toward eco

nomically more rational channels, although freedom from quota restrictions is
still far from universal. The lifting of quota restrictions, of course, has shifted
attention to existing tariff barriers, and in many instances these remain a major
hindrance to further trade expansion. The world-wide program for reciprocal
tariff negotiation and reduction within the framework of GATT (the General
Agreement on Tariffs and Trade) has thus become more important than ever.
The easing of restrictions on the international movement of capital, together
with the restored strength of Western Europe, has enlarged the scope for move
ments of short-term funds from one country to another in response to interest
rate differentials. Such movements, of course, could worsen rather than relieve
payments imbalances.

However, recent shifts of funds have generally helped

to balance world payments. While a world money market is rapidly re-emerging,
the integration of long-term capital markets on the other hand remains much
less advanced.

Along with the removal of many trade and payments restrictions, foreign
countries were able in 1959 to join with the United States in strengthening the
world payments system through various financial measures. The most significant
of these was the enlargement of the resources of the two Bretton Woods insti
tutions, the International Monetary Fund and the International Bank for Recon
struction and Development. The general 50 per cent increase in Fund quotas,
plus higher increases for a number of countries, augmented that institution’s
resources by about $5 billion, of which $1.2 billion was in gold. International
liquidity was increased, not only through the enlargement of quotas, but also by
the greater usability of the newly convertible European currencies contributed
to the Fund.
The doubling of the authorized capital of the International Bank was the
major step forward in the field of long-term development financing.

At the

same time, the Bank’s ability to harness private funds for long-term economic
development was strengthened through greater reliance upon borrowing in
capital markets outside the United States. Such borrowing remained relatively
small in 1959, but it promised to be significant as a means of channeling
European capital to nonindustrial countries. The contribution of foreign indus
trial countries to the development of the raw-material-producing countries
may also be enhanced through the proposed International Development Asso
ciation.

This affiliate of the International Bank, which if approved by the

member countries would come into existence late in 1960, is designed to finance
sound projects of high priority that cannot fully meet the strict lending standards
of the International Bank or qualify for equity financing through the International
Finance Corporation (which also notably expanded its fledgling operations over
the past year). Three other international lending organizations— of a regional
rather than world-wide character— appeared in 1959. Both the European In
vestment Bank and the Overseas Development Fund of the European Common
Market actually began operations, while the charter of the Inter-American
Development Bank was ratified during the year.
Alongside all these moves toward a freer and stronger payments system,
two new potential problem areas came to the fore in 1959— the emergence
of regional economic groupings and the intensification of the Soviet bloc’s trade
drive. The increased trend toward regionalism in trade seems likely to have a
major impact on the future of the Free World economy. In Africa and Asia, to
be sure, this trend has barely begun, but in Latin America the formation of
regional groupings has already advanced to the blueprint stage, and in Europe

it is well on the way to actual implementation. These regional arrangements
promise freer and larger markets to their participants, but their very nature
implies that their immediate benefits can be extended only to member countries.
Whether or not such regional arrangements will speed the integration of the
entire world economy will depend on how liberally these new groupings conduct
their commercial policies with the outside world. The announced readiness of
the European Common Market to negotiate substantial tariff reductions with
the outside world is a hopeful augury.
The second major problem confronting the Free World economy arose from
the Soviet bloc’s trade drive. Centrally directed, employing monopolistic prac
tices, aimed at political as well as economic objectives, and directed currently
toward a selected group of countries, this offensive could undermine the inde
pendence of some of the Soviet bloc’s trading partners in the Free World.
However, the power of the bloc over those countries that trade with it varies
inversely with the availability of alternative markets, sources of goods, and
terms of financing. Few members of the Free World community are likely to
become seriously dependent on the Soviet bloc provided— and the proviso is
important— that Western markets, especially in the industrial countries, are
expanding and barriers to trade are being reduced, and the West continues its
policy of helping in the diversification and development of the economies of the
primary producers.

e c o n o m i e s in t h e p r o c e s s o f c h a n g e .
Perhaps the most
striking aspect of the transformation of foreign economies that has made possible
the strengthening of the world payments system is the apparent waning of the
pervasive inflationary forces that had gripped the world since World War II.
Not only has the postwar recovery of the industrial countries now been completed
and the surplus money supply inherited from the war absorbed, but monetary
and fiscal authorities— with the increasing support of public opinion— have be
come more than ever determined to prevent inflation. In country after country
the imposition of monetary and other restraint measures during the early stages
of the 1959 expansion showed this clearly. Similarly, in most countries where
inflationary problems had long persisted, the necessity of comprehensive stabi
lization programs has become widely accepted.
With the solution of the immediate postwar problems, the countries of the
Free World were able in 1959 to devote greater attention to longer term economic
fo r e ig n

issues. Growth without inflation has become generally recognized as a major
economic task facing the Free World. A number of industrial countries abroad
introduced a variety of measures in 1959 to stimulate private savings and invest
ment, primarily through tax incentives of one kind or another. More important
have been the dismantling of remaining direct controls and the introduction and
strengthening of legislation to encourage the working of competitive market
forces as the best means to assure steady growth. It is significant— and in
rather sharp contrast to some opinion in this country— that inflation, creeping
or otherwise, is not widely viewed abroad as the way to rapid growth. Opposition
to inflation of any shape or size is virtually unanimous in the industrial countries
abroad, and is growing steadily in the nonindustrial ones. This difference in
emphasis here and abroad clearly stems from foreign experience with inflation
as well as from the fact that foreign economies for a long time have been forced
to devote much greater attention to their balance of payments than has the
United States. Postwar trends in other countries clearly confirm that price
increases do not necessarily go hand in hand with economic growth and, where
they do, rapid growth is usually at the expense of international reserves and
therefore cannot be sustained.
The recent changes in the economic climate abroad have been most marked
in the countries of Western Europe. Significantly, France came to share more
fully in Europe’s new dynamism, as a markedly successful stabilization program
— achieved despite the continued drain caused by the Algerian conflict— halted
the damage that inflation had for years been inflicting on an otherwise strong
economy. Amid a new emphasis on free markets, a shift toward a highconsumption economy has begun and is accelerating throughout Western Europe.
This shift is being supported by a rapid spread of consumer credit and, in a
fashion reminiscent of the American scene of a generation ago, is creating mass
markets that will support mass production. The trend toward higher wages
seems to have gathered speed, but labor productivity too has grown rapidly,
particularly helped by marked advances in technology and by sizable outlays for
new plant and equipment.
In the nonindustrial countries, progress has not been so encouraging. Lately,
the policies of most of these countries, notably in Latin America, have placed
stronger emphasis on price stability, greater reliance on their own efforts, and
more favorable treatment of private foreign investment, all necessary conditions
for rapid economic advance. But the tasks these countries face remain immense.
The adverse shift in their terms of trade in recent years has offset some of the

aid that they received from the United States and other industrial countries. Not
surprisingly, therefore, the primary-producing countries continue to press for
commodity price stabilization arrangements. One aspect of the advance of the
less developed regions toward industrialization, however, has not received as
much attention as it deserves. An increasing number of the poorer countries are
reaching the stage where they are beginning to offer manufactured goods, espe
cially the simpler textiles, on world markets. This new competition with the
older industrial countries may well intensify complaints against “ cheap foreign
labor” . It is clear, however, that if the Free World economy is to continue to
grow, with maximum advantage to consumers, it must be flexible enough to take
in stride the continuing shifts in production required by the old but still valid
principle of comparative advantage.

Th e Challenges of the Sixties
The world economy has changed its appearance so rapidly over the last two
years, as the forces of liberal trade have begun to reach fruition, that attention has
only begun to focus upon the new problems and opportunities in the Free World.
The development of the poorer regions of the Free World has now been
generally accepted as a responsibility that all the older industrial regions must
jointly shoulder along with the nonindustrial regions. It is a task, moreover,
that will be with us for a long time to come. The need for a steady growth of
the industrial countries, in order both to continue to lift domestic living standards
and to contribute to the development of the nonindustrial countries, is likewise
a continuing one. The particular measures to be taken to deal with these prob
lems are bound to be many and varied. But monetary and fiscal soundness, as
well as a liberal trading framework, are prerequisites for continued expansion
of the Free World economy.
The same precepts also apply to this country’s payments difficulties. Al
though our gold stock of $19V^> billion— half of the Free World’s monetary
gold— remains sizable, a continuation of United States deficits at their recent
rate clearly cannot be tolerated. Industrial countries abroad, their economic
strength restored, can help not only through the further removal of trade and

payments restrictions but also through an increased sharing with the United States
of both defense and development burdens. But these countries’ cooperation
alone is not enough. Our political-economic obligations to friends and allies
around the globe make an especially large payments surplus on private account
essential. Basically, however, our new problem is one that has long confronted
the rest of the world— the discipline of the balance of payments cannot be
avoided. This does not mean that balance-of-payments considerations now
should be the only guide for the United States economy. But they do have an
important bearing on domestic policies. Both our international and our domestic
positions make imperative what should be obvious in any case: inflation with
its resulting cost and price advances must be avoided.

T H IS B A N K ’S O P E R A T IO N S
Volume and Tre n d of the Bank’s Operations
d o m e s tic o p e r a tio n s .
For most departments of the Bank, the volume
of operations expanded appreciably in 1959, reflecting higher levels of business
and financial activity and a more intensive use of available funds.
During the year, the Bank processed 571 million checks amounting to $394
billion, excluding United States Government checks. This represented an increase
of 3 per cent in the number of items handled but only a very slight rise in dollar
volume over the preceding year. The leveling-off in dollar volume stemmed
chiefly from a change in the procedures for effecting transfers of funds among
New York City banks; some banks that used to make payments by drawing
checks on this Bank switched instead to using the Bank’s wire transfer facilities.
As a result, the dollar volume of checks drawn on this Bank, which is included
in the above total, declined by $11 billion (or 6 per cent) from 1958 to 1959,
reversing the upward trend of recent years. In contrast, the dollar volume of
checks handled other than those drawn on this Bank rose by nearly $12 billion
to $228 billion. This represented about one fifth of the total for all twelve
Federal Reserve Banks. Paralleling the rise in check volume, the average level
of float at this Bank in 1959 was 4 per cent higher than in 1958.
The number of United States Government checks handled by the Bank
during 1959 increased by 3 per cent, compared with declines of 7 and 9 per cent
in 1957 and 1958, respectively. No major changes were made during 1959 in
the Treasury’s payment and reconciliation procedures, w7hereas certain simplifi
cations had been instituted in 1957 and 1958 which largely accounted for the
reduced volume in those years. The dollar value of Government checks collected
through this Bank rose 5 per cent in 1959 over 1958.
Use of the Bank’s wire transfer facilities increased substantially further in
1959. The dollar volume of transfers, other than Treasury transfers and Reserve
Bank interdistrict settlements, totaled $685 billion, a rise of 14 per cent over
1958. Partly, the rise reflected the more frequent use of these facilities in local
transfers of funds, as described above. The actual number of transfers handled
in 1959 was about 564,000, up 11 per cent from 1958.

M EM B E R B A N K B O R R O W IN G S .

B o r r o w in g fro m th is B a n k ju m p e d s h a r p ly

in 1 9 5 9 . W h ile bo th th e t o t a l a n d a v e r a g e d a ily a m o u n ts w e r e le s s th a n in
19 56 a n d 1 9 5 7 , t h e p ro p o rtio n o f m e m b e r b a n k s u sin g th e d isco u n t w in d o w
w a s th e h ig h e s t in r e c e n t y e a r s .
Per cent
PROPORTION OF MEMBER BANKS
THAT BORROWED DURING THE YEAR

--------- Scale

AVERAGE DAILY BORROW ING

S c a le -----------

1954

1955

CHART 16

1956

1957

1958

1959

1954

1955

1956

1957

1958

1959

A further marked expansion in the Treasury’s financing operations, and the
continuing high level of activity in the Government securities market, caused
the Bank’s fiscal agency operations to increase significantly during 1959. The
dollar volume of all Government obligations, other than United States Savings
bonds, processed by this Bank in 1959 was $453 billion, an increase of 9 per cent
over 1958. The number of pieces handled during 1959 rose even more rapidly
than the dollar volume, jumping by 22 per cent to 6 V2 million. Part of the rise
reflected the unusually heavy participation of small investors in the Treasury issue
of 5 per cent notes in October; the Bank handled about 200,000 of these notes.
One of the most impressive changes in the Bank’s operations during 1959
was the sharp rise in lending activities, as mounting pressures on reserve positions
caused member banks to turn more frequently and in greater volume to the
“ discount window” . As shown in Chart 16, the dollar volume of advances to
member banks more than doubled in 1959, rising to $24 billion. Although the
1959 total was somewhat less than those for 1956 and 1957, the proportion of
member banks that borrowed at least once during the year was the highest in
recent years.

S O M E M E A S U R E S O F T H E V O L U M E O F O P E R A T IO N S O F
T H E F E D E R A L R E S E R V E B A N K O F N EW Y O R K (Including Buffalo Branch)
Number of pieces handled ★

1959

Discounts and a d va n c e s .............................................................................................. .............................. 3,221
Currency received and counted .........................................................................
1,270,092,000
Coin received .......................................................................................................................
2,227,233,000
Gold bars and bags of gold coin h a n d le d ...............................................
374,000
Checks handled:
United States Government c h e c k s ..............................................................
All other ...............................................................................................................................
Postal money orders h a n d le d ................................................................................
Collection' items handled:
United States Government coupons paid...............................................
Credits for direct sendings of collection it e m s ..........................
All other ...............................................................................................................................
Issues, redemptions, exchanges by fiscal agency departments:
United States Savings b o n d s ............................................................................
All other United States obligations..............................................................
Obligations of the International Bank for Reconstruction and
Development ....................................................................................................................
Safekeeping of securities:
Pieces received and delivered .....................................................................
Coupons detached ......................................................................................................
Wire transfers of f u n d s t ...........................................................................................

56,391,000
570,981,000
39,664,000

1 95 8

2,087
1,249,986,000
2,165,780,000
292,000
54,675,000
552,224,000
43,037,000

4,045,000
369,000
12,508,000

4,003,000
359,000
12 ,115 ,0 0 0

28,716,000
6,440,000

28,501,000
5,266,000

249,000
8,480,000
3,746,000
564,000

701,000
7,368,000
3,342,000
509,000

Amounts handled

Discounts and advances ...........................................................................................
Currency received and c o u n te d ............................................................................
Coin received .......................................................................................................................
Gold bars and bags of gold coin h a n d le d ...............................................

$ 24,013,712,00 0
8,428,367,000
236,324,000
4,989,551,000

$11,072,095,000
8,165,085,000
226,977,000
4,062,503,000

Checks handled:
United States Government c h e c k s ..............................................................
All other ...............................................................................................................................
Postal money orders h a n d le d ................................................................................

20,261,470,000
394,316,782,000
688,790,000

19,261,007,000
393,860,426,000
733,765,000

Collection items handled:
United States Government coupons paid ............................................
Credits for direct sendings of collection i t e m s ..........................
All other ...............................................................................................................................
Issues, redemptions, exchanges by fiscal agency departments:
United States Savings b o n d s ............................................................................
All other United States obligations .......................................................
Obligations of the International Bank for Reconstruction
and Development .........................................................................................................
Safekeeping of securities:
Par value pieces received and d e live re d ...............................................
Wire transfers of fundst ...........................................................................................

2,058,555,000
704,297,000
1,9 14 ,776 ,0 0 0
2,198,387,000
452,875,309,000
703,840,000
619,894,323,000
685,024,466,000

2,087,965,000
702,094,000
1,989,532,000
2,25 1,75 1,0 0 0
414,5 42,70 7,0 0 0
1,134,564,000
580,961,706,000
598,770,651,000

★Two or more checks, coupons, etc., handled as a single item are counted as one “ piece” ,
t Includes a small amount of mail transfers; excludes Treasurytransfers and Reserve Bank interdistrict
settlements.

Notwithstanding the sizable increases in work volume, the average number
of employees at the Bank in 1959 was actually slightly lower than in 1958. The
decline was accounted for by a reduction in the number of short-hour and parttime workers, while the number of regular employees increased slightly. At the
end of the year, the Bank’s officers and staff numbered 3,853, including 245
at the Buffalo Branch.

a n d in te r n a tio n a l o p e r a tio n s .
A counterpart of the
United States balance-of-payments deficit in 1959 was a rise in gold and dollar
assets held for foreign account by this Bank (on behalf of all Federal Reserve
Banks) of about $1.3 billion over the year to a new high of $13.4 billion.
The increase in 1959 was much less than the $2.2 billion rise during 1958,
however. While all types of assets held for foreign account shared in the rise
in 1959, holdings of United States Government securities, which had registered
a small decline in 1958, accounted for most of the increase, climbing by $0.8
billion to $4.5 billion. Earmarked gold, on the other hand, increased by only
$0.4 billion to $8.0 billion, compared with a rise of $2.2 billion in 1958. (Total
gold custody, including international accounts, was $9.9 billion at the end of
1959.) Other changes during 1959 were relatively slight.
The accounts of international organizations (in which the other Federal
Reserve Banks do not participate) rose sharply by $2.8 billion during 1959,
bringing the assets held by this Bank for international accounts to a new high
of almost $6 billion. This large expansion chiefly reflected the increase in
member country quotas in the International Monetary Fund (discussed earlier
in this Report).
There was only moderate activity in loans on gold during 1959. New
arrangements were made with four foreign monetary authorities, involving about
$41 million. At the year end only one loan, of $5 million, was outstanding. It
is this Bank’s policy to make loans on gold, and commitments for such loans,
to foreign monetary authorities to assist them in meeting seasonal and other
temporary dollar drains.
Five new accounts were opened during the year, for the Italian Foreign
Exchange Office, the European Investment Bank, the Bank of Taiwan, and the
recently organized central banks of Tunisia and Malaya.
fo r e ig n

Financial Statements
STATEMENT OF EARNINGS AND EXPENSES FOR
T H E C A L E N D A R Y E A R S 1 9 5 9 AN D 1 9 5 8

(In thousands of dollars)

1959

1958

Total current earnings ................................................................................................................

224,372

188,059

Net expenses ..........................................................................................................................................

29,008

28,139

Current net earnings

195,364

159,920

Additions to current net earnings:
Profit on sales of United States Government securities ( n e t ) ___

Transferred from reserve for contingencies ( n e t ) ............................................

20,969^

All other ....................................................................................................................................................

Total additions

21,0 18

Transferred to reserve for contingencies.................................................................

All other ....................................................................................................................................................

288

Deductions from current net earnings:

Total deductions

288

Net additions ..........................................................................................................................................

20,730

Net earnings before payments to United States Treasury

2 1 6 ,0 9 4

159,921

Dividends paid ......................................................................................................................................

6,547

6,200

227,544

138,349

17,9 9 7

15,372

..................................................................................................

238,902

223,963

Transferred from net earnings for y e a r .....................................................................

15,372

Paid United States Treasury (interest on Federal Reserve notes). .
Transferred to surplus ................................................................................................................

Surplus Account (Section 7):

Surplus— beginning of year

238,902

239,335

Paid United States Treasury (interest on Federal Reserve n o te s )..

17 ,9 9 7 t

Paid United States Treasury (pursuant to Small Business Investment
Act of 1 9 5 8 ) ......................................................................................................................................

433

Surplus - end of year

22 0,90 5

23 8,90 2

★Represents $21,026,000 transferred from reserve for contingencies less annual addition to reserve for
registered mail losses of $57,111.
t Payment to United States Treasury representing surplus in excess of 100 per cent of subscribed capital stock
as of December 31, 1959.

S T A T E M E N T O F C O N D IT IO N
(In thousands of dollars)

A ssets

D EC. 31, 1959

Gold certificates

D E C . 3 1 , 1 95 8

...................................................................................................................................

4,685,959

5,277,366

Redemption fund for Federal Reserve notes ..............................................................

213,326

198,412

Federal Reserve notes of other B a n k s ............................................................................

90,056

83,865

Other cash .....................................................................................................................................................

54,975

60,901

Total cash

5,044,316

5,620,544

Discounts and advances ................................................................................................................

202,780

11,568

.............................................................................................................................................

75,341

49,089

United States Government s e c u ritie s ................................................................................

6 ,7 3 7 ,16 1

6 ,7 14 ,7 9 1

Total loans and securities

7,0 15 ,282

6 ,775,448

Due from foreign b a n k s ^ ................................................................................................................

Cash items in process of co lle c tio n ...................................................................................

1,280,699

1,215,353

......................................................................................................................................

9,858

10,313

All other ........................................................................................................................................................

65,067

36,478

Total other assets

1,355,628

1,26 2,148

Total Assets

13 ,415f226

13 ,658 ,140

Acceptances

Other assets:

Bank

premises

★ After deducting participation of other Federal Reserve Banks amounting to about $11,000 in both 1958 and 1959.

S T A T E M E N T O F C O N D IT IO N
(In thousands of dollars)

Liabilities

D EC. 3 1, 1959

D E C . 3 1 , 1 95 8

6,646,973

6,512,632

Member bank — reserve a c c o u n ts .......................................................................................
United States Treasurer — general a c c o u n t..............................................................
Foreign ★ ........................................................................................................................................................
Other
............................................................................................................................................................

5,092,824
65,278
94,228
367,074

5,570,787
35,307
103,755
307,036

Total deposits

5,619,404

6,016,885

Deferred availability cash items ...........................................................................................
All other ........................................................................................................................................................

808,203
7,452

755,659
5,375

Total other liabilities

815,655

761,034

Total Liabilities

13 ,082,032

Federal Reserve notes ....................................................................................................................
Deposits:

Other liabilities:

13 ,290,551

Capital Accounts:

Capital paid i n ..........................................................................................................................................
Surplus ...........................................................................................................................................................
Other capital accounts ....................................................................................................................

110,452
220,905t
1,837

105,850
238,902
22,837

Total Capital Accounts

33 3,19 4

3 6 7 ,5 8 9

Total Liabilities and Capital Accounts

13,415 ,226

13,658 ,140

Contingent liability on acceptances purchased for foreign
correspondents* ...............................................................................................................................

22,750

19,119

Ratio of gold certificate reserves to deposit and Federal Reserve
note liabilities c o m b in e d .........................................................................................................

39.9%

43.7%

★After deducting participation of other Federal Reserve Banks amounting to

250,560

168,730

59,256

48,680

t After payment to United States Treasury of $17,997,293, representing
surplus in excess of 100 per cent of subscribed capital stock as of
December 31, 1959.

i After deducting participation of other Federal Reserve Banks amounting to

Changes in Membership
During 1959 the total number of commercial banks in this District that are
members o f the Federal Reserve System declined from 531 to 507.

The net

decrease o f 24 banks was the result of mergers o f 25 member banks with other
banks and the admission of one State bank to membership.

The 507 banks

constitute 86 per cent of all national banks, State banks, and trust companies
in this District and hold 96 per cent of the total assets o f all such institutions
in this District.

N U M B E R O F O P E R A T IN G M E M B E R AN D N O N M EM B ER B A N K S IN
S E C O N D F E D E R A L R E S E R V E D IS T R IC T A T T H E Y E A R EN D
(Exclusive of savings banks, private bankers, and industrial banks)

D EC EM B ER 3 1, 1959

Members

Type of Bank

National banks

.............................

State banks and
trust companies . .............................
Total

D EC EM B ER 3 1, 1958

Non
members

Per cent
members

100

366 ★

66
—

165
—

349 ★
158
—

—

50 7 ★

Members

531 ★

Non
members

Per cent
members

100

85
—

66
—

★ Includes one national bank located in the Virgin Islands.

C H A N G E S IN F E D E R A L R E S E R V E M E M B E R S H IP IN
S E C O N D D IS T R IC T D U R IN G 1 9 5 9

Total membership at the beginning of the y e a r..................................................................................................

531

Increases:

Nonmember State bank a d m itte d ..........................................................................................................................................................................

D ecreases:

Member banks combined with other m e m b e rs ......................................................................................................................................

Member banks combined with no nm e m b e rs.............................................................................................................................................

Total membership at the year end

507

Changes in Directors and Officers
ch a n g e s

d ir e c to r s .

In December 1959 member banks in Group 2

elected Cesar J. Bertheau, Chairman of the Board o f the Peoples Trust Company
o f Bergen County, Hackensack, New Jersey, a Class A director o f the Federal
Reserve Bank of New Y ork for a term of three years beginning January 1, 1960.
He succeeded Charles W . Bitzer, Chairman of the City Trust Company, Bridge
port, Connecticut, whose term expired December 31, 1959.
A t the same time, member banks in Group 2 elected Kenneth H. Hannan,
Executive Vice President of Union Carbide Corporation, New Y ork, N. Y .,
a Class B director for a term of three years beginning January 1, 1960. He
succeeded Lansing P. Shield, President of The Grand Union Company, East
Paterson, New Jersey, whose term expired December 31, 1959.

Mr. Shield

died on January 6, 1960.
Also in December 1959, the Board of Governors of the Federal Reserve
System appointed Philip D. Reed, former Chairman o f the Board o f General
Electric Company, New York, N. Y ., a Class C director o f this Bank for the
three-year term beginning January 1, 1960 and designated him as Chairman
of the Board of Directors and Federal Reserve Agent for the year 1960. Mr.
Reed had been serving as a Class B director of this Bank since January 1, 1959
and resigned to accept appointment as a Class C director.

He succeeded

John E. Bierwirth, Chairman of National Distillers and Chemical Corporation,
New York, N. Y ., whose term expired December 31, 1959. At the same time,
the Board o f Governors reappointed Forrest F. Hill, V ice President o f The
Ford Foundation, New York, N. Y ., as Deputy Chairman o f the Board o f
Directors for the year 1960.
A t the Buffalo Branch of the Federal Reserve Bank o f New Y ork, in N ovem
ber 1959, Thomas E. LaMont, farmer of Albion, Orleans County, N. Y ., was
appointed by the Board of Governors of the Federal Reserve System a director
o f the Buffalo Branch of this Bank for the unexpired portion of the term ending
December 31, 1960. He succeeded Cameron G. Garman, fruit grower o f Burt,
Niagara County, N. Y ., who died on October 17, 1959.

In December 1959

the Board of Governors reappointed Raymond E. Olson, President o f Taylor
Instrument Companies, Rochester, N. Y ., a director o f the Buffalo Branch for
the three-year term beginning January 1, 1960.

Also in December 1959, the

Board o f Directors of the Federal Reserve Bank o f New Y ork designated
Whitworth Ferguson, President o f Ferguson Electric Construction C o., Inc.,

Buffalo, N. Y ., as Chairman of the Board o f Directors o f the Buffalo Branch
for the year 1960.

A t the same time, the Board o f Directors o f this Bank

appointed Howard N. Donovan, President o f the Bank of Jamestown, James
town, N. Y ., a director of the Branch for the three-year term beginning January
1, 1960. He succeeded Vernon Alexander, President o f The National Bank of
Geneva, Geneva, N. Y ., whose term expired December 31, 1959.

ch a n g e s

o ffic e r s .

Since February 1959, six officers retired and two

resigned:
A . Chester Walton, Manager of the Bank Relations Department, retired
effective February 1, 1959. Mr. Walton had completed almost forty years o f
service with the Bank and had been an officer since January 1951.
Harold V. Roelse, Vice President and Econom ic Adviser, retired effective
March 1, 1959. Mr. Roelse had been an officer of the Bank since 1928, and
for more than three decades, along with his other duties, guided the preparation
of this Bank’s Annual Report. Mr. Roelse died on January 22, 1960.
Valentine Willis, Vice President in charge o f the Cash and Collections
function, retired effective March 1, 1959.

Mr. Willis had been a member o f

the Bank’s staff since October 1917 and an officer since April 1933.
John Exter, Vice President assigned to the Foreign function, resigned, effec
tive May 1, 1959, to become Vice President of The First National City Bank o f
New York. Mr. Exter had been with the Bank since September 1954.
Gregory O ’Keefe, Jr., Assistant Counsel, who had been an officer o f the
Bank since May 1953, resigned effective July 16, 1959.
Reginald B. Wiltse, V ice President in charge o f the Bank Supervision and
Relations function, retired effective February 1, 1960. Mr. Wiltse had served
with the Federal Reserve System for forty-one years and had been an officer
o f this Bank since February 1928.
William A. Heinl, Manager of the Security Custody Department, retired
effective February 1, 1960. Mr. Heinl had been in the employ o f the Bank since
August 1917 and an officer of the Bank since January 1942.
Harding Cowan, Assistant Counsel, retired effective February 1, 1960.
Mr. Cowan had been a member of the Bank’s staff since July 1940 and an officer
since January 1951.
The following additional changes in official staff have taken place since
February 1959:

Marcus A. Harris, Vice President, was assigned to the Cash and Collections
function, effective March 1, 1959, to succeed Mr. Willis.
Charles A . Coombs, formerly Assistant V ice President assigned to the
Research and Statistics function, was appointed V ice President and assigned to
the Foreign function, with senior responsibility for the administration o f that
function, effective May 1, 1959.
Horace L. Sanford, formerly Assistant Vice President assigned to the Foreign
function, was appointed V ice President, effective May 1, 1959, continuing in
the Foreign function, with supervisory responsibility for the operations o f that
function and special responsibility for Latin American affairs.
Peter P. Lang, formerly Manager of the Foreign Department, was appointed
Adviser, effective May 1, 1959, and assigned to the Foreign function to conduct
special assignments over the entire range of the function’s responsibilities.
Thomas J. Roche, formerly Foreign Exchange Officer, was appointed Man
ager and assigned to the Foreign Department, effective May 1, 1959, to succeed
Mr. Lang.
John P. Jensen, formerly Manager of the Accounting Department, was ap
pointed Assistant General Auditor, effective May 7, 1959.

Mr. Jensen was

reappointed Manager, effective January 7, 1960, and assigned to the Govern
ment Bond and Safekeeping Department.
Frank W. Schiff, formerly Senior Economist in the Research and Statistics
function, was appointed Manager, effective May 7, 1959, and assigned to the
Research Department. Mr. Schiff was reappointed Senior Economist, effective
January 7, 1960.
Tilford C. Gaines, Manager, formerly assigned to the Securities Department,
was assigned to the Research Department, effective May 8, 1959. Mr. Gaines
was appointed Assistant V ice President, effective January 7, 1960, and assigned
to the Research and Statistics function.
Alan R. Holmes, Manager, formerly assigned to the Research Department,
was assigned to the Securities Department, effective May 8, 1959.
Howard D. Crosse, formerly Assistant Vice President in the Bank Super
vision and Relations function, was appointed Vice President, to succeed Mr.
Wiltse, effective January 1, 1960.
Fred W. Piderit, Jr., formerly Manager of the Bank Relations Department,
was appointed Assistant Vice President, effective January 7, 1960, and was
assigned to the Bank Supervision and Relations function.
Martin W. Bergin, formerly Special Assistant in the Personnel Department,

was appointed Manager, effective January 7, 1960, and assigned to the Security
Custody Department.
Karl L. Ege, formerly Chief o f the Auditing Division, Auditing Department,
was appointed Assistant General Auditor, effective January 7, 1960.
Fred H. Klopstock, formerly Chief o f the Financial and Trade Statistics
Division, Research Department, was appointed Manager, effective January 7,
1960, and assigned to the Research Department.
Aloysius J. Stanton, formerly Special Assistant in the Planning Department,
was appointed Manager, effective January 7, 1960, and assigned to the newly
created Check Mechanization Department in the Cash and Collections function.
Robert W. Stone, Manager of the Securities Department, was appointed also
Assistant Secretary, effective January 7, 1960, the appointment o f Carl H.
Madden, Manager of the Public Information Department, as Assistant Secretary
being discontinued on the same date.
Robert C. Thoman, formerly Special Assistant in the Bank Relations Depart
ment, was appointed Manager, effective January 7, 1960, and assigned to the
Bank Relations Department.
Thomas M. Timlen, Jr., formerly an Attorney in the Legal Department, was
appointed Assistant Counsel, effective January 7, 1960.
Robert Young, Jr., formerly an Attorney in the Legal Department, was
appointed Assistant Counsel, effective January 7, 1960.
William F. Palmer, Manager, formerly assigned to the Government Bond and
Safekeeping Department, was assigned to the Cash Custody Department, effec
tive January 8, 1960.
Everett B. Post, Manager, formerly assigned to the Personnel Department,
was assigned to the Accounting Department, effective January 8, 1960.
Charles R. Pricher, Manager, formerly assigned to the Collection Depart
ment, was assigned to the Personnel Department, effective January 8, 1960.
Walter S. Rushmore, Manager, formerly assigned to the Cash Custody
Department, was assigned to the Collection Department, effective January 8,
1960.
Madeline H. McWhinney, formerly Special Assistant in the Research Depart
ment, was appointed Manager and assigned to the newly created Market Statistics
Department in the Research and Statistics function, effective January 21, 1960.

m em ber

o f

f e d e r a l a d v is o r y

c o u n c il— 1960.

The Board o f Direc

tors of this Bank selected John J. M cC loy to serve during 1960, for the second
successive year, as the member of the Federal Advisory Council representing the
Second Federal Reserve District. Mr. M cC loy is Chairman o f the Board o f The
Chase Manhattan Bank, New York, N. Y .

m em b ers

o f

in d u s tr ia l a d v is o r y

c o m m itte e .

Tw o members o f the

Industrial Advisory Committee for the Second Federal Reserve District died
around the beginning o f 1959: Edward J. Noble, Chairman o f the Finance
Committee of American Broadcasting-Paramount Theatres, Inc., New Y ork,
N. Y ., on December 28, 1958, and William H. Pouch, Chairman o f the Board
of Concrete Steel Company, New Y ork, N. Y ., on February 16, 1959. Mr. N oble
had served continuously as a member of the committee since 1935 (with the
exception o f nine months in 1940 when he was engaged in Government service).
Mr. Pouch was an original member of the committee appointed June 1934 and
had served as its chairman since July 1934.

The term o f Arthur G. Nelson,

Chairman o f the Board o f A . G. Nelson Paper Company, Inc., New Y ork, N. Y .,
expired on February 28, 1959. Mr. Nelson became a member o f the committee
in December 1934 and had served continuously since that time. In view o f the
inactivity under Section 13b of the Federal Reserve A ct and the fact that that
section was repealed by Congress, effective August 21, 1959, no successors
were appointed.

Directors of the Federal Reserve Bank of New Y o rk
DIRECTORS

Term expires D ec . 31

Class Group

H e n r y C . A l e x a n d e r .............................................................................................................................. 1961
Chairman of the Board, Morgan Guaranty Trust Company of New York, New York, N. Y.

C esar J. B ertheau ...................................................................................................................................1962
Chairman of the Board, Peoples Trust Company of Bergen County, Hackensack, N. J.

C yrus M . H igley ..................................................................................................................................... 1960
President and Trust Officer, The Chenango County National Bank
and Trust Company of Norwich, Norwich, N. Y.

V acancy ........................................................................................................................................................ 1961

K en n eth H . H an n an .............................................................................................................................. 1962
Executive Vice President, Union Carbide Corporation, New York, N. Y.

A ugustus C . L ong .................................................................................................................................I960
Chairman, Board of Directors, Texaco Inc., New York, N. Y.

P h ilip D . R e e d , Chairman, and Federal Reserve Agent ..........................................................1962
Former Chairman of the Board, General Electric Company, New York, N. Y.

F o r r e s t F . H i l l , Deputy Chairman .................................................................................................. 1960

Vice President, The Ford Foundation, New York, N. Y.

Jam es D e c a m p W ise .............................................................................................................................. 1961
Chairman of the Board, Bigelow-Sanford Carpet Company, Inc., New York, N. Y.

DIRECTORS — BUFFALO BRANCH

W h i t w o r t h F e r g u s o n , Chairman .......................................................................................................1961
President, Ferguson Electric Construction Co., Inc., Buffalo, N. Y.
T ho m as E. L a M o n t .............................................................................................................................. I960
Farmer, Albion, Orleans County, New York
E. P erry S pin k .......................................................................................................................................... I960
President, Liberty Bank of Buffalo, Buffalo, N. Y.
D e n t o n A . F u l l e r ...................................................................................................................................1961
President, The Citizens National Bank of Wellsville, Wellsville, N. Y.
John W . R e m in g to n .............................................................................................................................. 1961
President, Lincoln Rochester Trust Company, Rochester, N. Y.
H ow ard N . D onovan .............................................................................................................................. 1962
President, Bank of Jamestown, Jamestown, N. Y.
R a y m o n d E. O lson .................................................................................................................................1962
President, Taylor Instrument Companies, Rochester, N. Y.

MEMBER OF FEDERAL ADVISORY COUNCIL— 1 9 6 0

John J. M c C l o y ........................................................................................................................................I960
Chairman of the Board, The Chase Manhattan Bank, New York, N. Y.

Officers of the Federal Reserve Bank of New Y o rk
A lfr e d
W illia m

Vice President
Vice President
H o w a r d D . C r o s s e , Vice President
M a r c u s A . H a r r i s , Vice President
H e r b e r t H . K i m b a l l , Vice President
R o b e r t V . R o o s a , Vice President
H a r o ld

A .

B ilb y ,

C h a r le s A . C oom b s,

John

J. C l a r k e ,

President
First Vice President
R o b e r t G. R o u s e , Vice President
W a l t e r H . R o z e l l , J r . , Vice President
H o r a c e L . S a n f o r d , Vice President
T o d d G. T i e b o u t , Vice President and
General Counsel
* R e g i n a l d B . W i l t s e , Vice President

H ayes,

F . T r e ib e r ,

Assistant General Counsel

E d w a rd G . G u y,

Assistant General Counsel

Assistant Vice President
A n g u s A . M a c I n n e s , J r . , Assistant Vice President
Assistant Vice President
S p e n c e r S . M a r s h , J r . , Assistant Vice President
T i l f o r d C . G a i n e s , Assistant Vice President
F r e d W . P i d e r i t , J r . , Assistant Vice President
G e o r g e G a r v y , Adviser
L a w r e n c e E . Q u a c k e n b u s h , Assistant
P e t e r P . L a n g , Adviser
Vice President
J o h n J . L a r k i n , Assistant Vice President
F r e d e r i c k L . S m e d l e y , Assistant Vice President
T h o m a s O. W a a g e , Assistant Vice President
F e lix

T . D a v is ,

N orm an

a r t in

P . D a v is ,

W . B

e r g in

Manager, Security Custody Department
W illia m

Chief Examiner
Manager, Accounting Department
C h a r le s

R . G ord on ,

Assistant Counsel
*W lL L IA M A. H E IN L,
Manager, Security Custody Department

John

T h o m a s J. R o c h e ,

Manager, Foreign Department
W a lt e r S. R u s h m o re ,

P. Jen sen ,

Manager, Government Bond and
Safekeeping Department

Manager, Collection Department
F ra n k W . S c h iff,

Senior Economist

F re d H . K lo p s to c k ,

Manager, Research Department

T h o m a s C . S lo a n e ,

Assistant Counsel

R o b e r t G . L in k ,

Manager, Research Department

K en n eth

E . S m a ll,

Manager, Savings Bond Department

C a rl H . M adden,

Manager, Public Information Department

G e o rg e

C . S m it h ,

Manager, Check Department

E . M a r p le ,

Manager, Credit and Discount Department

A lo y s iu s

J. S t a n t o n ,

Manager, Check Mechanization Department

H . M c W h in n e y ,

Manager, Market Statistics Department

R o b e rt W . S ton e,

H e rb e rt A . M u eth er,

Manager, Building Operating Department
D o n a ld C . N ile s ,

Manager, Securities Department, and
Assistant Secretary
R o b e rt C . T hom an,

Manager, Planning Department

Manager, Bank Relations Department

A r th u r H . N oa,

T h o m a s M . T i m l e n , J r .,

Manager, Service Department
W illia m

P . R in g e n ,

Manager, Bank Examinations Department

R . H o lm e s ,

M a d e lin e

R . P r ic h e r ,

Manager, Personnel Department

Manager, Securities Department

W illia m

E v e r e tt B. P ost,

Assistant Counsel

John

e te r so n

J o h n F . P ie r c e ,

H . B r a u n , J r .,

" H a r d in g C o w a n ,

A la n

E. P

Manager, Cash Department

Secretary, and Assistant Counsel
C lifto n

r a n k l in

Assistant Counsel

F . P a lm e r ,

R o b e r t Y o u n g , J r .,

Manager, Cash Custody Department
D o n a ld

Assistant Counsel
General Auditor
Assistant General Auditor

J. C a m e r o n ,

K a r l L. E ge,
♦ R e t ir e d F e b r u a r y 1, 1 96 0.

O F F IC E R S — B U FFA LO BRAN CH

In s le y
H a r o ld
G e o rg e

D o ll,

Vice President

Assistant Vice President

Cashier

G e r a ld H . G r e e n e ,
M . M o n ro e

S m it h ,

M . W e s s e l,

M yers,

Assistant Cashier

Full text of Annual Report of the Federal Reserve Bank of New York : Annual Report : 1959

FRASER