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THE
ECONOMY
AT
MID-CENTURY
THE
THIRTY-FIFTH
ANNUAL
OF THE FEDERAL
RESERVE
REPORT
BANK
1949
OF PHILADELPHIA
A Review of Fifty Years
of Growth and Change
FEDERAL RESERVE BANK
OF PHILADELPHIA
April
30,1950
This year, midway between the beginning and the end
of
the
twentieth
century,
the
ANNUAL
REPORT
Of
this
Bank reviews briefly some of the trends and events of
the last fifty years. This scentedappropriate not on the
grounds of convention alone, but becausecurrent controversies most often have their roots in the past. An
understanding of long-run developments is essential to
a solution of today's problems.
I am pleasedto present to our stockholders the thirtyfifth Annual Report of the Federal Reserve Bank of
Philadelphia.
t
)I
WjL44A,
4
President.
CONTENTS
Page
The Economy
Material
1
at Mid-Century
Progress
4
.....................
The Search for Security
9
......
Fifty Years of Finance
......
Public Policy in Finance
1949 in Review
20
25
......................
30
..............
34
...........................
35
Officers
Appendix
16
.............
Reserve Bank Operations
Directors
.
36
...........................
THE
ECONOMY
AT
MID-CENTURY
WITHIN
the last year a national magazine pictured on its
cover an artist's conception of the automatic digital computer, an
electronic calculating machine of the greatest complexity, that
solves mathematical problems and their physical counterparts
heretofore considered insoluble. Such a machine contains hundreds,perhaps thousands,
of vacuum tubes, each of which operates
thousands of times a second in its work as part of a computing
unit. Numerical data and operational orders are put into the
mechanism by means of a kind of teletypewriter. The machine
stores this information in its "memory, " consisting of mercury
tubes or magnetic tape. Once started, the machine recalls the
numbers assembledin its memory, in the sequence demanded by
the orders its operators have given it. It puts the results of intermediate calculations back into its memory for future use. It can
make simple comparisons of numbers and undertake alternate
coursesof action depending upon the results. When the computation is finished, the machine types the answer and its human operators read it off the ticker-tape.
A half-century
fantastic adago this was the stuff of which
little
venture stories were made. Even today it seems a
unreal to
For here is a
most of us-unreal
and somewhat frightening.
machine which at first glance seems to threaten our status as the
planners and directors of worldly affairs. Actually,
the machine
does
does
it provide
nothing of the kind; nor, by the same token,
much in the way of immediate relief to those who would like to
relinquish their responsibilities for human welfare. The machine
does not think;
men have built into it an extremely limited degree
of judgment of a low order, but it cannot do more than it is told
to do. Its technical powers are huge, yet its capacities are completely limited by the ability of its operators to command it. The
1
define physical,
machine cannot originate ideas.By itself it cannot
for their
much lesshuman, problems and set up the mechanism
by
far
difficult
task of all.
the most
solution. And that is
In many ways the automatic digital computer is the symbol of
last fifty years has been
our age. The technical progress of the
Innumerable
problems of production
great, as this report shows.
but we in the United States can feel reasonremain to be solved,
Confidence in our
ably sure that their solution is within reach.
know
is
what we want to
technical ability
unbounded, once we
do. In comparison with former years and other nations, our econlike manomy is a marvelously efficient productive machine. In
financial
have
been
techniques
to
the
perfected
point at which
ner,
the functioning of much of our monetary machinery has become
routine; and in addition, historical circumstance has combined
with design to give us a financial system that may prove to be
more stable than ever before-less subject to the violent contractions of credit and money supply which
of former years.
accompanied
the panics
As in the caseof the automatic digital computer, however,
technical proficiency and material wealth do not solve the most
important economic and social problems. They grant a wider and
richer range of alternatives, but they do not necessarily help to
choose the right ones; they cannot set goals. They can help to produce greater income, but they cannot settle the question of who
gets what; they cannot resolve conflicts among groups and individuals. The magnificent productive and financial machine built
during the first half of this century can do only what its masters
are able to direct it to do. Thus far our ability to guide the
machine has lagged.
The most troublesome economic problem of recent years has
been that of dealing with business fluctuations. In the course
of
several decades many stopgaps have been tried and some permanent institutions of real value have been developed. These have
been less than perfect, however, and economic stability is
still far
from being guaranteed. There is little doubt that we shall be
able
physically to produce enough goods and services to assure a high
2
and rising standard of living for the nation. But, in the past, lack
of economic balance has led to periods of unemployment which
wasted productive resources and brought actual want to many.
Even after many years
of prosperity the fear of depression still
castsa long shadow. Confidence in our ability to avoid large-scale
unemployment is not complete.
In the
seeking
search for security from economic distress-in
ways to make the production machine work at capacity-groups
and individuals have called upon Government
to an increasing
extent. The separation between the functions of business and Govduring the last
ernment has become less distinct, particularly
twenty years. Where the free market mechanism produced results
that were not acceptable to labor or business or to the consumer
or to agriculture, efforts have been made to modify it, and legislative
Collective
or institutional
controls have been substituted.
bargaining,
deposit
fair
and
price supports,
trade agreements,
little
insurance
familiar
that
were
terms
are examples of now
known
a generation ago.
The proper role of Government in economic life is the subject
of continuing controversy, but there can be no doubt that the
American people's
conception
that role has been enlarged.
While Government intervention of
seemsto have solved some pressing problems, it has
be
created others which, although they may
somewhat different in nature, are just as serious. Indeed, many of
the measurestaken to eliminate economic fluctuations may prove
to be the basis for future instability. As
each economic group
seekssecurity or advantage through Government support, and as
Government
high level of employment by
bolstering thestrives to maintain a
wherever weakness appears, the path of
least resistanceeconomy
is likely to be continual concessionand compensation. It is easier to make competing
upward adjustments than to
face squarely
the need for choosing among alternatives. And that
path leads to chronic inflation and all of the dislocations which
that condition creates.
One of the
most important questions facing us now as the
result of the developments of this half-century is how to avoid
3
the chronic inflation which may threaten as a consequence of the
for economic security and the requirements of
great public zeal
The
defense.
answer lies in one of two general directions.
national
The first involves further public action of a type tending toward
over
detailed economic planning and direct control-control
The
investment.
points
way
perhaps
second
prices, production,
toward the more impersonal regulation of the flow of expenditures
via monetary-fiscal policy. To the extent that we are unwilling
to impose the latter we may be forced to adopt greater restrictions
factories
of the free market and individual initiative. Our great
know-how
how
to make this choice.
cannot tell us
and production
Only hard thinking and courageouseffort will enable us to control
the production machine and make it do our bidding.
MATERIAL
PROGRESS
To those of us who have lived through this half-century
or, at
least, the greater part of it and have gradually absorbed its material offerings into everyday living, the nature of the advance that
has been made since 1900 is seldom noticed as the spectacular
thing it really was. If one could stand apart from his times and
compare this period with others of equal length-in
the United
States or elsewhere-achievements
in the production of goods and
services would be revealed as quite unique in the world's history.
The economic environment in which business and banking have
been carried on has been one of great technological change and
unprecedented physical expansion.
While the fact of material progress is obvious, its precise measurement over long periods of time is impossible. The most important changes in our productive plant have not been those which
merely permitted us to do things faster and bigger and in larger
quantity, but those which have given us entirely new things and
have changed standards and modes of living. Material
progress, in
It would
other words, has been qualitative as well as quantitative.
be
in
relatively easy to measure gains
seem to
the production
and
consumption of basic commodities such as wheat or coal. Yet the
bare statistics, while significant for those particular
goods, are
4
hardly meaningful for determination
of a general rate of material
In the
progress without a great deal of subjective modification.
case of wheat, for instance, the ability to transport and preserve
fresh fruits
and vegetables has changed habits of diet, and wheat
plays a different and, perhaps, a smaller role. Petroleum and gas
have altered
the dominant position of coal as an industrial fuel,
and what has happened in coal over the last fifty years is, therefore, not
a true reflection of general industrial development. For
for
many very important goods-radio
and electronic equipment,
instance-the
for
1900
be
and
might
record would
nonexistent
not begin until a very few years ago.
The statistics for
specific industries and commodities are useful
guideposts, however. A recent publication
of the U. S. Department of Commerce-"Historical
Statistics of the United States,
1789-1945"-and
scores of other Government and trade sources
of statistics, record the output of many segments of American
industry
and agriculture in the last fifty years. The accompanying
chart gives a few examples. Despite our inability to combine them
into a precise index of total output or consumption, they present
an impressive picture of achievement. In one attempt at a rough
over-all measure, Professor Simon Kuznets has estimated that the
value of net national product (adjusted for changes in the price
level) increased by
over 140 per cent from the decade 1894-1903
to the decade ending in 1938. Since that time, other figures indicate the possibility
of a further increase of roughly 50 per cent.
It is clear
at once that even if such statistics could be comprehensive
and could be adjusted in such a way as to take account of
life, they
all new products and
services and a changing mode of
would be incomplete
and inconclusive as a measure of material
progress unless we also took into
account the number of people
participating in the
production process and the number dividing
up the product. For,
ultimately, our progress must be appraised in
terms of what it has
meant for the individual consumer. Minimum
support of a
growing population is, in itself, something of an
achievement for
an economy, even if the individual
producer
makes barely enough for
the subsistence of his family. Such a
5
A HALF-CENTURY
OF PHYSICAL
OUTPUT
(1900 = 100)
ýý
COTTON
CONSUMPTION
Sources:
U. S. Department
U. S. Department
U. S. Department
The Iron Age
of Agriculture
of Commerce, Bureau of the Census
of the Interior, Bureau of Mines
situation prevails in some parts of the world, though total output
there may be increasing. This was so far from being the case in
the United States during the Ifirst half of the twentieth century
that to most Americans the social attitudes, institutions, and living
conditions of a subsistence economy seemed to exist only in a
world of unreality along with Tarzan stories and South Sea Island
technicolor movies. In the United States, the natural course of
for a relatively brief though shocking period
events, interrupted
during the Great Depression
be everof the 'thirties, seemed to
increasing worker
per capita
productivity
and ever-increasing
consumption.
Population
and the labor force.
The population
doubled since 1900.
of the United States has
This
increase and, in the
large
was the result of a
natural rate of
In the
early years of the century, a high rate of immigration.
decade
increase
half
in
for
1910,
instance,
the
ending
of
more than
in population
immigrants
was due directly to a record influx of
seeking new homes in a new, free land. Immigration
almost
stopped in the 'thirties, but not before it had had a profound effect
on rapidly expanding American industry.
As population
States
grew and industry developed, the United
became
a predominantly urban civilization. In 1900 most Americans lived in the country. By 1920 this was no longer the case. In
1950 nearly 60
per cent of our population lives in cities and towns,
and most of these people live within the crowded "metropolitan
areas" adjacent to a comparatively few large cities. Population in
the Third Federal Reserve District,
as in many of the older population
centers of the East, was already urbanized in 1900. In such
areas, population has become
it
even more concentrated, though
has not
grown so rapidly as in those parts of the country which
were less fully developed.
Family units of 1950
are smaller than those of a generation or
two ago and, although
marriage and birth rates jumped considerably during the war and post-war years of the 1940's, the trend
7
in the rate of population growth during the entire half-century
has been slightly downward. These facts have important implica-
dominant
tions for the future, but they should not obscure the
fifty
and,
of continuous
years-that
population trend of the past
for most periods, rapid growth. That growth has been of such
it, too, has made for qualitative changes in our econnature that
bedegree. The difference
in
omy
addition to mere changes of
does
in
1900
1950
solely
not consist
tween the population of
and
Large
in
convarying national origins.
a change of generations or
for productive
centrations of people make for a type of living and
different
from
for
small groups
those possible
capacities that are
and a small work-force.
The labor force-that portion of the population available for
and seeking gainful employment-has increased along with population. Young people and old people are now a smaller proportion
of the working population than formerly, but between 1900 and
the present time the percentage of women who work outside their
own homes has grown. As the trend toward urban living implies,
the proportion of the labor force engagedin agriculture, forestry,
and fishing has declined drastically-from
nearly 40 per cent at
the turn of the century to well under 20 per cent now. Manufacturing has increased its share of the labor force somewhat as
we have come to depend more and more on mechanical devices
for both production
and everyday living, and this is now the
largest single group. Transportation,
communication,
and trade
employment, as well as professional services, have become increasingly important. But perhaps the most significant commentary
on the change that has taken place in the nature of production
and
on the growing complexity of our mode of life in these United
States during the last fifty years has been the
expanding proportion of labor in clerical occupations. Only 2.5 per cent of the labor
force was in this category in 1900. Today, perhaps as many
as 10
keep the economy's accounts
million workers-help
per cent-6
and records. The "middle class," of which most of these workers
consider themselves a part, far from being ground into nonexistence according to the Marxian formula, has grown in size and
importance.
8
The growth
of efficiency.
The increase in
the number of people at work has been much
greater than that in total working time. In 1900, the ten-hour
day,
six-day week was standard. Today the average work-week is
not much over 40 hours, even if the longer work-week
of agriculture is taken into account. A Twentieth Century Fund survey
had
estimates, in fact, that although the rate of production
climbed by 80 per cent between 1910 and 1940 the total manhours
worked hardly ever, except during war, exceeded that of
the former year. This is
simply another way of saying that the
productivity of the American worker has been greatly increased.
The introduction
in
of new processes and massive investment
in
in
plant and machinery-on
farm
well
as
offices as
the
and
mines and factories, the technique of mass production,
scientific
halfdeveloped
in
management, and work rationalization,
this
all
less
and
century-have
made it possible for us to work much
produce much more.
Increases in
output per man-hour and per worker varied considerably among industries and trades, with the greatest gains
being
made in manufacturing
and smaller ones in construction
and "white collar" trades. On the average, it is estimated, output
per man-hour has been increasing at a rate of slightly under 2 per
cent a year. Actually, the rate has not been steady. The introduction of new techniques has made for periods of accelerated improvement, and progress sometimes has been interrupted by war
and adverse economic conditions. But confidence in our physical
ability continually to produce more, more efficiently, for more
people has never waned.
THE SEARCH FOR SECURITY
The great achievements
been
of this half-century have not
without their costs-costs over and above those of the working
and saving of men and women who have helped bring the United
Statesto
a position of world leadership. These costs are principally
9
The first is quite concrete. It consists of the using
of two kinds.
be recaptured. The
up of natural resources, much of which cannot
fluctuations of the
second involves a consideration of the economic
its
last fifty years. Unemployment
and
concomitant ills and the
during
of existing capacity
successive business
under-utilization
long-term
depressions represent a serious offset to
gains.
Resource costs.
America's productive machine has chewed up acres of forests,
mountains of metallic ores, and huge quantities of other raw materials that were available inside our own borders in seemingly
inexhaustible amounts at the turn of the century. New discoveries
were made, substitutes were adopted, and changing technology
called forth new patterns of resource use. Petroleum and alumiMore
num, for instance, assumed much greater importance.
fissionable
ingredients
recently ores containing
materials, the
of
the atomic bomb, have become important. But despite these developments which extend the boundaries of our natural wealth,
attitudes toward use of our resources have changed. Americans
" The Westgradually have become more "conservation-minded.
ern "dust bowl, " dramatized by the plight of the "Okies" in the
'thirties, and wartime shortages recently have underlined the
need
for more care in the use of both soil and minerals. Our reserves
of most raw materials are adequate for years to come; but for
many of them continued use at current rates will mean the working of lower-grade, higher-cost areas. For iron, certain nonferrous metals, acid for petroleum, the end of low-cost domestic
supplies is in sight and we shall have to rely on imports to a greater
extent in the coming generation. Undoubtedly, these developments
have contributed in no small measure to a change in our attitude
toward participation in the world-wide economy.
Business fluctuations.
By far the most important and costly stumbling blocks in the
march of progress during the last fifty years have been those
10
which attended recurring business depressions. Since 1900, American business has experienced at least five well-defined
periods of
less
curtailed and declining activity,
varying in duration from
than a year, as in 1937-1938, to almost four years, after the crash
in varying
of 1929. Unemployment,
accompanying these slumps
degrees
have
financial
caused real hardand, occasionally,
panics
ship and social dislocation. More than anything else, they have
called forth questions as to the superiority of our way of doing
business. Even
in times of ecoafter years of unequaled progress,
nomic stress and strain doubt arises as to the desirability of democratic living. In such times even those who benefited greatly from
the gains of the past may be susceptible to false promises of quick
panacea.
In the early
periodic economic
years of the half-century,
breakdowns
inevitable
part of the
were regarded either as an
process of development or as just punishment for periods of overexpansion. According to either view, if depression was a serious
cost, it was nevertheless an unavoidable one and justified by the
results. To some extent, the plight of those who were unfortunate
enough to be caught and broken by the downswing was regarded
as a necessary sacrifice, though in many quarters the feeling persisted that economic well-being was an individual responsibility
and that anyone could get on who tried hard enough.
These
attitudes, though prevalent, were by no means universal
and after the first world war they began to break down. The
President's Conference
in 1921, led by then
on Unemployment
Secretary
deCommerce
Herbert
Hoover,
of
recognized that the
it
pression of that year
incident
to
were a
and the unemployment
by
community, as well
It
individual
recognized,
as an
problem.
implication
distress.
least,
for
at
economic
a social responsibility
Scholars in
the field of economics shifted their attention somewhat
from developments
"in the long run" to problems of short-run
adjustment. In the
reports that followed and in the investigations
of research agencies during the 'twenties, the causes of business
cycles were intensively
sought and means of mitigating them were
discussed. It
was felt that booms and depressions might not be
completely
unavoidable after all, and that measures designed to
11
including the planning of public
stop them once they got started,
reand
even
necessary. Government's
works, were appropriate
in limited fields had been recognized long before
sponsibilities
had been growing. But the
the 1920's and those responsibilities
had been unquestionably that of laissez faire-a
prevailing mood
Government and business, with interrather strict separation of
ference the exception rather than the rule. The growing belief
fault but instead to
that unemployment was not due to personal
better underthe faulty operation of the economic system, and a
fluctuations
business
and their causes gradually wore
standing of
for unqualified opposition to Government intervenbasis
the
away
of
tion in economic affairs. Decisive impetus to the development
business activity and employment
to
stabilize
positive
program
a
arose out of the Great Depression of 1929-1933.
The Great Depression.
The depression beginning in 1929 marks a great divide in the
economic development of the United States during the first half
of the century. Judgments may differ, but it now appears that the
impact of the depression was more profound and had more lasting
effects than the great upheavals of the first world war. The events
of the dismal years of the 'thirties so burned themselves into the
consciousness of Americans that even a long war-prosperity
could
not obliterate the scars. Unemployment
reached 12 million
or
more at the low point, manufacturing
output fell almost to half
the 1928 level, and from 1930 to 1936 the loss of national income
amounted to two years of normal production. Standards of living
fell and insecurity reached into almost every home.
The intensity and, most of all, the duration of the Great Depression were shocking, especially to people who had allowed
themselves to believe that a "new era" of permanent prosperity
had arrived. It is not surprising that the depression touched
off
in economic thinking
what was considered a revolution
and
attitudes. In contrast with great confidence in our physical ability
to improve living standards, the idea gained that the nation had
12
reached "maturity" and that faulty institutions would prevent
full utilization
of our productive plant in the future. Government
forced
was
into large-scale relief activities early in the depression.
Building upon knowledge
of the causesof business cycles and the
ideas
newer
of John Maynard Keynes and others in the field of
fiscal policy, mere
by
relief finally gave way to positive action
Government to move the flywheel of the economic machine off
dead center. The Administration began by making vain efforts
to balance the budget in orthodox fashion. It soon resorted to
"pump priming" by deficit
spending, to the NRA codes, and
to farm policies designed to circumvent the rigors of the free
market. Few wanted to wait until "things worked themselves
out. " Most wanted security at the expense of the laissez-faire
tradition.
The search for
security.
It is not
possible here to chronicle the legislation growing out
of the search for security which received its main impetus during
the depression. Regardless
of one's opinion as to their necessity or
desirability,
there can be no doubt that the controls and nonmarket incentives which that legislation created have become
gradually more numerous
in the frameand more firmly imbedded
work of our economy. Many of the dictates of the free market
became
It is
unpalatable and their modification
was demanded.
significant that at the end
was
a
of the second world war there
tendency to
retain certain "emergency"
measures as necessary
for the
maintenance of post-war prosperity.
F
While some
observers in 1945 correctly gauged the danger of
inflation in
immediate
the
post-war period, the majority of those
contributing to
public policy and, probably, the majority of the
general public, believed that in the longer
run the big danger to
be avoided
The
at all costs was depression and unemployment.
employment
Act of 1946 was the answer to this concern. It
formalized
the broad economic objectives behind the piecemeal
programs and
expedients of the fifteen years preceding. It made
13
Federal Reserve System.
explicit one of the primary goals of the
proWith that Act the promotion of maximum employment,
duction, and purchasing power within the framework of a free
became an objective of national
competitive enterprise system
The
Employment
Act
the governmental mechanism
and
policy.
it created have become part of the basic architecture of GovernOther measment's program in the search for economic security.
farm
include
problems
ures designed to deal with particular
housing,
and social
price support, credit guarantees, public
security, including unemployment insurance.
While the Employment Act doesnot make definite recommendations in the field of fiscal policy the trend during recent years
has been away from annual budget balance as a standard and
toward a "compensatory" budget, allowing for a Treasury surplus
or deficit as employment conditions indicate. Certain aspects of
this change will be discussedin the following section.
The search for security has not been confined to Government
action. Individuals and institutions have participated in it as well.
One of its manifestations is the tendency for funds to seek debt
rather than equity investment. In part, this is the result of growing "institutionalization"
of savings-itself
a reflection of a desire
for financial protection-and
the legal restrictions on the investment policies of certain types of financial institutions,
restrictions retained from an earlier period in which institutional
operations were of less importance. In part, debt investment is sought
to guard against the financial collapse of another, as yet imaginary,
1929. The depression left a heritage of mistrust of the stock
market, of the promoter, especially among the middle-income
groups who have grown in importance as savers and providers of
funds. The entrepreneur, the taker of risks, seems to have lost
some of his status and support as the central figure in the economic
system.
The action of organized groups as well as individuals
within
the economy has been pointed toward security and has contributed
to the departure from laissez faire. Organized labor, a minor force
in 1900, grew in power during the half-century,
especially after
14
1932. Unions have become influential
factors-some
would say
determining factors-in
rates
and
working
the setting of wage
conditions, modifying the "free" market as an economic regulator.
The farmers,
also highly organized, wield considerable political
power and have succeeded in obtaining many special measures
including, in
recent years, price supports for major crops, which
guarantee high agricultural
prices independently of market conditions. The
in
aged, growing
numbers, have become an articulate
force and have been
demands for inpartially successful in their
creased benefits. Certain business groups have gained protection
from foreign
from out-of-state
competitors and, in some cases,
competitors by means of tariff and trade regulations, though
many of these have been modified within the last decade or so.
There has been
a softening of competition in general.
The decline of
has taken a different
competition since 1900
form from
in
by
that reflected
the growth of monopolistic trusts
the late nineteenth century. There has been little attempt to seize
an entire market. Widespread efforts have been made to cut competition for a given product by the use of trademarks and slogans,
and court records reveal attempts at collusion among producers
of similar products. But the main influence leading to the softening of competition appears to have been the tendency among large
"cutproducers and trade associations to
eliminate what are called
drive
throat" practices, to
business
rather than
share the available
each other out, and to
maintain prices at the expense of production and employment
rather than the other way 'round, as would
occur in a truly competitive
situation.
In attempting
to achieve security through protection against
unlimited competition, labor, business,
have conand agriculture
tributed to the
erosion of the automatic market regulators of our
economy. Government
regulators have taken their place to an increasing extent, though
imat present they are of over-riding
portance only in limited
Greater
Government
participation
areas.
in business
is frequently
to combat or neutralize "monopoly"
suggested.
FIFTY YEARS OF FINANCE
The tremendous strides which have been made in satisfying
during the half-century
could
our material and physical wants
development of
have
been
the
and
without
growth
achieved
not
factors contributed
not only to
the financial system. Financial
but
long-term economic growth
also at times tended to intensify
Growing comprehension of this twofold
business fluctuations.
has led to increasingly
developments
active
effect of financial
efforts to maximize economic progress and to minimize economic
instability through conscious control of the financial mechanism.
These efforts have been made, moreover, in recognition of the
growing importance of financial considerations-notwithstanding
the fact that our financial machinery in many ways has become a
routine part of day-to-day living which the general public takes
for granted. Not only do we now express financial phenomena in
much larger numbers-a public debt of just barely a billion dollars
in 1900, for example, now runs to a quarter of a trillion-but,
as
the major creditor nation, we make financial decisions which have
world-wide
repercussions. And we have moved further
and
further away from a barter economy toward a money economy.
The volume and flow of money thus has become
an increasingly
important element in economic activity.
Our society has made increasing efforts to influence the financial environment and has become more reluctant to subject itself
to immutable "natural forces" or automatic mechanisms. The
growth of the economy has made it impossible for any one person
to be intimately familiar with the workings of the entire financial
system, and the more we learn the more we realize how much
there is to know; yet, with study and experience we have gained
a better idea of how our economy functions and how to help it
work more effectively for the good of society.
One may question, of course, how thoroughly the functioning
of the financial system and its role in the economy are understood.
But undoubtedly more people are concerned more about finance
16
now than was the case in 1900. It is no longer "high finance"
carried on by a select few. Today more than two-thirds
of the
employed people pay a Federal income tax; in 1920 the proportion
Over half of the population owns life inwas only one-twelfth.
surance, as against about one-tenth at the start of the century;
about one-half owns United States Savings Bonds; and onetwelfth of the spending units holds corporate securities. These
facts
mean a wider participation
and interest in the financial
problems of Government, business, and consumers. They provide
at least one explanation of society's growing concern that public
action be taken, if necessary, to assure the stability of the financial
system.
The financial
is the outcome of
record of the half-century
intricate
attempts to solve problems-problems
and perplexing
as
as two world wars and post-war inflations, the "new era" of the
'twenties,
and the Great Depression of the 'thirties. It is a record
of people attempting to adapt their institutions to changing circumstances, to economic progress, and economic instability. And
it shows how the
public often takes action through Governmental
and
means when problems are not solved through individual
private institutional
efforts.
Commercial banking.
Amid the great variety of financial institutions, commercial
banks are
unique. They perform many of the same functions as
other savings and lending institutions, but they alone among the
private institutions can create and extinguish deposit money. They
increaseand decrease
the volume of bank deposits when they expand and contract their earning assets.It is for this reason that
their activities have had greater public significance.
As intermediaries in the
savings and investment process,commercial banks have played an important role in the process of
capital formation which has made rapid economic progress possible. Time deposits have been a growing part of bank business,
rising from about $1 billion at the turn of the century to $36
17
deposits.
billion, and from one-sixth to almost one-third of total
bank as a savings inThe relative position of the commercial
however, has declined. In 1920, the earliest date for
stitution,
largest
commercial banks were the
which we have information,
for
45 per cent of the total;
repository of savings, accounting
In the Third Federal Rehold
20
cent.
only about
per
they now
declining
the long-run trend has been toward a
serve District
deposits as other sections of the country
share of the nation's time
developed.
expanded and were
While commercial banks are still the only private financial
institution which can create deposits, they are doing it on a quite
different basis today than fifty years ago. In the first place, loans
are now only 36 per cent of total earning assets as compared with
78 per cent in 1914, and in the second place, short-term business
loans are a smaller proportion of the total loan portfolio.
Behind these two statements lie many economic changes to
which banks have adjusted with varying degrees of success. The
relative decline in loans has been due, more than anything else, to
the rise in bank holdings of United States Government securities
during two world wars and the Great Depression. The
shift in
the composition of bank loans reflects, to a large extent, fundamental changes in business and in business financing. One of the
most important has been the trend toward larger business units.
As this proceeded, banking faced two problems. Because
of legal
lending limits many banks
longer
no
were able to take care of the
credit needs of expanding local concerns, and despite the growth
of banks and widespread mergers, this problem still confronts
many commercial banks. Some observers believe the solution
is
branch banking; others would rely on the correspondent
bank
system. But whatever the answer, it is quite likely that the rapid
growth in the size of the business unit has acted to reduce business
financing through the commercial banks. The
second problem has
been a growing concern as to -whether banks
are meeting
the
longer-term credit needs of small business.
18
In addition to the
growth of the business unit, other factors
have tended to
reduce the demand for commercial loans. Manufacturers have
used increasingly large proportions of fixed capital
and smaller proportions of direct labor in their operations. Their
needfor credit for inventories and other working capital probably
has not increased fast
as
as for long-term financing. In response,
many banks have turned to a new device-the term loan. Nevertheless,businesshas financed a large amount of its needs by retaining earnings and selling securities, many issues being placed
directly with insurance
companies. On the supply side, many
banks have contributed to the decline in business lending by their
reluctance to adopt new financing methods until they had been
well tested by other institutions and, after their shattering experience of the early 'thirties, by an unwillingness to take risks.
As traditional
commercial lending declined in importance,
banks
turned to other lending fields. Consumers were spending a
larger
proportion of their incomes for durable goods, and banks,
observing the experience of other institutions,
saw in consumer
in
credit a new and relatively safe outlet for funds. Competition
financing
consumer purchases was keen and banks were relatively
late in
entering the field. Nevertheless, commercial banks expanded the volume of their consumer instalment loans (excluding repair
and modernization loans) from $43 million to $2 billion
between 1929
and 1949, and their share of the total outstanding
from 7 to 51
per cent. Actually they have played a more important role in
consumer financing than these percentages would
indicate because
they buy instalment paper, make single payment
loans direct
to consumers and make loans to other consumer
credit institutions. Less spectacular than the expansion of lending to
consumers but equally significant has been the growing
importance
of mortgages in commercial bank portfolios. In makinng mortgage loans, banks have provided funds to facilitate the
growth of our capital
factories, and other
resources-houses,
fixed
assets-but they have departed further from their traditional
function
of supplying short-term commercial credit.
19
PUBLIC POLICY IN FINANCE
Monetary policy.
Not long after the turn of the century the public took a major
Much
had
step toward improving the existing monetary system.
of
already been done toward solving the major monetary problems
issue
lack
of
note
uniformity
of
the nineteenth century, such as a
banking system to convert notes
and a recurring inability of the
however,
and
and deposits into cash. The latter problem persisted,
it
increasingly
there
1907
that
was
an
apparent
the panic of
made
influence
for
institution
the
expansion
an
which
could
urgent need
and contraction of money so as to promote economic stability.
"to
Congress established the Federal Reserve System in 1913
furnish an elastic currency, to afford means of rediscounting
combanking
mercial paper, to establish a more effective supervision of
for
"
Thirty-five
in the United States, and
other purposes.
years
ago monetary and credit policy was discussed in terms of "elasticity" of currency and deposits; today we speak of economic
The lanstability at high levels of production and employment.
different,
but
is
the real objective of adjusting money
guage
and
credit to minimize economic fluctuations has remained essentially
the same.
I
Intermediate objectives, on the other hand, often have been in
conflict. In the 1929 boom, for example, the System faced the
problem of curtailing speculative credit in the stock market without restricting
credit for other purposes. More recently
the
Reserve authorities faced the difficulty of pursuing two other Conflicting objectives: restraining post-war inflation
and at the same
time supporting the Government security market.
Not only have intermediate objectives often been in conflict,
but they have changed over time. At first the principal goal
of
Federal Reserve policy was assuring a sufficiency of credit to
meet
the needs of business.Emphasis then shifted to maintenance of
the quality of credit. Monetary policy in the 'twenties was based
on the "real bills" doctrine which was that commercial banks
20
loans
should make only short-term,
commercial
self-liquidating
and such paper should serve as the primary basis of Federal Reserve
credit operations. By maintaining the quality of credit, it was believed the
quantity would be "elastic, " varying with the needs of
trade. Experience has demonstrated, however, that the "real bills"
doctrine is
an inadequate guarantee of economic stability And an
unreliable basis for monetary policy. For during booms, bank
loans for "productive"
purposes gave businessmen more money to
bid up the
prices of scarce materials. As prices rose, more loans
were needed and so the inflationary spiral proceeded. In periods
of stress, on the other hand, banks could not liquidate their loans
without aggravating the depression. Eventually, attention shifted
more toward regulating the quantity of credit in order to maintain
stability. Along with this shift there developed a better idea of the
various factors that influence reserves and how the volume of
member bank reserves influences the money supply.
In three and
one-half decades the guides which the monetary
authorities have used to achieve their basic objective have undergone a constant process of change in response to new environments
and the lessons of experience. The most important change, however, has been in the basic approach to problems. The Federal Reserve System was created at a time when the laissez-faire philosophy was still dominant. It was believed that the economic machine would function
if let alone, provided the
satisfactorily
proper rules were set up and observed. Since then we have learned
that no simple formula,
or automatic mechno rule-of-thumb
imanism is sufficient. Attention
must be focused on all of the
portant measures of economic activity, and the monetary authorities must be relatively free
at all times to act in response to them.
As automatic guides were gradually abandoned in favor of
discretionary
action, the use of monetary tools has been developed
and refined. The System has been almost completely successful
in smoothing
out seasonalfluctuations in the money market by
changing the volume and cost of reserve funds. In the 'twenties,
the monetary authorities learned better how to coordinate changes
in the discount
rate and open market operations. In the 'thirties
21
inthey were given authority to alter reserve requirements as an
in
influence
In
areas
to
credit
specific
an effort
strument of policy.
instruments were developed. Credit had
of the economy, selective
part in the 1929 boom and subsequent
played an important
To prevent a recurrence of this
collapse of the securities market.
Reserve
Federal
was given authority in 1934 to set
situation the
loans. The other field in which
margin requirements on security
has been applied is consumer credit. Although
selective regulation
has enabled many consumers to enjoy
such credit probably
which
otherwise they would have lacked,
modern conveniences
it has also contributed to economic instability. Expansion of credit
tended to take place during booms when consumer spending was
downswing
at high levels, and contraction occurred during the
demand
low.
Consumer credit, in effect,
were
when income and
tended to add to spending in times when spending was already
high rather than in times when it was low. Commercial
bank
lending,
in
both
directly
indirectly,
activity
consumer
and
was
particularly important because it affected the money supply. The
System was given authority under Executive Order in 1941 to
set limits on the terms of consumer credit transactions to hold
down the demand for durable consumers goods which because of
wartime restrictions were in short supply. This authority expired
in late 1947, was renewed by Congress in August 1948, and lapsed
again in June 1949.
Government agencies.
The paralyzing effects of the depression revealed important
areas in which existing institutions apparently were unable to
cope with the situation. Banks were besieged with depositors wanting their money, home owners were unable to meet their mortgage
payments, businesses and farmers could not get credit. Efforts to
deal with the emergency led the Government to set up a
number
of new organizations, most of which are still with us. Some, like
the Federal Deposit Insurance Corporation, were intended to be
permanent, being designed to establish a sounder financial structure. Others were aimed more directly at providing temporary
relief to hard-pressed businesses, home owners, and farmers.
22
The result has been
that Government has extended its participation in economic activity. In direct lending, Government activiin the field of farm
ties have assumed their greatest proportions
credit. The Government entered directly into the urban mortgage
field during
the depression to help distressed home owners and bail
out mortgage holders, and recently has been maintaining
a secondary market for guaranteed mortgages. In the field of business
credit, the Reconstruction Finance Corporation has been carrying
on since 1932 a great variety of different
activities.
The really important
role of the Government in recent years,
however, has
been
direct lending activity but in the guarin
not
anteeing and insuring of loans, thus making certain types of loans
more acceptable to private lending agencies. Both the Federal
Housing Administration
guarand the Veterans Administration
antee loans in the mortgage field. Today, about two-fifths
of the
family homes is insured. The RFC
mortgage debt on one-to-four
and the VA are the principal agencies in guaranteeing business
loans,
loans
and the Commodity Credit Corporation
guarantees
in the process
farm prices. Use of the guarantee
of supporting
device is
are not
comparatively new and all of its implications
yet clear. It has encouraged private lending institutions
to make
longer-term loans
which were better adapted to the credit needs of
the borrower. On the
other hand, post-war experience suggests
be
that the use of guarantees
credit may
can be inflationary;
fostered for
social or political reasons with only secondary concern
for economic
is the
circumstances or consequences. Finally, there
possibility that guarantees, by relieving lending agencies of some
of the liability for losses, may encourage unsound lending policies.
Fiscal policy.
The depression
not only was the cause of increased Government activity in the lending field, but
strengthened the reliance on
fiscal
policy as an instrument for combating business fluctuations.
The
widespread confidence of the 1920's in the ability of the
central bank to
maintain prosperity was greatly impaired by the
23
depression. The use of fiscal policy, based on the "new economics"
became for many the principal tool for smoothof J. M. Keynes,
ing out business fluctuations. Through proper policies governing
debt, it was believed that the
receipts, expenditures, and the public
Government could "prime the pump" to pull the economy out of
depressions, and could "compensate" for fluctuations in the private
Faith in the effectiveness of fiscal policy
sector of the economy.
flow could be
income-expenditure
was based on the belief that the
influenced more directly than through monetary policy, and on
imthe fact that the Government budget had grown to primary
joined others in pointing
Proponents
this
of
view
out
portance.
during depression,
was
not
very
effective
policy
that monetary
of the interest
that it was like "pushing on a string. " Manipulation
been
key
bank
a
to central
policy during
the
rate, which had
less
important.
'twenties, was considered
War and post-war experience during the decade of the 'forties
has swung the pendulum back toward a more balanced view.
There is no question that fiscal operations of the Government have
come to have a tremendous impact on the economy. Only twenty
years ago the Federal Government bought directly 1 per cent of
the annual gross national product; today it buys 10 per cent.
Federal taxes took only 4 per cent of the total national income,
whereas now they absorb 18 per cent. And the public debt was
8 per cent of total outstanding debt as against 52 per cent today.
Recent history, however, has shown the political and administrative difficulties in the way of applying fiscal policy to combat the
business cycle. We have not yet been able to forecast economic
trends with the necessary accuracy, and fiscal machinery is still
too cumbersome to move quickly enough. Democratic
processes
being as they are, it is easy to achieve deficits to combat depressions,
but difficult to obtain surpluses to fight inflation.
Fiscal policy also can be effective only as it influences the
quantity of money and its rate of use. While monetary policy
alone cannot bring about economic stability, and though the importance of the interest rate as a tool of monetary policy is still
debated, there is general agreement that changesin the
availability
24
I
of money and credit have a profound effect on business activity.
By the end of the half-century the prevailing thought as to the
rolesof monetary and fiscal policy has become more balanced than
perhapsat any other time during the period. The recent report of
a Congressional Subcommittee on Monetary, Credit, and Fiscal
Policiesrecommended "that
an appropriate, flexible, and vigorous
monetary policy, employed in coordination with fiscal and other
policies, should be one of the principal methods used to achieve
the purposes of the Employment Act" and "that the primary
power and responsibility for regulating the supply, availability,
and cost of credit in general shall be vested in the duly constituted
authorities of the Federal Reserve System." History suggeststhat
if we are to obtain economic stability and optimum economic
growth during the remainder of the century it will have to be with
the combined efforts of monetary and fiscal authorities as the core
of a program which coordinates action on all fronts.
1949 IN
REVIEW
Changing business
scene.
The problems that have developed during the last fifty years
came into sharper focus during 1949. Business had its first taste
of adversity since prewar days, and controversy over policies and
programs was sharp. Looking at the statistical record for 1949,
an observer of the business scene cannot fail to be impressed by
two outstanding developments. First, business activity in general
seemed slower. Total
industrial
and
production,
employment,
dollar
volume of trade were all somewhat below 1948. Second,
after ten years of
rising annual averages, the index of wholesale
prices moved downward during
almost the entire year and was
below
had
that of the previous year at all times. The downturn
begun in
latter
the
part of 1948 and, in some respects, that turning point was a more dramatic
event than anything that happened
to prices in 1949. But it
was not until 1949 that the persistence of
the price decline
assumed great significance.
25
At the same time, any idea that our economy experienced a
during 1949 must be severely discounted.
major business recession
Retail sales for the year were down, but only by about 1 per cent
decline in prices, which means that consumers
-less than the
bought a greater physical amount of goods than last year. Unemdid the total go
ployment was greater, but in only one month
increase in unabove 4 million. At the end of the year while the
in
it
number,
was more than the
employment over 1948 was small
increase in the size of the labor force. Failure to absorb additional
become a serious problem; indeed, unworkers into industry can
has been consistently higher than that
employment in early 1950
However,
it was clear that the magnitude
of
of the previous year.
during
1949 was far from depression
the unemployed work-force
for the year was slightly
proportions. Disposable personal income
higher than that of 1948, and total expenditures by all buyers
Government,
very
combined-business,
and consumers-were
little below those of the record year. Pay rolls in Pennsylvania
factories in the early months of 1950 appeared to achieve stability
above the mid-1949 level. While most firms did cut back output
at some time during 1949, two very important industries-automobiles and construction-reached
new heights. Wholesale prices
declined about 7 per cent,
consumer prices only 1 per cent.
On the whole, this is not the record of a year of serious
recession. Yet, the annual averages obscure highly significant shortrun trends. The first two quarters of 1949 witnessed a fairly steady
decline in industrial production,
nonagricultural
employment,
prices, bank loans, and other business indicators. By July, output
of manufacturing
concerns in Pennsylvania had fallen to a level
20
per cent below the 1948 peak. Wholesale prices were
almost
down 10 per cent, and unemployment had risen to what some
considered to be the danger point. A moderate recovery began in the
third quarter. It was strongest in the nondurable goods fields, but
industry generally felt a lift. Employment and income
gained, and
the construction industry, which had shown considerable hesitation early in the year, surged ahead as residential building mounted
to a new all-time record.
26
The recovery was interrupted in October and November by
the coal and steel strikes. Although some production and income
were lost, the effect of the strikes upon purchasing power was not
so great as to cause cumulative repercussions. On a national scale,
their impact on consumer spending was barely noticeable; and
when the strikes were over, industry and trade moved ahead
rapidly. Toward the end of the year the price decline had all but
leveled off. Steel
prices increased, and talk of other price increases
to come waswidespread. Thus, the businessyear ended strong with
a much greater feeling of optimism than it began.
Consumers made
to lower total spending,
some contribution
beginning
by
deciding
especially at the
to save a greater
of 1949,
proportion of their incomes than during most of 1948. This did
not actually lower consumption expenditures, which were fairly
well maintained, but it made them smaller than would have been
the case if the average 1948 saving rate had been maintained. At
the end of the year the proportion of income saved had returned
to a somewhat lower figure and spending plans of individuals,
insofar
high
as they could be measured, indicated a continued
level
of consumer outlays.
Businessspending for
lower,
new plant and equipment was
particularly in the second half of the year, but the amount of the
decline was
not large. It is expected, however, that such expenditures will decline further in the future.
By far the
most important factor in the business decline was
another area of business spending-inventories.
It appears that
many businessmen decided to reduce inventories at the end of
1948. For
some time a more or less involuntary
accumulation of
stocks continued. It was not until the second quarter of the year
that th business community
as a whole was able to make a substantial inventory reduction. On
a seasonally adjusted basis, expansicn of inventories at a rate of $9 billion a year in the fourth
quarter of 1948 gave way to a reduction of stocks at a rate of $S
billion
a year in the third quarter of 1949. This change from inventory accumulation
to inventory
reduction accounted for a
27
decline in gross national product to an extent which accounts for
in total expenditures on goods and services
most of the reduction
during 1949.
By the end of the year it appeared that the inventory adjustment, speeded by the coal and steel strikes, had been completed.
Stocks of finished goods held by manufacturers had been reduced
lines. There
moderately, and new orders had picked up in many
buying
large-scale
inventory
was little prospect of a renewal of
first
but
during the
part of 1950,
with consumer spending likely
hold
firm
to
and construction activity continuing at a high level,
least
the economy would not be subject to the downat the very
liquidation.
ward pressure of inventory
In addition to these prospectswithin the area of consumer and
businessdecisions,there are certain other factors influencing busi-
ness activity in 1950. Payment of a $2.8 billion National Service
Life Insurance dividend, together with the Pennsylvania
state
bonus to veterans, is expected to give considerable stimulus
to
retail trade. New minimum wage legislation, while affecting relatively few wage rates directly, may give support to other wage demands. A prospective Government deficit will also put new purchasing power into the income stream.
All of these factors were exerting an upward pressure on
business in the early months of 1950. The vigor of demand for
housing, and household appliances surpassed
most
automobiles,
expectations. The high levels of activity in these lines, if sustained
throughout the year, could easily tip the balance in favor of continued improvement during the year despite apparent reductions
in farm income and business expenditures for new plant and
equipment.
Financial
developments.
As in business, financial developments during
the year 1949
were characterized by moderate contraction during the first half
and renewed expansion during the latter part of the
year.
28
Paralleling the decline in the nation's money supply, total
deposits
of member banks in the Third Federal Reserve District
shrank from $6,417 million to $6,255 million, or 2.5 per cent,
during the first half. One important factor was a cash surplus of
the Treasury during the first quarter; another was a contraction
of bank loans. As business reduced its inventories and needed less
funds for
capital expenditures, business loans declined. Commercial and industrial loans of all member banks in the Third District
fell off from $737
during the first half of
million to $664 million
the year, and while consumer credit and real-estate loans continued to rise, they increased at a slower rate.
In recognition
of changing conditions, the System acted to case
credit. Regulation VJ was liberalized early in the year, resulting
in easier
consumer credit terms. Further casing took place after
Regulation W
expired on June 30. Margin requirements were
lowered in March,
and between May and September a series of
reductions in member bank reserve requirements freed a total of
approximately $200 million of reserves for member banks in the
Third District.
During
the first part of 1949, the System was faced with the
problem of selling Government securities to prevent their prices
from
rising too rapidly and yet preventing such sales from absorbing reserves. In June, however,
Comthe Federal Open Market
mittee declared that "it will be the policy of the Committee to
direct
purchases, sales, and exchanges of Government securities by
the Federal Reserve Banks
with primary regard to the general
business
and credit situation. "
The latter half
of 1949 was a period of renewed expansion.
Commercial
and industrial loans of all member banks in this district rose from $664 million to $675 million, partly because of
seasonalforces. Real-estate and consumer loans continued their
upward movement at a more rapid rate.
For the year
as a whole, the early declines in deposits of Third
District
member banks were more than offset by later increases.
Total deposits
actually rose 3 per cent, and although businessloans
29
at the end of 1949 were still below a year ago, the expansion of
loans pushed total loans up to $1,794
consumer and real-estate
$1,742
million a year earlier. In addition, partly
million as against
by using reserves freed by Federal Reserve actions, member banks
increased their holdings of Government securities from $2,995
for
million to $3,158 million. Altogether, 1949 was a good year
Third
District.
Owing
banks
in
Federal
Reserve
the
member
chiefly to the expansion of earning assets, total earnings rose more
than 5 per cent from $167 million to $176 million. Expenses also
increased but not as much, with the result that net current earnings for the year were 7 per cent above the volume for 1948.
The first few months of 1950 suggested that this year, too,
might prove better than many had expected. Loans of member
banks in this district continued to rise, business loans to a point
even exceeding the peak of the preceding fall. Increasing concern
was expressed, however, about expansion in mortgage and consumer credit and excessive ease in consumer credit terms. Morebeing larger than
over, the Treasury deficit gave evidence of
The
Federal
Reserve resumed moderate sales of Govanticipated.
ernment securities.
RESERVE BANK OPERATIONS
Among the best known and most important activities of the
Federal Reserve System are the development and application
of
designed to foster a sound and
monetary and credit policies,
stable
economy operating at high levels of employment and production.
Nevertheless, these activities require the efforts of only a small
fraction of the staffs of the Reserve Banks.
Most of the 1,000 employees of this Bank are engaged in the
collection of checks, the supply of currency and coin, the safekeeping of securities and money, and fiscal
agency activities
on
behalf of the Treasury,
as well as the accounting, auditing, building maintenance, and
other activities needed to keep the organization running.
30
During the
deyear 1949 some of the operations of the Bank
handledclined in terms of dollars, but in physical terms-units
there were more increases than declines. Approximately
183
business, personal, and Government - were
million checks
handled,
an increase of 8 per cent over 1948. The 270 million
pieces of currency counted were a trifle less than in 1948, but in
the coin division an increase
of 10 per cent to 431 million pieces
was reported. Issues of savings bonds again increased, while the
number of pieces redeemed dropped further. Transfers of funds
by telegraph
or otherwise were more numerous.
for
About $2.2 billion
of securities were held in safekeeping
banks
Dis1948.
the
at
close of the year, a moderate gain over
counts and advances to member banks declined but, even so, 126
banks
received this type of accommodation in the course of the
year. Many commercial banks, rather than borrow, now adjust
their reserve positions through the purchase or sale of Government
securities.
Working
capital loans to industry, which the Federal Reserve
from
makes only when credit is
not available on reasonable terms
other sources, increased during 1949. Approval was given in 11
cases, involving a total of $8.4 million. Ten loans were made in
Participation with local banks. Every effort is made to help borrowers become "bankable
risks" as soon as possible.
Possibilities for further improvement in the services rendered
member banks are constantly being explored. To the extent that
distance
and time permit, armored car pick-up and delivery of
currency and coin are being provided for member banks. In the
field of
collections, through further development of the airtransport program for
expediting check clearance between reserve
cities, one day was taken off the collection time for eight more
cities. At the close of the year, we had 19 one-day points and 16
two-day points.
To promote
operating efficiency, attention is continually being
given to the possibilities for
mechanization. An example of the
benefits be derived
to
is afforded by the experience of the Department of Collections, where the
number of checks processed in a
31
been as high as 1-1/3 million. Using approximately
single day has
95 proof machines, a staff of 237 persons, including supervisory
in
personnel, turned out a volume of work
and administrative
have
1949 which would
required 410 clerks under the old manual
25 per cent higher than that actually
over-all
cost
at
an
procedure
in use here include
sustained. Other specialized types of equipment
bookkeeping
machines, and punchcurrency and coin counters,
has facilitated operations
card equipment. The use of punch cards
in a number of departments, including accounting,
collection,
bonds, and research.
audit, personnel, savings
The successful performance of all of these operations in the
last analysis depends upon people, the members of the Bank
family. With the purpose of raising the general level of efficiency
through more effective use of our human resources, a program
of
middle-management conferences was inaugurated in 1949 with
supervisors
some 50 department heads, assistants, and first-line
in attendance at bi-weekly meetings. Using open-forum
methods,
constructive solutions of day-to-day problems are proposed and
thoroughly discussed.
Good bank and public relations also depend largely upon
mutual respect and understanding of one another's problems. Following this principle, the Bank has continued to hold field
conferences with bankers. During 1949 there were 28
such meetings,
covering the entire district and attended by 788 officers and 506
directors. In addition, semi-annual meetings of the Federal Reserve Relations Committee, attended by representatives of bankers'
groups, were held here and the record of the discussions was
Field
printed and distributed to banks throughout
the district.
representatives made about 650 individual visits to banks in the
course of the year to exchange views upon matters of mutual
interest.
Members of the staff of the Department of Research
shared in
all of the meetings with bankers of the district, participating
in
discussions on banking and business conditions. Articles
on topics
of current importance, statistical summaries, and the results of
special surveys are made available to banks and the public through
the monthly Business Review and other publications.
32
Directors
and officers.
At the
regular elections held in the fall, J. Nyce Patterson,
President
of the WTatsontown National
Bank, was elected a
Class A director
by Group 3 banks for a term of three years
beginning January
1,1950. He succeeds John B. Henning, who
had served
as a Class A director of the Bank since 1934. William J.
Meinel,
representing Group 1 banks as a Class B director, was
re-elected for another term.
Warren F. Whittier
of the Board of
served as Chairman
Directors during
1949, and C. Canby Balderston as Deputy Chairman. At the close
of the year, they were re-appointed for the year
1950, and Mr. Whittier
for
was re-appointed a Class C director
the three years beginning January 1.
Frederic A. Potts, President
National Bank,
of the Philadelphia
represented the district
on the Federal Advisory Council in 1949
and was again selected by
this Bank's Board of Directors to serve
during 1950.
There
were no changes in the official staff during 1949. On
February 28,1950,
Robert R. Williams resigned as Assistant Vice
President
and Assistant Secretary to accept a position as Vice
President
of the Corn Exchange National Bank and Trust Company, Philadelphia. Effective May 1,1950, Richard G. Wilgus, an
Assistant Vice President,
also was made an Assistant Secretary;
Wallace M.
Catanach, an Assistant Cashier, became an Assistant
Vice President;
Edward A. Aff, Ralph E. Haas, and Henry J
Nelson became and
Assistant Cashiers.
33
Directors
as
ofMay1,1950
Term Expires
December 31
Group
Class A:
Archie D. Swift ......................................
Chairman
of the Board, Central-Penn
t
National
1950
Bank,
Philadelphia, Pennsylvania
2
George W.
Reily
.....................................
National
Bank,
President, Harrisburg
Pennsylvania
Harrisburg,
J. Nyce Patterson
.....................................
President, The Watsontown National Rank,
Watsontown, Pennsylvania
1951
1952
3
Class B:
William J. Meinet
....................................
President and General Manager, Heintz
Company, Philadelphia, Pennsylvania
1952
Manufacturing
Walter H. Lippincott
..................................
President and Director, Lobdell Company,
Wilmington, Delaware
2
1950
Albert G. Frost
.......................................
Chairman of the Board, The Esterbrook Pen Company,
3
1951
Camden, New
Jersey
Class C:
Warren F. Whittier, Chairman
..........................
Agricultural Consultant, Chester Springs, Pennsylvania
C. Canby Balderston,
Dean, Wharton
University
Deputy Chairman
..................
School of Finance and Commerce,
Pennsylvania,
Philadelphia,
Pennsylvania
of
Philip T. Sharpies ....................................
Chairman of the Board, Sharpies Corporation,
Philadelphia, Pennsylvania
34
1952
1950
1951
Officers
as of May 1,1950
ALFRED
H.
W.J.DAVIS,
JAMES
First Vice President
KARL
Vice
President
WILLIAMS,
V.
VERGARE,
Counseland AssistantSecretary
R. Bopp,
President
RICHARD G. WII. cus,
Assistant Vice President
and AssistantSecretary
L. E. DONALDSON,
WALLACE
Vice President
M. CATANACH,
AssistantVice President
ROBERTN. HILKERT,
Vice President
EDWARD A. AFF,
ERNESTC. HILL,
Vice President
RALPH E. HAAS,
Assistant Cashier
Assistant Cashier
WILLIAM G. MCCREEDY,
Vice President
and Secretary
Roy HETHERINGTON,
Assistant Cashier
PHILIP M. POORMAN,
HENRY
Vice President
and Cashier
NORMAN
J. NELSON,
Assistant Cashier
G. DASH,
35
General Auditor
APPENDIX
Statistical Tables
Page
Federal ReserveBank:
Statement of condition
37
..................
Earnings and expenses
...................
38.
Volume
39
of operations
Member banks-Third
...................
Federal Reserve District:
Combined statement
Earnings, expenses, and profits
Employment
............
41
..........................
store sales and inventories
40
41
and earnings ....................
Income, and prices
Department
40
....................
..........
42
Statement of Condition
Federal
Reserve
Bank
of
Philadelphia
December 31
(000's omitted in dollar figures)
1947
1949
1948
$1,208,508
48,915
$1,011,054
60,212
$1,016,538
60,691
$1,257,423
$1,071,266
$1,077,229
RESOURCES
Gold certificates
........................
Redemption fund-Fed.
Res. notes
..........
.
Total gold
certificate reserves..........
Other
cash .............................
Discounts
and advances
..................
Industrial loans
.........................
United States Government
securities .........
Total loans
and securities
Due from foreign
.............
banks
Fed. Res.
..................
notes of other Fed. Res, banks
Uncollected items
.......................
Bank
premises
.........................
All
other resources
......................
Total resources
.. ...................
LIABILITIES
Federal Reserve
notes
Deposits:
....................
.
14,489
17,967
14,687
7,255
1,885
1,286,381
17,495
6,841
$1,295,521
.
3
10,369
172,456
2,986
6,493
..
.
.
.
......................
liabilities
CAPITAL
.....................
ACCOUNTS
$1,684,920
4
10,935
173,597
3,053
$1,632,188
$1,662,531
$1,681,880
$1,112,961
134,950
.
.
$2,694,109
$2,911,116
S
$
15,084
38,205
4,489
7,852
$z,759,740
49.3%
$689
867,113
77,363
26,649
4,708
951,233
104,176
51,492
6,060
S 918,064
143,300
557
37
8
10,866
192,379
3,182
7,455
$2,879,527
5,131
Capital
paid in
Surplus-Section .......
7
Surplus-Section
13b
Reservesfor
.
contingencies
.................
Total liabilities
and capital accounts
.....
Ratio
of gold certificate
reserves to deposit and
Federal Reserve
note liabilities combined...
Commitments
.
to make industrial advances
.....
$1,573,721
10,279
788,335
63,750
60,848
.
1,565,522
$2,972,021
Other deposits
Total
1,666,658
$2,759,740
Member bank
reserve accounts
United States Government
............
Foreign
...............
... ...........................
........................
Total deposits
Deferred
availability items
All other liabilities
........
1,358
767
$ 975,833
164,635
674
14,681
36,704
898
$2,823,246
E
4,489
5,031
14,370
35,350
4,489
2,072
$2,972,021
$2,879,527
38.6%
$46
40.5 %a
$490
Earnings and Expenses
Federal Reserve Bank of Philadelphia
(000's omitted)
1949
1947
1948
Earnings from:
United StatesGovernment securities ......
Other sources
.........................
Total
earnings
$21,270
.
......................
$21,349
241
343
$21,511
$21,692
4,159
4,131
$11,193
220
$11,413
Expenses:
Operating
expenses"
...................
Cost of Federal Reserve currency
458
.........
Assessments for expenses of Board of
Governors
..........................
Total
net expenses
260
i
...................
Current net earnings
.....................
Additions to current net earnings:
Profit on sales of U. S. Government
securities (net) ......................
All other
.............................
4,877
316
262
214
S 1,778
8 4,417
6,996
16,634
1
16,914
2,272
1
456
200
213
Total additions
......................
1$
179
11
1$2,095
Net additions
to current net earnings
........
to reserves for contingencies
.....
Paid to U. S. Treasury:
Transferred
Interest on Federal Reserve notes
........
5
$ 2,274
Deductions from current net earnings
.......
Under Section 13b
1
3,887
385
1$
459
$
205
3
458
202
2,821
2,960
35
13,511
12,184
5,672
00
.....................
Net earnings after reserves and payments to
U. S. Treasury ........................
Dividends paid
..........................
$ 2,397
7
I
$ 2,228
896
Transferred to surplus (Section 7)
........
$ 1,501
$ 1,484
874
1$1,354
854
$
630
*After deducting reimbursements received for certain fiscal agency
and other expenses.
38
Volume of Operations
Federal Reserve Bank of Philadelphia
Number
(000's
1947
1948
1949
of pieces
omitted)
Collections:
Ordinary checks
........
.......
Government checks (paper
and card)
Non-cash items
................
...
Currency
160,600
22,500
700
270,300
431,600
1
46
......
.
counted .............
. ..........
Coins counted
.
..............
Discounts and advances
to member banks .....
Transfers of funds
.
......................
Fiscal agency activities:
Marketable securities delivered or redeemed.
Savings bond transactions
(Federal
Reserve
Bank and agents)
Issues (incl. re-issues)
..............
Redemptions
......................
Coupons redeemed (Government
and
agencies) ............................
141,100
23,900
147,500
20,800
700
270,500
391,800
12
253,400
463,400
42
44
148
148
5,336
6,050
5,151
G,4G4
1,250
1,151
1
139
4,787
7,524
1
1,378
Dollar
amounts
(000,000's omitted)
Collections:
Ordinary checks
Government checks.......................
(paper and card)
......
Non-cash items
Currency
........................
counted ... .............
........
Coins
counted
Discounts and ...........................
advances to member banks .....
Transfers
of funds .......................
Fiscal agency
activities:
Marketable
securities delivered or redeemed.
Savings bond
(Federal Reserve
transactions
Bank and agents)
Issues (incl. re-issues)
..............
Redemptions
Coupons redeemed ......................
(Government
and
agencies)
Securities in
.............
for
banks
(Dec.
31)
safekeeping
.
*Not available.
"Revised.
tPar
values.
39
7,215
483t
366t
122
2,200
$ 36,190
3,657
199
1,547
44
$39,221
2,890
$37,186
2,771
140
1,671
42
254
17,706
169
1,734
40
623
17,543
1
1,241
11,290
6,7 30"
533t
369t
120
2,123"
1
1
4871
381t
142
2,329'"
Member Banks
Third
Federal Reserve District
Statement of Condition
Percent distribution
Dec. 31,
1949
Dec. 31,
1945
Assets
Loans
U. S.
Other
Cash
Fixed
Other
and discounts
Government securities
securities .................
assets .....................
assets ....................
assets ....................
Total ....................
.......
$1,794
3,158
680
1,577
68
27
$7,304
+$
+
+
52
163
74
68
+2...
+1-4
+$ 224
-}-$ 160
201
+19.3
+
32
12
-$
24.6%12.7%
43.2
59.3
6.9
21.6
19.8
.9
.4
100.0%n
.9
.4
100.0%
52.1%
24.9
2.4
5.8
5.4
45.9%
21.0
15.4
6.0
3.7
Liabilities
and capital accounts
Deposits:
Individuals,
partnerships, and
corporationsDemand
.................
Time
U. S. Government
.............
Bank
Other ........................
Total deposits
Other liabilities
Capital accounts
................
Total
....................
$3,810
1,817
176
424
392
+5
96
26
61
43
29
-S
+
+
+
88
25
47
30
17
+$ 203
+5-2
+
16
+$ 224
-$
29
90.6%
{-
19
.6
8.8
-$
12
100.0%
100.0%
19.48
1947
1946
+
+
+
$6,619
43
642
$7,304
92.0%
.4
7.6
Earnings, Expenses, and Profits
(Millions of dollars)
1949
Earnings
On U. S. Government securities
............
On other securities
.......................
On loans
...............................
Other earnings
..........................
Total earnings
....................
Current
expenses
54.1
15.0
76.3
31.1
Salaries and wages
......................
Interest on deposits
......................
Other expenses
.........................
Total current expenses
.............
Net current earnings before income taxes
Net recoveries and profits on sales (+)
or
(-).....................
charge-offs
Taxes on net income
......................
Net profits
.............................
Cash dividends declared
...................
176.5
54.3
14.6
63.5
29.9
167.2
51.7
16.4
43.6
49.0
16.2
41.4
111.7
]06.6
60.6
64.8
15.5
41.9
21.5
-
9.1*
13.9
37.6
20.3
57.8
14.4
54.4
27.1
15 3.7
44.4
15.9
38.2
98.5
55.2
-
1.3
16.9
37.0
19.4
*Charge-offs include substantial transfers to reserves for bad debt losses on loans.
40
65.8
14.4
40.3
2 5.7
146.2
40.4
14.2
35.2
89.8
56.4
+
13.5
17.5
52.4
18.8
Employment and Earnings-Pennsylvania
All Manufacturing
EmployWeekly
ment*
earnings
Average:
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948 .........
1949 .........
.........
1949:
January
February .......
March
........
April
........
May
June .........
.........
July
August........
September......
October
November ......
.....
December
; -1939
= 100.
Durable
Employment*
$22.42
24.22
29.02
34.95
40.85
43.81
42.26
40.69
46.47
51.22
51.34
100
108
130
140
147
142
127
120
129
129
114
125
124
123
119
117
114
111
i11
113
97
105
113
Factory Workers
Goods
Weekly
earnings
100
118
154
178
195
189
162
141
156
155
133
52.92
52.80
52.58
50.98
51.47
50.94
50.22
50.74
51.19
49.66
49.78
52.80
Nondurable Goods
Weekly
Employment*
earnings
$25.99
28.40
34.33
41.19
47.37
50.63
48.10
44.27
50.85
56.31
56.27
100
100
108
106
104
101
96
102
105
105
98
$19.24
19.82
22.22
25.59
29.91
32.33
33.5'
36.25
40.69
44.50
45.28
58.95
58.51
57.96
56.30
56.42
55.61
54.41
55.41
55.60
53.95
53.74
58.38
100
100
44.71
45.11
45.38
43.85
44.96
45.04
45.05
45.16
46.05
45.98
45.85
46.20
153
151
149
145
141
135
130
128
129
95
111
130
99
97
95
95
94
96
99
99
99
Income and Prices
Factory Payrolls: 1939
== 100
Farm IncomePrices: 1935.39
= 100
I
""e$
U. S. Department
from
Pennsylvania
.
_, _
'"""
I
Average;
1939
1940
1941
1942
1943
1944 .................
1945
1946
1947
1948
1949
1949: January
Februar
February ...........
""
March
""""""
""". "".. " ".....
April
May
Tune
July
August
September...............
October
November .. "
Deecmher
Income
Factory Payrolls
I
Durable
Foods
goods
100
129
204
283
356
369
299
241
305
337
289
348
340
332
314
306
289
273
274
276
197
229
293
100
103
124
141
162
169
168
192
222
243
230
233
234
234
220
223
223
220
225
236
236
237
236
100
117
168
219
268
278
240
219
268
294
262
296
292
287
271
268
259
249
252
258
215
233
267
of Agriculture.
I Consumer
farm
markctings
N.
Consumer
prices in
Phila. t
I and DcI. *
99
104
122
155
197
199
231
268
299
320
299
273
244
293
310
305
323
327
366
326
299
261
242
l"U. S. Bureau of Labor Statistics.
41
99
99
104
115
123
124
127
138
158
171
169
170
169
169
169
170
169
168
169
170
169
169
167
DEPARTMENT
1935-1939 = 100
(Adjusted for seasonal
Third
District
variation)
1949;
1939
.............
1940
.............
1941
.............
1942
.............
1943
.............
1944
.............
1945 .............
1946
.............
1947
.............
1948
.............
1949
January
...........
February
March
............
April
.............
May
Jun.
.............
July
August
September
.........
October
November...........
December .........
...
.............
.............
.............
1948
.............
1949
1919: January.............
February ...........
March
April
.............
May
June
.............
July
August..............
September
October
November ...........
.........
December
.........
.
Phila.
104
111
129
143
151
167
184
235
261
284
271
283
265
272
274
271
269
261
268
277
101
108
124
140
147
158
172
214
238
253
241
244
228
241
242
248
245
222
243
243
260
267
276
229
250
243
DEPARTMENT
1939
1940
1941
1942
1943
1944
1945
1946
1947
STORE SALES
LanTrencaster Reading
ton
Wilkesbarre
104
107
129
151
165
178
190
248
276
295
285
303
292
278
289
270
285
290
245
286
103
111
133
152
165
177
185
249
274
296
282
292
295
293
284
269
275
285
266
263
110
120
140
153
177
192
223
294
324
370
375
396
361
363
392
359
385
348
366
405
101
101
118
129
145
174
206
277
304
330
309
326
2781
303
273
272
303
382
365
373
295
33
3014
297
283
318
318
305
322
3102
York
107
114
133
157
177
200
220
276
281
311
295
316
292
280
316
275
294
287
279
312
303
272
308
STORE INVENTORIES
96
99
119
167
141
147
150
191
92
92
110
165
138
143
146
184
220
252
101
105
120
148
127
132
129
177
207
221
205
106
112
141
190
158
181
191
229
214
212
255
297
275
93
91
113
143
134
144
15
210
21.0
41
236
238
244
240
232
224
216
232
231
231
232
218
238
225
97
101
141
184
162
166
05
21
205
232
243
246
328
314
21.3
215
200
194
187
199
201
200
206
22277
229
219
213
212
215
221
226
220
283
281
286
3 07
288
277
262
315
302
324
330
249
349
299
42
275
28
6
258
3311
11
217
297
315
318
308
301
299
304
295
298
296
304
296
286
301
301
30
296
6
108
113
137
177
161
165
159
212
228
269
252
255
247
254
243
244
253
241
241
261
261
264
264
@FedFRASER