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rftwu&C *)teue 1914 BUSINESS REVIEW is prod uced in the Department of Research. Jack C. Rothwell was prim a rily responsible fo the article, "8 T ill 5— The 4 0 -H o u r Workweek A fte r 25 Y ea rs," and John F. O'Leary, J r. for "1 963: Image in the Looking Glass.' The authors w ill be glad to receive comments on the ir articles. Requests for additional copies should be addressed to Bank and Public Relations, Federal Reserve Bank of Philadelphia, Phila delphia, Pennsylvania 19 10 1. W H E R E IS TH E F E D H E A D IN G ? Fifty years ago last December 23 President Woodrow Wilson signed the Federal Reserve Act. As he did, he may well have recalled a sentence from his first inaugural address: “ We shall deal with our economic system as it is and as it may be modified, not as it might be if we had a clean sheet of paper to write upon; and step by step we shall make it what it should be. . .” In the following half century, much has been done to make our economic system move closer to “ what it should be,” and the Federal Reserve System has contributed to progress toward this ideal. Yet, the task will never be fully accomplished. Old problems may be solved but new challenges will arise. This is clear as one looks back over the past fifty years. Looking ahead, many challenges con front the Federal Reserve; and they will not go away by simply being ignored. This article, by David P. Eastburn, was originally written for a meeting in October 1963 of directors and former directors of this Bank. Designed as a background paper, its purpose was simply to present one person s view of issues facing the Federal Reserve System. It is reprinted here in the hope that wider circulation may help to provoke discussion of these important questions. If the statements to the right were a com plete list of views about the Federal Reserve, it might be futile to ask “ where is the Fed The Federal Reserve can't do much to reduce unemployment because this is a structural problem. heading?” The list is not, of course, complete. It has been selected simply to suggest some of the issues that have been raised concerning the Fed. But it does suggest that there is no lack of things to think about as the Federal Reserve embarks on its second half century. Before turning to these issues, however, it might be helpful to think for a moment of the Federal Reserve in a broad time perspective. Here is an institution half a century old. At the start it was, as Carter Glass called it, a real “ adventure in finance.” Since then the Fed has earned a vital and permanent place for itself at the center of our economic system. In the process it has changed. The founders of the Federal Reserve would know the System Monetary policy can’t stimulate economic growth without aggravating the balance of payments. The Federal Reserve can’t push on a string. Monetary policy is ineffective in controlling modern-day, wage-push inflation. The rapid growth of financial intermediaries means that the Federal Reserve regulates a declining portion of our financial system. Membership in the Federal Reserve System is becoming increasingly unattractive to banks. Banks have too much control over the Fed eral Reserve. Monetary policy must be part of the Admin istration's economic policy. The Federal Reserve shrouds itse lf in secrecy. by its outward form but they would not recog- 3 nize its inner workings. The Fed has adapted. In asking “ where is the Fed heading?” we are is one way of analyzing the place of the Fed in our society. really asking “ will the Fed adapt?” Shortly be In h eren t p o w er o f m o n eta ry action . There fore his death, Sumner Slichter made an obser is no question that some developments in recent vation about the U. S. economy which may years well apply to the Federal Reserve as well. He Among these are the balance-of-payments deficit, have complicated monetary policy. said that the first part of this century was in wage-push inflation, and structural unemploy many ways a period of reform; the challenge ment. These have limited the effectivenss of now facing us is to reform the reforms. Assuming for the sake of discussion, that he policy actions, but not so completely as is some times said. was right and considering the many and varied Perhaps one way to put it is that they limit issues involved, the question is where to grab the use of orthodox measures. The balance-of- hold. In discussing issues, of course, there will payments deficit, for example, rules out the in be a tendency to overemphasize things that are discriminate use of easy money and low interest “ wrong” and underemphasize things that are rates to stimulate economic growth. These de “ right” warning, the following is suggested as a point velopments challenge such simple prescriptions. They require penetrating analysis to find out of departure. what part of the problem can be attacked by with the System. With this advance the issues boil down to two big ones: the role monetary instruments and what part must be dealt with by other means. They may call for of monetary policy in the economy, and the innovation and experimentation. (Efforts with To begin with, it would seem that most of power complex. “ operation nudge” and transactions in foreign currencies are outstanding examples.) They may Role o f m o neta ry policy call for new tools to supplement those tradi Obviously, this is not a subject that can be ex tional ones that have become blunted. plored fully here. Theorists and analysts differ It may well be, also, that in some cases how on many aspects of the effectiveness of monetary much monetary policy can do is not fully appre policy and always will. But it is probably safe ciated. For example, a good case can be made to conclude that the effect of Federal Reserve from experience in postwar recessions that the actions is not so great as some might like, but Fed can achieve quite a bit of success in “ push not so small as some often say. ing on a string.” Also, even though it may be We should recognize, of course, that right true that financial intermediaries have grown now the pendulum has swung fairly far in one more rapidly than commercial banks, the Fed direction. During the twenties, belief in the effi still has the power to cacy of monetary policy was high. In the thir this. offset the effect of ties it dropped almost to zero. After the “ accord” So it is an oversimplification to say that de in 1951, it revived. And more recently it has velopments in recent years have greatly limited declined again. the effectiveness of monetary policy. The latest swing has been influenced by at T h e F ed ’ s b u rd en . Yet they have complicated least four things, and an examination of these life for the Fed at a time when too much has 4 been expected of monetary policy. Actions of Government—-in the realms of fiscal, labor- the place of the Fed in our society. The underlying philosophy of monetary policy management, and foreign policies, for example— is that use of general instruments constitutes have not always helped and have often hin minimum interference with the workings of the dered. Perhaps it is a cynical view to regard the market place. But a large segment of the public Fed as chronically in a position of bearing a is intolerant of the workings of the market larger burden than it should rightfully have. place. It wants interference. It views any insti Nevertheless, this may well be the case. tution which is not intimately involved in the If so, what course does the Fed take? One, obviously, is simply to do what it can in its way the market actually allocates resources as insensitive to the needs of society. area of responsibility. Another possibility is to This situation— and again, without passing speak out on issues which are related to its here on the merits of the case— suggests a re responsibility but beyond its immediate baili examination of policy techniques. Rather than wick. placing sole reliance on the over-all approach, S elf-im p o sed lim itation s. Another influence bearing on the effectiveness of monetary policy perhaps greater emphasis should be placed on a selective approach to the Fed’s problems.* is limitations which the Fed imposes on itself. The so-called bills-only policy is an example The which comes readily to the minds of many ob A second broad category of issues facing the servers. There is no point in rehashing here the Fed has to do with the locus of power. This, in arguments for and against bills only. The main lesson is that a policy undertaken originally for turn, has two aspects: external and internal. E xtern a l. The report of the Commission on perfectly clear domestic Money and Credit still stands as the most clear- reasons has later been proven by new interna cut delineation of the problem, at least in recent tional developments to be a hindrance. As condi years. The CMC took the basic position that tions have changed, the Fed has approached monetary policy must be coordinated with the this self-imposed limitation with flexibility. Government’s over-all economic policy, and the E c o n o m ic and understandable pow er complex p h ilo so p h y . “ Flexibility,” of way to do this is to have closer ties between course, can be a rationalization for improvisation the System and the President of the United and expediency unless it is based on a general philosophy. In considering where the Fed is States. To bring this about, the CMC recom mended that the size of the Board of Governors heading, it might be well to take a good look be reduced from seven to five (to assure “ the at this philosophy. Is it in the mainstream of President of one vacancy to be filled shortly current thinking? after his inauguration, . . .” ) ; and the four- There is some reason to suspect it is not— in year terms of the Chairman and Vice Chair this sense: the Fed entertains a non-interven man of the Board be made to coincide with that tionist philosophy in an interventionist world. of the President. To say this implies no value judgment; the phil osophy may be “ right” or it may be “ wrong.” But it probably does have something to do with In thinking about this general proposition, * Selective in the broad sense, not ju st regulations T, U, W , and X. The present approach to the balance-of-payments problems, fo r example, is a selective one. 5 it might be helpful to bear in mind four con which de-emphasized direct concern with long siderations: term interest rates. Here was a potentially 1. The Federal Reserve is not and cannot explosive gap between the President and the be independent of Government. It is a creature central bank. As it turned out, both sides of modified their views and reached common Congress and must be responsive to Congress. The question is how independent ground in recognition of the balance-of-pay- the Fed should be of the Executive Branch of ments situation. Government. But perhaps not all problems can be solved 2. “ Independence,” in the sense of com plete detachment from the Administration’s in this way, and so there remains the ques tion as to what happens in a complete stale economic policy, is no easy answer. The fact mate. There is no doubt who— as between the of life is that monetary policy is too powerful Federal Reserve and the President— has more to be permitted to follow a completely differ- power. But the ultimate decision would be made ert and independent course. The real problem by Congress, not the President. Moreover, it is not whether but how coordination is to be would be a mistake to underestimate the power achieved. Making the Chairman’s and Vice- of an independently thinking central bank. If, Chairman’s terms coincide with the Presi over time, it has demonstrated wisdom and re dent’s seems a sensible step toward this end. sponsibility of action, it gains tremendous power 3. But there is, of course, some risk in ty ing the System closely to any current Admin which any Chief Executive would hesitate to oppose. istration.* The founders of the System were In tern al. The CMC also proposed the most well aware that history provides example after radical restructuring of the System since 1935. example of the sovereign abusing the money The Commission’s recommendations were based issuing privilege for his own ends.** on a view of the System as consisting of “ a 4. Outward form and appearance are not regulated private base, a mixed middle com always a good clue to the way things really ponent, and a controlling public apex.” This work. There is good reason to believe that combination is obsolete, the CMC said. “ What coordination be was thought of in 1913 as essentially ‘a coopera achieved within the existing framework of re tive enterprise among bankers for the purpose of policies usually can lations between the Fed and the Executive of increasing the security of banks and providing Branch. them with a reservoir of emergency resources’ has not ceased to be that. But it has also be Experience in very recent years offers one example. In the fall of 1960, Mr. Kennedy come one of the most potent institutions in campaigned on a platform which pledged his volved in national economic policy.” party to “ put an end to the present highinterest, tight-money policy.” At the same time, the Fed was pursuing a bills-only policy * Perhaps a lag of, say, six months from the tim e the President's term begins and a Chairman must be appointed would help to reduce this risk. ** See "H e n ry the V III R e v isite d ," Federal Reserve Bank of Phila delphia Business Review, January, I960. 6 Accordingly, the CMC recommended: Elimination of the Federal Open Market Committee. Concentration of all tools of policy in the hands of the Board of Governors. Retiring of the capital stock of the Federal Reserve Banks and issuing nonearning certifi cates as evidence of membership. Requiring all insured commercial banks to become members of the Federal Reserve 2. One reason for believing not is because the recommendations would do away with what has become a key policymaking body— the Federal Open Market Committee. As this group System. has evolved, it not only has authority over the It is difficult, of course, for anyone within the most generally used instrument of policy but is System to approach these recommendations ob a forum in which action with respect to all jectively. Recognizing this, the following is an instruments is discussed. attempt to spell out another view of the System But more than this, elimination of the Open which is quite different from that of the CMC. Market Committee would deprive the System of 1. The Federal Reserve is a public institu the considerable policymaking talents already tion and its policymakers serve as public offi present in the Reserve Banks. One of the great cials. The CMC’s emphasis on the public-private est challenges facing the System is to attract mix, while a correct description of outward high-quality personnel. The job would be much appearance and historical origin, does not get harder if the Reserve Banks were foreclosed at the real nature of the System. There is, of from participation in policymaking, or at best course, no question that members of the Board participated only in an advisory capacity. of Governors are, as the CMC puts it, “ public 3. The question of the role of Reserve Bank officials.” But it is also true that officers and directors also is part of the broader question directors of the Reserve Banks are public offi of the decision-making process. The present cials. The fact that officers are chosen by the boards of directors, two-thirds of whom, in turn, arrangement is based on two premises: there must be one coordinated national policy; and are elected by the member banks, does not mean group decisions are better than one-man deci that either group serves private interests. In sions. The two do not always fit together easily. working toward the general objectives of the Yet, the first can not be abandoned, and the Federal Reserve System they serve as public second should not. Removing the boards of di officials in the public interest. rectors completely from monetary policymaking Moreover, even if this were not true, the Board of Governors unquestionably has adequate power to protect the public interest. It reviews and determines would have the same kind of effect as eliminating the Open Market Committee. At the same time, directors have many oppor discount rates, constitutes a tunities to contribute to the central banking majority of the Federal Open Market Committee, mechanism in other ways for which their back and has sole authority over reserve requirements grounds and margin requirements. It has general super them. Operating and auditing functions are ex visory power over the Reserve Banks, including amples. As leaders in their communities, direc salaries of key officers. tors can do much to further an understanding and experience particularly qualify Granting that the surface appearance of the of the Federal Reserve and bring back to the structure may give rise to misunderstanding Fed the views of the community. And they can about the role of private interests, is this suffi play an essential role in the vital matter of cient reason for drastic changes? attracting and retaining highly competent per 7 sonnel in the System. 4. are in an attempt to reduce the inequities in A final question has to do with member the present situation. banks. This is considered here rather than under Unfortunately, many serious obstacles stand in the effectiveness of monetary policy because the the way of such ideal solutions. Dual banking problem of non-membership at present does not and correspondent banking are two of the big seriously impair the effectiveness of policy. gest. As monetary conditions permit, the Board Nor is the important question that of owner may be able to lower reserve requirements for ship of the Federal Reserve Banks. As the CMC member banks, thereby reducing their competi itself points out, member bank ownership of tive disadvantage. But short of drastic action, stock in the Reserve Banks is a “ highly attenu which would require legislation, there is rela tively little the Fed can do. ated right.” Member banks do not control the Reserve Banks, so there would be little point in Supervision of banks has also been a matter paying off the stock and issuing certificates of of increasing controversy in recent years. As membership. relations among supervisory authorities have be Two other issues are more important. One is the costs and benefits of membership and their come more and more strained, the problem has grown increasingly serious. implications for equity among financial institu There is no lack of “ solutions,” including tions. The other is the role of the Fed in super shifts of authority among existing agencies, vising and examining banks. creation of a new supervisory commission, and Membership has become of increasing con cern in recent years as rising bank costs press delegation of more authority by the Board of Governors to the Reserve Banks. against earnings. It is impossible to go into Many of the same obstacles as in the mem much detail here, but it is a fact that some bership question stand in the way. A funda member banks have been taking a hard look mental solution to the tangle of authority among at membership from a dollars-and-cents point supervisory agencies is likely to be long and of view. hard in coming. The System and others have been concerned * * * about this primarily from the standpoint of place So where is the Fed heading? Earlier the member banks at a disadvantage relative to non reader was warned that a discussion of issues members in most states. The System has pro automatically tends to paint a somber picture. posed that all insured banks carry the same Certainly the challenges ahead are numerous requirements. The CMC recommended that all and difficult enought to call for all the energy insured banks be required to become members. and intelligence that can be brought to bear The Heller Committee (created to consider the on them. equity. Existing reserve requirements CMC proposals) recommended a new structure But the Federal Reserve has surmounted ap of reserve requirements which would apply to parently all commercial banks and cash reserve require There is no reason to expect that it cannot again. ments which would apply to savings and loan Among its many strengths it has four great associations and mutual savings banks. All these resources to put to work: 8 insuperable difficulties in the past. P o w er. Probably the least of the Fed’s ence behind it, the Fed is all the better troubles is a lack of power. There are, of equipped to move into the future. Perhaps the course, many forces influencing the economy main lesson over which the System will have no control, change— the Fed has changed. Vitality and and monetary policy can be no panacea; but change go hand in hand; change can keep in general the Fed has more power than it the Fed young even in middle age. of experience is that things will need or want to use. Yet there is no reason T h e P u b lic. In leaning against the prevail why the System should shrink from seeking ing wind the central banker may not always additional power where needed. Old tools can have a happy lot. Yet he has the same aspira be sharpened and techniques refined. tions, the same broad goals, as people gen P e rs o n n e l. Officials and staff of the Federal erally. As the public becomes more and more Reserve System are equal in diversity and knowledgeable, it can be of increasing help to competence to those in any central bank in the Fed. And the System can respond by the world. It will be important to offer com encouraging a frank and open interchange of pensation and incentives to protect this valu ideas. For only with strong public support can able resource. Developing dynamic and imag the System do its job effectively. inative personnel can be much more impor tant than changing organization charts. E x p e r ie n c e . With half a century of experi These resources are powerful. Put to full use they can sustain the sense of adventure with which the System was begun. NEW RELEASE Forecasts for 1964. The Department of Research has compiled and analyzed a number of predictions made by businessmen, economists, and Government officials. Th is compilation includes a summary of forecasts for the econ omy as a whole and particular sectors of the economy. The more important indicators are presented in chart form. Copies of this release are available on request from Bank and Public Relations, Federal Reserve Bank of Philadelphia. 9 8 T IL L 5 THE 4 0 -H 0 U R W ORKW EEK AFTER . . . our goal is not merely to spread the work. Our goal is to create more jobs. I believe the enactment of a 35-hour week would sharply increase costs, invite inflation, impair our ability to compete and merely share instead of creat ing employment. But I am equally opposed to the 45 or 50 hour week in those industries where consistently excessive use of overtime causes increased unemployment. So, therefore, I recommend legislation authorizing the creation of tri-partite industry committees to de termine, on an industry-by-industry basis, as to where a higher penalty rate for overtime would increase job openings without unduly increasing costs, and au thorizing the establishment of such higher rates. President Lyndon B. Johnson, The State o f the Union Message January 8, 1964. The laboring man in the United States is pon make each man-hour of labor more productive? dering an important question: is it to his ad This question, of course, is a difficult one to vantage to press for a cut in the standard 40- answer. The reason it is difficult is that there hour workweek? The question comes both from are so many and diverse factors influencing labor’s rank and file and from union leaders. unemployment— factors For, like the venerable John Henry of folklore, from the age and rate of growth of the labor ranging all the way the working man today faces an increasing chal force to the skills required of the laboring man lenge and even, sadly enough, race. from the machine and the machine system. Yet it is still possible to explore some of the the alternative impacts which a cut in the work American worker is less than enthusiastic over week might have. Perhaps the place to start is possibilities of a head-on clash with developing a description of . . . Yet unlike his mythical counterpart, technology. Instead, he is searching for methods to combine the forces of automation, muscle, TH E W O R K W E E K — TH EN AND N O W and mind so as to make the most of advancing Not too many years ago the hours of labor technical know-how and still avoid the disloca were long, wages were low and working condi tions of unemployment. tions often were poor. Indeed, just such condi This is where the question of work hours tions spurred the dark and glowering Karl Marx comes in. Will a cut in the standard workweek to write the terrible Chapter 10 of Das Kapital help prevent unemployment as automation helps describing the working day in the mid-nineteenth 10 century. Quoting an English magistrate, Marx with time-and-a-half for overtime became stand illustrated conditions in the lace industry in ard. By October 1940, most workers engaged these terms: in interstate commerce were covered by the Act. . . there was an amount of privation and It has now been 25 years since the passage of suffering among that portion of the population the Fair Labor Standards Act, and as already connected with the lace trade, unknown in noted, pressures are building for a further re other parts of the kingdom, indeed, in the duction in hours. Yet the reasons for the cur civilized world . . . Children of nine or ten rent workweek proposals are far different from years are dragged from their squalid beds at those advanced by early reformers. Contrast, for two, three, or four o’clock in the morning and example, a recent statement by George Meany: compelled to work for a bare subsistence until No ten, eleven, or twelve at night, their limbs maintains that under ordinary circumstances wearing away, their frames dwindling, their 40 hours a week are excessive on grounds of faces whitening, and their humanity abso health, safety or undue restrictions of leisure lutely sinking into a stone-like torpor, utterly time. On the contrary the labor movement horrible to contemplate . . would be delighted if 40 hours of work were one— certainly not the AFL-CIO— Hours were long and working conditions often available to all who wanted them . . . (but) were poor in this country too. In 1900, for . . . it seems clear beyond question that 40- AVERAGE W EEK LY HO URS FOR PRODUCTION cans W O RKERS IN MANUFACTURING stances. This means a continuation of the intolerably high unemployment we have suf hour jobs will not be available to all Ameri AVERAGE W EEKLY HOURS under presently foreseeable circum fered for five full y e a rs............... these points . . . lead us to believe that a 35-hour week, with increased penalty pay to discourage overtime, is essential to the present and future economic health of the United States and therefore the free world.* Meany’s words reflect a deep concern over the high rate of unemployment and they reflect concern over the possible impact of automation on jobs. example, a workweek of around 60 hours was common in manufacturing— ten hours a day, A U TO M A TIO N , U N EM PLO Y M EN T AND six days a week. Until the early 1920’s the 12- W O RK HO URS hour day was standard in the steel industry. The term “ automation” applies to the develop Yet slowly the tides turned. By 1929 the ment and linkage of three different technical 8-hour day, 6-day week was firmly established. processes: 1) The integration of conventionally And finally, with the passage of the Fair Labor Standards Act in 1938, the 40-hour workweek * American Federa+icn o f Labor and Congress of Industrial O r ganizations, Shorter Hours.- Tool to Combat Unemployment, p. 2. 11 separate manufacturing processes into continu tially as a result of advancing technical know ous production lines, 2) how. mechanisms or “ feed the use of back” control servo devices The employment increases occurring in recent which, with electronically sensitive “ fingers,” years have been mainly in service activities. are able to compare the way work is actually But these increases have been insufficient to off being done with the way it is supposed to be set declines elsewhere and provide employment done and then make any adjustments needed in for new additions to the labor force. the work process, 3) the application of com instruc The root of the technology issue was suc cinctly put in the Manpower Report of the tions, are able to direct the entire production President, transmitted to the Congress in March process. of this year. puters which, through programmed The upshot is fast, efficient production with a In the earlier decades of this century, tech considerable reduction in labor requirements. nological change developed mass-production, In manufacturing engine blocks, for example, mass-assembly techniques with great expan rough castings enter at one end of a production sion in opportunities for semi-skilled workers line, go by a series of machines which perform with relatively little education. In the fifties, boring, broaching, drilling, honing, milling and the new technology was increasingly devoted tapping operations with electronic nerve centers to automating production and materials-han- directing the block from machine to machine. dling processes, with concomitant increased Compared to previous non-automated perform demand for more highly skilled and trained ance, the engine plants of the Ford Motor Com manpower and lessened demand for workers pany were able, shortly after the introduction of in semi-skilled occupations. The signs in the automation, to double production while employing early sixties are that extension of automatic only 10 per cent of their previous work force. data processing is also limiting manpower And though automation certainly is not the needs in some office and clerical occupations, sole cause of unemployment, many statistics further compounding problems of adjustment. And what of the future? The Manpower Report serve to dramatize labor fears. There were, for example, 1 million fewer pro duction workers employed in manufacturing in continues: From 1953 to 1962, investment in scientific years earlier. research and development tripled. The rapid Despite the decline, output increased 20 per cent flow of technological innovation promises a during the period. Shortly after World War II, future in which material want is all but un it took about 311 production worker man-hours known. But this future can only be reached to build a car. Recently the figure was down to by change, often with dislocation. In the 1962 than a scant half-dozen 153. It now takes about 11 production worker process, the manpower requirements of the man-hours to make a ton of steel, down from 15 nation will be profoundly altered. at war’s end. And the time necessary to produce And not only technical change is in pros a ton of coal was cut in half from 1947 to the pect. The number of new jobseekers is expected present. On top of this, agricultural employment to grow more rapidly in the sixties, resulting has been falling by about 200,000 a year, par in a net addition to the labor force of about 12 13 million. This is more than 50 per cent greater ultimately than the addition in the fifties. If we were to costs and prices and thereby increasing demand, add new jobs in the next five years at a rate and by providing jobs in the new industries comparable to that in the last, we would have which over goods? 4) Distribution of income— how should 5 1 /2 million unemployed by 1967, over 7 per cent of the labor force. increase make employment automatic by lowering devices which make we distribute the fruits of greater production Little wonder, then, that workers should be concerned over job security and should be push among higher profits, lower prices, higher wages, and shorter hours? ing for shorter hours. And the push has not Of course these questions are all related to gone unheralded. Already there has been Con the controversy over the workweek, but perhaps gressional study of the issue. At mid-year, 1963 even more directly concerned are three other the House Select Subcommittee on Labor held questions: a) What would a cut in the work hearings on the Hours of Work and had another week mean for the productive potential of this round in November. There are three major country? b) What would it mean for our inter bills before the Committee now, two aimed at national relations? c) decreasing the number of hours after which costs and prices? What would it do to time-and-a-half must be paid and one to require double time after 40 hours in mining, most construction, communications, and public PR O S AND CONS OF A CUT IN TH E W O RK W EEK utilities. One of the most important areas of controversy These bills, however, are quite likely to run into considerable opposition. Perhaps one word cut in the workweek might bring. is the decline in productive potential which a best summarizes the reason for opposition. That word: uncertainty. And the uncertainty covers Productive p o te ntia l a rather wide range. With respect to the nation, there is a certain Search for a final answer to the question of output potential associated with full employment work hours would take us far afield into ques at a 40-hour week. A decrease in the average tions that are intensely debated: 1) workweek would tend to reduce this potential deficiency— to what extent is Demand unemployment and thereby limit the range of increase in our caused by insufficient demand for goods and standard of living. In other words, the nation services and hence should be solved by stimu would forego the consumption of goods it might lating demand? 2) Structural unemployment— otherwise enjoy if the workweek were cut. And is unemployment primarily caused by structural to forego consumption is a social cost. difficulties (such as the gap between the edu Some defenders of a cut in the workweek, cation required for many job openings and the on the other hand, question such a materialistic educational attainment of many of the unem philosophy on the grounds that leisure, too, is a ployed) ? Would a cut in the workweek simply desirable commodity, and to give up leisure in increase demand for existing workers instead order to consume an ever-growing proliferation of pulling the unemployed into the labor force? of goods is also to incur a social cost. Indeed, 3) Price and wage flexibility— will automation the nation could work a 60-hour week as at the 13 turn of the century and have even more goods, throw a lot of lances, arrows, lead, or bombs but there would be precious little time to en at an aggressor. They can throw a lot of lead because they can produce a lot of lead. Thus joy them. Moreover, if a reduction in work hours suc sovereignty equals ceeds in reducing unemployment— which is it which self a social cost— then we trade off costs— we mines sovereignty. decreases production productive and anything potential under forego some potential consumption but redis Those who favor a shorter workweek may tribute the work load so as to absorb the unem ployed (or keep their ranks from growing). well agree that, to a very large extent, sov ereignty in today’s world probably does depend In effect, we forego goods but trade forced leisure for voluntary leisure. upon production. Indeed, a great deal of concern A third argument with regard to the social of economic growth vis-a-vis the Soviet Union. cost of foregone consumption is simply that the The concern is heard less often now that Khru nation may never reach the theoretical potential shchev is turning to the West for wheat and associated with full employment at 40 hours— since China failed to secure her Great Leap never reach it because we may never achieve Forward, but it will probably be heard again if full employment without a reduction in the the Soviet economic situation improves. When workweek. And if the potential is never to be come a reality at the 40-hour week, the nation the concern over growth is heard supporters of a shorter workweek advise us that we would do foregoes nothing but a dream by cutting work well to keep it in perspective. For, the reasoning in recent years has been expressed over our rate goes, growth per se does not necessarily mean hours. a deterioration in our military strength relative H ours o f w o rk to that of the Soviet Union. We could always, and the in te rn a tio n a l situ a tio n if need be, devote an increasing proportion of Those who make a case for the shorter work our resources to defense. Moreover, the reason week encounter a bit rougher going when inter ing continues, the Soviets will have to grow a national politics is brought into the picture. long time before they reach our absolute level For the fact is that this nation does not exist of production, and before they do, past experi in a comfortable little world all to itself but ence and economic theory tell us that their rate must share the sphere with Mr. Khrushchev who of growth should decline under the pressure.of has threatened to bury us— not literally, he as diminishing returns. sures us— but figuratively, with production of Finally, supporters of a shorter workweek note that it is possible to question whether the goods. International power politics thus would seem changing technology of modern warfare has af to throw a monkey wrench into the workweek fected the traditional association between output proposal. The reasoning is that the nations which and sovereignty. have retained their sovereignty usually have Is there some point in modern-day power poli been the powerful ones. The powerful ones have tics, for example, where an increase in the rate themselves. of addition to productive potential adds to sov They can defend themselves because they can ereignty at a significantly decreasing rate? Are power because they 14 can defend there diminishing returns to scale? Does the W o rk ho urs and business costs delivery of destructive fire power require such Another large area of uncertainty associated a massive marshalling of resources as it once with a cut in the workweek is cost. The goal did? Today tactical atomic weapons are coming of most who favor such a reduction is to obtain into their own. Several men in a truck can set a cut in hours without a reduction in weekly up and fire a weapon that will demolish a divi pay. This means a hike in hourly pay rates. sion— and they can do all this in a time span The per cent increase in hourly pay required to measured in minutes. maintain existing weekly payrolls varies Does this mean defense is less associated with production than it once was? Today it is re (as shown below) with the magnitude of the reduc tion in hours. ported that we possess nuclear weapons which provide us with the equivalent of 30,000 pounds of TNT for every man, woman and child on the Per cent increase in hourly pay to maintain same weekly pay ut from hours to globe. We have a complex maze of delivery systems. Does this mean less dependence on a 39 38 27 V2 36 35 32 massive marshalling of men and machines to turn out the kind of armada needed in World War II? Today there is even talk of a reduction in the 2.6 5.3 6.7 1l . l 14.3 25.0 defense budget. Indeed, some businessmen are taking this possibility into consideration in plan ning their capital budgets for the next few years. Critics of the workweek proposals say that wage rate hikes might bring both domestic and This, of course, is not to say that modern international difficulties. On the home front, weapons don’t require resources— research and an increase in hourly labor costs could cause development as well as production. And there anything from recession to inflation, according is the cost of maintaining a significant conven to the timing of the increase and the size tional force, both to fight brush-fire wars and to of the wage-rate hike relative to gains in produc provide an option to immediate and all-out tivity. nuclear retaliation. If the rise in hourly wages exceeds increases But the fact is, proponents of a shorter work in hourly output then labor costs will rise per week conclude, our economy is capable of pro unit of output. When unit costs rise, manage viding for our military needs at the present ment time without physical strain on the nation’s re whether to absorb the increase in costs (thereby is faced with an important decision: sources, and it is by no means certain this decreasing profits) or to pass the increase along ability would be impaired even if a cut in work to the consumer in the form of price hikes. hours were to decrease the rate of addition to This is where timing comes in. our productive potential. If at some future time If hours are cut during a period of brisk it appeared that we were failing to meet our business expansion— when demand for goods military needs, it would not be impossible to is pressing business to produce near capacity, reverse our course and increase our hours of work. (Continued on Page 18) 15 THE WORKWEEK AND UNEMPLOYMENT Changes in the average workweek and changes in unemployment appear to be related. CHART I CHART I Increases in unemployment typically are associated with declining work hours and decreases in unemployment with increasing (or only slightly decreasing) work hours. . . . (Dots represent annual changes fo r the years During years of predominant business expansion, increases or small declines in work hours are typical . . . CHANGE IN UNEMPLOYMENT BM P (PER CENt) 1901-1962) -3 . -5-* 0 ? O * - “2 S - 2 - 1 0 I 2 CHANGE IN AVERAGE WORKWEEK (HOURS) 16 2 1 0 I 2 CHANGE IN AVERAGE WORKWEEK (HOURS) PERCENTAGE CHANGES FROM FIRST YEAR IN PERIOD TO AVERAGE FOR PERIOD CHART III During years of predominant business contraction, de creases in work hours are typical. - 4 - 3 - 2 1 0 1 2 CHANGE IN AVERAGE WORKWEEK (HOURS) 3 P e r io d 1 9 3 9 -4 5 19 2 2 -2 9 1 9 0 0 -1 0 U n e m p lo y m e n t a s a P e r C e n t o f th e G ro s s N a tio n a l P ro d u c t L a b o r F o rc e — — - 5 7 .6 4 5 .0 2 2 .0 16.1 0 4 4 .7 1 0 0 .0 19 1 1 -1 9 19 4 6 -5 5 19 5 6 -6 2 1 9 2 0 -2 1 + + 19 3 0 -3 8 4 - 1 1 0 .3 A v e ra g e W o rk w e e k * 4 - 3 8 .0 4 - 1 0 .0 4 - 2 0 .9 4 - 5 1 .1 4 - 8 .8 4 - 1 6 .4 4 - 1 .0 2 .3 2 .6 0 .2 — 1 .2 4 .4 4- 7 .0 4 .3 5 .6 — 9 .3 A s shown in the table above, the workweek has tended to compensate fo r changes in de mand (Gross National Product) since the early part of the century. When demand increases, unemployment declines and the workweek tends to increase (or decrease relatively slightly) to facilitate the increase in production. When demand decreases and unemployment increases, the adjustment process works in reverse. The workweek tends to decline by larger amounts thereby inhibiting further in creases in unemployment. Ye t fo r the most recent period, 1956— 1962, unemployment was up by 44.7 per cent, demand (GNP) increased by the smallest amount fo r any of the periods of increasing demand, and the average workweek (instead of registering a significant decline to com pensate fo r the small growth in demand)— the average workweek showed the second smallest decline of any period. And the pattern is not the result of the par ticular periods chosen. The same type of pattern prevails, fo r example, if simple 5-year changes are examined (1901-05, 1906-10, etc.) and if 10-year changes are analyzed. The patfern holds also if per cent changes in.the industrial production index are substituted for G N P figures. Though one can never be sure of complex causal-effect relationships, the table does sug gest that changing hours of work have been less responsive to changes in unemployment and demand in recent years. * Average workweek fo r 1900-1918 is fo r all manufacturing employees; 1919-1962 data is fo r production workers in manu facturing. Source: U .S . Department o f Commerce, Bureau of the Census, Historical Statistics. Colonial Times to Present, I960. --------------- , Sta tistical Abstract of the United States. 1961, 1962. 17 (Continued from Page 15) force working the same number of hours. Over and when competition to sell goods is not in tense— then business may time pay might prove less burdensome because This of the cost of fringe benefits for new employees: would mean that the worker’s wage would buy contributions to pension funds, payments to less— his standard the state for unemployment insurance and the of raise prices. living would fall— he would have reduced his hours of work at the cost (to him) like. of a reduction in his effective On net balance, then, a cut in the workweek ability to consume goods. This situation, in might actually result in an increase in unem turn, would probably cause union leadership to press for wage hikes, which would mean ployment and might even send us spiraling downward into a recession. But so much for (under the assumed the domestic situation. How about the critical conditions) further in creases in business costs and another round of area price increases— the familiar wage-price spiral, payments? accompanied, most likely, by labor-management of foreign trade and the balance of Internationally, a hike in wage rates might raise costs to the extent that it would no longer unrest, strikes, and lost production. On the other hand, if the decrease in hours (and increase in unit labor costs) be profitable for many American firms to occurred compete with foreigners in foreign markets. during a period characterized by lax demand, Moreover, if U.S. prices increased, Americans troublesome unemployment and more intense might increase their purchases of foreign goods. competition (a time much like the present), Such a decrease in export receipts and increase then much of the increase in costs probably in import payments would mean a deterioration would be absorbed by employers, resulting in in our balance of payments with the rest of a fall in profits or even in net losses. If pres the world. sures on profits did indeed develop, employers All this is a pretty dark picture. And it serves might respond in at least three ways. First, well to illustrate the range of uncertainties asso some marginal firms might be forced out of ciated with a cut in the workweek. Yet is this business and unemployment would result. all the story? Is there not some way out of this Second, since prospective profits are an im portant determinant of business investment, business might cut back its capital outlays on cost dilemma? Some proponents of a shorter workweek would say yes— if the cut in hours occurs at a slower pace. new plant and equipment. The result would Historically, productivity has increased at a be a decrease in the number of new jobs avail rate of about 2^/2 to 3 per cent a year in the able to an expanding labor force and, again, United States. In other words, if one man work more unemployment. ing one hour produced, say, 100 pins in 1963, Third, with pressure on profits business would he probably will produce 103 in 1964. Given try to shave costs as much as possible. Instead these conditions, if the workers in the pin fac of hiring more workers to maintain output after tory desire a decrease in work hours, and if the cut in the standard workweek, many firms they agree to cut hours by an amount roughly might put in more productive equipment or proportionate to the increase in productivity— simply pay overtime to keep the existing labor then they will produce the same number of 18 pins at roughly the same cost. Unit costs will to be maintained. Thus, some type of formal or not rise. informal agreement between labor, management, Thus it is argued that one way to cut hours and perhaps the Government would be neces and perhaps avoid the cost difficulties would be sary to prevent wage rates from rising, Govern to spread the reduction in hours over several ment bringing the full weight of public opinion years. Instead of dropping hours from 40 to to bear on any offending union or other group 35 in one jump and increasing hourly pay rates of workers. And aside from other reservations by 14.3 per cent (as shown in the table on one might have, no one can be sure, of course, page 15), do it over a period of around five that this type of arrangement would be com years. Of course, the impact on some individual pletely successful. Hence we have another of firms and industries will be different than the the many uncertainties associated with work impact on others because of individual differ week legislation. ences in productivity, cost structure and peculi arities in equipment, methods, and products. IN CONCLUSIO N But average unit costs in the nation should stay Whether or not the workweek is cut will prob relatively stable. ably depend in large measure upon the trend Yet on the other side of the argument, two of unemployment. How successful will be the these various measures proposed to deal with it— conditions. Keeping the decline in hours in line tax cut, retraining, and education, for example? important caveats remain even under with productivity gains would tend to make Most economists agree that the workweek will existing jobs more secure and might require hiring new workers to increase production, but probably decline in the longer run. For the fundamental advance in technical know-how is it is possible that the new workers required rendering the labor force increasingly produc could be obtained from new entrants into the tive, and the nation probably will desire more labor force so that no dent would be made in existing unemployment. In this case, other leisure to enjoy the goods it produces. One final idea which should be considered is measures would be required to cut the existing this. If we should allow machine hours to re unemployment rate. The in hours place man-hours to the point where large scale would serve only to keep the rate from rising. unemployment results, then men simply would And to be sure that new workers instead of not earn the income to buy all the goods the overtime hours were added in order to raise machines were capable of making. Both our output, it might be necessary to raise the penaltv system of income allocation and goods distribu overtime tion would break down. Machines would be rate, say reduction from time-and-a-half to double time for overtime. A second important caveat is this: there is capable of making goods and humans would be capable of enjoying goods, but we would lack strong pressure in this country for increases in a system for equating the production potential wage rates when unemployment declines and with the consumption potential. output approaches capacity. Yet it would be nec There are many ways and combinations of essary to forego wage hikes at a time when ways to keep this from happening. These ways hours were being cut if stable unit costs were run all the way from the most negative— inhib 19 iting the advance of technology— to the more any one of these techniques can be successful in positive ones such as (a) reducing prices as we maintaining the equilibrium of our distribution become more productive (thereby increasing de system. By the same token, it would probably mand so that more workers are required to run be a mistake to exclude any one technique as an machines even though the machines being run instrument to maintain equilibrium. Certainly are more productive), (b) cutting work hours, all of the more positive techniques have been and (c) adjusting income shares through poli important at one time or another in past at cies with respect to wages and profits. tempts to link a machine technology to a free It would probably be a mistake to believe that market system of production and distribution. 1 9 6 3 : I M A G E IN T H E L O O K IN G G LASS In 1963 the nation stood before the looking higher in 1963, but increased more slowly than glass. The reflected image was examined, ap in recent years. Bank and consumer credit ex praised, and reappraised. Americans everywhere panded greatly. The Federal Reserve continued asked— Where are we? Where are we going? to provide funds adequate for sustained eco nomic growth. W H E R E ARE W E? The current expansion is one of the longest Most of what happened during 1963 pales in the in our history except for the war years and light of a single event that occurred on Novem there are few of the excesses which generally ber 22nd under a bright Texas sky. Although develop during a long expansionary period. it immense This growth, however, did not reduce the rate tragedy of those days in November, we may take of unemployment in our labor force. The rate consolation in what we do see and find that all of unemployment remained at about 5 % Per is not wrong with the state of the union. cent. A new word crept into our vocabulary— is difficult to see beyond the Basically our economy is strong. Some prob the unemployables— to describe those who did lems persisted through 1963, but we pressed not possess either the skills required or the closer toward a solution for them. aptitude to learn them. Economic performance during 1963 was bet We made progress toward reducing balance- ter than expected. We produced more goods and of-payments services than ever before— nearly $600 billions helped worth. Consumers spent more and businessmen credit without restricting credit significantly in invested more. Government expenditures were domestic markets. The proposed interest equal 20 to pressures. The Federal reduce the outflow of Reserve short-term ization tax cut deeply into foreign borrowing level of demand were high enough, business here. would be willing to employ those workers who The image of the dollar proved sound. Evi have lower productivity. dence of world confidence in the dollar ap There is truth to both points of view. We peared late last November. Minutes after news need to make more intensive efforts to educate flashed of the assassination of our late President, and retrain workers in new skills. At the same the Federal Reserve, in cooperation with foreign time, we need to sustain over-all demand so as central banks, moved into the exchange market to increase our rate of growth. Action on both to defend the dollar. The knowledge that ade fronts would help the economy adjust more quate resources were available to deal with any quickly to the dislocations in the labor market eventuality caused by changing patterns of demand and helped prevent any crises from developing. technology. The main thrust toward faster growth in 1964 W H E R E ARE W E GOING? apparently is to be a reduction in taxes. Ques It is clear the course we follow will be influ tions arise, however, regarding its timing and enced largely by developments in four major final form. And the results are not a foregone areas: the role of the Government, unemploy conclusion. But if a tax cut stimulates larger ment, economic growth, and balance of pay purchases by consumers and brings about more ments. investment by business, it would create a strong A major question mark is the role of the sustaining force to the current expansion. In Government. Somehow the thorny issue of the federal budget must be resolved. If Govern creased spending by consumers and business ment expenditures are to be reduced, where do problems of growth, unemployment, and our we cut without excising muscle? Defense ex balance-of-payments deficit in the near future. penditures? Foreign aid? Domestic men would bring us closer to resolving the welfare The domestic economy of the United States projects? Already concern is expressed about is linked too intimately to the world economy the economic consequences of a reduction in for us to act unilaterally in solving our balance- defense expenditures. What will be the impact of-payments deficit. Monetary and fiscal authori on local employment? Will private enterprise ties still will have to strike the delicate balance be able to pick up the slack created and fill of policies to ease the deficit further without the gap? hampering growth. If so, how soon? There is divided opinion on what to do about unemployment. To the structuralist, the main TH E TH IR D D ISTR IC T IN 1 9 6 3 cause of unemployment is shifts of demand aris Business ing from changes in consumers’ tastes or changes Third Federal Reserve District lagged somewhat in technology. So we have a group within the behind the nation. After sluggish performance economy which no longer possesses the required early in the year, there were some signs of skills or is dislocated because of industry shifts. strengthening in the springtime. Others argue that the basic cause of unemploy ment is an inadequate level of demand. If the In 1963 business activity within the Unfortunately, business conditions in the Third District did not improve significantly. 21 B U SIN ESS INDICATORS THIRD FEDERAL RESERVE DISTRIC T PER CENT CHANGE 1962 TO 1963 Manufacturing employment* Factory payrolls* Factory working tim e* Electric power consumedby manufacturers Anthracite coal output* Construction contracts:* Residential Nonresidential Public works and u tilitie s Ca rloadings (Philadelphia region) Retail sales, total (excludingnational chains ) * * Department store sales* Automobile registrations (48 counties, eastern Pennsylvania) Bank debits (20 cities) UNEM PLOYM ENT IN MAJOR LABOR MARKET AREAS — THIRD FEDERAL RESERVE DISTRIC T — 0 .7 % -|- 0.8 — 0.1 + 4.9 - j - 15.1 — 2.2 + 5.1 — 13.5 + 7.6 — 11.2 +3.2 — 0.4 + + 9.7 6.6 N u m b e r o f A re a s Pe r C ent o f L a b o r F o rc e U n e m p lo y e d 1.5 3.0 6.0 9.0 12.0 to 2 .9 % to 5.9 to 8.9 to 1 1.9 or more Total Novem ber 1963 Novem ber 1962 2 5 4 2 0 13 1 6 2 3 1 13 Novem ber 1961 0 7 2 2 2 13 creased substantially by 15 per cent. Most significant is the unemployment picture in the Third District. The Philadelphia Metro politan Area is acutely aware of unemployment * F irs t 11 months. ** F irs t 10 months. with an average of 6^/2 per cent of the labor While the nation continued to expand at a mod force out of work— higher than the national erate rate, the District barely maintained cur rent levels. average. Total employment in the area stopped District indicators, as shown in the table, growing during 1963. Elsewhere in the District, unemployment reveal mixed patterns in economic performance. shifted slightly in a more favorable direction. Factory working time, employment, and payrolls No area appears in the 12 per cent or more showed hardly any change, less than 1 per cent unemployed category, while one area was added each. Carloadings fell 11 per cent. Construction to the 1.5 to 2.9 per cent group. contracts were contrary to the national pat Banking During 1963 the rate of growth in tern, dropping 2 per cent largely because of a total deposits was less than that in the nation, 14 per cent decline in nonresidential construc tion. especially in reserve city banks. Net loans of reserve city banks in the Third Retail sales rose at a rate less than that of the District increased at a rate approximating the nation. Anthracite output, perhaps in response nation as a whole. The rate of growth of net to newly found uses and increased exports, in- loans at country banks, however, was only two- THIRD DISTRICT BANKING ( millions of dollars ) Reserve C ity Banks Loans Investments Deposits Country Banks Loans Investments Deposits 22 C hange in 1 9 6 2 Decem ber Change 24, in Decem ber 3 0 , 1961 Decem ber $2,358 1,085 4,256 $2,584 1,037 4,263 + 226 — 48 + 7 $2,842 1,059 4,363 + 258 + 22 + 100 3,246 2,532 6,152 3,507 2,710 6,446 +261 + 178 +294 3,792 2,774 6,814 +285 + 64 +368 28, 1962 1963 1963 thirds that of country banks throughout the Reserve tion from 1962 when they liquidated on bal ance. District country banks continued to ex nation. city banks in the District added securities to their portfolios— a change in direc pand their portfolios, but at a lesser rate than a year ago. 23 DIRECTO RS AND OFFICERS A t the election held in the fall of 1963, two directors were elected by member banks to serve fo r three-year terms beginning January I, 1964. Charles R. Sharbaugh, President of Cambria County National Bank of Carrolltown, Carrolltown, Pennsylvania, was elected as a Class A director by member banks in Electoral Group 2. He succeeds J. Milton Featherer. Banks in Group 3 re elected Leonard P. Pool, President, A ir Products and Chemicals, Inc., Allentown, Pennsylvania, as a Class B director. The Board of Governors of the Federal Reserve System reappointed W alter E. Hoadley as a Class C director fo r an additional three-year term. M r. Hoadley was redesignated as Chairman of the Board of Directors and Federal Reserve Agent and David C. Bevan as Deputy Chairman for the year 1964. The Board of Directors appointed W illiam L. Day, Chairman, The F irst Penn sylvania Banking and Tru st Company, Philadelphia, Pennsylvania, to serve as the member of the Federal Advisory Council to represent the Third Federal Reserve D istrict fo r the year 1964. Three officers retired during 1963— Ze ll G. Fenner, Assistant Vice President, Bank Examination, on May 30; Herman B. Haffner, former General Auditor, on September 30; and George J. Lavin, Assistant Vice President, Credit-Discount, on November I. G. W illiam Metz, Examining Officer, was appointed Acting General Auditor on January 3 and General Auditor on May 3, 1963. James P. Giacobello, an examiner in the Bank Examination Department, was appointed Examining Officer on February I, and advanced to Chief Examining Officer on June I, 1963. Also effective June I, Joseph M. Case was promoted from Chief Examining Officer to Assistant Vice President in the Bank Examination function, and W illiam L. Ensor and Harold E. Ikeler, examiners, were promoted to the official position of Examining Officer. Warren R. Moll was transferred in assignment from Checks to Cash, and promoted from Assistant Cashier to Assistant Vice President; and James A . Agnew, Department Head— Checks, was made Assistant Cashier— Checks. On November I, 1963, Edward A. Aff, Assistant Vice President, became an officer of administration in the Credit-Discount Department, in addition to his former assignment as a Bank and Public Relations officer. Effective January I, 1964, three members of the staff of thp Department of Research were promoted to officer positions— Kenneth M. Snader as Assistant Vice J. C. Rothwell, J r. and Bertram W . Zumeta as Economists. 24 President, and DIRECTO RS A S OF JANUARY 1, 1964 Group Term expires December 31 CLASS A 1 BENJAMIN F. SA W IN 1965 Vice Chairman of Board and Chairman of Executive Committee, Provident Tradesmens Bank and Trust Company, Philadelphia, Pennsylvania 2 CHARLES R. SHARBAUGH 1966 President, Cambria County National Bank of Carrolltown, Carrolltown, Pennsylvania 3 EUGENE T. GRAMLEY 1964 President, Milton Bank and Safe Deposit Company, Milton, Pennsylvania CLASS B 1 FRANK R. PALMER 1964 Chairman, The Carpenter Steel Company, Reading, Pennsylvania 2 RALPH K. G O TTSH A LL 1965 Chairman of Board and President, Atlas Chemical Industries, Inc., Wilmington, Delaware 3 LEONARD P. POOL President, A ir Products and Chemicals, Inc., 1966 Allentown, Pennsylvania CLASS C W A LTER E. HOADLEY, Chairman 1966 Vice President and Treasurer, Armstrong Cork Company, Lancaster, Pennsylvania DAVID C. BEVAN, Deputy Chairman 1965 Chairman of Finance Committee, Pennsylvania Railroad Company Philadelphia, Pennsylvania W ILL IS J. W IN N 1964 Dean, Wharton School of Finance and Commerce, University of Pennsylvania Philadelphia, Pennsylvania 25 OFFICERS A S OF JANUARY 1P 1964 KARL R. BOPP President ROBERT N. H ILKERT First Vice President W ARREN R. MOLL Assistant Vice President HUGH BARRIE Vice President LAWRENCE C. MURDOCH, JR. Business Economist JOHN R. BUN TIN G , JR. Vice President HENRY J. NELSO N Assistant Vice President JOSEPH R. CAMPBELL Vice President KENNETH M. SNADER Assistant Vice President RUSSELL P. SUDDERS Assistant Vice President NORMAN G. DASH Vice President J. C. ROTH W ELL, JR. Economist DAVID P. EASTBURN Vice President MURDOCH K. G O O D W IN Vice President, General Counsel and Assistant Secretary HARRY W . ROEDER Vice President JAMES V. VERGARI Vice President and Cashier BERTRAM W . ZUM ETA Economist JAMES P. GIACOBELLO Chief Examining Officer W ILLIAM L. ENSOR Examining Officer HAROLD E. IKELER, JR. Examining Officer RICHARD G. W ILG U S Vice President and Secretary JACK H. JAMES Examining Officer EVAN B. ALDERFER Economic Adviser LEONARD E. MARKFORD Examining Officer CLAY J. ANDERSO N Economic Adviser JAMES A. A G N EW , JR. Assistant Cashier EDW ARD A. AFF Assistant Vice President JACK P. BESSE Assistant Cashier JOSEPH M. CASE Assistant Vice President W ILLIA M A. JAMES Personnel Officer RALPH E. HAAS Assistant Vice President FRED A. MURRAY Director of Plant G. W ILLIA M M ETZ General Auditor 26 STATEMENT OF CONDITION FEDERAL RESERVE BANK OF PHILADELPHIA End of year (000’s omitted in dollar figures) 1963 1962 ASSETS Gold certificate reserves: Gold certificate account...................................................... Redemption fund— Federal Reserve n o te s......................... $ 727,618 79,072 $ 917,611 75,965 $ 806,690 $ 993,576 Total gold certificate reserves......................................... Federal Reserve notes of other Federal Reserve Banks......... Other cash ................................................................................. Loans and securities: Discounts and advances...................................................... United States Government securities.................................. 35,360 6,406 52,668 16,465 2,826 1,830,795 663 1,679,215 Total loans and securities............................................... $1,833,621 $1,679,878 Uncollected cash items ............................................................. Bank premises............................................................................. All other assets........................................................................... 453,604 3,012 22,143 475,946 3,282 19,837 Total assets ...................................................................... $3,160,836 $3,241,652 $1,917,598 $1,863,328 767,443 32,367 9,280 6,145 824,688 44,812 15,080 5,257 LIABILITIES Federal Reserve note s............................................................... Deposits: Member bank reserve accounts........................................... United States Government.................................................... Foreign .................................................................................... Other deposits ...................................................................... 815,235 $ 889,837 Deferred availability cash ite m s............................................. All other liabilities .................................................................... 340,893 4,241 404,360 3,473 Total liabilities .................................................................. $3,077,967 $3,160,998 $ $ Total deposits.................................................................... CAPITAL ACCOUNTS Capital paid i n ...................................................................... S u rp lu s.................................................................................... $ 27,623 55,246 26,885 53,769 Total liabilities and capital accounts.............................. $3,160,836 $3,241,652 Ratio of gold certificate reserves to deposit and Federal Reserve note liabilities combined....................................... 29.5% 36.1% 27 EARNINGS AND E X P EN SES FEDERAL RESERVE BANK OF PHILADELPHIA (000’s omitted) 1963 1962 Earnings from: United States Government securities.................................. $ Total current earnings...................................................... 61,406 $ 420 Other sources........................................................................ $ 61,826 58,880 377 $ 59,257 Net expenses: Operating expenses* ........................................................... Cost of Federal Reserve currency....................................... Assessment for expenses of Board of Governors.............. Total net expenses........................................................... $ Current net earnings.................................................................. 8,926 8,584 551 434 435 383 9,912 $ 9,401 51,914 49,856 18 38 111 Additions to current net earnings: Profit on sales of U.S. Government securities (net)........... All o th e r.................................................................................. Total additions .................................................................. $ Deductions from current net earnings: Miscellaneous non-operating expenses .............................. Total deductions............................................................... $ $ Dividends p a id ........................................................................... $ Paid to U.S. Treasury (interest on Federal Reserve notes) . . . . 28 3 $ 51,967 $ 1,638 $ 1,477 84 60 48,852 $ 144 84 53 Net earnings before payments to U.S. Tre a sury..................... * After deducting reim bursable or recoverable expenses. $ 3 Net additions ............................................................................. Transferred to or deducted from (—) S u rp lu s....................... 56 33 49,916 1,565 45,863 $ 2,488 VOLUME OF OPERATIONS FEDERAL RESERVE BANK OF PHILADELPHIA 1963 1962 1961 215,700 28,800 15,200 835 196,700 27,300 14,100 734 181,100 26,300 16,200 732 704 178 274,100 346,700 1 586 308 682 163 264,300 444,400 1 566 310 677 149 260,300 476,200 1 544 317 421 439 406 8,436 6,311 1,163 7,699 6,856 1,221 8,650 6,756 1,119 $ 68,600 6,259 261 185 $ 66,200 6,165 254 164 $64,600 5,866 274 166 41,031 123,253 1,935 44 1,192 2,605 888 39,031 108,662 1,844 52 485 2,406 872 36,395 90,676 1,783 55 564 2,240 851 13,745 12,807 10,998 444 344 175 396 468 158 405 377 156 Number of pieces (000's omitted) Collections: Ordinary checks*.................................................. Government checks (paper and card)................ Postal money orders (card).................................. Non-cash ite m s...................................................... Clearing operations in connection with direct sendings and wire and group clearing plans** . . . . Transfers of funds .................................................... Currency counted...................................................... Coins counted ........................................................... Discounts and advances to member banks.............. Depositary receipts for withheld taxes.................... Postal receipts (remittances).................................... Fiscal agency activities: Marketable securities delivered or redeemed . . . Savings bond transactions— (Federal Reserve Bank and agents) Issues (including re-issues) ............................. Redemptions .................................................... Coupons redeemed (Government and agencies) . . . Dollar amounts (000,000's omitted) Collections: Ordinary checks.................................................... Government checks (paper and card)................ Postal money orders (card).................................. Non-cash ite m s...................................................... Clearing operations in connection with direct sendings and wire and group clearing p la n s**......... Transfers of funds .................................................... Currency counted...................................................... Coins counted ........................................................... Discounts and advances to member banks.............. Depositary receipts for withheld ta xe s.................. Postal receipts (remittances).................................... Fiscal agency activities: Marketable securities delivered or redeemed . . . Savings bond transactions— (Federal Reserve Bank and agents) Issues (including re-issues) ............................. Redemptions .................................................... Coupons redeemed (Government and agencies) . . . * Checks h an d le d in sealed p a ck a ge s counted a s units. * * Debit a n d credit items. 29
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