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FEDERAL RESERVE B A N K OF R I C H M O N D 1966 A N N U A L REPORT






THE L O N G E S T PROS PE RI TY
FEDERAL

RESERVE




BANK

OF R I C H M O N D

FIFTY-SECOND

ANNUAL

REPORT

CONTENTS
T H E L O N G E S T P R O S P E R IT Y
S t r a t e g ic E le m e n ts o f a B u s in e s s E x p a n s io n ...............................................

4

A P a n o r a m ic V i e w ..........................................................................................

6

E m p lo y m e n t a n d P r o d u c t io n ............................................................................

18

C o r p o r a t e P ro fits ............................................................................................

24

D o m e s tic In v e s t m e n t ......................................................................................

26

F isca l P o lic y ....................................................................................................

28

M o n e t a r y P o lic y ..............................................................................................

32

B a la n c e o f P a y m e n t s ...................................................................................... 3 6
P r o b le m s o f P r o s p e r i t y .................................................................................... 4 0
Su m m a ry

........................................................................................................ 4 4

S IG N IF IC A N T E V E N T S O F

1 9 6 6 ........................................................................ 4 6

S u m m a r y o f O p e r a t i o n s ................................................................................ 4 7
C O M P A R A T I V E S T A T E M E N T S .............................................................................. 4 8
F E D E R A L R E S E R V E B A N K O F R I C H M O N D — D ire c t o rs a n d O f f ic e r s ...................

50

B A L T IM O R E A N D C H A R L O T T E B R A N C H E S - D i r e c t o r s a n d O f f ic e r s ................. 5 2




TO OUR MEMBER BANKS:

W e are pleased to present the Annual Report of the
Federal Reserve Bank of Richmond for 1966. The report features
an analysis of "The Longest Prosperity," the period of economic
expansion from 1961 to the present.

Also included are the

Bank's annual financial statements, a brief summary of the high­
lights of the year's operations, and a current list of officers and
directors of our Richmond, Baltimore, and Charlotte offices.

On behalf of our directors and staff, we wish to thank
you for the splendid cooperation and support you have extended
to us throughout the past year.




Sincerely yours,

C h a i r m a n o f th e B o a r d

P re s id e n t




THE

LONGEST

STRATEGIC

ELEMENTS

OF A B U S I N E S S

T h e b u s in e s s e x p a n s i o n w h ic h b e ­
g a n in e a r ly 1 9 6 1

PROSPERITY

h a s p e rh a p s been

EXPANSION

th e s t r o n g a n d s t e a d y g r o w t h o f G N P
in b o th c u r re n t a n d c o n s t a n t d o lla r s .

o b s e r v e d m o r e c lo s e ly t h a n a n y o t h e r

Per

in

h ist o ry .

c o m e in c o n s t a n t d o lla r s ro s e b y m o r e

a ll

le v e ls

In
it

e ve ry
has

p hase a n d

been

at

c a p it a

d is p o s a b le

d e s c rib e d ,

th a n

a fifth w h ile

d ia g n o s e d , a n a ly z e d , a p p r a is e d , a n d

w as

i n c r e a s in g

e v a lu a t e d .

t h a n a h a lf.

T h is is n o t s u r p r i s i n g b e ­

c a u s e it h a s b e e n a r e m a r k a b le p e r io d
o f p ro s p e r it y .

B y th e m id d le o f 1 9 6 6

T h is p e r io d

by

has

p e rso n a l

in ­

n e t p r iv a t e

debt

som e w h at

m o re

been— b y a

w id e

m a r g i n — th e lo n g e s t e x p a n s i o n in o u r

it h a d a d d e d n e a r ly s e v e n m illio n to

p e a c e t im e h isto ry .

th e r a n k s o f jo b h o ld e rs , r a is e d i n d u s ­

p r o m is e o f b e in g th e id e a l e x p a n s i o n

tr ia l p r o d u c t io n a n d G N P b y a b o u t a

— one

h a lf, a lm o s t d o u b le d c o r p o r a t e p ro fits,

b a la n c e d

and

in f la t io n .

b o o s t e d p e r c a p it a p e r s o n a l in ­

c o m e b y a lm o s t a th ird . C h a r t I s h o w s

w h ic h

F o r a tim e it g a v e

a ffo rd e d

e c o n o m ic
But

th ro u gh o u t

in

1966,

la te

in v o k e

th e

stro n g e st

and
i n f la ­

it n e c e s s a r y
a n t i-in fla ­

t io n a r y m e a s u r e s u s e d in a
tio n .

w it h o u t

1965

g r o w in g

t io n a r y p r e s s u r e s m a d e
to

s u b s t a n t ia l,

g ro w th

ge n e ra ­

A t th is w r it in g th e e x p a n s i o n

c o n tin u e s a lt h o u g h th e re s tra in t s a r e
b it in g in s o m e se cto rs.

It is still u n ­

th e su b je c t o f m a n y e la b o ra t e , c o m ­
p re h e n s iv e , a n d s o p h is t ic a t e d stu d ie s.

c e rta in w h e t h e r, w h e n , a n d h o w th e

T h is r e p o rt c o u ld n o t a im

a t su c h a

in f la t io n a r y fo rc e s g e n e r a lly c a n

stu d y

w e re

cu rbe d

w it h o u t

d a m a g in g

be

p r e c ip it a t in g

a

even

p r o p ria t e .

if
The

th e

tim e

m uch

m o re

ap­

m od est

g o a l is to m a k e a s u m m a r y r e v ie w o f

re c e ssio n .

B e c a u s e o f th e c lo se r a n g e a t w h ic h

th e p a s t s ix y e a r s , to p o in t o u t th e

th e e x p a n s i o n h a s b e e n f o llo w e d a n d

m a j o r o r c h a ra c t e rist ic d e v e lo p m e n t s ,

th e g r e a t d e t a il in w h ic h it h a s b e e n

to n ote, if p o s s ib le , th e fa c to r s w h ic h

a n a ly z e d ,

ca u se d

th e

tre e s

have

re c e iv e d

th e e x p a n s i o n

to g e t o u t o f

m o s t o f th e a tte n tio n a t th e e x p e n s e

c o n tro l, a n d to tra c e th e p o lic y m o v e s

o f th e fo re st.

w h ic h

a p p r o p r ia t e

T h e p re s e n t m a y b e a n
tim e

to

ta k e

a

lo n g e r

w ere

m ade

fir s t to s tim u la t e

a n d la t e r to r e s tr a in e x p a n s io n .

lo o k a t th e w h o le p e r io d , g a i n s o m e
p e rsp e c tiv e ,

and

n o te

la r g e r r e la t io n s h ip s .

so m e

of

th e

In fu t u re y e a r s ,

th is lo n g p e r io d w ill u n d o u b t e d ly b e




G R O S S N ATIO NAL PRODUCT

C h art I

1

>

Cum . % C h an g e
F ro m T r o u g h
50

40
C u r r e n t D o lla r s

30 —

20 C o n s t a n t D o lla r s
10

0

— in

1
1 ________ — 1------------------1----------------1966
1965
1962
1963
1964
U. S. D e p a r t m e n t o f C o m m e rc e .

....J
1961
S o u rc e :

,

V

>

A P A N O R A M IC

V IEW

i

E c o n o m ic d e v e lo p m e n t s a r e c lo s e ly

w o u ld o v e r e m p h a s iz e it. A n o t h e r a d ­

The

e c o n o m y 's

in te rre la te d , a n d if t h e y a r e p re se n t e d

van tage

in tru e p e r sp e c t iv e t h e y s h o u ld b e d is ­

p a r is o n o f o n e s e rie s w it h a n o t h e r a n d

m a r k a b le

c u s s e d in th e c o n te x t o f a la r g e p a n o ­

of one

p e r io d .

r a m ic

v ie w

se c tio n

of

th e

econom y.

a tte m p ts to

v ie w , c o v e r in g th e

d e v e lo p
p e r io d

fir st q u a r t e r o f 1 9 6 1
q u arte r o f 1966.
m o re

T h is

su ch

fr o m

L a te r s e c tio n s g i v e

d e ta ils.

For

c o n v e n ie n c e , th e

w h o le

tim e

th a t

it

e x p a n s io n

w it h

d o in g

t h is

fo r

a ll

se c to rs

of

of
th e

e c o n o m y a lt h o u g h , w it h s o m e lo g ic a l
su p p o rt,

th re e

m a r k e d out.

s u b p e r io d s

m ay

be

T h e fir s t r u n s f r o m th e

1961

p e rfo rm a n c e

c o n stitu te s th e
fe a tu re

S t a r t in g

of

th e

a ft e r

15

s in c e

m ost re ­
p o stw a r
y e a rs

of

q u it e r a p id g r o w t h , in d u s t r ia l p r o d u c ­
tio n " t o o k o f f " in th e fir s t q u a r t e r o f
For

1961

and

o v e r th e n e x t f iv e a n d

a

h a lf y e a r s m a in t a in e d a g r o w t h ra te
o f 6 . 9 p e r ce n t p e r y e a r — a

d e x o f in d u s t r ia l p r o d u c t io n is u s e d

m ost tw o

as a

p r e v io u s 1 5 y e a r s a n d f iv e tim e s th e

p r o x y f o r th e b e h a v io r o f th e

p e r io d s

w ay

e a r ly

th is p u r p o s e , th e b e h a v io r o f th e in ­

is

s a t is f a c t o r y

a n o t h e r.

fu l in e v a lu a t in g th is e x p a n s io n .

e c o n o m y a s a w h o le .

e n t ir e ly

com ­

S o m e h ist o r ic a l b a c k g r o u n d is h e lp ­

s p a n is d iv id e d in to s u b p e r io d s . T h e re
no

fa c ilit a te s

BACKGROUND

a

th e

to th e s e c o n d

is

each

of

a re

T w o p e a c e t im e

a p p ro x im a t e ly
c o n s id e r e d ,

20

each

ye a rs

s t a rt in g

w it h th e fir s t q u a r t e r a ft e r th e e n d o f
a

m a jo r w a r .

y e a rs

fro m

T h e f ir s t c o v e r s th e

1 9 1 9 to

1939

and

th e

t h ir d s

p r e w a r rate.

above

ra te a l ­

th a t

of

th e

F u rth e r m o re , a f t e r th e

fir s t y e a r , th e g r o w t h a c c e le ra t e d a s
th e

p e r io d

advanced,

r is in g

b y 7 .8

p e r c e n t in 1 9 6 4 - 6 5 a n d 9 .2 p e r ce n t
in 1 9 6 5 - 6 6 .

The sm o oth a n d ste a d y

e x p a n s i o n o n a q u a r t e r ly b a s is le n d s

s t a r t in g p o in t in th e fir s t q u a r t e r o f

s e c o n d r u n s fr o m th e e n d o f 1 9 4 5 to

a d d it io n a l

s ig n if ic a n c e

1961

m id - 1 9 6 6 .

fo rm a n c e .

W h i le th e re w e r e a f e w

t h r o u g h th e s e c o n d q u a r t e r o f

C h a r t II c o m p a r e s th e se

p e r io d s, w it h th e e a r lie r p e r io d in th e

d e c lin e s

f r o m m id - 1 9 6 4 to m id - 1 9 6 5 , w h ile th e

b o tto m p a n e l a n d th e la t e r p e r io d a t

q u a r t e r ly

t h ir d c o v e r s th e f o llo w in g y e a r .

th e top .

w it h o u t

1964.

The second

c o v e r s th e y e a r
The

lo g ic f o r th e d iv is io n is g i v e n a s e a c h
p e r io d is d is c u s s e d .

T h r o u g h o u t th e

As

th e

b o tto m

panel

sh ow s,

in
a

to

th e

p e r­

m o n th ly

f ig u r e s ,

th e

a ve ra g e s

m oved

up

b re a k .

th e

tr e n d lin e o f th e in t e r w a r y e a r s w a s

STARTING

POINT

s tu d y , q u a r t e r ly d a t a a r e u s e d a n d in

q u it e fla t.

n e a r ly a ll c a s e s th e c h a rt s s h o w c u m u ­

to th e 5 0 p e r ce n t d r o p b e t w e e n 1 9 2 9

la t iv e p e r c e n t a g e c h a n g e s b y q u a r t e r s

and

in

c e s s io n , it w a s a v e r y s h a l lo w t r o u g h

f r o m th e s t a r t in g p o in t, w h ic h w a s th e

1 9 3 4 - 3 5 , a n d a s e c o n d la r g e d r o p in

— th e s h a llo w e s t o f th e p o s t w a r p e r io d .

b etw e e n

p r e s e n t in g

m a n y c a se s w o u ld

in

e m p h a s iz e
q u a rte r

change,

p e rce n ta ge




a b s o lu t e
and

th e s l u g g i s h

re co ve ry

th e

f ir s t

q u a rte r

of

1961

1 9 3 7 -3 8 . T h e a v e r a g e a n n u a l g ro w th

F ro m th e p e a k in th e s e c o n d q u a r t e r

1 .4 p e r ce n t b u t th e to ta l

o f 1 9 6 0 to th e f ir s t q u a r t e r o f 1 9 6 1 ,

d ata ,

ris e f r o m th e lo w p o in t o f e a r ly 1 9 1 9

G N P , c iv ilia n e m p lo y m e n t , a n d w h o le ­

u n d e r-

to th e h i g h p e a k a t th e e n d o f 1 9 3 9

s a le

w a s 8 4 p e r cent.

change.

T h is

q u a r t e r-t o -

ch a n ge s,

1933,

W h i le

m a r k e d th e t r o u g h o f th e 1 9 6 0 -6 1 re ­

w a s o n ly

t r o u g h o f th e 1 9 6 0 -6 1 re c e s s io n .

m e t h o d w a s c h o se n a s a m id d le c o u rs e
w h ic h

T h is w a s d u e in la r g e p a r t

THE

w h ic h

In s h a r p co n tra st,

p ric e s

show ed

v ir t u a lly

no

T h e re w e r e s m a ll d e c lin e s in

th e p o s t w a r p e r io d s h o w e d a n a n n u a l

in d u s t r ia l p ro d u c t io n , in v e n to rie s , a n d

gro w th

m a n u f a c t u r e r s ' u n f ille d o r d e rs , b u t th e

ra t e

o f 4 .3

p e r cent, th re e

tim e s th e p r e w a r ra te , a n d p o s te d a
to ta l g a i n o f 1 7 1 p e r cent.

The p re ­

w a r p e r io d , o f c o u rs e , w o u l d
m ade

a

m uch

b e tte r re c o rd

have
except

f o r th e lo n g a n d d e e p d e p r e s s io n o f
th e th irtie s.

d r o p s w e r e q u it e m o d e st.

A s fu rth e r

Chart II

INDUSTRIAL PRODUCTION

1 9 5 7 -1 9 5 9 = 1 0 0




7

e v id e n c e o f th e m ild n e s s o f th e

re ­

M o n e ta ry

p o lic y w a s

e a se d

even

Well-Balanced G r o w t h

P e r h a p s th e

b e f o r e th e p e a k w a s re a c h e d in M a y

m o s t s ig n if ic a n t g e n e r a l c h a ra c te ristic

1 9 6 0 , a n d b y J u n e fr e e r e s e r v e s a p ­

o f th is p h a s e w a s a sm o o t h , s te a d y ,

c o n s u m e r p rice s, e x p e n d it u r e s f o r n e w

p e a re d .

and

c o n stru c tio n ,

in c o m e .

th e s e a m o u n t e d to a b o u t $ 5 0 0

in te re st

lio n .

c e ssio n ,

se ve ra l

m a jo r

te re d s m a ll in c re a s e s .

F a rm

and

in c o m e

s e rie s

p e rso n a l

and

re g is ­

T h e s e in c lu d e d

p e rso n a l

re c e ip ts ro s e a p p r e c ia b ly .

The com ­

B y th e fir s t q u a r t e r o f 1 9 6 1

w e ll- b a la n c e d

g ro w th .

Som e

m il­

se c to rs d id e x p e r ie n c e a s la c k e n in g o f

S t im u la t e d b y th e s e m o v e s , th e

g r o w t h in th e la s t h a lf o f 1 9 6 2 , b u t

m oney

s u p p ly

in c r e a s e d

and

bank

o t h e r w is e th e e x p a n s i o n p r o c e e d e d a t
a r e la t iv e ly s t e a d y p a c e .

In v e n t o rie s

p a r a t iv e s t a b ilit y o f p e r s o n a l in c o m e

cre d it ro se .

in d ic a t e d

a s m u c h a s in e a r lie r re c e s s io n s . L o n g

w e r e h e ld in c lo s e c o n tro l a n d u s u a l ly

in

ra t e s fe ll o n l y s lig h t ly , w h il e ra t e s o n

grew

c o u rs e o f th e e c o n o m y .

s h o r t T r e a s u r y b ills d r o p p e d b y a b o u t

m a n u fa c tu re rs7 u n f i l l e d

a fo u rt h .

cre ase d

h a r d ly

th a t

m o re

th e u p w a r d

th e

"r e c e s s io n "

th a n

a

w as

b r ie f p a u s e

T w o m a j o r in d ic a t o r s s h o w e d s u b ­

In te re st ra t e s fe ll, b u t n o t

T h e F e d e ra l R e s e rv e S y s te m

le ss r a p i d l y t h a n
o n ly

s a le s, w h ile
o rd e rs

m o d e r a t e ly .

in ­

E x p e n d i­

p ro f it s

d id n o t s u p p l y r e s e r v e s a s g e n e r o u s l y

tu re s f o r n e w p la n t a n d e q u ip m e n t re ­

d r o p p e d b y 1 2 .2 p e r cent, w h ic h w a s

a s it m ig h t h a v e d o n e o t h e r w is e a n d

m a in e d m o d e r a t e in 1 9 6 1

n o t u n u s u a l f o r th is v o la t ile s e rie s in

it t o o k s p e c ia l s te p s to

but

a p e r io d o f s la c k b u s in e s s .

u n d e r sh o rt-te rm

s t a n tia l

ch an ge s.

C o rp o ra te

M o r e im ­

put a

f lo o r

in te re st ra te s, b o th

in

e a r ly

a n d s t e a d y rise .

p o r t a n t w a s th e ris e in th e n u m b e r o f

in a n e ffo rt to d is c o u r a g e th e f l o w o f

su ffe re d

u n e m p lo y e d f r o m

fu n d s a b ro a d .

and

m illio n ,

or

m o re

3 .7 m illio n to 4 . 9
th a n

30

In s u m m a r y , it w a s a v e r y b r ie f a n d

p e r cent.

m ild

re c e ssio n .

In

1963

any

none

and

s ta rt e d

a

lo n g

N o m a j o r in d u s t r y

s u b s t a n t ia l

w as

1962

re v e r se

s t im u la t e d

in to

a

s p e c u la t iv e b o o m .

T h e ra te o f u n e m p lo y m e n t ro s e fr o m

ve ry

5 .3 p e r ce n t to 6 .8 p e r cent. T o ta l e m ­

a c t iv it y s la c k e n e d o r le v e le d o f f f o r

m ost a re a s

fo r e fr o n t o f th e e x p a n s i o n a n d

p lo y m e n t r e m a in e d f a i r l y s t e a d y n e a r

a

v id e d m u c h o f th e im p e t u s f o r th e u p ­

6 7 m illio n , a n d th e s h a r p ris e in u n ­

b a r ra s s in g

e m p lo y m e n t w a s c a u s e d v e r y la r g e l y

to rie s

b rie f tim e b u t th e re w a s
a c c u m u la t io n

nor

any

of

s ig n if ic a n t

A t tim e s it a p p e a r e d to b e

th e p r o d u c t io n o f p a s s e n g e r c a rs ro se

d istre ss.

fro m

a n d th e e c o n o m y w a s in a s t r o n g a n d

lio n in 1 9 6 4 .

th e a v e r a g e

annual

la r g e r t h a n

in c r e a s e

in th e

p r e c e d in g te n y e a r s .
F isc a l

p o lic y

w as

a

r e s t r a in in g

5 .5 m illio n in 1 9 6 1

h e a lt h y c o n d it io n to r e s u m e th e a d ­

th e re

v a n c e w h e n th e t r o u g h w a s p a s s e d

To

in F e b r u a r y

th e

fo rc e d u r i n g th e e a r ly p a r t o f th e re ­
c e ssio n .

of

1961.

no

in v e n t o r y

o b se rve rs

m arke t w a s
re c o rd s

to 7 .7 m il­

B u t s a le s k e p t p a c e a n d
it

p ro b le m .

seem ed

in s a t ia b le

w ere

se t

as

and

th a t
new

b ro k e n

r e g u la r ly .

T h e p e r io d c h o s e n to re p re s e n t th e

th e F e d e ra l c a s h b u d g e t p r o d u c e d a

w as

m any

s a le s

T HE F I R S T P H A S E

F o r th e c a le n d a r y e a r 1 9 6 0 ,

p ro ­

o p e r a t in g a t a n u n s u s t a in a b le p a c e a s

a d j u s t in g b u s in e s s o r in d i v id u a l d e b ts

m uch

p r o b le m

s w in g .

b y a n in c r e a s e o f o n e m illio n in th e
n in e m o n t h s w a s

no

in v e n ­

f in a n c ia l

c iv ilia n la b o r fo rc e .

T h is in c r e a s e in

T h e re w a s

no em ­

T h e a u t o m o b ile in d u s t r y w a s in th e

O n th e o t h e r h a n d , r e s id e n t ia l c o n ­

a

fir s t p h a s e o f th is e x p a n s i o n c o v e r s

stru c tio n d id n o t s h o w

la r g e d e fic it o f $ 8 . 0 b illio n in 1 9 5 9 .

a p p r o x i m a t e l y th re e a n d a h a lf y e a r s

h a d d is p la y e d in th e 1 9 5 0 's .

F o r th e p e a k s e c o n d q u a r t e r o f I 9 6 0 ,

— fro m

e a r ly

v i o u s cycle s, h o u s i n g h a d f r e q u e n t ly

th e s u r p lu s (u n a d ju s t e d ) w a s $ 4 . 5 b il­

1964.

It is

lio n ; th is d e c lin e d r a p id ly a n d b y th e

th e a v e r a g e

fir st

in th e p o s t w a r y e a r s .

s u r p lu s

o f $ 3 .6

q u a rte r

of

b illio n , f o l l o w in g

1961

d e fic it o f $ 2 .3 b illio n .

th e re

w as

a

p r i m a r i ly
te n d e d

1961

so m e w h a t

sp an

In p r e ­

th a n

m o v e d c o n tra -c y c lic a lly , r is in g in re ­
c e s s io n y e a r s b e c a u s e o f lo w in te re st

It w a s c h o s e n

it c o v e r s

ex­

ra t e s a n d a b u n d a n t c re d it a n d th e n
b e in g c h o k e d o f f in r e c o v e r y a s r is in g
ra t e s a n d

w it h s t a b le w h o le s a le p rice s. In m a n y

s h u t o f f th e f l o w o f f u n d s .

W h i le in ­

re s p e c ts

th is

te rest ra t e s r e m a in e d s t a b le a n d f u n d s

p h a s e w a s s im ila r to th a t in o t h e r u p ­

w e r e r e a d il y a v a ila b l e , h o u s in g n e v e r ­

s w i n g s , b u t th e re w e r e a n u m b e r o f

th e le ss r e s p o n d e d o n l y s l u g g i s h l y a n d

w h ic h

usu al

s u b s t a n t ia l

an

d e m a n d f o r c re d it r a is e d

th e

of

lo n g e r

of

g ro w th

of

e x p a n s io n

d iffe re n c e s ,
m ay

le n g t h

th is e x p a n s io n .




m id d le

o f p r e v io u s e x p a n s i o n s

b ecause

im p o r t a n t

8

to th e

th e v it a lit y it

d u r in g

som e

account fo r
and

or

a ll

th e

un­

m a g n it u d e

of

p e a k e d o u t in e a r ly 1 9 6 4 .

C h a r t III

c o n s id e r a b le

m a r g in

of u n u sed

p ro ­

t e c h n iq u e s o f in v e n t o r y co n tro l a ls o

s h o w s th e m o v e m e n t s in e x p e n d it u r e s

d u c in g c a p a c it y in th e e c o n o m y .

fo r

c o r d in g to o n e m e a s u re , m a n u f a c t u r ­

fis c a l a n d m o n e t a r y p o lic ie s p u r s u e d

n o n fa rm

r e s id e n t ia l

a n d in h o u s i n g sta rts.

c o n stru c tio n

Ac

c o n trib u te d

P erh aps con­

in g p la n t s w e r e o p e r a t in g a t le ss t h a n

d u rin g

a sta g e w h ere

8 0 p e r cent o f c a p a c it y in e a r l y 1 9 6 1 .

c o n t r ib u t io n s

t h e y w a n t e d m a n y m o r e a u t o m o b ile s

T h e c u s h io n p r o v id e d b y th is re s e rv e

su m e rs h a d
and

re a c h e d

o n l y a little m o r e h o u s in g .

As

c a p a c it y

in m o s t re c o v e rie s, d e b t in its

v a r io u s f o r m s

in c r e a s e d

e c o n o m ic a c tiv ity .

fa ste r th a n

F ro m

d id

m uch

to

d is c o u r a g e

to

th is

th e se y e a rs
to

result.
m ade

o r d e r ly

F in a lly ,
im p o r t a n t

gro w th .

a

s c r a m b le to p la c e o r d e rs , a c c u m u la t e
in v e n to rie s , a n d b id u p p ric e s.

Better

th e e n d o f

1 9 6 0 to th e e n d o f 1 9 6 3 ne t p r iv a t e
d e b t g r e w a t a ra te s o m e 4 0 p e r ce n t
fa s t e r t h a n G N P , w h ile th e c o n s u m e r
a n d m o r t g a g e d e b t o f i n d i v id u a ls w a s
r i s in g a t a ra te m o re t h a n o n e a n d a
h a lf tim e s a s f a s t a s d is p o s a b le p e r ­
s o n a l in c o m e .
It is n o t f e a s ib le to a tt e m p t to g i v e
h e re a d e f in it iv e e x p la n a t io n f o r th is
m od erate a n d
a

fe w

b a la n c e d g r o w t h , b u t

re a so n s

m ay

be

su g g e ste d .

F irst w a s th e m ild n e s s o f th e 1 9 6 0 -6 1
re c e ssio n .
d e c lin e
su c h

o r w id e s p r e a d

as

bounce

T h e re h a d b e e n n o v io le n t
o fte n

back.

re a d ju s t m e n t

s t im u la t e s
In

a

sh arp

p a r t ic u la r,

sh o rt­

te rm in te re st ra t e s h a d n o t d r o p p e d to
ve ry
p e r io d

lo w

le v e ls.

o f p ric e

p r e v a ile d
w h o le

cycle,

s in c e

Second
s t a b ilit y
e a r ly

a lt h o u g h

w as

w h ic h
1958.

a

th e

C h a r t III

PRIVATE N O N F A R M CO NSTRU CTIO N A N D H O U SIN G STARTS

%

Cum .
Change
F ro m T r o u g h

________________________________ T h o us,

1700

had
One

sh o rt one,

“ 1600

h a d p a s s e d w it h p r a c t ic a lly n o c h a n g e
in w h o le s a le p rice s.

T h is d id m u c h to

1500

d is p e l th e i n f la t io n a r y p s y c h o lo g y o f
th e 1 9 5 0 's a n d to c re a te a c lim a te o f
p ric e e x p e c t a t io n s m o r e f a v o r a b l e to
s t a b le g r o w t h .

T h ird , th e r e




w as

-1400

a

-1300

-1 20 0
-1 1 0 0

1961
S o u rc e :

1962
1963
1964
U. S. D e p a r t m e n t o f C o m m e rc e .

1965

1966

9

Stable Prices and Interest Rates
r e m a r k a b le
p ric e s

s t a b ilit y

w h ic h

c o n tin u e d

had

of

th e

In te re st ra t e s w e r e u n u s u a l ly s t a b le

Corporate Profits and Capital Outlays

f o r a p e r io d o f e x p a n s io n , a s c a n b e

T h e b e h a v io r o f c o r p o r a t e p ro fits w a s

s e e n f r o m C h a r t IV .

a n o u t s t a n d in g fe a t u r e o f t h is p h a s e

begun

th ro u gh o u t

A c t u a lly ,

The

w h o le s a le

ge n e ra l

in

th is

1958
p hase.

in d e x

w as

w ere

L o n g -te rm ra te s

e s p e c ia lly s te a d y , s h o w i n g

s u s t a in e d u p w a r d tre n d .

no

Se ve ra l fa c ­

a n d o f th e w h o le e x p a n s i o n

p e rio d .

C h a r t V c o m p a r e s p ro f it s a f t e r t a x e s

s lig h t ly lo w e r in m id - 1 9 6 4 t h a n it h a d

to rs a c c o u n t e d f o r th e s ta b ilit y .

R a te s

in th is e x p a n s i o n w it h a c o m p o s it e o f

been

h a d d e c lin e d o n ly m o d e r a t e ly in th e

t h e ir b e h a v io r in th e f o u r p r e c e d in g

T h is lo n g p e r io d o f p ric e s t a b ilit y w a s

s h o r t re c e s s io n o f 1 9 6 0 - 6 1 .

p o s t w a r e x p a n s io n s .

th e m o re r e m a r k a b le in v i e w o f th e

w e r e h i g h a n d w e r e s u ffic ie n t to m e e t

e a r lie r

v i g o r o f th e e x p a n s i o n b e t w e e n 1 9 6 1

th e d e m a n d s o n th e c a p it a l m a r k e t s.

r is e s in p ro fits la s t in g o n l y a y e a r o r

and

F u rth e r, a ll m a j o r c o m ­

M o n e ta ry

a little m o re , f o llo w e d b y a le v e lin g

th e

in d e x

re s e n te d in p a r t b y " O p e r a t i o n T w is t , "

o f f o r a d e c lin e . T h is tim e p r o f it s ro s e

s h o w e d a b o u t th e s a m e p a tte rn , s o th e

a tt e m p te d to k e e p sh o rt-te rm in te re st

c o n s id e r a b ly

s t a b ilit y o f th e g e n e r a l in d e x w a s n o t

ra t e s

m o r e s t e a d ily a n d th e u p w a r d m o v e ­

in

th e

1964.

p o n e n ts

of

f ir s t

q u a rte r

of

w h o le s a le

1961.

up

and

fo r

fis c a l

b a la n c e

S a v in g s

p o lic ie s,

of

re p ­

p a y m e n ts

u p s w in g s

m o re

T y p ic a lly , th o s e

had

sh ow n

s lo w ly

sh arp

but

a ls o

a c h ie v e d b y d iv e r g e n t m o v e m e n t s o f

p u r p o s e s w h ile m a in t a in in g lo w l o n g ­

m e n t c o n t in u e d m u c h lo n g e r .

th e

p ric e s

te rm ra t e s to s tim u la t e th e d o m e s t ic

e n d o f th e fir s t p h a s e , a f t e r - t a x p ro fits

m o v e d u p a t a ra te o f 1.2 to 1.3 p e r

e c o n o m y . In c o m b in a t io n th e s e fa c t o r s

h a d ris e n b y m o r e t h a n 5 0 p e r ce n t

ce n t p e r y e a r , d u e c h ie f ly to th e lo n g

p r o d u c e d th re e y e a r s o f r e m a r k a b ly

a n d b y th e m id d le o f 1 9 6 6 t h e y h a d

s e c u la r ris e in th e p ric e s o f s e rv ic e s.

s t a b le in te re st rates.

a lm o s t d o u b le d .

co m p o n e n ts.

C o n su m e r

C o r p o r a t e p ro f it s a r e d is c u s s e d in

P rice s o f c o n s u m e r d u r a b le g o o d s ro s e
q u it e s lo w ly ,

at an

annual

ra t e

of

s o m e d e t a il in a la t e r se c tio n , s o o n l y
a fe w

a b o u t 0 .5 p e r cent.

B y th e

w e re

p o in t s a r e n o t e d h e re .
s ig n if ic a n t b o th

effect.
t h e ir

They

a s cause a n d

S e v e r a l fa c t o r s c o n t rib u t e d to
s u b s t a n t ia l

s t e a d ily

r is in g

gro w th :

v o lu m e

of

(1)

th e

e c o n o m ic

a c t iv ity ; (2 ) s t e a d y o r s lig h t l y d e c lin ­
in g
C h a r t IV
Cum . %

Change

INTEREST RATES

u n it la b o r co sts; a n d

(3)

lo w e r

t a x a t io n . S o a r i n g p ro f it s w e r e a n im ­
p o r t a n t fa c t o r

in

th e

e x p a n s io n

as

t h e y p r o v id e d b o th a s t r o n g in c e n tiv e
and

a

la r g e

s t im u la t e la r g e

am ount

of

fu n d s

to

p r o g r a m s o f c a p it a l

o u t la y s . S t e a d y in te re st r a t e s a n d th e
r e a d y a v a i l a b i l i t y o f in v e s t m e n t f u n d s
w ere
in

th e

im p o r t a n t c o n t r ib u t in g
in v e s t m e n t

boom

fa c to r s

w h ic h

de­

v e lo p e d a ft e r th e e a r ly p a r t o f 1 9 6 3
to

becom e

a

th e e x p a n s io n .

S o u rc e :

B o a r d o f G o v e r n o r s o f th e F e d e r a l R e s e r v e S y s t e m .




d o m in a n t

fe a t u r e

of

F isc a l

and

M o n e ta ry

fis c a l a n d

m o n e ta ry

P o lic ie s
p o lic ie s

B o th
p la y e d

n e a r th a t le vel. T h e d is c o u n t ra te w a s

s e c o n d m a j o r p r o b le m w a s u n e m p lo y ­

r a is e d

m e n t.

in J u l y

im p o r t a n t ro le s in p r o m o t in g b a la n c e d

b ecau se

e c o n o m ic

th e b a la n c e o f p a y m e n t s .

g ro w th

d u rin g

th is

first

of

1 9 6 3 , a lm o s t e n tire ly

c o n s id e r a t io n s

a ff e c t in g

flu c t u a t e d

M a jo r

P r o b le m s

o p e n in g m o n t h s t h r o u g h a n u m b e r o f

p hase

w as

la r g e n e w e x p e n d it u r e p r o g r a m s . T h e

g ro w th

c lo s in g m o n t h s s a w th e e n a c tm e n t o f

p r o b le m s p e rsis te d .

o n e o f th e la r g e s t re d u c t io n s in i n d i­

la r g e

v i d u a l a n d c o r p o r a t e in c o m e t a x e s in

b a la n c e o f p a y m e n t s . T h is p r o b le m is

o u r h isto ry .

d is c u s s e d

p hase.

F isc a l p o lic y c o n trib u te d in th e

In b e t w e e n w e r e th e s u b ­

a

and
and

A lth o u g h

p e r io d

a

th e

first

s u b s t a n t ia l

s e a s o n a lly

c lo se

to

fiv e

a d ju s t e d ,
m illio n

B y th e s e c o n d q u a r t e r o f 1 9 6 2 it h a d
d r o p p e d to a b o u t f o u r m illio n , o r 5 .6

T h e fir s t w a s th e

p e r cent, a n d th e n r e m a in e d in th a t

la te r

tw o

d e fic it in
se ctio n .

th e

g e n e ra l r a n g e fo r a b o u t tw o ye a rs.

The

s t a n t ia l lib e r a liz a t io n o f d e p r e c ia t io n
a llo w a n c e s a n d th e e n a c tm e n t o f th e
in v e s tm e n t t a x cred it, b o th in

1962.

T h e g e n e r a l p u r p o s e o f a ll th e s e m e a ­
s u r e s w a s to r a is e th e ra te o f e c o n o m ic
g ro w th

and

re d u ce

u n e m p lo y m e n t .

F e d e ra l c a s h p a y m e n t s ro s e s t e a d ily
fr o m

$ 9 9 .5

$ 1 2 0 .3

b illio n in fis c a l

b illio n

in

fis c a l

1961

to

1 9 6 4 , w h ile

c a s h re c e ip ts m o u n t e d f r o m $ 9 7 . 2 b il­
lio n to $ 1 1 5 . 5 b illio n . O n a s e a s o n a l ly
a d ju s t e d

b a s is ,

th e re

w as

a

ca sh

d e fic it e a c h q u a r t e r , r a n g i n g b e t w e e n
$ 0 .7

b illio n

and

$ 2.1

b illio n .

The

to ta l d e fic it f o r th e 1 3 q u a r t e r s w a s
$ 1 7 . 4 b illio n .
The g e n e ra l
p o lic y

p o s it io n o f m o n e t a r y

th ro u gh o u t

th e

p e r io d

w as

e a s y b u t th e d e g r e e o f e a s e d e c lin e d
a ft e r 1 9 6 3 .

T h e c o n s t r a in t w h ic h p r e ­

v e n t e d m o re e a s e w a s th e la r g e d e fic it

CORPORATE PROFITS AFTER TAXES

in o u r b a la n c e o f p a y m e n t s a n d th e

C h art V

d e s ir e to p r e v e n t d o m e s t ic sh o rt-te rm

Cum . % C h an ge
F ro m T r o u g h

in te re st ra te s f r o m

g o i n g s o lo w

as

to e n c o u r a g e th e m o v e m e n t o f f u n d s
ab roa d .

T h ro u g h o u t

c o u n t ra te w a s

1961

th e

d is ­

100

3 p e r cent, fr e e re ­

se rv e s a v e r a g e d so m e w h a t m o re th a n
$400

m illio n ,

T re a su ry

2Va p e r cent.
fr e e

and

th e

t h r e e -m o n t h

A v e r a g e o f F o u r P r e v io u s
E x p a n s io n s

b ill ra te flu c t u a t e d a r o u n d

r e s e rv e s

In th e fir s t h a lf o f 1 9 6 4
a ve ra ge d

about

1 9 6 1 -1 9 6 6

E x p a n s io n

$120

V

m illio n , th e d is c o u n t ra te w a s 3 2 p e r
cent, a n d th e T r e a s u r y b ill ra t e w a s




20

±

-2 0
1961
S o u rc e :

or

a b o u t 7 p e r c e n t o f th e la b o r fo rce.

m a jo r

p ro s p e r it y ,

c o n t in u in g
in

of

In e a r ly 1 9 6 1 th e n u m b e r o f

u n e m p lo y e d ,

1962
1963
1964
U. S. D e p a r t m e n t o f C o m m e rc e .

1965

1966

T h e s t u b b o r n r e f u s a l o f th e s e f ig u r e s

s ig n s o f im b a la n c e .

to d e c lin e a s e c o n o m ic a c t iv it y ro se

p lo y m e n t ro s e b y 2 .6 p e r cent, w h ile

y e a r o f in c ip ie n t in fla t io n . T h e stim u li

g a v e ris e to a g r o w i n g c o n c e rn a n d

th e c iv ilia n la b o r fo rc e in c r e a s e d b y

w e r e s e v e r a l.

le ss t h a n 2 p e r cent; p e r s o n a l in c o m e

bank

to p o litic a l p r e s s u r e s f o r a c tio n .

THE S E C O N D

PHASE

T h e s e c o n d p h a s e c o v e r e d th e y e a r
f r o m th e m id d le o f 1 9 6 4 to th e m id d le
of 1965.

In t h is p h a s e e c o n o m ic a c ­

t iv it y m o v e d

ahead

at a

som ew hat

m o re liv e ly p a c e , w it h s o m e e m e r g i n g

T o ta l c iv ilia n e m ­

w a s u p b y 7 .2 p e r cent; a n d in d u s t r ia l
p r o d u c t io n w a s h ig h e r b y 8 .0 p e r cent.
U n e m p lo y m e n t f i n a lly

began

to d e ­

clin e , d r o p p in g f r o m a b o u t f o u r m il­
lio n to n e a r th r e e a n d a h a lf m illio n ,
o r fr o m

5 .4 to 4 .6

p e r c e n t o f th e

la b o r fo rce.

Ex c e ss D e m a n d A p p e a r s

T h is w a s a

T he m o n e y s u p p ly a n d

c re d it g r e w

S p e n d in g

fo r

c e le ra te d ,

r is in g

at a

fa s t e r p a c e .

c a p it a l

o u t la y s

by

16

per

ac­
cent.

C a p a c ity

u t iliz a t io n

a p p ro a ch e d

o p t im u m

le v e l

la b o r s h o r t a g e s

d e v e lo p e d

in

and
so m e

se cto rs.

th e

In

th e

f is c a l a r e a , th e fu ll e ffe cts o f th e la r g e
t a x cu t o f 1 9 6 4 w e r e r e a liz e d a n d a
n u m b e r o f e x c is e t a x e s w e r e
n a te d

or

s u b s t a n t ia lly

la r g e

num ber

p e n d it u r e

of

A

F e d e ra l

ex­

new

p ro g ra m s

in

e lim i­

re d u c e d .

th e w e lf a r e ,

e d u c a t io n a l, a n d d e v e lo p m e n t a l a r e a s
w ere

in itia te d

and

som e

o ld

ones

w e r e e x p a n d e d . T h e s e in c lu d e d s o c ia l
s e c u rity

b e n e fits,

M e d ic a r e ,

h o u s in g

a n d u r b a n d e v e lo p m e n t , a i d s to e d u ­
c a tio n , m a n p o w e r a n d

t r a in in g

p ro ­

g r a m s , A p p a l a c h i a n r e g io n a l d e v e lo p ­
m e n t, a n d o th e rs.
E v id e n c e

Chart VI M A N U F A C T U R E R S ' IN V E N T O R IE S A N D O R D E R S

%

of

g r o w in g

p re ssu re s

e m e rg e d

fre q u e n cy

as

i n f la t io n a r y

w it h

th e

year

in c r e a s in g
p ro g re sse d .

M a n u f a c t u r e r s ' n e w o r d e r s c o n tin u e d

Cum .
Change
F ro m T r o u g h
6 0 1----------------------------------------------------------------------------------------------------

th e ir r a p id b u t u n e v e n g r o w t h .

Un­

fille d o r d e r s — a s ig n if ic a n t m e a s u r e o f
e xce ss

d e m a n d — tu rn e d

s h a r p ly

up­

w a r d a b o u t th e m id d le o f 1 9 6 4 a n d
in v e n t o r ie s b e g a n

a

d is t in c tly fa s t e r

ris e a b o u t th e s a m e tim e. M o v e m e n t s
in th e s e s e rie s a r e s h o w n in C h a r t V I.
W h o le s a le p ric e s a ls o b e g a n to c lim b
a t th e m id d le o f 1 9 6 4 .
it

is

c le a r

a ggre ga te

In re tro sp e c t,

t h a t th e

a c c e le r a t io n

dem and

in

th is

of

second

p h a s e , c o u p le d w it h th e p r o g r e s s iv e
r e d u c tio n in id le c a p a c it y a n d u n e m ­
p lo y m e n t , la id th e g r o u n d w o r k f o r th e
in f la t io n

w h ic h

becam e

in c r e a s in g ly

e v id e n t in th e f o llo w in g p h a s e .
S o u r c e s o f F in a n c in g
th a t

— 1ol_________ I_________ I_________ I_________ I_________ I______
1961
S o u rc e :

1962

1963

1964

U. S. D e p a r t m e n t o f C o m m e rc e .

1965

1966

r e s id e n t ia l

second

p h ase

s t a t io n a r y ,

w as

gross

D e s p it e th e fa c t

c o n stru c tio n

in

th is

a p p r o x im a t e ly

p r iv a t e

in v e s tm e n t

r o s e a t a v i g o r o u s 1 3 p e r c e n t rate.
T h e in c r e a s e c a m e m a i n ly in n o n r e s id e n t ia l

c o n stru c tio n ,

b le s, a n d in v e n t o rie s .

12



p ro d u ce r d u ra ­
M o s t o f th e se

o u t la y s w e r e f in a n c e d b y n o n f in a n c ia l

T h e rise w a s c o n c e n tra te d la r g e l y in

c o r p o r a t io n s

fa rm

and

d u rin g

th is p e r io d

p ro d u c t s a n d

p ro c e s s e d

th e re o c c u rre d a s ig n if ic a n t c h a n g e in

w h ic h ro s e b y 6 .6 p e r cent; in d u s t r ia l

fin a n c in g

c o m m o d it ie s

m eth od s.

s h o w s , fr o m

As

C h art

V II

1 9 6 1 to late 1 9 6 4 g r o s s

cent.

in N o v e m b e r 1 9 6 4 , v e r y la r g e l y fo r
b a la n c e

fo o d s

o f p a y m e n t s c o n sid e ra tio n s .

S h o r t ly a f t e r th is m o v e , s e v e r a l c o m ­

per

m e rc ia l b a n k s a n n o u n c e d in c r e a s e s in

C o n s u m e r p ric e s in c r e a s e d th e ir

th e ir p r im e ra t e s b u t r e s c in d e d th e ir

w ere

up

o n ly

1 .6

s a v i n g s o f c o r p o r a t io n s (re ta in e d e a r n ­

ra te o f a d v a n c e , r is in g b y 2 .0 p e r ce n t

a c t io n s u n d e r c o n s id e r a b le

in g s

c o m p a r e d to 1.3 p e r c e n t in th e p r e ­

T h e m a in t e n a n c e o f th e p r im e ra te a t

v io u s ye a r.

4

p lu s

d e p r e c ia t io n )

w ere

about

e q u a l to b u s in e s s c a p it a l e x p e n d it u r e s .
A f t e r th a t, h o w e v e r , c a p it a l e x p e n d i ­
tu re s o u t r a n

g r o s s s a v in g s a n d

co r­

p o lic y

w as

a d ju ste d

p e r ce nt a t a tim e w h e n m a r k e t

ra t e s h a d m o v e d m u c h h i g h e r te n d e d

In th e fa c e o f th e se p rice p re ss u re s ,
m o n e ta ry

Vi

p re ssu re .

to c h a n n e l

p ro ­

banks

th e c a p it a l m a r k e t a n d to b a n k s f o r

o u t th is p e rio d . F re e re s e r v e s d e c lin e d

m a r k e t a n d t h u s to o ffse t th e re stra in t

fu n d s.

s t e a d ily

As a

re su lt, c o r p o r a t io n s i n ­

p e r io d

o f f i n a n c i n g f r o m s o m e $ 1 9 b illio n in

p e a re d .

1 9 6 3 to $ 3 1 b illio n in 1 9 6 5 .
crea se

in

bank

fin a n c in g

and
ne t

near

th e

b o rro w e d

aw ay

fr o m

of

th e

on

re se rve s

ap­

e x e rt e d b y th e h ig h e r ra tes.

end

in v e s t m e n t th a t m a y

T h e d is c o u n t ra te w a s r a is e d

T h e in ­

w a s fr o m

$ 2 .8 b illio n to $ 8 . 6 b illio n .
Dem and

fo r

fu n d s

fro m

other

s o u c e s w a s i n c r e a s in g a ls o , a n d w h ile
p e rso n a l

s a v in g s

w ere

ris in g ,

th e y

w e r e n o t g r o w i n g a s r a p id ly a s d e ­
m and.

It s o o n b e c a m e e v id e n t th a t

u n le s s b a n k c re d it w a s in c r e a s e d a t
an

ever

fa ste r

m u s t rise .
a c q u ir e d

pace,

in te re st

ra te s

C h a rt V II

C O R P O R A T E N O N F IN A N C IA L B U S IN E S S

$ Bil.

In b rie f, th e e c o n o m y h a d
a

c o n s id e r a b le

in th e fo r m

of a

la r g e

m o m en tu m
p ro g ra m

of

c a p it a l o u t la y s a n d a m o u n t in g b a c k ­
lo g

o f u n fille d

o r d e rs .

T o f in a n c e

r is in g in v e n to rie s , l a r g e r c a p it a l o u t ­
la y s , a n d

o t h e r c a p it a l n e e d s, m o r e

f u n d s w e r e r e q u ir e d t h a n w e r e s u p ­
p lie d b y s a v i n g s .

B a n k c re d it c o v e r e d

th e d eficit.

Price Pressures and Monetary Policy
T h e e x c e s s d e m a n d e x e rt e d its e ffe c ts
on

p rice s.

W h o le s a le

p ric e s

b ro k e

th e ir lo n g s t a b ilit y a n d m o v e d u p f o r
a

ris e o f 2 .8

p e r c e n t in o n e y e a r .




S o u rc e :

th e

in to the

g r e s s i v e ly t o w a r d le ss e a s e t h r o u g h ­

c r e a s e d th e ir u s e o f e x t e r n a l s o u rc e s

and

c re d it d e m a n d s

p o r a t io n s h a d to tu rn in c r e a s in g ly to

B o a r d o f G o v e r n o r s o f th e F e d e ra l R e s e r v e S y s te m .

*

1

c a p ita l

have

been

fo rc e s a n d

THE T H I R D P H A S E
T h is p h a s e c o v e r s th e p e r io d fr o m
m id - 1 9 6 5

to

m id - 1 9 6 6 ,

a

year

w h ic h in f la t io n e m e r g e d a s a
p ro b le m .

in

m a jo r

T he e c o n o m y re sp o n d e d a s

it a l w a y s d o e s w h e n it is o p e r a t in g
under

th e

in flu e n c e

of

in f la t io n a r y

is a p p r o a c h i n g ,

but h a s

n o t re a c h e d , th e u p p e r lim it o f p ro d u c tiv e c a p a c it y .

T a b le 1 s h o w s h o w

a r m e d fo rc e s.

T o ta l c iv ilia n e m p lo y ­

m e n t g r e w s lig h t ly fa ste r, w h ile b o th
p a y r o ll a n d f a c t o r y e m p lo y m e n t g r e w

s o m e o f th e m a j o r s e g m e n t s o f th e

at

e c o n o m y b e h a v e d c o m p a r e d to th e ir

la tte r w a s p o s s ib le p a r t ly b e c a u s e o f

a c t io n in th e p r e v io u s y e a r .

a

Changes
c iv ilia n

in
la b o r

a

Boom

fo rc e

Period

sh ow e d

no

The
in ­

c o n s id e r a b l y
sh arp

w h ic h

d ro p

in f a r m

d e c lin e d

1 9 6 5 -6 6 .

fa ste r

by

ra tes.

T h is

e m p lo y m e n t ,

1 0 .5

p e r c e n t in

T h is r e p re s e n t e d th e c o n ­

c r e a s e in its g r o w t h ra te , p a r t ly b e ­

tin u a t io n o f a tr e n d w h ic h h a d b e e n

c a u s e o f la r g e r n u m b e r s e n t e r in g th e

g o i n g o n f o r a lo n g tim e a n d w h ic h
h a s c a u s e d , o v e r th e y e a r s , a

la r g e

c h a n g e in th e stru c tu re o f e m p lo y m e n t
in

C h a rt V III

P R O D U C T IO N O F EQ U IPM EN T A N D C O N S U M E R G O O D S
Cum . % C h a n g e
F ro m T r o u g h
70

th e

econom y.

The

in c re a s e

in

fa c t o r y e m p lo y m e n t w a s th e m o re re ­
m a r k a b le

in

lig h t o f t h e

great a d ­

v a n c e s in a u t o m a t io n .
In d u s t r ia l

p r o d u c t io n

gre w

even

fa s t e r in 1 9 6 5 - 6 6 t h a n in th e p re c e d ­
in g y e a r , r i s in g a t a ra te o f 9 .5 p e r

60

cent.
w as

T h e in c r e a s e w a s g e n e r a l, b u t
e s p e c ia lly

stro n g

in

b u s in e s s

e q u ip m e n t. D e f e n s e e q u ip m e n t b e g a n

50

a v e r y s h a r p ris e in e a r l y 1 9 6 5 . G a i n s
in

40

fo o d ,

s t a p le s

fu e l,
w ere

and

oth e r

c o n su m e r

c o n s id e r a b ly

m o re

30

20
Table 1 A N N U A L R A T ES O F C H A N G E
10

0

S e r ie s
C iv ilia n la b o r fo rc e

-10

T o ta l c iv ilia n e m p lo y m e n t
P a y r o ll e m p lo y m e n t
S o u rc e :

B o a r d o f G o v e r n o r s o f th e F e d e ra l R e s e rv e S y s te m .




F a c to ry e m p lo y m e n t
N u m b e r u n e m p lo y e d
In d u s t r ia l p r o d u c t io n
P e r s o n a l in c o m e
R e ta il s a le s
W h o le s a le p ric e s
C o n s u m e r p ric e s
S o u rc e : B o a r d o f G o v e r n o r s o f th e F e d e ra l
R e s e r v e S y s t e m , U. S. D e p a r t m e n t
o f C o m m e rc e a n d
m e n t o f L a b o r.

U. S. D e p a r t ­

m o d e st. T h e d iv e r g e n c e b e t w e e n b u s i ­

crease

n e ss e q u ip m e n t a n d c o n s u m e r g o o d s

a c t u a lly a little le ss t h a n th e 2 .8 p e r

in

w h o le s a le

p ric e s

w as

p a tte rn , r is in g fir s t b y

d u s t r ia l

c o m m o d it ie s

re v e r se d

th is

1.6 p e r cent

w as

s t rik in g ,

C h art

cent in c re a s e o f th e p r e v io u s y e a r b u t

a n d th e n b y 2 .3 p e r cent.

V III.

T h e g a p b e t w e e n th e t w o c a t e ­

th e c h a n g e in th e b e h a v io r o f th e c o m ­

p ric e s a ls o m o v e d u p a t a fa s t e r p ace,

g o r ie s h a d

as

is s h o w n

in

b een w id e n in g fo r so m e

p o n e n t s w a s s ig n if ic a n t .

r is in g

In 1 9 6 4 - 6 5

by

2 .5

per

cent

C on su m e r
in

1 9 6 5 -6 6

tim e a s c a p it a l o u t la y s m o u n te d , b u t

th e g r e a t e r p a r t o f th e a d v a n c e w a s

a g a i n s t 2 .0 p e r c e n t in 1 9 6 4 -6 5 .

it

in

fo o d s , w h ic h

a n d s e r v ic e s s h o w e d the g r e a t e s t a d ­

a ssu m e d

s t r ik in g

p r o p o r t io n s

in

fa rm

p ro d u c t s

and

Food

1 9 6 5 - 6 6 a s th e o u t p u t o f e q u ip m e n t

ro se b y 6 .6 p e r cent; in 1 9 6 5 - 6 6 th o s e

v a n c e s w h ile p ric e s o f d u r a b le c o m ­

ro s e b y 1 7 .2 p e r ce n t w h ile p r o d u c ­

g r o u p s w e r e u p b y o n l y 4.1 p e r cent.

m o d it ie s w e r e v ir t u a lly u n c h a n g e d in

tio n o f c o n s u m e r g o o d s g a i n e d o n l y

A s sh ow n

b o th y e a r s .

in C h a r t IX , p ric e s o f in ­

5 .6 p e r cent.
P e r s o n a l in c o m e n o t o n l y c o n tin u e d
to rise b u t in c r e a s e d its ra te o f g a i n
to 8 .5 p e r cent.

R e ta il s a le s m o v e d

a b o u t in ste p , r is in g b y 8 .7 p e r cent.
F e e lin g th e im p a c t o f in fla t io n , m a n u ­
fa c t u r e r s s t e p p e d u p th e ir n e w o r d e r s
b y 1 1 .8 p e r ce nt o v e r th e p e r io d w h ile
s h ip m e n t s

ro s e

In v e n t o r ie s

o n ly

o r d e rs , g a i n i n g
fille d

1 0 .3

m o u n te d

o rd e rs

1 1 .5

m oved

p e r cent.

a lo n g

w it h

p e r cent.
up

fro m

Un­
$ 6 0 .6

b illio n to $ 7 4 . 8 b illio n , a n in c r e a s e o f
2 3 . 4 p e r cent, o r a b o u t tw ic e th e ra te
o f g r o w t h o f o r d e r s a n d s h ip m e n t s .
As

u s u a l ly

happens

w hen

C h a r t IX
Cum . % C h an ge
F ro m T r o u g h

PR IC ES

th e

e c o n o m y is o p e r a t in g u n d e r p re ss u re ,
p ric e s m o v e d u p . T h e 2 .5 p e r c e n t in -

O F SE LEC TE D E C O N O M IC SE R IES
June 1964June 1965

June 1965June 1966

1.9

1 .9

2 .6

2 .7

3.9

5 .3

4 .2

6 .4

-1 0 .3

-1 3 .4

8.1

9 .5

7 .2

8 .5

7.1

8 .7

2 .8

2 .8

2 .0

2 .5




S o u rc e :

U. S. D e p a r t m e n t o f L a b o r.

1 'i V '” , * 4I’iV.* * J *' •# V., '’/V-i ? m '.*\ '-# .
‘*
v ’ • ) ^ '•\ ’ *j' ;! ‘
15

Sources of Imbalance

In re trosp ect,

c iv il s e rv ic e p a y s c a le s

T h e d is c o u n t ra te c h a n g e w a s n o t

w e c a n se e h o w im b a la n c e d e v e lo p e d

w e r e r a is e d a n d a n u m b e r o f n e w e x ­

fo llo w e d im m e d ia t e ly b y a n y r e d u c ­

in th e e c o n o m y .

m ilit a r y a n d

A t th e m id d le o f

p e n d it u r e p r o g r a m s w e r e sta rte d . T h e

tio n in re s e rv e o r c re d it a v a ila b ilit y .

1 9 6 5 th e e c o n o m y w a s o p e r a t in g a t a

b u d g e t f o r fis c a l 1 9 6 7 , p re s e n t e d in

T h e F e d e ra l R e s e rv e S y s t e m p r o v id e d

h ig h le v e l, a p p r o a c h i n g th e o p t im u m

J a n u a r y 1 9 6 6 , p r o p o s e d o n l y lim ite d

n e w r e s e rv e s lib e r a lly in o r d e r t o f a ­

rate.

and

c ilita te a n o r d e r ly a d ju s t m e n t to th e

U n e m p lo y m e n t

w as

lo w

and

te m p o ra ry

f is c a l

re stra in t,

de­

a c c e le r a t in g t a x

n e w ra te le vel. A s a re su lt, th e m o n e y

la r g e a n d g r o w i n g p r o g r a m o f c a p it a l

p a y m e n t s d a t e s a n d th e s a le o f a s s e t s

s u p p ly , b a n k cred it, a n d re la t e d s e r ie s

in v e s tm e n t w a s u n d e r w a y .

E x p e n d i­

o r p a r t ic ip a t io n s b y F e d e ra l a g e n c ie s .

g r e w f o r a tim e a t u n u s u a l ly

p la n t a n d e q u ip m e n t ,

The F e d e ra l c a sh b u d g e t o p e ra te d

la b o r s h o r t a g e s w e r e s p r e a d in g .

tu re s f o r n e w
w h ic h

had

s ta rt e d

a

sh a rp

rise

A

in

1 9 6 3 , c o n t in u e d a n d g a t h e r e d sp e e d ,
a s can b e se e n fro m C h a rt X .

As a

p e n d in g

w it h

m a i n ly o n

la r g e

d e fic its

in

th e

la st

tw o

ra te s.

By

la te

s p r in g ,

r a p id

h o w e ve r,

m o n e y a n d c re d it e x p a n s i o n h a d b e e n

q u a r t e r s o f 1 9 6 5 a n d th e fir st q u a r t e r

b r o u g h t u n d e r fir m

of 1966.

e ffe cts o f m o n e t a r y re s t r a in t b e g a n to

In th e s e c o n d

q u a rte r of

c o n tro l a n d

th e

p r o p o r t io n o f G N P t h e y e x c e e d e d 8

1 9 6 6 th e f u ll e ffe cts o f th e a c c e le r a t e d

m a n if e s t th e m se lv e s .

R e in f o r c in g th e

p e r cent, w h ic h is o fte n r e g a r d e d a s

t a x p a y m e n t s a n d th e s a le o f a s s e t s

e ffe c ts

se co n d

q u a rte r

a s ig n o f o v e r h e a t in g .

In J u l y o u r

w e r e fe lt a n d th e s u r p lu s in th e c a s h

s u r p lu s in

th e F e d e r a l c a s h

b u d ge t,

V ie t N a m

s h a r p ly

b u d g e t s o a r e d to o v e r $ 1 0

o f th e

la r g e

b illio n —

t ig h t m o n e y w a s a l s o a m a j o r fa c t o r

p r o b a b l y th e la r g e s t q u a r t e r ly s u r p lu s

c o n t r ib u t in g to th e e c o n o m y 's r e d u c e d

m o n t h ly d r a f t c a ll a n d h i g h e r d e f e n s e

in h ist o r y .

ra te o f g r o w t h in th e s p r in g q u a r te r.

o u tla y s.

N o re ve n u e m e a su re s w e re

p o r a r y , n o n r e c u r r in g d e v e lo p m e n t b u t

Second Half, 1966— A New Phase?

a d o p t e d to m e e t th e a d d e d e x p e n d i­

it w a s a s ig n if ic a n t f a c t o r in c a u s i n g

A f t e r th e s e c o n d q u a r t e r o f 1 9 6 6 th e

p ro g ra m

c re a se d ,

w it h

a

w as

d o u b lin g

of

in ­
th e

T h is w a s la r g e l y a t e m ­

In d e e d , a s u b s t a n t ia l re d u c tio n

s o m e e a s i n g o f in f la t io n a r y p re s s u re s .

e c o n o m y m o v e d in to w h a t a p p e a r e d

in e x c is e t a x e s h a d ju st g o n e in to e f ­

G r o w t h ra t e s o f e c o n o m ic a c t iv it y d e ­

to b e a n o t h e r p h a s e .

fect.

c lin e d a n d p ric e s ro s e m o r e s lo w ly .

i n g c o n tin u e d to a c c e le r a t e a n d

Monetary Policy in the Third Phase

boom

1 9 6 5 , b e c a m e e ffe c tiv e in S e p t e m b e r

In th e s e c o n d h a lf o f 1 9 6 5 , m o n e y a n d

ceeded unabated .

w h ile

cre d it

n e ss

ture s.

M o r e o v e r , in c r e a s e d s o c ia l s e ­

c u rity b e n e fits, re t ro a c t iv e to J a n u a r y
in c r e a s e s

in

p a y r o ll

taxe s

to

c o v e r th e m d id n o t s t a rt u n til J a n u ­
a ry

1966.

B e fo re th e e n d o f 1 9 6 5

p o lic y

fir m e r.

becam e

p r o g r e s s iv e ly

In D e c e m b e r th e d is c o u n t ra te

in

b u s in e s s

advance

D e fe n s e s p e n d ­
in v e s t m e n t

th e
p ro ­

T h e ra te o f b u s i­

p ic k e d

up

a g a in ,

a l­

t h o u g h it c o n tin u e d to f a ll s h o r t o f th e

w a s r a is e d f r o m 4 to 4 .5 p e r cent, th e

f e v e r is h fir s t q u a r t e r p a c e .

fir st d is c o u n t ra te a c t io n in th e c u r ­

s u m m e r it w a s c le a r th a t th e lo n g e x ­

re n t e x p a n s i o n d ic ta te d p r im a r ily b y

p a n s io n

d o m e s t ic c o n s id e r a t io n s . T h is in c r e a s e

s ig n if ic a n t

c a m e a t a tim e w h e n w id e n i n g d is ­

c o r o lla r y p ro b le m s .

p a r it ie s b e t w e e n m a r k e t ra t e s a n d k e y
in st itu t io n a l

ra te s

w e re

c r e a t in g

had

f in a lly

B y m id ­

g e n e ra te d

in f la t io n ,

w it h

a ll

a
its

T h e e ffe cts o f t ig h t m o n e y w e r e in ­
c r e a s in g ly o b v io u s in th e t h ir d q u a r te r.

s e r io u s d is t o r t io n s in th e f l o w o f f u n d s

In te re st ra t e s m o v e d s t e a d ily u p w a r d ,

th ro u g h

r e a c h in g th e h ig h e s t le v e ls s in c e th e

th e

n a t io n 's

c a p it a l m a r k e t s.

m oney

and

1 9 2 0 's .

C o n s t r u c t io n s p e n d in g w e n t

in to a t a ils p in a s m o r t g a g e m o n e y b e ­
c a m e v e r y sca rce .
i n g fe ll o f f s h a r p ly .
and

R e s id e n t ia l b u il d ­
A u t o m o b ile s a le s

p r o d u c t io n s lo w e d s ig n if ic a n t ly .

P rices, w h ile c o n t in u in g to m o v e u p
g e n e r a lly , b e g a n to b e h a v e m o r e e r ­
r a t ic a lly a n d

d e c lin e s s h o w e d

a f e w s ig n if ic a n t a r e a s .

16



up

in

F o r th e e n tire th ir d q u a r te r, m o n e ­
t a r y p o lic y a lo n e

b o r e th e b r u n t o f

A g a i n s t th is b a c k g r o u n d , C o n g r e s s

T h is a p p a r e n t d is p o s it io n o f th e A d ­

in O c t o b e r e n a c te d le g is la t io n to s u s ­

m in is t r a t io n to e m p lo y e ffe c tiv e fis c a l

it

p e n d f o r 1 8 m o n t h s th e 7 p e r ce n t i n ­

p o lic y s te p s to c u r b th e b o o m

s o o n b e c a m e c le a r th a t s e r io u s r is k s

v e s tm e n t t a x c re d it a n d t w o f o r m u la e

c ise d a s a lu t a r y e ffe ct o n m a r k e t e x ­

w e r e i n v o lv e d

p r o v i d i n g a c c e le r a t e d d e p r e c ia t io n a l ­

p e c ta tio n s in m u c h o f th e s e c o n d h a lf.

th e

a n t i- in f la t io n a r y

m oney and
no

e ffo rt.

But

in th is c o u rse .

T ig h t

h i g h in te re st ra t e s h a v e

e ffe ct o n

F e d e ra l

s p e n d in g

and

lo w a n c e s .
m e a su re

W h e t h e r o r n o t th is fis c a l
w ill

p r o v id e

s u ffic ie n t a d ­

p r o b a b l y little o n s p e n d in g b y sta te

d it io n a l re s t r a in t o n th e b o o m

and

th e

lo ca l

b u s in e s s

S im ila r ly ,

in v e s t m e n t

p la n s

a re

lo n g - r u n

n a tu re

and

re la t iv e ly
la y s

go ve rn m e n ts.

cannot

be

q u ic k ly

e x e r­

p re s e n t

w r it in g ,

is, a t

p ro b le m a t ic a l.

of a
o u t­

c u r t a ile d

in

r e s p o n s e to t ig h t m o n e y . Y e t th e g o v ­
e r n m e n t se c to r a n d th e b u s in e s s in ­
v e s t m e n t se c to r p r o v id e d m u c h o f th e
im p e t u s f o r th e a c c e le r a t in g a d v a n c e .
M o r e o v e r , b y m id s u m m e r t ig h t m o n e y
and

r is in g

e ra t e d

in te re st

e x p e c t a t io n s

ra t e s

had

w h ic h

gen­

p ose d

th r e a t to th e s m o o t h f u n c t io n in g
th e c a p it a l m a r k e t s.

a

C h a r t X EXPENDITURES
Cum . % C hange
F ro m T r o u g h

FOR N E W PLANT A N D EQUIPMENT
%

of G N P

of

I n c r e a s in g ly it

w a s n o te d t h a t to o m u c h r e lia n c e o n
m o n e t a r y p o lic y w a s p r o d u c in g s e v e re
d is lo c a t io n s in th e e c o n o m y .




1961
So u rc e :

1962

1963

1964

1965

1966

U. S . D e p a r t m e n t o f C o m m e rc e ,

17

EMPLOYMENT A N D

Two

m a jo r m e a su re s

o f th e

p e r­

PRODUCTION

to th e la b o r fo rc e . T h e g r o w t h s lo w e d

to m o r e a n d m o r e c o n c e rn a n d , a l o n g

so m e w h a t

e a r ly

w it h th e b a la n c e o f p a y m e n t s , c a m e

p lo y m e n t it a f f o r d s a n d th e a m o u n t

1 9 6 6 , p a r t ly b e c a u s e o f th e in c r e a s in g

to d o m in a t e m u c h o f e c o n o m ic p o lic y .

of

n u m b e r s g o i n g in to th e a r m e d fo rc e s.

E ffo rt s to s o lv e th is s t u b b o r n p r o b le m

f o r m a n c e o f a n e c o n o m y a r e th e e m ­
goods

and

s e r v ic e s

it p ro d u c e s .

in

la te

1965

and

B o th m e a s u r e s m o v e d w e ll in to n e w

E m p lo y m e n t a n d U n e m p lo y m e n t

h i g h g r o u n d in th e p re s e n t e x p a n s io n .

to ta l

num ber

T h is

fro m

6 6 .8

se c tio n

fu rth e r

c o n s id e r s

a sp e cts o f

b r ie f ly

som e

e m p lo y m e n t

and

o u tp u t.

e m p lo y e d

m illio n

in c r e a s e d

7 3 .7

d u r i n g t h is e x p a n s io n .
in c r e a s e o f 6 .9

C iv ilia n L a b o r F o rc e

to

The

m illio n

T h is w a s a n

m illio n , o r

1 0 .3 p e r

re s u lte d in f is c a l a n d m o n e t a r y p o lic y
m oves

w h ic h

e v e n t u a lly

g e n e ra te d

m u c h o f th e in f la t io n a r y p r e s s u r e o f
1965

and

1966.

On

a

p r e lim in a r y

a n a ly s is , f o u r fa c t o r s se e m

to h a v e

D u r i n g t h is e x ­

cent, a n d w a s a b o u t e q u a l to th e net

h e lp e d to m a in t a in u n e m p lo y m e n t o n

p a n s io n th e c iv ilia n la b o r fo rc e g r e w

g a i n d u r i n g th e w h o le d e c a d e o f th e

a

f r o m 7 1 . 7 m illio n to 7 6 . 7 m illio n , f o r

1 9 5 0 's .

S in c e

a to ta l in c r e a s e o f 7 p e r cent, o r a n

w o rk e rs

d e c lin e d

annual

th e n u m b e r o f n o n f a r m

cent.

a ve ra ge

of

about

1 .2 5

per

T h e to ta l p o p u la t io n in c r e a s e d

s lig h t ly m o re , 7 .6

crease d

by

th e

8 .4

num ber

about

o f fa rm

1 .5

m illio n ,

w o r k e r s in ­

m illio n .

C h art

h ig h

p la t e a u .

A f t e r th e m id d le o f 1 9 6 2 th e c iv ilia n
la b o r fo rc e g r e w m o r e r a p id ly , r is in g
by

m o re th a n

a

m illio n

each

y e a r.

XI

T h e g r o w t h ra t e o f th e e c o n o m y w a s

p e r cent, b u t th e

s h o w s in c r e a s e s in e m p lo y m e n t r e g u ­

s u ff ic ie n t to re d u c e u n e m p lo y m e n t s o

a n n u a l g r o w t h ra t e d e c lin e d s t e a d ily

la r ly m o v i n g a h e a d o f th e ris e in th e

lo n g a s th e la b o r fo rc e g r e w

a n d fe ll to n e a r 1 p e r c e n t b y 1 9 6 5 .

la b o r fo rc e a ft e r th e f ir s t y e a r .

As a

b u t n o t f a s t e n o u g h to d o s o w h e n

re d u c e d

th e la b o r fo r c e w a s g r o w i n g a t a ra te

A s c a n b e s e e n f r o m C h a r t X I, th e

re su lt,

u n e m p lo y m e n t

la b o r fo rc e c h a n g e d little d u r i n g 1 9 6 1

by

and

p e r cent.

1962.

T h e to ta l g r o w t h f o r th e

t w o y e a r s w a s o n l y a b o u t 0 .8 m illio n .

w as

n e a r ly t w o m illio n ,

or about 40

s lo w ly

o f m o r e t h a n a m illio n p e r y e a r .
A s e c o n d f a c t o r w a s th e m o d e r a t e

T h e n u m b e r o f u n e m p lo y e d in e a r ly

le v e l o f c a p it a l in v e s tm e n t , w h ic h is
th e s o u r c e o f m o s t n e w job s.

The e x­

T h e m a j o r r e a s o n f o r t h is w a s p r o b ­

1961

a b l y th e lo w

th e

p e r c e n t o f th e la b o r fo rc e . D u r i n g th e

The

f ir s t y e a r o f th e e x p a n s i o n th e n u m ­

m a r g i n o f u n u s e d c a p a c it y , a n d th e re

at

b e r fe ll b y a b o u t a m illio n , b r i n g i n g

w as

th e ra te d o w n to 5 .6 p e r cent.

But

n e s s f ir m s to e x p a n d c a p it a l o u t la y s

th e n th e im p r o v e m e n t h a lte d , a n d f o r

u n til m o s t o f t h is c a p a c it y w a s b r o u g h t

m o re

in to u se .

C a p it a l in v e s t m e n t d id n o t

b e g in

a

la tte r y e a r s
b a b ie s

of

" c i v i li a n

b ir th

ra t e s d u r i n g

o f W o r ld
th o s e

w o rk in g

1962

and

m uch

la r g e r

th e ir

W ar

y e a rs

II.

a rriv e d

a g e " in

1961

n u m b e rs

w ere

th a n

th e

n u m b e rs

t h o s e l e a v i n g th e la b o r fo rc e .
1962,

h o w e ve r,

and

s o m e t h in g

not
of

A fte r

lik e

of

w a s c lo se to f iv e m illio n , o r 7

th a n

tw o

u n e m p lo y e d

ye a rs

th e

flu c t u a t e d

num ber
n a rro w ly

p a n s io n

s ta rt e d w it h a

n o stro n g

on

c o n s id e r a b le

in d u c e m e n t f o r b u s i ­

la r g e

s c a le

u n til

1963.

O n e d e v e lo p m e n t w h ic h p r o b a b l y d e ­

1.3

a r o u n d t h e f o u r m illio n m a r k a n d th e

m illio n p e o p le p e r y e a r w e r e a d d e d

ra te o f u n e m p lo y e d m o v e d b e t w e e n

la y e d its s ta rt w a s th e s h a r p d e c lin e

5 .6 a n d 5 .8 p e r cent.

in sto c k p ric e s in th e s e c o n d q u a r t e r

S in c e n e a r ly a ll

o t h e r e le m e n t s o f th e e c o n o m y w e r e

of

m o v i n g u p s t r o n g ly , t h is s e e m e d

a

c o n siste n t.

in ­

A s it p e r s is t e d it g a v e rise

1962,

w h ic h

d is tin c t

w as

s lo w in g

in

se ve ra l

th e

econom y

of

f o llo w e d
g ro w th

im p o rta n t
in

th e

by
ra t e s

s e c to rs

second

h a lf

of
of

th a t y e a r .
A s a n o t h e r fa c to r, C o n g r e s s in 1 9 6 1
r a is e d th e m in im u m w a g e f r o m $ 1 . 0 0
to $ 1 . 2 5

18



per hour and

e xte n d e d

its

co ve ra g e .

The

p r o v is io n s w e n t in to

e ffe ct a t d if f e r e n t tim e s, r a n g i n g u p
to f o u r y e a r s .

T h e in c r e a s e w a s u p ­

w a r d o f 2 5 p e r ce n t f o r s o m e o f th o s e
n e w l y c o v e re d . T h e s e m o v e s a ffe c te d
a ls o

th e

w ages

b ra ck e ts

just

of

m any

above

in

th e

w age

m in im u m .

U n le s s it is a s s u m e d th a t th e d e m a n d
f o r la b o r is e n t ir e ly in d e p e n d e n t o f
th e w a g e s a t w h ic h it c a n b e h ire d ,
th e se in c r e a s e s m u s t h a v e h a d a re ­
s t r a in in g

e ffe ct

on

p e o p le

e m p lo y e d

g re w .

At

th e

th e
as

sam e

num ber

th e

of

econom y

tim e

it

q u it e

lik e ly s t im u la t e d th e d e m a n d f o r m o re
a u t o m a t ic ,
and

la b o r - s a v in g

e q u ip m e n t ,

w h ic h ,

C h art X I

CIV ILIA N LABOR FORCE, EMPLOYMENT, UNEMPLOYMENT

m a c h in e r y
in

tu rn ,

q u ir e d m o r e c a p it a l in v e s tm e n t.

re ­
That

Cum . % C h an ge
F ro m T r o u g h

( S e a s o n a lly A d ju s t e d )

20

w a s a fa c t o r in th e in v e s t m e n t p r o ­
g r a m d is c u s s e d a b o v e .

B u t tim e w a s

r e q u ir e d to p la n , fin a n c e , a n d a c t iv a te
an

in v e s t m e n t p r o g r a m , a n d

10

C iv i li a n E m p lo y m e n t

in th e

in te rim th e d e m a n d f o r la b o r l a g g e d

C iv i li a n L a b o r F o rce

0

b e lo w w h a t it w o u l d h a v e b e e n w it h ­
out

th e

in c r e a s e

in

th e

m in im u m

w age.

T h is is in d ic a t e d e m p ir ic a lly

by

fa c t

th e

th a t

u n e m p lo y m e n t

-1 0

\

in

th o s e g r o u p s w h ic h a r e m a r g i n a l w it h

\
\

F a rm E m p lo y m e n t
%

-2 0
N u m b e r U n e m p lo y e d

re sp e c t to th e m in im u m w a g e , m a i n ly
te e n a ge rs

and

n o n w h it e s ,

has

con­

s is t e n t ly b e e n s ig n if ic a n t ly h ig h e r t h a n

'

-

-3 0

in o t h e r g r o u p s .




V

-4 0

X

_L

-5 0
1961
So u rce :

••

1962

1963

1964

1965

1966

U. S. D e p a r t m e n t o f L a b o r.

19

F in a lly , th e s e c u la r d e c lin e in f a r m
e m p lo y m e n t

has

c o n trib u te d

to th e

u n e m p lo y m e n t p r o b le m . A f t e r d e c lin ­
i n g f o r m a n y y e a r s , f a r m e m p lo y m e n t
fe ll fu r t h e r — f r o m 5 .7 m illio n in e a r ly
1961

to

4 .3

m illio n

q u a rte r o f 1 966.
clin e o f 4 . 5

in

th e

second

F ro m a n a n n u a l d e ­

p e r c e n t in

1 9 6 1 - 6 5 , it

p lu n g e d to 1 0 .5 p e r c e n t in 1 9 6 5 - 6 6 .
In th e f a c e o f th is r e m a r k a b le re d u c ­
tio n , to ta l f a r m

p r o d u c t io n

w as

not

o n ly m a in t a in e d b u t in c re a s e d .

The

in d e x o f to ta l f a r m

ro se

p r o d u c t io n

fr o m 1 0 7 in 1 9 6 1 to 1 1 5 in 1 9 6 5 . T h is
fe a t w a s a c c o m p lis h e d , o f c o u rse , o n ly
by

e x t e n s iv e

changes

in

fa rm

siz e ,

e q u ip m e n t , t e c h n iq u e s , p la n t v a r ie t ie s ,
and

c r o p p in g

p a tte rn s.

tio n

in f a r m

t e c h n o lo g y

T h is r e v o lu ­
re le a s e d

at

le a st 1.5 m illio n w o r k e r s f o r e m p lo y ­
m e n t e ls e w h e r e in th e e c o n o m y .

Employment Patterns E x c e p t f o r a g r i ­
cu ltu re ,

n e a r ly

a ll

se c to rs

of

th e

e c o n o m y s h o w e d in c r e a s e s in e m p lo y ­
m en t.
c iv ilia n

R e la t iv e ly , a s C h a r t X I I s h o w s ,
g o v e r n m e n t e m p lo y m e n t le d

th e list w it h a n in c r e a s e o f 2 7 . 5 p e r
cent, f r o m 8 .5 m illio n to 1 0 .8 m illio n .

NONAGRICULTURAL PAYROLL EMPLOYMENT

T h is in c r e a s e w a s e q u a l to a p p r o x i ­

Cum . % C h a n g e
F ro m T r o u g h
301-------------------------------------------------------------------------------------------------

m a t e ly o n e fo u r t h o f th e to ta l g a i n in

C h art

XII

n o n a g r ic u lt u r a l e m p l o y m e n t .
and

lo c a l g o v e r n m e n t s , w it h

S ta te
an

in ­

c r e a s e o f 2 .0 m illio n , o r 3 2 . 5 p e r cent,
a c c o u n te d f o r th e g r e a t e r p a r t o f th e
in c r e a s e in th e p u b lic se ctor. M u c h o f
th e

in c r e a s e

in

e m p lo y m e n t

by

th e

F e d e ra l G o v e r n m e n t c a m e in th e fir st
tw o q u a rte rs o f 1966.
P e rh ap s

th e

sh arp e st

b re a k

w it h

p a s t p a t t e r n s o f e m p lo y m e n t o c c u rre d
in m a n u f a c t u r in g . A f t e r s h o w i n g o n l y
a w e a k a n d e rra t ic u p w a r d tr e n d f o r
1 5 y e a r s , f a c t o r y e m p lo y m e n t ro se b y
2 .9 m illio n , o r 18.1
e x p a n s io n .

— 5 1____________ |____________ |____________ |____________ |----------------- 1-----------1961
1962
1963
1964
1965
1966
So u rce :

U. S . D e p a r t m e n t o f L a b o r.

20



T h is

p e r cent, in th is

w as

s u b s t a n t ia lly

g re ate r

th a n

th e

to ta l

in c r e a s e

g o o d s p r o d u c t io n w a s ra t h e r s h a r p l y

be­

o f th e in d e x o f in d u s t r ia l p ro d u c t io n .

t w e e n 1 9 4 6 a n d 1 9 6 0 . D u r a b le g o o d s

It is p e rtin e n t, th e re fo re , to t a k e a

d e p r e s s e d in th e fir st q u a r t e r o f 1 9 6 1 ,

in d u s t r ie s a c c o u n t e d f o r 7 7 p e r cent,

c lo s e r lo o k a t m a n u f a c t u r in g p r o d u c ­

a n d th e u s e o f th a t p e r io d a s a b a s e
w o u ld

o r 2 .2 m illio n , o f th e re ce n t rise , w h ile

tio n .

In th e c o m p a r is o n

th e r e m a i n i n g 2 3 p e r cent, o r 0 .7 m il­

lo w s ,

th e

lio n ,

m e a s u r in g g r o w t h in th e p r e s e n t e x ­

w as

in

n o n d u r a b le

goods

in ­

sta tistic a l

p a n s io n

m a n u f a c t u r i n g 's

q u a r t e r o f 1 9 6 1 to th e a n n u a l a v e r a g e
fo r 1960.

th e

in

h o w e ve r,

to ta l n o n f a r m p a y r o ll e m p lo y m e n t d e ­

fro m

f o l­

D e s p it e its g r e a t in c re a se ,
of

s h if t e d

u sed

d u strie s.

sh are

is

w h ic h

b ase

u n d u ly

d is to rt

so m e

of

th e

c o m p a r is o n s .

first

T h e r e a s o n is th a t d u r a b le

c lin e d s lig h t ly , a s T a b le 2 s h o w s .
E ls e w h e r e

in

th e

econom y,

th e

r e s id u a l c a t e g o r y o f f in a n c e , s e rv ic e s,
and

m is c e lla n e o u s

sh o w e d

g a in s

s e c o n d o n l y to th o s e in th e g o v e r n ­
m e n t se cto r, w it h a rise o f 2 .4 m illio n ,
o r 2 3 . 4 p e r cent. A l t h o u g h it i n v o lv e d
a r e la t iv e ly s m a ll n u m b e r o f w o r k e r s ,
c o n tra c t c o n stru c tio n h a d a n in c re a s e
o f 1 7 .5 p e r cent, r e p r e s e n t in g a little
le ss t h a n a h a lf m illio n w o r k e r s . T h is,
h o w e v e r , w a s a ft e r a s h a r p d r o p in
th e s e c o n d q u a r t e r o f 1 9 6 6 .
m e n t in
grew

w h o le s a le

b y som e

and

E m p lo y ­

re ta il t r a d e

1.9 m illio n , b u t th is

c o n stitu te d a g r o w t h s o m e w h a t b e lo w

DISTRIBUTION OF N O N FA RM PAYROLL EMPLOYMENT

T a b le 2

1961
First Q u a r t e r

th e a v e r a g e .
In d u s t r ia l P r o d u c t io n
d u c t io n

ro s e

by

12

In d u s t r ia l p r o ­

Num ber
(0 00 )

Per
Cent

Num ber
(0 0 0 )

Per
Cent

T o ta l

5 3 ,4 6 5

1 0 0 .0

6 3 ,6 1 7

1 0 0 .0

M a n u f a c t u rin g

1 6 ,1 2 0

3 0 .2

1 9 ,0 3 1

2 9 .9

D u r a b le s

8 ,9 0 6

1 6 .7

1 1 ,1 3 6

1 7 .5

N o n d u ra b le s

7 ,2 1 4

1 3 .5

7 ,8 9 5

1 2 .4

2 8 ,8 8 8

5 4 .0

3 3 ,8 0 2

53.1

678

1.3

618

1.0

C o n t ra c t c o n stru c tio n

2 ,8 0 0

5 .2

3 ,2 9 0

5 .2

T r a n s p o r t a t io n a n d p u b lic u tilitie s

3 ,9 0 7

7 .3

4 ,1 3 0

6 .5

1 1 ,2 9 8

2 1 .1

1 3 ,1 7 0

2 0 .7

F in a n c e , in s u r a n c e , r e a l e sta te

2 ,7 0 4

5.1

3 ,0 7 8

4 .8

S e r v ic e a n d m is c e lla n e o u s

7 ,5 0 1

1 4 .0

9 ,5 1 6

1 5 .0

G o ve rnm e n t

8 ,4 5 7

1 5 .8

1 0 ,7 8 4

1 7 .0

F e d e ra l

2 ,2 2 9

4 .2

2 ,5 3 2

4 .0

S t a t e a n d lo ca l

6 ,2 2 9

1 1 .7

8 ,2 5 2

1 3 .0

p e r ce n t in th e

fir s t y e a r o f r e c o v e r y b u t re g is t e re d
little a d d it io n a l
h a lf o f 1 9 6 2 .

g a in

in

th e

se con d

T h e re a ft e r th e ris e w a s

r e s u m e d a t a p a c e w h ic h a c c e le r a t e d
f r o m a n a n n u a l ra te n e a r 4 p e r ce n t
to o n e o f a b o u t 9 p e r cent.

T h e to ta l

in c r e a s e to th e s e c o n d q u a r t e r o f 1 9 6 6
w a s 4 9 .6

1966
Se co n d Q u a rte r

p e r cent, o r a

little m o re

t h a n th e 4 5 p e r cent g a i n r e a liz e d in
th e e n tire d e c a d e f r o m 1 9 5 0 to 1 9 6 0 .
M a n u fa c tu rin g

a cco u n ts

fo r

an

N o n m a n u f a c t u r in g (p riv a te )
M in in g

o v e r w h e l m i n g p a r t (o v e r 8 6 p e r cent)




W h o le s a le a n d re ta il t r a d e

S o u rc e :

U. S. D e p a r t m e n t o f L a b o r.

21

T a b le 3 s h o w s th e in c r e a s e s in p r o ­
d u c tio n f o r se le c te d c o m p o n e n t s o f in ­

fe r e n c e

w as

second

so m e w h a t

p e r io d ,

le ss

s u g g e s tin g

a

in

th e

s lo w e r

d u s t r ia l p r o d u c t io n f o r th e 1 9 5 0 - 1 9 6 0

g r o w t h in p ro d u c t iv ity . In n o n d u r a b le

d e c a d e a n d f o r th e p re se n t e x p a n s io n .

lin e s, p r o d u c t io n in c r e a s e d

Changes
sh o w n

in

e m p lo y m e n t

a ls o

a re

f o r th r e e m a j o r c o m p o n e n t s.

as

m uch

1950

as

and

q u a rte r

strik e s.

of

1964

cause d

by

F o r m u c h o f th e tim e t h e y

1 7 tim e s

r a n a h e a d o f g a i n s in b o t h a ll m a n u ­

b etw e e n

f a c t u r in g

e m p lo y m e n t

I9 6 0 ,

m o s t o th e rs, e x c e p t f o r th e d r o p in th e
fo u rth

b u t le ss t h a n

f iv e

and

d u r a b le

go od s.

The

le v e lin g o f f in la te 1 9 6 5 a n d th e d e ­

T h re e a s p e c t s o f th e d a t a a r e w o r t h y

t im e s a s m u c h s in c e 1 9 6 0 .

T h ird , th e

clin e in e a r ly

o f n ote. First, th e in c r e a s e s in p r o d u c ­

fig u r e

of

le v e l o n l y a little a b o v e th a t f o r n o n ­

fo r

th e

A s C h a rt X III

A b r ie f a n a l y s i s o f th e m o v e m e n t s

in c r e a s e s

s h o w s , u n til th e e n d o f 1 9 6 5 g a i n s in

o f th e m a j o r c o m p o n e n t s o f m a n u ­

th is

f a c t u r in g p r o d u c t io n m a y g i v e s o m e

decade.

S e c o n d , g a i n s in p r o d u c t io n

com ponent

w ere

p re s e n t

d u r a b le g o o d s .

v e h ic le s

p r e v io u s

th e

b r o u g h t it to a

p e r io d is m is le a d in g .

e n tire

fo r

1966

th e s a m e o r d e r o f m a g n it u d e a s th e
th e

p a rts

m o to r

tio n in th e p re s e n t e x p a n s i o n a r e o f
fo r

and

p r o d u c t io n

greater

th a n

w e r e s e v e r a l tim e s th e g r o w t h in e m ­

in d ic a t io n

p lo y m e n t in b o t h p e r io d s , b u t th e d i f ­

b a la n c e s d e v e lo p e d in th e in d u s t r ia l

of w hen

and

se c to r o f th e e c o n o m y .

w h ere

im ­

W h i le r e la t iv e

in c r e a s e s d u r i n g th e 1 9 5 0 - 1 9 6 0 d e c ­
a d e ca n n o t be re g a rd e d a s n o rm s o r
s t a n d a r d s , th e f i g u r e s m a y h a v e s o m e
v a l u e a s a b a s is o f c o m p a r is o n .
T a b le

3

sh o w s,

each

of

th e

As

m a jo r

c o m p o n e n t s m o v e d u p in th e p r e v io u s
d e c a d e b y a m o u n ts n ot f a r fro m 4 5
p e r cent.

M a c h i n e r y d id s o m e w h a t

better, b u t m o t o r v e h ic le s l a g g e d f a r
b e h in d .

D u rin g 1961 a n d e a r ly 1 9 6 2

d is t o rt io n s p r o d u c e d b y th e re c e s s io n
w e r e c o rre c te d a n d th e ra t e s o f g a i n
of

th e

v a r io u s

co m p o n e n ts

con­

v e r g e d , a s c a n b e s e e n in C h a r t X III.
T h e re a fte r, f o r a b o u t t w o y e a r s , a ll
s e rie s a d v a n c e d

PER CENT C H A N G E S IN SELECTED CO M PO N EN TS
OF INDUSTRIAL PRODUCTION A N D EMPLOYMENT

T a b le 3

s a m e rate.

a t s u b s t a n t ia ll y th e

B e g i n n in g in e a r ly 1 9 6 4

th e ra t e s b e g a n to d iv e r g e a n d c o n ­
tin u e d to d o s o a t a c c e le r a t in g ra te s,

1 9 5 0 to 1 9 6 0

1 9 6 0 to 2 n d Q 1 9 6 6

In d u s t r ia l
P ro d u c t io n E m p lo y m e n t

In d u s t r ia l
P ro d u c t io n E m p lo y m e n t

T o ta l p r o d u c t io n

4 5 .1

A l l m a n u f a c t u r in g

4 3 .7

1 0 .2

4 4 .8

1 3 .3

D u r a b le g o o d s

4 6 .4

1 6 .9

5 1 .3

1 7 .7

N o n d u ra b le g o o d s

44 .1

2 .6

3 6 .5

7 .6

M o t o r v e h ic le s a n d p a r t s

25.1

3 8 .4

M a c h in e ry

5 2 .4

6 3 .0

N o te :
S o u rc e :

4 2 .8

C h a n g e s c o m p u t e d fr o m a v e r a g e s o f m o n t h ly d a t a .
B o a r d o f G o v e r n o r s o f th e F e d e ra l R e s e rv e S y s t e m a n d U. S. D e p a r t m e n t o f L a b o r.




except

fo r

m o to r

1965 a n d 1966.

v e h ic le s ,

th ro u gh

In th e fir st q u a r t e r o f

1 9 6 4 th e re

m o re ,

d if fe r e n c e s

m o re , t h a n a ll m a n u f a c t u r in g , w h ile

gence

b e t w e e h th e c u m u la t iv e g r o w t h ra te s

n o n d u r a b le s h a d f a lle n b e h in d b y 1 9

n o u n c e d a t a b o u t th e s a m e tim e th e

of

p e r cent.

w h o le s a le

w ere

o n ly

in s ig n if ic a n t

p r o d u c t io n

d u r a b le

in

go od s,

a ll

m a n u f a c t u r in g ,

and

n o n d u r a b le

sh ow n

and

an

m a c h in e r y

41

per

ce n t

D u r a b le g o o d s w o u ld h a v e
e v e n g re a te r g a in excep t

g o o d s , b u t m a c h in e r y s h o w e d a s u b ­

f o r th e d e c lin e in a u t o m o b ile p r o d u c ­

s t a n t ia lly

tio n in 1 9 6 6 .

m id d le
q u a rte r
goods

greater
of

1963.

of

1966,

had

gro w th
By

a fte r

th e

h o w e ve r,

advanced

15

th e

d u r a b le
per

ce n t

c h a r t X I I I PRODUCTION
Cum . % C h an ge
fro m 1 9 6 0 A v e ra g e




It m a y n o t h a v e b e e n

se cond

OF MANUFACTURED G O O D S

e n t ire ly c o in c id e n ta l th a t th is d iv e r ­
in

m o v e up .

gro w th
p ric e

ra te s b e c a m e
in d e x

began

p ro ­
to

CORPORATE

T h e b e h a v io r o f c o r p o r a t e

p ro fits

1960,

w h ic h

had

a

PROFITS

p o s itio n

a p p ro x im a te ly

in

th e

c yc le

p r o b a b l y o n e o f th e m o s t d y n a m ic ,

1 9 4 9 , t h e y h a d ris e n to $ 2 6 . 7 b illio n .

d o u b le d ,

d e v e lo p m e n t s o f th e p r e s e n t e x p a n ­

T h is w a s a to ta l in c r e a s e o f 4 4

t h a n tw ic e th a t o f G N P a n d p e r s o n a l

s io n .

c e nt

p r o f it s
a

a p p r o x im a t e ly

g ro w th

so m e w h a t

annual

in c o m e .

D u rin g

ro s e f r o m

w ill a f f o r d

som e

th e s a m e p e r io d G N P g r e w b y 9 6 p e r

d o ll a r

e v a lu a t io n

of

c e nt a n d p e r s o n a l in c o m e b y 9 3 p e r

ce n ts in th e fir st p a r t o f 1 9 6 6 .

ance.

re c e n t

In th is d is c u s s io n

p e rfo rm ­

profits

w ill

cent.

As a

in h e r e n t ly

1 9 4 9 , ro s e to n e a r ly

1950, a n d

th e n

12 ce n ts in

d e c lin e d

ir r e g u la r ly

ce n t in 1 9 6 5 .

to b e lo w 7 ce n ts in 1 9 5 8 a n d

1960.

th e

th e c o u rs e o f a b u s in e s s cycle.

A s a re t u rn o n ne t w o r t h , p ro fits o f

th e

15 y e a rs

la r g e c o r p o r a t io n s a s c o m p ile d b y th e

e x p a n s io n .

p ro f it s o fte n d e ­

F irst N a t i o n a l C it y B a n k o f N e w Y o r k

w a s e s p e c ia lly tr u e in th e
b e fo re 1 9 6 1 , w h e n

c lin e d e v e n in p e r io d s o f b u s in e s s e x ­

d e c lin e d r a t h e r s t e a d ily f r o m

p a n s io n .
end

of

to

p ro fits d e c lin e d in

11

per

In re la t io n to G N P t h e y

tr e n d s
1 9 5 0 's

w h ic h
w ere

had

Thus

p r e v a ile d

re v e rse d

in

in
th is

B e c a u s e o f th e s lo w a n d ir r e g u l a r
g r o w t h o f p ro fits b e t w e e n 1 9 5 0 a n d
1 9 6 0 , it m a y b e in st ru c t iv e to lo o k a t
p ro fits o v e r a

1 8 a lt h o u g h G N P

p e r io d flu c t u a t e d ir r e g u l a r ly b u t d e ­

1 9 5 0 to th e s e c o n d q u a r t e r o f 1 9 6 6 ,

c lin e d s ig n if ic a n t ly in re la t io n to G N P ,

th e

p e r s o n a l in c o m e , s a le s, a n d n e t w o rt h .

cent; p e r s o n a l in c o m e , 1 5 2 p e r cent;

of

1 9 6 1 w a s a s h a r p ris e in p ro f it s d u r ­

S in c e 1 9 6 0 th e t r e n d o f p ro fits h a s

in g th e fir st y e a r o r s o o f re c o v e ry ,

been

f o llo w e d b y a n i r r e g u l a r d e c lin e d u r ­

p ared

p ro d u c e d

a n d ir r e g u l a r s e c u la r g r o w t h .

s u b s t a n t ia ll y
w it h

e a r lie r

d iffe re n t.

Com ­

u p s w in g s ,

th e y

and
Thus

in c r e a s e s
c o rp o ra te

lo n g e r p e r io d .
w ere :

GNP,

p ro fits, 9 6

o v e r th e w h o le

sp an

157

F ro m
per

p e r cent.
o f m o re

t h a n 1 5 y e a r s p ro fits in c r e a s e d b y le ss

T h is is

g r e w m o r e s l o w l y in th e e a r ly m o n t h s

t h a n t w o t h ir d s a s m u c h a s th e o t h e r

O v e r th e

o f th is e x p a n s io n , b u t th e n a c c e le ra te d

t w o v a r ia b le s .

in g th e re st o f th e e x p a n s io n .
s h o w n c le a r ly in C h a r t V .

a

s lo w

In 1 9 4 9

p ro fits a m o u n t e d to $ 1 8 . 5 b illio n .




te n
As a

In b rie f, c o r p o r a t e p ro fits d u r in g th is

end

T h e g e n e r a l c y c lic a l p a t te rn b e f o r e

p a t te rn

n e a r ly

ce n t in 1 9 4 9 to 9.1 p e r ce n t in 1 9 6 0 .

th e

d e c lin e d in o n l y e ig h t.

y e a r s th is

to

I9 6 0 ,

In th e 4 0 q u a r t e r s f r o m th e
1950

1961

ro s e f r o m 5 .2 to 6 .5 p e r cent.

v o la t ile a n d flu c tu a t e w id e l y d u r i n g
T h is

le ss t h a n s e v e n c e n ts p e r
e a r ly

re t u rn o n n e t w o rt h , p ro fits w e r e u p

in

a re

in

f r o m 8 .7 p e r c e n t in 1 9 6 1 to 11.1 p e r

fe r e n t m e a n in g

is in d ic a t e d .

A s a m a r g i n o f s a le s , t h e y

8.3 cents p er d o lla r

before taxes were

p ro fits

m o re

m a r g i n o f s a le s, p ro fits

m e a n p ro fits a ft e r t a x e s u n le s s a d i f ­
C o rp o ra te

to

1966,

an

t h e ir

equal

per

of

g r o w t h ra te o f 2 .8 p e r cent.

p e r s p e c t iv e f o r a n

w as

to

p ro fits in th e e a r lie r p o s t w a r y e a r s

A b rie f lo o k a t th e b e h a v io r o f

and

c o m p a r a b le

th e p e r io d a s a w h o le , to th e m id d le

h a s b e e n o n e o f th e o u t s t a n d in g , a n d

By

and

have

m uch

c o n t in u e d

lo n g e r

q u a rte rs

a fte r

u p w a rd

fo r

a

p e r io d .

In

th e

21

th e

q u a rte r

of

fir s t

1 9 6 1 , t h e y w e r e u n c h a n g e d in tw o ,
sh o w e d

s m a ll

ro s e in 1 7.

d e c lin e s

in

tw o , a n d

B y y e a r s , th e p e r c e n t a g e

in c re a s e s , b e g in n i n g w it h 1 9 6 1 , w e r e :
1.9, 1 4 .7 , 6 .1 , 1 6.9 , a n d 1 5 .0 .

O ver

The

lo n g ,

ste a d y ,

and

v ig o ro u s

tim e

w age

g r o w t h o f p ro fits in th e p re se n t e x ­

m od e rate

p a n s io n w a s th e re s u lt o f a

o ffs e t

o f fa c to rs .

First, a n d

num ber

p e r h a p s m ost

in c r e a s e s

m o re

m e n t in p r o d u c in g fa c ilitie s. A s a p a r t

a p p r o x im a t e l y

o f th e g e n e r a l t a x re d u c tio n o f 1 9 6 4 ,

g r o w in g

p ro ­

th e t a x ra te o n c o r p o r a t e in c o m e w a s

T h ird , c o r p o r a t io n s r e a liz e d

re d u c e d , in t w o ste p s, f r o m 5 2 to 4 8

and

by

a

d u c tiv ity .

w ere

s t e a d ily

w ere

im p o r t a n t ly , it w a s th e n a t u r a l c y c lic a l

la r g e r p r o f it s f r o m f o r e ig n o p e r a t io n s ,

p e r cent.

re a c tio n

an

in

p e r io d

of
of

s t e a d ily

p ro f it s
b u s in e s s

r i s in g

to

a

p r o lo n g e d

e x p a n s io n .

v o lu m e

of

A

a u t h o r it y

b u s in e s s

p er ye a r.

s h o u ld n o r m a ll y p r o d u c e a s u b s t a n t ia l
in c r e a s e in p ro fits.

am ount

In a d d it io n , c o r ­

A

now

at

e s tim a t e d

m o re

th a n

by

$3

one

b illio n

It h a s b e e n e s t im a t e d th a t

1 9 6 5 th e se th re e m e a s u r e s s a v e d

c o r p o r a t io n s m o r e t h a n $ 6 b illio n .
The stro n g g ro w th

f in a l

im p o r t a n t

fa c to r

in

th e

o f p ro fits w a s

c a u s e a s w e ll a s effect.

W h e n it b e ­

g r o w t h o f p ro fits a ft e r t a x e s w a s t a x

cam e

e v id e n t th a t

p o r a t io n s w e r e p r o d u c in g a s o m e w h a t

re d u c tio n .

D u r i n g W o r ld W a r II th e

g o in g

to re p e a t th e ir f o r m e r

la r g e r

p r o p o r t io n

peak

a p p lic a b le

c o a s t e r p a tte rn

t io n a l

p ro d u c t.

of

th e

Second,

to ta l
u n it

na­
la b o r

ra te

p o ra te

p ro f it s w a s

to

40

m ost

co r­

p e r cent but

p ro fits w e r e

and

w hen

n ot

ro lle r­

C o n gre ss

s h o w e d a d e fin it e in te n tio n to re d u c e

c o sts in m a n u f a c t u r in g h e ld s t e a d y o r

m a n y c o r p o r a t io n s w e r e su b je c t to a n

th e

d e c lin e d

e x c e s s p ro f it s ta x .

fid e n c e a n d o p t im is m ro se in th e b u s i ­

s o m e w h a t o v e r a lm o s t th e

T h e p e a k ra te w a s

ta x

lo a d

on

c o r p o r a t io n s ,

con­

w h o le p e r io d .

In e a r lie r e x p a n s i o n s

re d u c e d to 3 8 p e r c e n t a f t e r th e w a r

n e ss c o m m u n it y .

th is

d e v e lo p m e n t

u s u a l ly

b u t w a s r a is e d to 5 2 p e r cent d u r i n g

d u c tio n a p p r o a c h e d the o p t im u m le v e l

m a r k e d th e fir s t y e a r o r s o o f th e e x ­

th e K o r e a n W a r a n d a g a i n a n e x c e s s

in

p a n s io n a n d th e n w a s re v e r se d .

p ro f it s

sh o rt

n e s s m e n w e r e e n c o u r a g e d to e m b a r k

T h e r e g u l a r c o r p o r a t e t a x ra te s

o n a m b it io u s p r o g r a m s o f c a p it a l o u t ­

ty p e

of




T h is

tim e .

ta x

w as

le v ie d

fo r

a

one

In p a r tic u la r, a s p r o ­

in d u s t r y a f t e r a n o t h e r , b u s i ­

w e r e n o t lo w e r e d in th e t a x re d u c tio n

la y s .

o f 1 9 5 4 , b u t p r o v is io n s f o r a c c e le r a t e d

c a u s e re t a in e d e a r n i n g s a n d d e p r e c ia ­

d e p r e c ia t io n
ye a r.
p o ra te
above
W a r II.

w ere

T hus in
ta x

e n a c te d

1960

ra t e s

the
w e re

in

regular

th a t

tio n a llo w a n c e s p r o v id e d m u c h o f the

co r­

f u n d s n e e d e d to f in a n c e th e o u t la y s ,

som ew hat

th o s e in e ffe ct d u r i n g

T h is w a s a ll th e m o r e tru e b e ­

a t le a s t in th e e a r ly s ta g e s .

W o r ld

In 1 9 6 2 d e p r e c ia t io n s c h e d ­

u le s f o r t a x p u r p o s e s w e r e lib e r a liz e d
c o n sid e ra b ly

and

c o r p o r a t io n s

w ere

g r a n t e d a t a x cre d it, e q u a l in m o s t
c a s e s to 7 p e r cent, f o r n e w

in v e s t ­

25

D O M ESTIC

INVESTM ENT

W h ile in v e s t m e n t h a s b e e n a n im ­

d r if t in g d o w n f r o m a n a n n u a l ra te o f

It h a s b e e n c u s t o m a r y to a s s u m e

p o rt a n t s o u rc e o f s t r e n g t h in t h is b u s i ­

a b o u t 1 .6 m illio n u n its in e a r l y 1 9 6 4

th a t th e r e la t iv e ly lo w ra t io o f i n v e n ­

n e ss e x p a n s io n , its t im in g a n d c o m ­

to a b o u t

to rie s to s a le s, in b o th m a n u f a c t u r in g

p o s itio n

1966.

fro m

have

d if fe r e d

s ig n if ic a n t ly

e a r lie r p o s t w a r e x p e r ie n c e .

H o u sin g

In p r e v io u s p o s t w a r cyc le s,

r e s id e n tia l

c o n stru c tio n

m e a su re d

by

a c tiv ity ,

h o u s in g

sta rts,

as

1.5

m illio n

u n its

in

e a r ly

S in c e th a t tim e a s h a r p ris e in

in a s t a b le e q u ilib r iu m .

tr ib u t e d to a

ro s e

con­

th is e x p a n s io n .

m o n th s

in g s d e c lin e d in re la t iv e im p o r ta n c e ,

b u s in e s s a c tiv ity .

S t a r t s g e n e r a lly d e ­

c lin e d t h r o u g h o u t th e re st o f th e e x ­
p a n s io n

p h ase ,

p r o v id in g

a

p a r t ia l

o ffs e t to o t h e r e x p a n s i v e fa c to r s .

In

w h ile

h a s a ls o

a

been

d if f e r e n t in

S i n g l e f a m i l y d w e ll­

v ir t u a l

boom

o c c u rr e d

a p a r t m e n t c o n stru c tio n .

n o t e x c e s s iv e a n d

a b ly

been

changed

s ig n if ic a n t ly

o d s o f in v e n t o r y co n tro l.

In v i e w o f

th is, a le v e lin g o f f o r a s lig h t u p t u r n

in

in in v e n t o r y - s a le s r a t io s m ig h t h a v e

M u l t i f a m il y

a s ig n if ic a n c e e q u a l to m u c h s h a r p e r

sta rts a s a fr a c t io n o f th e to ta l ro se

u p t u r n s in e a r lie r e x p a n s io n s .
P la n t a n d E q u ip m e n t

p e r c e n t in

by

th e s e c u la r tr e n d t o w a r d b ette r m e t h ­

fr o m

21

a re

T h e o p t im u m

r e la t io n s h ip h e re , h o w e v e r , h a s p r o b ­

p r e c ip it o u s d ro p .

T h e c o m p o s it io n o f re s id e n t ia l c o n ­

c o v e r y p e r io d s , p e a k i n g o u t a b o u t s ix
ge n e ra l

in d ic a t io n t h a t in ­

v e n t o r ie s a r e

c re d it h a v e

s tru c tio n

in

tr a d e , is a n

b ilit y o f m o r t g a g e

s h a r p l y in th e re c e s s io n a n d e a r l y re ­
a ft e r th e t r o u g h

and

m o r t g a g e y ie ld s a n d r e d u c e d a v a i l a ­

1 9 6 0 to 3 7 p e r

ce n t in 1 9 6 3 , b u t d e c lin e d s o m e w h a t

a c c e le r a t in g

q u it e d iffe re n t ly .

later.

f o r p la n t a n d e q u ip m e n t h a s b e e n a

c e rn ib le

u p tu rn

T h e re w a s n o d i s ­
b e fo re

th e

ge n e ra l

In v e n t o r ie s

In v e n t o r y in v e s t m e n t a ls o

g ro w th

T h e lo n g a n d

th is e x p a n s i o n h o u s in g s ta rt s b e h a v e d

d o m in a n t fe a t u r e

in

of

e x p e n d it u r e s

th is e x p a n s i o n

r e c o v e r y g o t u n d e r w a y , a n d th e u p ­

h a s d if fe r e d fr o m e a r lie r c y c lic a l p a t ­

s in c e e a r ly

s w i n g w h ic h f i n a lly c a m e w a s q u it e

te rn s.

th e s e e x p e n d it u r e s h a v e in c r e a s e d a t

m ild .

to rie s ro s e s h a r p l y f r o m a b o u t th e b e ­

a

g in n in g

q u a r t e r sin c e th e fir s t q u a r t e r o f 1 9 6 3 ,

th re e

It

la s te d

ye a rs,

fo r

a p p ro x im a te ly

h o w e ve r,

p e a k in g

in

e x p la n a t io n

of

J a n u a ry 1964.
W h ile

no

p re c ise

In

e a r lie r e x p a n s i o n s

of

g e n e ra l

in v e n ­

re c o v e ry

u n til

ra te

1963.

of

On

n e a r ly

th e a v e r a g e ,

$ 1 .8

a b o u t m i d w a y o f th e e x p a n s io n , w h e n

fa r

a

a ve ra ge

q u a r t e r ly

1 9 5 4 -5 7

e x p a n s io n , a n d

m a r k e d f a ll o f f in t h e ra te o f a c ­

th is d if fe r e n t b e h a v io r is p o s s ib le , a

c u m u la t io n o c c u rre d .

$ 1 .0

b illio n

in c r e a s e

in

m o re

th e
th a n

s io n ,

s h a r p l y in th e f ir s t y e a r o f re c o v e ry ,

1 9 5 8 -6 0

a n d a d if fe r e n t m o n e t a r y p o lic y . W it h

th e n le v e le d o f f a n d r e m a in e d o n a

They

th e t r e m e n d o u s

p la t e a u u n til th e la tte r p a r t o f 1 9 6 4 .

G N P in th e s e c o n d q u a r t e r o f 1 9 6 1 to

h a v i n g b e e n w o r k e d o f f in th e 1 9 5 0 's ,
h o u s in g

a c t iv it y in th e e a r ly

1 9 6 0 's

The
d u rin g

s lo w e r

ra t e

m ost o f

of

th is

ro se

th e

p a r t ia l e x p la n a t io n m a y b e a d e c lin e

of d em an d

in v e s t m e n t

th a n

per

in th e u n d e r ly in g d e m a n d f o r h o u s i n g
b a c k lo g

in v e n to ry

In th is e x p a n ­

greater

b illio n

a c c u m u la t io n

e x p a n s io n

has

tw ic e

th e

a ve ra ge
and

c lim b e d

th e

in c r e a s e s
1 9 4 9 -5 3

fro m

6 .5

in

th e

p e r io d s.

p e r cent o f

s lig h t ly m o r e t h a n 8 p e r ce n t in e a r ly
1 9 6 6 , th e h ig h e s t r a t io s in c e 1 9 5 6 - 5 7 .

d id n ot s u r g e f o r w a r d a s m o n e y b e ­

b e e n d u e to b o th s e c u la r a n d c y c lic a l

ca m e e a sy .

fa c to rs. O n th e s e c u la r sid e , th e g r o w ­

e x p a n s io n

in g u s e o f c o m p u t e r - b a s e d m e t h o d s o f

C h a r t X , w e r e c o n c e n tr a t e d h e a v i ly o n

in v e n t o r y

m o d e r n iz a t io n ,

p e rie n c e ,

In c o n tra s t to e a r lie r e x ­
m o n e ta ry

la te st e x p a n s i o n
a

p o lic y

r e m a in e d

in

th is

e a sy

fo r

lo n g tim e , a n d th is p r o b a b l y c o n ­

trib u te d to th e p r o l o n g e d ris e in h o u s ­

v e n t o r ie s

in g

sam e

a c tiv ity , d e s p it e

ly in g

dem and.

w eaker

The

la tte r

u n d e r­
fa c t o r

c o n tro l h a s

e n a b le d

b u si­

n e s s m e n to o p e r a t e w it h r e d u c e d in ­
r e la t iv e

tim e ,

to

s a le s .

th e s e

o u t la y s ,

sh ow n

in

b u t a ft e r th e m id d le

o f 1 9 6 3 t h e y w e r e d e v o t e d in c r e a s ­

At

th e

i n g l y to e n l a r g i n g c a p a c it y .

c y c lic a l f a c t o r s

en­

a n n u a l ra te o f $ 3 7 b illio n in th e first

been

q u a r t e r o f 1 9 6 3 , t h e y ro se to a le v e l

w e a k e r . U n til 1 9 6 4 p ric e s w e r e s t a b le

o f $ 6 0 b illio n in th e s e c o n d q u a r t e r o f

e a s y m o n e y a n d h o u s in g s ta rt s b e g a n

a n d e x c e s s c a p a c it y p e rm itte d p r o m p t

1 9 6 6 , a to ta l in c r e a s e o f 61 p e r cent.

d e liv e r y o f o r d e rs .

O v e r th e p a s t th re e y e a r s th e a n n u a l

o u t w e ig h e d

th e

s t im u lu s

a c c u m u la t io n

have

F ro m a n

of

f i n a lly

c o u r a g in g

th e

In th e first t w o y e a r s o f th e p re se n t

T h e s e c o n d it io n s

b e g a n c h a n g i n g in 1 9 6 4 a n d f o r th e
p ast tw o y e a rs
tio n

has

fa s t e r p a c e .

26



in v e n t o r y a c c u m u la ­

p roc e e d e d

at

a

d is t in c tly

in c r e a s e

h a s ra n g e d fro m

p e r cent.

17

to f in a l d e m a n d a n d c u t b a c k s in p la n t

fu n d s

T h is g r o w t h h a s p u t g r e a t

1 4 to

a n d e q u ip m e n t e x p e n d it u r e s f o llo w e d

m o v e d u p f r o m $ 3 5 . 6 b illio n in 1 9 6 1

by

n o n f in a n c ia l

c o r p o r a t io n s

p r e s s u r e o n th e c a p a c it y o f m a c h in e r y

a ft e r a c o n s id e r a b le la g .

a n d e q u ip m e n t p ro d u c e rs , w h o in tu rn

o f th is e x p a n s io n , c a p a c it y e x p a n s io n

te r n a l f u n d s u s e d r e m a in e d s t e a d y a t

have

had

to

$ 5 1 .0

b illio n

in

1 9 6 4 , w h ile

ex­

th e ir fa c ilitie s.

h a s b e e n m o re in line w it h d e m a n d ,

s lig h t ly b e lo w $ 1 9 b illio n .

T h e ir e x p e n d i t u r e s

fo r

a n d u t iliz a t io n ra te s h a v e e d g e d u p ­

p o r t io n o f to ta l f u n d s u se d , e x t e r n a l

e q u ip m e n t in c r e a s e d

19

1964,

33

to e x p a n d

O v e r m o st

p e r ce nt in

e s tim a t e d 31

p la n t

and

p e r c e n t in

1965, a n d

an

p e r ce n t in 1 9 6 6 .

P la n t a n d e q u ip m e n t e x p e n d it u r e s
a re

s ig n if ic a n t

fo r

se ve ra l

L ik e a ll f o r m s o f c a p it a l
th e y

a re

in

p a n s io n a r y .
se rve

of

th e

fir s t

p r o d u c in g

and

in s t a n c e

ex­

S o lo n g a s th e r e is a re ­

e c o n o m y , th is is a
m ent

re a s o n s .

f o r m a t io n ,

c a p a c it y

and

th e

h e a lt h y d e v e lo p ­

c o n trib u te s

e m p lo y m e n t

in

to w a rd

fu lle r

F o r th e p a s t s e v e r a l q u a rte rs ,

h o w e v e r,

u tiliz a t io n

ra te s

have

re ­

fu n d s

d ro p p e d

cent.

B u t b y 1 9 6 5 o u t la y s w e r e f a r

fr o m

35

to

27

per

m a in e d o n a h ig h p la te a u .

o u t s t r ip p in g c a s h f l o w s a n d th e u s e o f

Financing Corporate Investment S in c e

e x t e r n a l f u n d s in c r e a s e d s h a r p l y f r o m

W o r ld

W ar

II,

c o r p o r a t io n s

in

th is

$ 1 8 . 6 b illio n to $ 3 3 . 4 b illio n — a n

c o u n t r y h a v e o b t a in e d a m a jo rity o f

c r e a s e o f 8 0 p e r cent.

th e ir in v e s t m e n t f u n d s fr o m

e x te rn a l

in te rn a l

fu n d s

in ­

In th a t y e a r

r e p re s e n t e d

38

per

so u rc e s; th a t is, fr o m th e ir c a s h f lo w

ce n t

w h ic h is c o m p o s e d a lm o s t e n tire ly o f

la r g e

r e t a in e d

c o u n t e d f o r b y b a n k lo a n s , w h ic h ro s e

e a r n in g s

a llo w a n c e s .

and

d e p re c ia tio n

O n l y m a r g in a l a m o u n t s

of

to ta l

in v e s t m e n t

fu n d s.

p a r t o f t h is in c r e a s e

A

w as

b y $ 6 . 5 b illio n , o r 1 9 0 p e r cent.

ac­
T h is

but

h a v e h a d to b e f in a n c e d b y b o r r o w in g

sp u rt

w h e n d e m a n d is p u s h i n g c lo s e to c a ­

in th e c a p it a l m a r k e t o r a t c o m m e rc ia l

c o n s id e r a b le p a r t to th e fa c t t h a t th e

p a c it y it c a n

g e n e ra te

t io n a r y p re s s u re s .
a

lo n g

le a d

t im e . "

p r o d u c t io n ,

w ard .

A s a p ro ­

tim e,

W hen

stro n g

in fla ­

A ls o , t h e y in v o lv e
or

la r g e

"tu rn a ro u n d

p ro g ra m s

b an ks.

in

bank

le n d in g

w as

due

in

L ik e a ll m a r g i n a l fig u r e s , th is

b a n k p r im e ra te r e m a in e d f o r n e a r ly

e x t e r n a l f i n a n c i n g h a s te n d e d to flu c ­

th e w h o le y e a r a t 4 .5 p e r ce n t w h ile

tu a te w id e ly .

m arke t

It h a s g r o w n s h a r p l y in

ra t e s

w ere

r is in g ,

in

m any

have

th e p a s t t w o y e a r s a n d t h e r e b y c o n ­

case s

b e e n p la n n e d a n d s ta rt e d it is v e r y

trib u te d s u b s t a n t ia lly to th e p re ss u re

T h e la r g e in c r e a s e in b a n k lo a n s w a s

d iffic u lt a n d c o stly to h a lt th e m b e f o r e

o n c a p it a l m a r k e t s a n d h e lp e d to p r o ­

a m a j o r fa c t o r c o n t r ib u t in g to th e 1 0

c o m p le tio n .

d u c e h ig h in te re st rates.

p e r c e n t in c r e a s e

C o r p o r a t io n s w it h la r g e

s p e n d in g p r o g r a m s w e ll a d v a n c e d a r e

In e a r lie r e x p a n s io n s c o r p o r a t io n s

o fte n p r e p a r e d to b id v e r y h ig h ra t e s

w e r e f o r c e d to re so rt to e x te r n a l f i ­

to g e t th e n e c e s s a r y f u n d s to c o m p le te

n a n c in g f a i r l y e a r ly in th e u p s w in g .

th e m .

The re a so n

T h e ir d e m a n d f o r f u n d s in th e

w a s th a t p ro fits u s u a lly

to w e ll

beyond

in

4 .5

p e r cent.

bank

c re d it in

1 9 6 5 — th e la r g e s t in c r e a s e s in c e W o r l d
W a r II.
C o r p o r a t io n s

c o n t in u e d

to

r e ly

h e a v i l y o n e x t e r n a l f i n a n c i n g in 1 9 6 6 .

fa c e o f s t r o n g m o n e t a r y r e s tr a in t s c a n

f a d e d o u t e a r ly , b e fo r e c a p it a l o u t ­

At annual

p r o d u c e s e r io u s d is lo c a t io n s in m o n e y

la y s, w h ic h u s u a l ly la g b e h in d o th e r

fir s t h a lf w e r e

b u s in e s s

a c tiv itie s,

sta rte d

u p w a rd .

t h a n th e f i g u r e f o r th e w h o le o f 1 9 6 5

Thus

th e

c a p it a l

s p e n d in g

and

c a p it a l

m a rk e ts.

F in a lly , c a p it a l o u t la y s a r e
cy c lic a l.

On

th e

b a s is

of

h ig h ly

p ast

ex­

by

p ro g ra m s

got

tim e

under

w ay,

re ta in e d

but

ra t e s th e f ig u r e s

som e w h at

$ 3 5 .4
b e lo w

f o r th e

b illio n , h i g h e r
th a t

fo r

th e

fo u r t h q u a r t e r o f th a t y e a r . C o r p o r a t e

e a r n i n g s w e r e d e c lin in g a n d b o r r o w ­

b o rr o w in g

1 7 p e r ce n t c a n n o t b e s u s t a in e d f o r

in g

T h is in c r e a s in g

th e c a p it a l m a r k e t , h o w e v e r , a n d th e

any

In

d e p e n d e n c e o n o u t s id e b o r r o w in g , a t

g r o w t h o f b a n k lo a n s d r o p p e d s h a r p l y

a d d i­

r is in g ra t e s o f interest, f a i r l y e a r ly in

fr o m 3 5 . 9 p e r ce n t o f th e to ta l to 2 8 . 0

p e rie n c e , a n n u a l in c r e a s e s o f
e x te n d e d

p r e v io u s

p e r io d

p o stw a r

of

1 4 to

ye a rs.

e x p a n s io n s ,

w as

n e c e s sa ry .

tio n s to c a p a c it y o u t r a n d e m a n d f o r

th e u p s w i n g

f in a l o u t p u t s o o n a ft e r e x p e n d it u r e s

in v e s t m e n t

o n p la n t a n d e q u ip m e n t b e g a n m o v ­

w it h in lim its.

in g up.

D e c lin in g c a p a c it y u t iliz a t io n

ra t e s s ig n a le d o v e r in v e s t m e n t r e la t iv e




t e n d e d to d a m p e n
s p e n d in g

and

keep

the
it

p e r cent.

m oved

m o r e h e a v i ly in to

T h is h e lp e d to h o ld d o w n

th e g r o w t h o f b a n k c re d it to a n a n ­
n u a l ra t e o f 8 .6 p e r ce n t f o r th e fir st

In th is e x p a n s i o n it w a s d iffe re n t.

s ix m o n t h s o f 1 9 6 6 .

R e t a in e d e a r n i n g s g r e w o v e r a lo n g e r
p e rio d ,

and

p re c ia tio n

a t th e

sa m e

a llo w a n c e s

tim e

w ere

de­

s ig n i f i ­

c a n t ly lib e r a liz e d . T h e u s e o f in te rn a l

27

FISCAL

POLICY

F isc a l

p o lic y

h a s s u b s t a n t ia ll y

in ­

f lu e n c e d e c o n o m ic d e v e lo p m e n t s d u r ­
i n g th is e x p a n s io n .

O n th e e x p e n d i ­

tu re s id e , th re e t y p e s o f e x p e n d it u r e s
have

grow n

r a p id ly :

th o se fo r d e ­

fe n s e , th o s e f o r s o c ia l s e c u rity a n d th e
o ld e r w e l f a r e p r o g r a m s , a n d th o s e f o r
new

w e lf a r e

and

d e v e lo p m e n t p r o ­

g r a m s . C h a r t X I V s h o w s th e q u a r t e r ly
changes

in

cash

p a y m e n ts

and

th e

a m o u n t s o f th e q u a r t e r ly d e fic its o r
s u r p lu s e s .
O n th e r e v e n u e s id e , t w o i n n o v a ­
tio n s fe a t u r e d th e p e r io d .
im p o r t a n t

m e a su re s

First, t w o

w e re

d e s ig n e d

s p e c if ic a lly to re d u c e b u s in e s s ta x e s .
S e c o n d , th e re w a s a m a j o r re d u c tio n
C h art X IV

in in c o m e t a x e s a t a tim e w h e n b u s i ­

FEDERAL CA SH TRANSACTIO NS WITH THE PUBLIC
^ gH

( S e a s o n a lly A d ju s te d )

n e s s w a s e x p a n d i n g a n d th e b u d g e t
w as

still

s h o w in g

a

s iz a b le

d e ficit.

O t h e r s ig n if ic a n t d e v e lo p m e n t s in th e
f is c a l a r e a in c lu d e d th e m o v i n g u p o f
c e rt a in t a x p a y m e n t d a te s, a g r e a t e r
u se

of

r e v o lv in g

fu n d s,

and

la r g e r

s a le s o f a s se t s b y F e d e ra l a g e n c ie s .

Receipts, Payments, and Deficits T a b le
4 g i v e s a s u m m a r y s ta te m e n t o f th e
F e d e ra l
ye a rs

ca sh

1961

budget
to

fo r

1966.

p a y m e n t s e a c h in c r e a s e d
cent, b u t p a y m e n t s a r e

th e

fis c a l

R e c e ip ts
by 38

and
per

u n d e rsta te d

b e c a u s e o f th e s a le s o f a s s e t s w h ile
re c e ip ts a r e o v e r s t a t e d b e c a u s e o f th e
a c c e le r a t io n o f t a x p a y m e n t s in 1 9 6 6 .
R e fle c tin g th e la r g e c o r p o r a t e p ro fits,

-2

re c e ip ts fr o m th e c o r p o r a t e in c o m e t a x

- 3

-4

_L
1961
S o u rc e :

1962

1963

1964

1965

1966

B u r e a u o f th e B u d g e t a n d U. S. T r e a s u r y D e p a rt m e n t .




s h o w e d th e la r g e s t in c re a s e .
th e V ie t N a m

D e s p ite

FEDERAL CASH RECEIPTS FROM A N D
PAYMENTS TO THE PUBLIC

T a b le 4

W a r , n a t io n a l d e f e n s e

e x p e n d it u r e s ro s e p r o p o r t io n a t e ly le ss
t h a n th e to ta l a n d d e c lin e d in re la t iv e
im p o r ta n c e .

F isc a l Y e a r s

P a y m e n t s in th e g e n e r a l

1 96 1

1962

a r e a s o f h e a lth , e d u c a t io n , w e lf a r e ,
a n d la b o r e x p e r ie n c e d th e la r g e s t in ­
c re a se , r is in g

b y $ 7.1

b illio n , o r 2 4

p e r cent, in fis c a l 1 9 6 6 .
T h e la r g e g e n e r a l t a x re d u c tio n o f
1 9 6 4 o n ly s lo w e d , a n d d id n o t sto p ,
th e in c re a s e in re ce ip ts. R e c e ip ts f r o m
i n d i v id u a l

in c o m e

ta x e s

w ere

ap­

1963

1964~

1965

19611966

(b illio n s o f d o lla r s )

1966
% Change

R E C E IP T S
In d i v id u a l in c o m e t a x

4 1 .3

4 5 .6

4 7 .6

4 8 .7

4 8 .8

5 5 .4

+ 3 4 .0

C o r p o r a t io n in c o m e ta x

2 1 .0

2 0 .5

2 1 .6

2 3 .5

2 5 .5

3 0 .1

+ 4 3 .5

O t h e r re c e ip ts

3 5 .0

3 5 .8

4 0 .6

4 3 .3

4 5 .4

4 8 .9

+ 3 9 .9

9 7 .2

1 0 1 .9

1 0 9 .7

1 1 5 .5

1 1 9 .7

1 3 4 .4

+ 3 8 .2

N a tio n a l d e fe n se

4 7 .7

5 1 .5

5 3 .4

5 4 .5

5 0 .8

5 8 .4

+ 2 2 .5

E d u c a t io n , h e a lth ,
la b o r , a n d w e l f a r e

2 3 .3

2 5 .0

2 6 .9

2 8 .6

2 9 .8

3 6 .9

+ 5 8 .2

O th e r p a y m e n ts

2 8 .5

3 1 .2

3 3 .4

3 7 .2

4 1 .8

4 2 .3

+ 4 8 .2

T o ta l p a y m e n t s

9 9 .5

1 0 7 .7

1 1 3 .8

1 2 0 .3

1 2 2 .4

1 3 7 .6

+ 3 8 .2

2 .3

5 .8

4.1

4 .8

2 .7

3 .2

T o ta l re c e ip ts

p r o x im a t e ly u n c h a n g e d f o r o n e y e a r,
b u t th e re w a s n o d is c e r n ib le e ffe ct o n
re v e n u e
ta x .

fro m

In

th e

1966

c o rp o ra te

re c e ip ts

in c o m e

fro m

b o th

s o u r c e s s h o w e d la r g e in c r e a s e s to th e
h ig h e s t to ta ls o n re c o rd .
D e fic its in th e c a s h b u d g e t , s h o w n
in

T a b le

4

re g is t e re d

and

C h art

X IV ,

w e re

in e v e r y q u a r t e r b u t t w o

a n d u s u a l ly r a n g e d w e ll o v e r $1 b il­
lio n.

EXCESS O F P A Y M E N T S

O n a f is c a l y e a r b a s is , a n n u a l

d e fic its r a n g e d
and

PAYM ENTS

b e t w e e n $ 2 .3 b illio n

$ 5 .8 b illio n .

e ffe ct o f th e d e fic it w a s e s p e c ia lly im ­
p o rta n t a n d

t r o u b le s o m e in th e la st

h a lf o f 1 9 6 5 a n d th e fir s t q u a r t e r o f
1966.

O n a s e a s o n a l l y a d j u s t e d b a s is

th e c a s h

P e r C e n t D is t r ib u t io n

T he e x p a n s io n a ry

b u d g e t w a s a p p ro x im a te ly

4 2 .5

4 4 .8

4 3 .4

4 2 .2

4 0 .8

4 1 .2

C o r p o r a t io n in c o m e t a x

2 1 .6

20.1

1 9 .6

2 0 .3

2 1 .3

2 2 .4

O t h e r re c e ip ts

3 5 .9

35.1

3 7 .0

3 7 .5

3 7 .9

3 6 .4

1 0 0 .0

1 0 0 .0

1 0 0 .0

1 0 0 .0

1 0 0 .0

1 0 0 .0

I n d i v id u a l in c o m e t a x

T o ta l re c e ip ts

in b a la n c e in th e fir s t h a lf o f 1 9 6 5 .
B u t in th e s e c o n d h a lf th e V ie t N a m

N a t io n a l d e f e n s e

4 7 .9

4 7 .8

4 7 .0

4 5 .3

4 1 .5

4 2 .5

W a r w a s e s c a la t e d s h a r p ly , s o c ia l s e ­

E d u c a tio n , h e a lth ,
la b o r , a n d w e lf a r e

2 3 .4

2 3 .2

2 3 .6

2 3 .8

2 4 .3

2 6 .8

c u r it y b e n e f it s

w ere

in c r e a s e d , a n d

m ilit a r y a n d c iv il s e r v ic e p a y s c a le s
w e r e r a is e d .

A fte r se a s o n a l a d ju st­

O th e r p a y m e n ts
T o ta l p a y m e n t s

2 8 .7

2 9 .0

2 9 .4

3 0 .9

3 4 .2

3 0 .7

1 0 0 .0

1 0 0 .0

1 0 0 .0

1 0 0 .0

1 0 0 .0

1 0 0 .0

m e n t th e d e fic it f o r th e h a lf w a s $ 3 .9
b illio n a n d

th e " n e t fis c a l s t im u l u s "

S o u rc e :

B u r e a u o f the B u d g e t a n d U. S. T r e a s u r y D e p a rt m e n t .

a s e s tim a t e d b y th e P r e s id e n t 's C o u n c il




29

o f E c o n o m ic A d v i s e r s w a s " a b o u t $ 7

T h e se m e a s u r e s s tim u la t e d in v e s tm e n t

b il lio n . "

in th re e w a y s .

T h e tr e n d c o n t in u e d in the

First, b y

W h ile t h e s e r e d u c tio n s w e r e b e in g

in c r e a s in g

m a d e , e m p lo y m e n t t a x e s w e r e r is in g

p rom ote d

r a p id l y to c o v e r th e co sts o f th e e x ­

fir s t q u a r t e r o f 1 9 6 6 w h e n th e s e a s o n ­

c o rp o ra t e

a l l y a d ju s t e d d e fic it w a s $ 3 .2 b illio n .

o p tim ism a n d c o n fid e n c e . S e c o n d , th e

p a n d i n g s o c ia l s e c u rity p r o g r a m . C o l­

C o m i n g a t a tim e w h e n th e e c o n o m y

in v e s tm e n t

le c tio n s

w a s o p e r a t in g n e a r o p t im u m c a p a c it y

s p e c ia l b o n u s f o r m a k i n g in v e stm e n ts.

fro m

th e s e d e fic its g e n e r a t e d s t r o n g in f la ­

F in a lly , th e y p r o v id e d th e m e a n s , in

$ 1 6 . 9 b illio n in fis c a l 1 9 6 5 . O n J a n u ­

t i o n a r y p re ss u re s .

the fo rm o f r e t a in e d e a r n in g s , to f i ­

a r y 1, 1 9 6 6 , ra te in c r e a s e s b e c a m e e f ­

Tax Reductions

n a n c e a s u b s t a n t ia l p a r t o f th e co sts

fe c tiv e

o f th e in v e stm e n ts.

t io n a l r e v e n u e s o f $ 6 b illio n p e r y e a r .

A p r o m in e n t fe a t u r e

o f t a x p o lic y s in c e 1 9 6 1 h a s b e e n th e
r e d u c tio n o f t a x e s o n o r g a n i z e d b u s i­
n e ss,

by

b o th

m e a su re s.

s p e c ific

and

R e p r e s e n t a t iv e s

ge n e ra l

ta x

a d d it io n

th e y

c re d it

to

p r o v id e d

th e s e

m e a s u re s , C o n g r e s s in

tw o

a

sp e c ific

1 9 6 4 e n a c te d

of

e m p lo y m e n t

$ 1 2 .4

b illio n

e s t im a t e d

C o lle c t io n s

ta xe s

in fis c a l

to

in f is c a l

ro s e

1961

p ro d u ce

to

a d d i­

1 96 6 w ere

$20

b illio n a n d w e r e e s t im a t e d a t $ 2 4 . 3

b u s i­

a g e n e r a l a n d s u b s t a n t ia l re d u c tio n in

b illio n in f is c a l

n e s s h a d lo n g c o m p la in e d a b o u t in ­

b o th in d iv id u a l a n d c o r p o r a t e in c o m e

s t a n t ia l p a r t o f th e s a v i n g s o n in c o m e

a d e q u a t e d e p r e c ia t io n a llo w a n c e s f o r

ta x e s.

and

ta x

i n a d e q u a c ie s

ste p s, the l a r g e r o n e in 1 9 6 4 a n d th e

c r e a s e s in e m p lo y m e n t ta x e s .

w e r e a c c e n t u a t e d b y th e s h a r p p rice

o th e r in 1 9 6 5 . T h e re d u c tio n t o o k th e

Budgetary Practices

r is e s a ft e r W o r l d W a r II a n d

fo rm m a in ly o f lo w e r ra t e s o n a ll t a x

fis c a l

b ra c k e ts;

b u d ge tary

p u rp o se s.

r a p id

pace

T h e se

of

In

e a rn in g s

o f t e c h n o lo g ic a l

b y th e
change

It

becam e

th e

e ffe c tiv e

cu ts

w ere

in

tw o

e s p e c ia lly

1967.

e x c is e t a x e s

1967

T h u s, a

w as

m ade

sub ­

o f fs e t b y

in ­

T he b u d g e t fo r
e x t e n s iv e

p ra c tic e s

w h ic h

u se

of

a ffe c te d

w h ic h s p e e d e d o b s o le s c e n c e . N e w d e ­

la r g e o n th e v e r y

p r e c ia t io n

th e

c a b le to th e to p b ra c k e ts. T h e ra te o n

e x p e n d it u r e s .

su b ­

m o s t c o r p o r a t e in c o m e w a s re d u c e d ,

not n e w ,

a llo w a n c e s ,

in t w o ste p s, f r o m 5 2 to 4 8 p e r cent.

w id e l y in th e 1 9 6 7 b u d g e t t h a n b e ­
fo re . T h e y a r e th e a c c e le r a t io n o f t a x

g u i d e l in e s

T re a su ry

D e p a rtm e n t

s t a n t ia lly

in c r e a s e d

is s u e d
in

by

1962

th e

h ig h

ra t e s a p p l i ­

th e sta te d a m o u n t s o f re c e ip ts a n d / o r
T he se

p ra c tic e s w e r e

b u t th e y w e re

u sed

m o re

p r o d u c in g a n a n n u a l t a x s a v i n g s to

At

c o r p o r a t io n s e s t im a t e d a t th e tim e o f

m a t e d th a t t a x s a v i n g s w o u ld a m o u n t

p a y m e n t d a t e s, th e u s e o f r e v o lv in g

$ 1 . 5 b illio n .

to a b o u t $ 1 1

f u n d s , a n d th e s a le o f G o v e r n m e n t -

To

s t im u la t e

new

c a p it a l

in v e s t­

1964

in c o m e

le v e ls,

b illio n

it w a s

e sti­

f o r in d iv id u a ls

a n d $ 3 b illio n f o r c o r p o r a t io n s .

T h is

m e n t fu r t h e r a s a m e a n s to c re a te n e w

re d u c tio n g a v e a n o t h e r b o o s t to c o r­

job s, C o n g r e s s in 1 9 6 2 a m e n d e d the

p o ra t e

t a x l a w to a l l o w a c re d it a g a i n s t th e

s t a n t ia lly to c o n s u m e r d e m a n d .

in c o m e t a x e q u a l to a p o r t io n o f th e
n ew

investm ent

property

(thus

in

personal

q u a lifie d

e x c lu d in g

re a l

estate).

p ro fits a n d

T h e f in a l t a x

a ls o

added

su b ­

o w n e d a s s e t s o r p a r t ic ip a t io n s in th o s e
a sse ts.
T h e a c c e le r a t io n o f a t a x p a y m e n t
d a t e d o e s n o t c h a n g e th e u lt im a te t a x

re d u c tio n , a p p l y i n g

lia b ilit y o f a t a x p a y e r , o r th e a m o u n t

to a n u m b e r o f e x c is e ta x e s , c a m e in

o f t a x e s e v e n t u a l ly co lle cte d

1965.

G o ve rn m e n t.

T h e to ta l re d u c tio n w a s a b o u t

b y th e

It m e r e ly a d v a n c e s th e

T h e a m o u n t o f th e c re d it w a s 7 p e r

$ 4 .6 b illio n , to t a k e e ffe ct in s e v e r a l

tim e w h e n th e p a y m e n t is m a d e , a n d

ce n t in m o s t c a s e s; p u b lic u tilitie s w e r e

s t a g e s e x t e n d in g to 1 9 6 9 .

t h u s is, in a s e n se , a b o r r o w i n g f r o m

a llo w e d 3 p e r cent.

A t th e 1 9 6 2 le v e l

t w o s ta g e s , e ffe c tiv e in J u n e 1 9 6 5 a n d

th e fu tu re .

The

o f in v e s t m e n t th e a n n u a l t a x s a v i n g

J a n u a r y 1 9 6 6 , p r o v id e d cu ts o f $ 1 . 7 5

v id e d

fo rm s

b illio n e a c h .

g r a d u a t e d w it h h o l d i n g o n i n d i v id u a l

w a s e s tim a t e d a t a
$1

b illio n ;

by

1966

little m o r e th a n
th e

e s tim a t e d

a m o u n t h a d ris e n to a b o u t $ 2 b illio n .

T h e first

E a r ly in 1 9 6 6 , h o w e v e r ,

of

budget

p ro ­

a c c e le ra tio n :

in c o m e ta x e s , s e m im o n t h ly in s t e a d o f

t w o o f the ta x e s .

m o n t h ly d e p o s it o f w it h h e ld t a x e s b y
e m p lo y e r s , a n d e a r lie r d a t e s f o r p a y ­

a c c o m p lis h e d b y t h e s e s e v e r a l m e a s ­

m ent

of

co rp o ra te

in c o m e

u re s, m a d e a s o f th e tim e th e v a r io u s

M uch

of

th e

of

a cts w e r e

p a y m e n t s c a m e in th e s e c o n d q u a r t e r

$21

p a s s e d , a m o u n t to a b o u t

b illio n p e r y e a r .

in c o m e

and

B u t le v e ls o f

in v e s t m e n t

have

rise n

c o n s id e r a b ly in th e in te rim , a n d th e
annual

s a v in g s

in c o m e

and

at

1966

in v e s t m e n t

s u b s t a n t ia lly h ig h e r .




1967

C o n g r e s s p a r t ia lly re s to re d th e cu ts in
E stim a te s o f th e to ta l t a x s a v i n g s

30

th r e e

le v e ls
w o u ld

of
be

im p a c t

ta x e s .

a c c e le r a t e d

of

1966

w hen

cash

re c e ip ts ( u n a d ­

ju ste d ) ju m p e d s h a r p l y to $ 4 6 .1

b il­

lio n ,

th e

to

p ro d u ce

a

q u a r t e r o f $ 1 0 .1

s u r p lu s

b illio n .

fo r

O n a se a ­

Fiscal Policy and Money and Capital
Markets B u d g e t a r y d e fic its a n d s u r ­
p lu s e s

a ffe c t th e

c re d it a n d

total

dem and

fo r

h e n c e in te re st ra te s, a n d

th e y

d iv e r t e d

fu n d s

fro m

o t h e r im ­

p o r t a n t m a r k e t se c to rs a n d c o n trib u te d
v e lo p e d

ra te e ffe cts.

M o r e o v e r , th e p r o s p e c t o f c o n t in u in g

$ 3 .8

b illio n .
The
u se

1967

b u d g e t m a d e e x t e n s iv e

o f th e s a le

a sse t,

a

F e d e ra l

O v e r m o st o f th e c u rre n t
th e

F e d e ra l

G o ve rnm e n t

to

th e

e xtre m e
in

s t r in g e n c y

th e

th a t

m o rtga ge

de­

m a rk e t.

la r g e a g e n c y d e m a n d s w a s p r o b a b l y

p a r­

h a s b e e n a la r g e net b o r r o w e r in th e

an

In a s a le o f a n

m a rk e t, m o s t ly in th e sh o rt-te rm e n d ,

k e t e x p e c t a t io n s o f fu r t h e r ra te rise s.

o f a sse ts a n d

t ic ip a t io n s in a sse ts.

e x p a n s io n ,

be

o fte n

m a n a g e d to p r o d u c e d e s ire d in te re st

s u r p lu s

can

is s u e s

w it h in

th e

p o lic y

agency

$ 3 9 .6

and

fis c a l

th e se

s o n a l l y a d ju s t e d b a s is , re c e ip ts w e r e
b illio n

lim its

B e ca u se

c a r r ie d y ie ld s w e ll a b o v e 6 p e r cent,

agency

m e n t s e lls to th e p u b lic

or

d e p a rt­

m o rtga ge s,

a n d c h ie fly t h r o u g h the s a le o f T r e a s ­
u r y b ills.

T h is t e n d e d to c o n c e n tra te

im p o r t a n t f a c t o r p r o m o t in g m a r ­
The

c o m b in a t io n

c re d it d e m a n d s

of

and

b u r g e o n in g

a

t ig h t

m oney

n ote s, o r o t h e r s im ila r a s s e t s w h ic h it

th e u p w a r d ra te p re s s u re s in th e s h o r t ­

p o lic y

h o ld s in its p o rt fo lio . T h e p r o c e e d s o f

te rm a r e a a n d a w a y f r o m th e l o n g ­

m o n e y a n d c a p it a l m a r k e t s in A u g u s t

p ro d u c e d

s e r io u s

s t r a in s

on

s u c h a s a le a r e n o t c o u n te d a s a re ­

te rm a r e a , w h ic h w a s c o n sis te n t w it h

a n d S e p t e m b e r.

c e ip t b u t a s a re d u c tio n o f e x p e n d i ­

th e p r o g r a m to re d u c e th e d e fic it in

th a t m o n e t a r y p o lic y a lo n e c o u ld n o t

tu re s.

our

T h o se

p r o c e e d s c a n th e n

be

s p e n t o r r e lo a n e d w it h o u t s h o w i n g a n

b a la n c e

h a n d le d

w it h

b u d g e t to ta ls f o r b o th re c e ip ts a n d e x ­

a lt h o u g h

th e

p e n d it u r e s a r e h e ld d o w n .

t e c h n iq u e

in c r e a s e

in

e x p e n d it u r e s .

T h u s,

F u rth e r, if

of

m anagem ent

p aym e n ts.

Debt

b e c o u n te d o n to c o n t a in th e b u s in e s s

a ls o

b o o m , w it h o u t r i s k i n g s e r io u s d is lo c a ­

v ie w ,

t io n s in th e m o n e y a n d c a p it a l m a r ­

r e f u n d in g

kets. F isc a l a c t io n w a s n e e d e d to s u p ­

o p e r a t io n s
th is

w as

w e re

end

advance
o fte n

T h e c o n v ic t io n g r e w

in

e m p lo y e d

to

p o rt m o n e t a r y re stra in t.

In e a r ly S e p ­

th e a g e n c y i n v o lv e d n o r m a ll y d r a w s

a c h ie v e s o m e le n g t h e n in g o f a v e r a g e

t e m b e r th e A d m in is t r a t io n a n n o u n c e d

its f u n d s f r o m th e T r e a s u r y , a s a le o f

m a tu ritie s.

a t h r e e f o ld p r o g r a m to s lo w th e s p i-

a s s e t s p e r m it s it to e n g a g e in a d d i ­

By

th e

second

h a lf o f

1965,

in ­

r a li n g d e m a n d f o r cred it.

First, th e

t io n a l o p e r a t io n s w it h o u t u s in g T r e a s ­

c r e a s e s in th e T r e a s u r y 's d e m a n d s o n

u r y f u n d s , w h ic h w o u l d c a u s e fu r t h e r

th e m a r k e t w e r e s u p e r im p o s e d u p o n

p o n e m e n t o f th e s a le o f p a r t ic ip a t io n s

b o r r o w i n g b y th e T r e a s u r y a n d p u s h

a s w o lle n

b y th e F e d e r a l a g e n c ie s a n d

th e to ta l d e b t c lo s e r to its s t a t u t o r y

se c to r a n d fr o m sta te a n d lo c a l g o v ­

tio n

c e ilin g .

e rn m e n t s .

n a n c in g n e e d s .

T h e s a le o f p a r t ic ip a t io n s in

d e m a n d fr o m

th e p riv a t e

A s a re sult, in te re st ra te s

of

agency

b o r r o w in g s

lim it a ­
to

r e f i­

S e c o n d , th e P re sid e n t

a s s e t s h a s e s s e n t ia lly th e s a m e e ffe ct

ca m e u n d e r stro n g u p w a rd

a s a s a le o f a sse ts. A F e d e ra l a g e n c y ,

d e s p it e c o n t in u in g in c r e a s e s in b a n k

f e n s e s p e n d in g .

in

p u b lic ,

r e s e r v e s a n d b a n k credit. B y th e f in a l

tr a tio n a s k e d C o n g r e s s to re s c in d te m ­

p le d g i n g a s s e t s w h ic h it h o ld s a s c o l­

q u a r t e r o f 1 9 6 5 ra te s w e r e r is in g in

p o r a r ily th e 7 p e r ce n t in v e s t m e n t t a x

la te ra l.

a ll se c to rs o f th e m o n e y a n d c a p it a l

cre d it

m a rk e ts.

c e le ra te d

effect,

b o rro w s
D e bts

fro m

in c u r r e d

th e
by

F e d e ra l

a g e n c ie s a r e n o t su b je c t to th e s t a t u ­
to r y c e ilin g o n F e d e ra l in d e b t e d n e s s .




M a rke ts

in

1966

w e re

p re ssu re

T re a su ry a n n o u n c e d te m p o ra ry p o st­

a ffe c te d

o r d e r e d a c u t b a c k in F e d e ra l n o n d e ­

and

F in a lly , th e A d m i n i s ­

th o s e

p r o v is io n s

d e p r e c ia t io n

re a l e sta te .

of

a p p ly in g

ac­
to

P a s s a g e o f th e r e q u e s t e d

a ls o b y h e a v y b o r r o w in g b y F e d e ra l

le g is la t io n

a g e n c ie s .

O c t o b e r b u t th e m a r k e t re a c te d im ­

F ro m

Ja n u a ry

th ro u gh

w as

d e la y e d

u n til

e a r ly

J u n e , F e d e ra l a g e n c ie s s o ld o v e r $ 1 1

m e d ia t e ly .

b illio n o f n e w

o n a s h a r p l y s t r o n g e r to n e a n d it w a s

la r g e

o b lig a t io n s , in c lu d in g

a m o u n ts

tific a te s.

of

p a r t ic ip a t io n

O f th is total, $ 5.1

c e r­

b illio n

re p re s e n t e d net n e w b o r r o w in g . C o m ­

T h e c a p it a l m a r k e t t o o k

s o o n c le a r th a t th e s t e a d y u p t r e n d o f
in te re st

ra t e s

had

been

h a lte d ,

at

le a s t t e m p o r a r ily .

in g a t a tim e w h e n th e m a r k e t s w e r e
a lr e a d y

h e a v ily c o n g e s te d w it h

c o r­

p o r a t e a n d m u n ic ip a l o f f e r in g s a n d a
p o lic y o f m o n e t a r y re stra in t w a s
effect,
m arke t

th e se
ra t e s

o f f e r in g s
to

re c o rd

h e lp e d
h ig h

in

p u sh
le ve ls.

31

MONETARY

1960-1963:

Active Ease

M o n e ta ry

su b s t a n t ia lly .

POLICY

T h e c o n t in u in g in c r e a s e

Growth of Time Deposits

The

ex­

began

in

p o lic y in th e p a s t s i x y e a r s h a s ru n

in b a n k re se rv e s, b a n k cre d it, a n d th e

p a n s io n a ry

th e g a m u t f r o m

e a s y to v e r y tig h t.

m o n e y s u p p ly in d ic a t e d c le a rly , h o w ­

1 9 6 0 b o r e f r u it in th e f o r m o f a n u n ­

I 9 6 0 , th e F e d e ra l

e v e r, th a t a n y f i r m i n g in c re d it w a s

p re c e d e n t e d

d u e to a n a c c e le r a t io n in th e d e m a n d

th e n e x t f iv e y e a r s .

f o r cre d it a n d

p o sits, w h ic h ro s e little in

S t a r t in g in M a r c h
R e s e rv e

m ade

re se rve s

m o re

f r e e ly

n o t to a

re d u c tio n in

n e t fr e e r e s e r v e s ro s e to o v e r $ 5 0 0

th e s u p p ly o f re s e rv e s .

F e d e ra l R e ­

m illio n a n d r e m a in e d n e a r t h a t f ig u r e

se rve

th rou gh o u t

m a r k e t o p e r a t io n s c o n t in u e d

a v a ila b l e .

B e fo r e th e e n d o f th e y e a r

1961.

C r e d it e x p a n s io n

cre d it s u p p lie d

th ro u g h

open
to rise

d e p o s it e x p a n s i o n

over

T o ta l b a n k d e ­
1959 and

1 9 6 0 , in c r e a s e d b y m o r e t h a n $ 1 0 0
b illio n , o r n e a r ly 5 0 p e r cent, b y th e
end

of

1965.

R e m a r k a b ly ,

about

Ja n u a ry

s te a d ily .

Q

w as

s u p p lie d m o r e lib e r a lly , h o w e v e r , h a d

crea se w a s

pay

it n o t b e e n f o r a s e r io u s a n d p e r s is ­

p o sits, w h ic h m o r e t h a n d o u b le d . T h e

h i g h e r ra t e s o n tim e a n d s a v i n g s d e ­

tent b a la n c e o f p a y m e n t s d e fic it a n d

e x p lo s iv e

p o s its e x c e p t t h o s e w it h m a t u ritie s o f

th e u r g e n t n e e d f o r a d d it io n a l m e a s ­

m a r k e d a n e w a tt itu d e t o w a r d su c h

w as
1962

s t im u la t e d
w hen

am ended

fu rth e r

in

R e g u la t io n

to

p e r m it

banks

to

R e s e rv e s m ig h t h a v e b e e n

p o lic ie s w h ic h

s ix m o n t h s o r le ss. T h is e n a b le d b a n k s

u re s to

to c o m p e te m o r e v i g o r o u s l y f o r th e

e ls e w h e re .

s a v i n g s o f i n d iv id u a ls .

It a l s o f a c ili­

deal

w it h

it, a s

p ly o f r e s e rv e s w a s

ta te d th e m a r k e t in g o f n e g o t ia b le c e r­

s lo w e r

tific a te s o f d e p o s it, w h ic h b y A u g u s t

in te re st

1 9 6 6 s w e lle d in v o lu m e to m o r e t h a n

t ig h t e n in g

e x p la in e d

F o r th a t r e a s o n th e s u p ­

p ac e th a n
ra te s

in c r e a s e d

th e

ro se.

w h ic h

at a

dem and
The

and

grad u a l

e n su e d

w as

r e in ­

th re e f o u r t h s o f th is p h e n o m e n a l in ­

d e p o s its .

in tim e a n d
g ro w th

in

s a v in g s d e ­

tim e

d e p o s it s

B a n k s f o u n d th a t t h e y c o u ld

se ll n e g o t ia b le c e rtific a te s o f d e p o s it
in th e m o n e y m a r k e t .

T h e su c c e ss o f

th e se in s t ru m e n t s le d to a

p r o lif e r a ­

tio n o f s im i la r d e v ic e s, b o th
a b le a n d

n e g o t i­

n o n n e g o t ia b le , f o r s a le to

$ 1 8 b illio n . A n a d d it io n a l in c e n tiv e to

fo rc e d b y a n in c r e a s e in th e d is c o u n t

i n d iv id u a l d e p o s it o r s a s w e ll a s to in ­

so lic it tim e a n d s a v i n g s d e p o s it s w a s

ra te fr o m

stitu tio n s.

p r o v id e d in O c t o b e r 1 9 6 2 b y a r e d u c ­

1963.

tio n in r e s e r v e re q u ir e m e n t s o n su c h

w a s re v is e d to p e r m it h i g h e r ra t e s o n

d e p o s it s f r o m

a ll tim e d e p o s it s w it h

1963-1964:
1963

5 to 4 p e r cent.

Restrained Ease In e a r ly

th e fir s t s ig n s

of a

d e p a rtu re

3 to 3Vfe p e r ce n t in J u l y

A t th e s a m e tim e , R e g u la t io n Q
m a t u ritie s o f

le ss th a n o n e y e a r .
In

Novem ber

g r e s s iv e

Banks

b e c a m e q u it e a g ­

in th e c o m p e titio n f o r n e w

d e p o s it s to p r o v id e f u n d s w h ic h c o u ld
b e u s e d p r o f it a b ly in th e lo a n a n d s e ­
c u r it y m a rk e ts.

1964

th e

d is c o u n t

The

c o m p a r a t iv e l y

s lo w

ra te

of

f r o m th e a c t iv e e a s e o f a lm o s t th re e

ra te w a s r a is e d fr o m 3Vfe to 4 p e r cent,

g r o w t h o f d e m a n d d e p o s it s w a s u n ­

y e a r s b e g a n to a p p e a r .

b ut a g a in

u s u a l f o r a p e r io d o f s u c h r a p id e x ­

N e t fr e e re ­

th e c h a n g e

w as

due

a l­

s e r v e s b e g a n to fa ll, a n d b o r r o w i n g s

m o s t e n tire ly to b a la n c e o f p a y m e n t s

p a n s io n .

a t F e d e ra l R e s e r v e B a n k s , w h ic h h a d

p re s s u re s

n a t io n a l

b e e n s m a ll in

r e s tr a in

1961

and

1 9 6 2 , ro se

and

w as

d o m e s t ic

n o t in t e n d e d

e c o n o m ic

to

g ro w th .

T h e m o v e f o llo w e d a ris e in b o t h o f ­
fic ia l

and

m arke t

ra t e s

in

London.

T h e p u r p o s e o f th e in c r e a s e w a s to

m eas­
m o re

r a p id l y t h a n th e m o n e y s u p p ly . M a n y
h o ld e r s
f lu e n c e d

of

dem and

p erh ap s

by

d e p o s its ,
r is in g

in ­

in te re st

r a t e s o n tim e d e p o s it s a n d o t h e r e a r n ­

lin e w ith f o r e ig n ra te s.

in g

T h e F e d e ra l

a s se t s,

t r im m e d

th e ir

d e p o s its

R e s e rv e c o n tin u e d to s u p p l y re s e r v e s

s h a r p l y in o r d e r to k e e p f u n d s f u lly

su ffic ie n t to a llo w f o r th e e x p a n s i o n

in v e s te d .

and

in te re st

re la te d




w hen

u r e d in c o n s t a n t d o lla r s , g r e w

m a in t a in d o m e s t ic sh o rt-te rm ra t e s in

o f th e e c o n o m y a t a m o d e r a t e p a c e ,

32

C h a r t X V s h o w s th a t g r o s s
p ro d u c t, e v e n

ra te

p r im a r ily

d e v e lo p m e n t s.

m o ve m e n ts
to

w e re

in t e r n a t io n a l

As

a

re su lt,

m oney

w as

u s e d m u c h m o re in te n s iv e ly . It c a n b e
s e e n in C h a r t X V th a t m o n e y a c tiv ity ,
w h ic h is th e c o n v e n t io n a l m o n e y s u p ­
p ly

w it h

ponent

th e

dem and

m u ltip lie d

d e p o s it

by

an

com ­

in d e x

of

v e lo c it y f o r ce n te rs o u t s id e N e w Y o r k
C ity , b e g a n to o u t p a c e G N P e a r ly in
1963

a n d h a s c lim b e d m o r e r a p id l y

e v e r sin ce .
N o t a ll b a n k s w e lc o m e d th e s h if t
in th e c o m p o s it io n o f d e p o s its .

Som e

f o u n d t h e m s e lv e s d r a w n in to th e in
te n s e c o m p e titio n f o r d e p o s it s a g a i n
t h e ir w ill, a n d m a n y o f th e m fe lt thj
a n y in c r e a s e in to ta l d e p o s it s w a s
la r g e e n o u g h to o ffs e t th e in c re a
c o st

of

th e

r is in g

tim e

d ep osi

N e v e r t h e le s s , a t m o s t b a n k s tim e a
s a v i n g s d e p o s it s g r e w in r e la t iv e i
p o r t a n c e a n d a t s o m e b a n k s t h e y ro s
w e ll a b o v e d e m a n d d e p o s its .

1965-1966:
L a te in
sh o w

The Need for Restraint

1 9 6 4 th e e c o n o m y b e g a n to

s ig n s o f o v e r h e a t in g .

O ne of

th e fir s t s i g n s o f fric tio n w a s a n

in ­

c r e a s e in w h o le s a le p rice s, w h ic h h a d
r e m a in e d s t a b le f o r s ix y e a r s b u t b e ­
g a n a d e fin it e ris e a s 1 9 6 4 d r e w
a clo se .
advanced

C o n s u m e r p ric e s, w h ic h h
s t e a d ily

but

not

ra p i

t h r o u g h o u t th e e x p a n s io n , b e g a n
c lim b f a s t e r in 1 9 6 5 .

S e r v ic e s , re

a n d " f o o d a w a y fr o m h o m e " w e r e th
ite m s

on

r a p id ly .

w h ic h

p ric e s

ro s e

m o st'

B y 1 9 6 6 th e in c r e a s e s b e

c a m e l a r g e r a n d m o r e g e n e r a l.




33

M o n e t a r y p o lic y h a d b e g u n to m o v e

In th e f a c e o f s t r o n g lo a n d e m a n d

ra t e s in th e f a c e o f th e r a p id l y g r o w ­

t o w a r d re stra in t, h o w e v e r , b e fo r e th e

even

put con­

in g d e m a n d f o r c re d it p r o b a b l y h a d

p ric e p r e s s u r e s o f 1 9 6 5

s id e r a b le u p w a r d p r e s s u r e o n m a r k e t

th e e ffe ct o f s p e e d in g u p th e g r o w t h

p arent.

On

F e b ru a ry

becam e a p ­
Open

in te re st

ra te s,

M a r k e t C o m m itte e , p r i m a r i ly b e c a u s e

m a in e d

s ta b le ,

of

C h a r t X V I.

re ce n t s h a r p

2 , th e

th is s lig h t t ig h t e n in g

in c r e a s e s

in

c a p ita l

but
as

bank
can

be

ra t e s
seen

re ­

o f th e m o n e y s u p p l y a n d b a n k cred it.

in

T h e b a n k s 7 p r im e ra te w a s b e lo w th e

T h u s th e e ffe cts o f th e

ra te a t w h ic h m o s t c o r p o r a t io n s c o u ld

o u t flo w s , m o d if ie d its p o lic y b y m o v ­

re strictive p o lic y w e r e n o t t r a n sm itte d

se ll n e w b o n d s . T h is d iv e r t e d d e m a n d

i n g g r a d u a l l y t o w a r d s lig h t l y fir m e r

to b a n k b o r r o w e r s w h e r e t h e y w o u ld

a w a y f r o m th e c a p it a l m a r k e t a n d in ­

m o n e y m a r k e t c o n d it io n s .

h a v e e x e rte d th e ir m a x im u m re s tr a in t

c r e a s e d th e d e m a n d f o r b a n k lo a n s .

T h is m o v e

w a s s o o n re fle c te d in a s h a r p in c re a s e

o n b o th in f la t io n a n d th e o u t f lo w o f

B a n k s u s u a l ly m e t th is d e m a n d , th e r e ­

in

fu n d s.

b y in c r e a s in g th e ir r e q u ir e d re s e rv e s .

b o rr o w in g

fr o m

F e d e ra l

R e se rv e

In fact, th e s t a b ilit y o f b a n k

B a n k s a n d a s u s t a in e d n e t b o r r o w e d

T h e O p e n M a r k e t C o m m itt e e u s u a l ly

r e s e r v e p o s it io n f o r m e m b e r b a n k s f o r

se ts

th e fir st tim e s in c e e a r l y

g o a l in te rm s o f s p e c if ie d c o n d it io n s

1960.

its

sh o rt-te rm

m o n e ta ry

in th e m o n e y m a rk e t.
bank

lo a n s

and

p o lic y

A r a p id ris e in

d e p o s it s

te n d s

to

t ig h t e n c o n d it io n s m o r e t h a n th e S y s ­
t e m 's g o a l c a lls f o r a n d

th e S y s t e m

s u p p lie s a d d it io n a l re s e rv e s , th u s, in
effect, v a l id a t i n g
c o m m e r c ia l
sh arp

th e a c t io n s o f th e

b an ks.

In

th is

rise in th e d e m a n d

w ay

a

fo r b a n k

c re d it c a lls fo rth , in th e s h o r t ru n , a n
a u t o m a t ic in c r e a s e in r e s e r v e s in s t e a d
o f p r o v i d i n g a n a u t o m a t ic b r a k e o n
th e e x p a n s i o n o f b a n k cred it.

34



E a r l y in 1 9 6 6 , h o w e v e r , a s th e d e ­

T h e s t a b ilit y in b a n k ra t e s in la te
1964

and

trib u te d

e a r ly

to

s id e r a b le

1965

t w o fa c to rs .
p re ssu re

w as

T h e s e d e v e lo p m e n t s a d d e d u p to a

a t­

m a n d f o r c re d it c o n tin u e d to in c re a s e

se ve re

First, c o n ­

a t a s p e c t a c u la r p ac e , th e S y s t e m in ­

m o r t g a g e f u n d s in th e s p r in g o f 1 9 6 6 .

c r e a s e d its re stric tive p olicie s.

T h e e n s u i n g d if fic u lt ie s f o r p o t e n t ia l

m ay

be

e x e rt e d

on

A s the

sq u e e ze

on

th e

m arke t

fo r

th e f e w b a n k s w h ic h a n n o u n c e d ra te

v o lu m e o f r e s e r v e s s u p p lie d in c re a s e d

h o m e b u ild e r s o r b u y e r s a n d f o r th e

in c r e a s e s a n d th o s e m o v e s w e r e re ­

m o r e s l o w l y t h a n th e b u r g e o n in g d e ­

c o n st ru c t io n in d u s t r y le d to a n u m b e r

m a n d , b a n k s t r im m e d th e ir e x c e s s re ­

of

c o u n t ra te in c re a s e , m o s t b a n k s still

se rve s

a d d itio n a l fu n d s

c o u ld g e t s u ff ic ie n t r e s e r v e s to e n a b le

w in d o w

th e m

f o r a ll m e m b e r b a n k s ro se r a p id ly to

s c in d e d .

S e c o n d , in s p it e o f t h e d is ­

to e x p a n d

in te re st

lo a n s a t p r e v a i li n g

ra te s.

T o ta l

R e se rve

Bank

c re d it s u p p lie d c o n t in u e d to ris e a t a

o r b o rro w e d
and

net

a t th e d is c o u n t

b o rro w e d

re s e rv e s

m e a su re s

d e s ig n e d
in to

th e

In a d d it io n , C o n g r e s s e n a c t e d le g is ­
la t io n

e a r ly

a g e n c ie s , in s e ttin g c e ilin g s o n in te re st

1960.

to

p e r m it

F e d e ra l

se t d if fe r e n t ra t e s b a s e d

o f in te re st ra te in c re a s e s .

s u p p ly

d e p o s it s .

In th e s e c o n d h a lf o f 1 9 6 5 , h o w ­
th e

dem and

fo r

bank

c re d it

o f fu n d s ,

G o ve rn o rs,

s u r a n c e C o r p o r a t io n , a n d th e F e d e ra l

w e ll a s
fo r

ra tes.

r e la t iv e

to

bank

B y la te 1 9 6 5 , b a n k ra t e s w e r e

s o f a r o u t o f lin e w it h o t h e r ra t e s th a t
w hen

th e

b re a k th ro u g h

fin a lly

oc­

c u rre d , a v e r y s te e p ris e t o o k p la ce .

la r g e

by

th e

F e d e ra l

R e s e rv e

th rou gh o u t

m o s t o f 1 9 6 5 , b u t it w a s n o t u n til D e ­

G o v e r n m e n t a g e n c ie s

s a le s

of

m ade

p a r t ic ip a t io n s

at

a t­

T h rif t in st itu t io n s g e n e r a lly s u ff e r e d
th e

c o m p e titio n
ra te

c o m m e r c ia l
s t e a d ily

of

fu n d s .

s a v in g s

b an ks,

sin c e

s t a n t ia lly .

fo r

d e p o s it s

a ft e r

1960,

The
at

s lo w e d

t h a t th e

w as

b a n k s a n d s a v i n g s a n d lo a n a s s o c ia ­
tio n s s h o w e d a n e v e n s lo w e r g r o w t h

n o t in itse lf b r i n g a b o u t tig h t e r m o n e y ,

and

h o w e ve r.

th e

a b s o lu t e

f o l l o w in g

th e

c o r p o r a t e se c u ritie s, sta te a n d

R e se rve

p ro ­

p e r io d

c o n tra ry,

im m e d ia t e ly

in c re a s e ,
v id e d

th e

th e

an

th ro u gh

F e d e ra l

abundance

open

m arke t

of

in

re se rve s

o p e r a t io n s

in

o r d e r to s m o o t h th e t r a n s it io n to a

in

a

over c o m m e r c ia l

d e p o s it s u p to $ 1 0 0 , 0 0 0 .

T h is w a s

p e t itio n w h ic h h a d d e v e lo p e d in th is
a r e a , a n d r e d u c e th e d r a in o f f u n d s
f r o m th e th rift in stitu tio n s.

su b ­

T h e h i g h e r d is c o u n t ra t e d id
On

a d v a n ta ge

S a v in g s a t m utua l s a v in g s

r a is e d .

ra te

H o m e L o a n B a n k B o a r d a c t e d to se t
ra t e s w h ic h g a v e th rift in st itu t io n s a

c lim b in g

cem ber

d is c o u n t

In ­

e x p e c t e d to lim it th e v e r y k e e n c o m ­

tr a c tiv e y ie ld s .

gro w th

cent.

in ­

D e p o s it

b a n k s in th e ra t e s t h e y c o u ld p a y o n

416

c re d it p o lic y w a s f o llo w e d

r a is e d

F e d e ra l

s m a ll

in

f ir m

b o r r o w e r s c o m p e te d

G o ve rn m e n ts

th e

F e d e ra l

ra te w a s ra is e d , in f o u r ste p s, f r o m

to 6 p e r

p r iv a t e

fu n d s.

G o ve rn m e n ts a s

te re st ra t e s o n t h e ir o b lig a t io n s , a n d

O v e r th e n e x t f e w m o n t h s th e p r im e

A

o n s iz e o f

Im m e d ia t e ly th e B o a r d o f

ro s e to re c o rd le v e ls a s b o r r o w e r s b id

m o u n t e d a t a n a c c e le r a t e d p a c e , a n d
ro s e

in te re st ra te s

a g a i n s t e a c h o th e r.

m arke t

ra t e s

and

re g u la to ry

ra t e s to b e p a i d o n tim e d e p o s its , to

R e stric tio n s o n cre d it e x p a n s io n in ­
t e n s ifie d c o m p e titio n f o r th e a v a i la b l e

e v e r,

m o rtga ge

le v e ls a p p r o a c h i n g th o se o f 1 9 5 9 a n d

it u n ­

pace, a n d b a n k s fo u n d

channel

m arke t.

n e c e s s a r y to r a t io n c re d it b y m e a n s

r a p id

to

fe w

m o n th s

a m o u n ts.

d e c lin e d

M o re

g o ve rn m e n t

issu e s,

and

agency

p u lle d

fu n d s

is s u e s

in

a ttra c tiv e
lo ca l

F e d e ra l
out

of

th e th r ift in st itu t io n s o r lu re d a w a y
p o t e n t ia l

d e p o s its .

h i g h e r le v e l o f ra t e s a n d r e a s s u r e a
n e rv o u s m arket.




35

B A L A N C E OF P A Y M E N T S

th e

a n d d e v e lo p m e n t s in t h is e x p a n s io n .

U n ite d S t a t e s b a la n c e o f in t e r n a t io n a l

A

c o n t in u in g

T h e siz e o f th e d e fic it d e p e n d s o n h o w

liq u id it y b a s is a n d th e o f fic ia l r e s e r v e

p aym e n ts

it is m e a s u r e d .

t r a n s a c t io n s b a s is .

has

la r g e

d e fic it in

a ff e c te d

b o th

p o lic y

C h a r t X V I I s h o w s th e

d e ficits in re ce n t y e a r s m e a s u r e d b y
the t w o m e t h o d s p r e s e n t ly e m p lo y e d

b y th e D e p a r t m e n t o f C o m m e rc e , th e
O n th e o f fic ia l re ­

s e r v e t r a n s a c t io n s b a s is , th e d e fic it is
m e a s u r e d b y th e c h a n g e in U. S. o f ­
fic ia l r e s e r v e a s se t s (g o ld , c o n v e r t ib le
f o r e i g n c u rre n c ie s, a n d g o ld t r a n c h e
p o s it io n a t th e In t e r n a t io n a l M o n e t a r y
Fund)

and

changes

in

liq u id

and

c e rt a in n o n liq u id lia b ilit ie s to f o r e i g n

official

a g e n c ie s .

On

th e

liq u id it y

b a s is , th e d e fic it re fle cts c h a n g e s in
U. S.

o f fic ia l

re s e r v e a s s e t s

and

in

liq u id lia b ilit ie s to a ll fo r e ig n e r s , b o th

C h a rt X V II

U. S. G O LD STO CK A N D BALANCE OF PAYMENTS

official a n d private.

A l t h o u g h th e b a la n c e o f p a y m e n t s
on

a

liq u id it y

d e fic it in
1950,

b a s is

has

e ve ry y e a r

t h e s e d e fic its d id

e s p e c ia lly s e r io u s

sh ow n

a

b u t o n e s in c e

u n til

not becom e
1958.

F ro m

1 9 5 8 t h r o u g h 1 9 6 0 , th e d e fic its o n a
liq u id it y
b illio n

b a s is a v e r a g e d

p e r y e a r.

In

a b o u t $ 3 .7

th e

next

fo u r

y e a r s t h e y w e r e s m a lle r , r a n g i n g b e ­
tw e e n

$ 2 .2

b illio n a n d

$ 2 .8

b illio n ,

b u t a c o n s id e r a b le p a r t o f th e r e d u c ­
tio n w a s a t t r ib u t a b le to s p e c ia l G o v ­
e r n m e n t tr a n s a c t io n s .

T h e d e fic it d e ­

c lin e d to $ 1 .3 b illio n in 1 9 6 5 a n d r a n
a t a b o u t th e s a m e a n n u a l ra te in th e
fir st h a lf o f 1 9 6 6 .
v e r y la r g e f r o m
and

G o ld lo ss e s w e r e

1 9 5 8 th ro u gh 1962,

a s tim e w e n t o n

c r e a s i n g ly
a c t io n

w as

c le a r

it b e c a m e i n ­

th a t

r e q u ir e d

m o re
to

d ire c t

re d u c e

th e

s iz e o f th e s e d e fic its a n d c u rta il o u r
g o ld
The

lo sse s.
t r a d it io n a l

p re sc rip t io n

fo r a

p e r sis te n t b a la n c e o f p a y m e n t s d e fic it
is b a s e d o n th e id e a th a t d e fic its a r is e
* A s o f e n d o f q u arte r.
* * Q u a r t e r l y d a t a o n s e a s o n a l ly a d ju s t e d a n n u a l b a s is .
S o u rc e :
U. S. D e p a r t m e n t o f C o m m e rc e .




o u t o f e x c e s s iv e d e m a n d p r e s s u r e s in

U n d e r s u c h c o n d it io n s

c o n sis te d p r im a r ily o f in c r e a s e d m ili­

in 1 9 5 8 to a b o u t $ 4 . 2 5 b illio n in 1 9 6 4

t ig h t m o n e y , h i g h in te re st ra tes, a n d

th e e c o n o m y .

t a r y p r o c u r e m e n t in th e U n ite d S ta te s

and

a

ap­

a n d a tt e m p ts to p e r s u a d e U. S. a llie s

M u c h o f th e in c r e a s e w a s in th e f o r m

p r o p r ia t e f o r b o th d o m e s t ic a n d in te r­

to p u r c h a s e m o re m ilit a r y e q u ip m e n t

o f lo a n s , a n d

n a t io n a l

he re .

o f d e v e lo p m e n t a i d w a s tie d d ir e c tly

re stric tiv e

m and

fis c a l

p o lic y

p u rp o se s.

d id

But

a re

e xce ss

n o t e x is t d u r i n g

th e fir st

s e v e r a l y e a r s o f th e e x p a n s io n .
s e q u e n tly ,

th e

c la s s ic a l

de­
Con­

Little w a s a c h ie v e d in r e d u c in g

to

n u a l m ilit a r y s a le s ro se a b o u t $ 3 5 0

a n d se rv ic e s .

p re sc rip t io n

m illio n f r o m 1 9 5 8 to 1 9 6 3 . U. S . G o v ­
e r n m e n t g r a n t s a n d c a p it a l o u t f lo w s

b a la n c e

a c t u a lly

An

as

f o r e ig n m ilit a r y e x p e n d itu re s , b u t a n ­

w a s n o t f o llo w e d in th e a tt a c k o n th e
o f p a y m e n t s p ro b le m .

1965,

in c r e a s e d

fro m

$ 3.1

th e

C h art
an

p u rch a se

X V III

in c r e a s in g p o r t io n
of

U.

S.

b illio n

a tt e m p t w a s m a d e to k e e p sh o rt-te rm
in te re st ra t e s u p f o r b a la n c e o f p a y ­
m e n t s p u r p o s e s w h ile m a in t a in in g lo w
lo n g -t e r m ra t e s f o r th e b e n e f it o f th e
d o m e s t ic

econom y,

th e

s o - c a l le d

" O p e r a t i o n T w is t . "

E a r ly A tte m p ts to R

uce D e fic it

E a r l y e ffo rt s to im p r o v

th e p a y m e n t s

b a la n c e in c lu d e d atte

ts to re d u c e

d o lla r c o sts o f o v e r s e

m ilit a r y e x -

C h a rt X V III

M AJO R ITEMS IN U. S. BALANCE OF PAYMENTS
$ Bil.

(Q u a r t e r ly D a t a o n S e a s o n a l l y A d j u s t e d A n n u a l B a s is )

8

p e n d it u
a n d lo a n s ^ k fo re ig n e r
p e n d it u r e s

i w e re J f3 .4

b illio n in 1 9So^|

ra te

of

and

about

1960.

$3.

E ffo rt s




o u t la y

P r iv a t e C a p it a l O u t f lo w ]

JL

-1 0
1960
S o u rc e :

_L
1961

±

JL

X
1962

1963

U. S . D e p a rt m e n t o f C o m m e rc e .

1964

J1965

sh ow s.

1966

goods

T h e s e m e a s u r e s m a d e little, if a n y ,
net

c o n t r ib u t io n

to w a rd

e lim in a t in g

th e b a la n c e o f p a y m e n t s d eficit.

A t­

In te re st E q u a liz a t io n

Tax

T h is

p ro ­

A d d it i o n a l M e a s u r e s

p o s a l w a s a d v a n c e d in J u l y 1 9 6 3 , b u t

1964

m o re t h a n

p ro m p te d

a

year

p assed

b e fo re

it

s e v e r a l c h a n g e s in m o n e ­

t a r y p o lic y in th e s e c o n d h a lf o f 1 9 6 4 .

te n tio n w a s d ire c te d n e x t t o w a r d re ­

b e c a m e la w .

d u c in g th e o u t f lo w o f p r iv a t e c a p it a l

a s to w h a t th e p r o v is io n s o f th e la w

L a r g e d e fic its in th e s e c o n d a n d th ird

w h ic h

annual

w o u ld be, h o w e v e r , a n d s in c e th e p r o ­

q u a rte rs

a v e r a g e o f $ 2 . 7 b illio n in 1 9 5 8 - 5 9 to

v is io n s w e r e to b e e ffe c tiv e a s o f J u l y

p o lic y , a n d fr o m m id - A u g u s t u n til la te
Novem ber

had

ris e n

fro m

an

T h e re w a s u n c e r t a in t y

o f R e s t r a in t in

I n t e r n a t i o n a l c o n s id e r a t io n s

It m o v e d

1 9, 1 9 6 3 , the p r o p o s a l

e v e n h i g h e r in e a r ly 1 9 6 3 .

A lth o u g h

m e d ia t e

d ire c t in v e s t m e n t w a s th e

m o s t im ­

$ 3 .8

b illio n

in

1 9 6 0 -6 2 .

im p a c t

on

had

an

c a p it a l

im ­

flo w s .

in d u c e d
th e

a

s lig h t ly

m oney

f ir m e r

m arke t

w as

k e p t u n d e r a little m o re p re ss u re . T h e

F o r e ig n se c u ritie s n e w l y is s u e d in th e

pound

p o r t a n t ite m in th is f lo w , n e w is s u e s

U n ite d S ta te s fe ll v e r y s h a r p l y ,

p r e s s u r e a n d in N o v e m b e r th e B a n k

o f f o r e i g n se c u ritie s in th is c o u n t r y b e ­

th is w a s p a r t ia lly o f fs e t b y a

r a p id

of

c a m e a n in c r e a s in g ly im p o r t a n t c o m ­

e x p a n s io n

lo a n s ,

f r o m 5 to 7 p e r cent, f o llo w in g w h ic h

p o n e n t.

o f lo n g -t e r m

bank

but

s t e r lin g

E n g la n d

cam e

r a is e d

under

its

in te n s e

d is c o u n t

ra te

a s u b s t a n t ia l p o r t io n o f w h ic h p r o b ­

F e d e ra l R e s e rv e B a n k s r a is e d th e ir d is ­

o u t f lo w o f c a p it a l, P re s id e n t K e n n e d y

a b ly

c o u n t ra t e s f r o m

p ro p o se d

b a n k c re d it f o r b o n d f in a n c in g .

In a n e ff o rt to h a lt th is la r g e
an

" in t e r e s t

e q u a liz a t io n

t a x " o n th e p u r c h a s e o f f o r e ig n s e ­
c u ritie s b y A m e r ic a n s .

A t a b o u t the

re p re s e n t e d

a

T h e la w , f i n a l l y

s u b s t it u t io n
e n a c te d

of

in e a r ly

S e p t e m b e r 1 9 6 4 , r e q u ir e d A m e r i c a n s
se c u ritie s f r o m

3 Vi to 4

p e r cent.

In a d d it io n , th e F e d e ra l R e s e rv e s u p ­
la r g e

a m o u n ts

of

re se rve s

to

m e e t s t r o n g s e a s o n a l d e m a n d s a n d to

s a m e tim e d is c o u n t ra te s a t F e d e ra l

b u y in g

R e s e r v e B a n k s w e r e r a is e d f r o m 3 to

p a y a t a x o f 1 5 p e r ce n t o n s to c k s a n d

V o l u n t a r y F o r e ig n C r e d it R e s t r a in t

3Vfe p e r cent.

a t a x r a n g i n g u p to 1 5 p e r c e n t o n

th e la s t q u a r t e r o f 1 9 6 4 a n d th e first

d e b t se c u ritie s w it h m a t u rit ie s b e y o n d

tw o

th re e y e a rs .

r a p id

v e lo p e d
and

f o r e ig n e r s to

p lie d

S e c u rit ie s o f

c o u n trie s w e r e

th o se

pendent

of

U n ite d

1965,
in

th e re

w as

lo n g -t e r m

a

bank

lo a n s to c o u n trie s a ffe c te d b y th e i n ­

h e a v ily

te re st e q u a liz a t io n ta x .

State s

de­

c a p it a l

O n F e b ru a ry

10, P re sid e n t J o h n s o n o u t lin e d to C o n ­
gress

Canada

e x e m p t io n

w it h th is i n c r e a s in g ly s e r io u s p ro b le m .

w as

gran te d

an

a

p ro g ra m

d e s ig n e d

to

deal

u n d e r th is p r o v is io n . B a n k lo a n s w e r e

A m o n g o t h e r t h in g s , th is p r o g r a m e x ­

a ls o e x e m p t, b u t th e P r e s id e n t w a s

te n d e d th e

e m p o w e r e d to e x t e n d th e t a x to b a n k

to b a n k lo a n s w it h m a t u ritie s o f m o re

one

w it h
year

m a t u rit ie s
if in

cre d it w a s

h is

b e in g

in

excess

ju d g m e n t

in te re st e q u a liz a t io n t a x

of

t h a n o n e y e a r , e x c e p t lo a n s to b o r ­

bank

r o w e r s in le ss d e v e lo p e d c o u n trie s a n d

s u b s tit u te d f o r s e ­

c u rit y issu e s.

lo a n s to f in a n c e e x p o rt s .

The ta x on

d e b t s e c u ritie s w a s b r o a d e n e d to in ­

P a s s a g e o f th e le g is la t io n r e m o v e d
u n c e r t a in t ie s

and

ca u se d

fu r t h e r

c lu d e th o s e w it h

m a t u rit ie s o f m o re

th a n one ye a r.

In a d d it io n , th e P re s i­

c h a n g e s in c a p it a l f lo w s . In th e fo u rt h

dent

a

q u a r t e r o f 1 9 6 4 , th e re w e r e

c re d it re s tr a in t p r o g r a m .

no new
but

a lm o s t

is s u e s o f t a x a b le se c u ritie s,

exem pt

n a d ia n ,

ro s e

iss u e s ,
sh a rp ly ,

e s p e c ia lly
r e fle c tin g

Ca­
th e

b a c k lo g th a t h a d b u ilt u p . B a n k lo a n s
and

a c c e p ta n c e

s h a r p ly ,

c re d its

e s p e c ia lly

to

a ls o

ro s e

Japan

and

c o u n trie s o f W e s t e r n E u ro p e .




of

e x p a n s io n

c o u ld be e x e m p t e d b y th e P re sid e n t.

lo a n s

38

m on th s

In

not co ve re d

c o u n trie s

upon

u n d e rd e ­

r e a s s u r e a n u n se ttle d m o n e y m a rk e t.

p ro p o se d

v o lu n t a r y

f o r e ig n

T h is p r o g r a m c a lle d o n c o m m e rc ia l

The

b a n k s , n o n b a n k f in a n c ia l in stitu tio n s,

s t r a in t

a n d n o n f in a n c ia l b u s in e s s c o n c e r n s to

a n d p r o n o u n c e d e ffe ct o n th e o u t flo w

s t r o n g ly

re d uce v o l u n t a r i l y

o f c a p ita l.

f o r e i g n c r e d it re s t r a in t p r o g r a m

c a p it a l.

th e

o u t f lo w

of

v o lu n t a r y

f o r e ig n

p ro g ra m

had

c re d it

an

re ­

T h e in c r e a s in g p r e s s u r e o n th e re ­

im m e d ia t e

s e r v e p o s it io n s o f c o m m e r c ia l b a n k s

T h e to ta l p r iv a t e c a p it a l

B a n k s a n d o th e r f in a n c ia l in ­

o u t f lo w in 1 9 6 5 w a s o n ly $ 3 . 7 b illio n ,

r e in fo r c e d

th e

v o lu n t a r y
and

b r o u g h t a b o u t a s ig n if ic a n t re d u c tio n

s titu t io n s w e r e a s k e d to f o llo w c e rta in

o f w h ic h $ 1 . 6 b illio n w a s in th e first

in th e o u t f lo w o f b a n k c re d it in th e

g u id e l in e s in th e ir f o r e ig n l e n d in g a n d

q u a r t e r , c o m p a r e d w it h $ 6 .5 b illio n in

fir s t th re e q u a r t e r s o f 1 9 6 6 .

in v e s t in g .

1964.

r a p id

B a n k s w e r e a s k e d to lim it

In th e la s t th re e q u a r t e r s o f

th e ir o u t s t a n d in g c re d its to f o r e ig n e r s

1965,

in 1 9 6 5 to 1 0 5 p e r ce n t o f th e a m o u n t

fo re ig n e rs

o u t s t a n d in g a t th e e n d o f 1 9 6 4 .

m illion

C e il­

c la im s
as

i n g s f o r 1 9 6 6 w e r e th e 1 9 6 5 t a r g e t

of

p lu s 1 p e r ce n t e a c h q u a r te r.

q u a rte rs

A

re ­

of

S.
by

banks
about

co m p a re d with a n

$ 1 .8

b illio n
of

in

la t e d p r o g r a m w a s a p p lie d to f o r e ig n

s o n a l l y a d ju s t e d ).
h o w e ve r,

w ere

th e

on

$540

increase

la st

th re e

e conom y b ro u g h t a b o u t a
crease

in

im p o r t s

t r a d e s u r p lu s .
d u r in g

th e

and

B u t th e

d o m e s t ic
s h a r p in ­

re d u ce d

th e

T h u s , f o r th e fir s t tim e

cu rre n t

e x p a n s io n ,

do­

D ire ct in v e stm e n ts,

s e m b le t h o s e t r a d it io n a lly a s s o c ia t e d

f ig u r e s
$1

b illio n

f in a n c ia l in stitu tio n s. A b o u t 5 0 0 la r g e

g r e a t e r in 1 9 6 5 t h a n in 1 9 6 4 .

Un­

n o n f in a n c ia l c o r p o r a t io n s w e r e a s k e d

fo r t u n a t e ly ,

to se t u p a b a la n c e o f p a y m e n t s f o r

im p r o v e m e n t

1 9 6 4 w h ic h w o u ld re fle ct t h e ir f o r e ig n

w a s o ffs e t b y a d e c lin e in th e t r a d e

o p e r a t io n s a n d th e n c o n s id e r w a y s to

s u r p lu s .

p art o f

th e

s u b s t a n t ia l

th e c a p it a l a c c o u n t

i m p r o v e th e b a la n c e b y 1 5 to 2 0 p e r

General Credit Restraint

In 1 9 6 5 th e

c e n t in 1 9 6 5 .

F e d e r a l R e s e rv e S y s t e m

re d u c e d f u r ­




th e

m e stic e c o n o m ic c o n d it io n s c a m e to re ­

(all

a lm o s t

in

in

se a­

1964

c re d its a n d

in v e s t m e n t s o f n o n b a n k

U.

declined

e x p a n s io n

w it h a

b a l a n c e o f p a y m e n t s d eficit,

a n d th e c la s s ic a l p re s c rip t io n o f t ig h t
m o n e y a n d re stric tiv e fis c a l p o lic y b e ­
c a m e a p p r o p r ia t e

b o th f o r d o m e s t ic

a n d b a l a n c e o f p a y m e n t s re a s o n s .

t h e r th e a v a i l a b i l i t y o f r e s e rv e s to the
b a n k in g

s y st e m .

Loan

dem and

re ­

m a in e d s t r o n g a n d in th e s e c o n d h a lf
of

th e

year

th e

p re ssu re s

on

th e

e c o n o m y a n d th e b a n k i n g sy ste m in ­
c r e a s e d s h a r p ly , r a is in g p ric e s a n d in ­
te re st ra te s.

T o d a m p e n in f la t io n a r y

p r e s s u r e s a n d to co rre ct d is t o rt io n s in
th e stru c tu re o f in te re st ra te s, th e F e d ­
e r a l R e s e rv e d is c o u n t ra te w a s r a is e d
fro m

4 to

4Va

cem ber 1965.
ra t e

c e ilin g

r a is e d

to

p e r ce n t in e a r ly D e ­
A t the s a m e tim e th e

on

V

5 2

tim e
per

d e p o s it s

cent.

w as

The

tre ­

m e n d o u s d e m a n d f o r c re d it w a s re ­
fle c te d

in

m oney and

in c r e a s in g

t ig h t n e s s

c re d it m a rk e ts, a n d

in
in ­

te re st ra t e s r o s e to th e h ig h e s t le v e ls
in s o m e 4 5 y e a r s .

39

PROBLEMS OF PROSPERITY

" f is c a l d r a g " e x e rte d .

N e w p r o b le m s

s in c e th e K o r e a n W a r .

i n g th e t a x cu ts o f 1 9 6 4 a n d 1 9 6 5 a n d

w e re

e c o n o m ic

advanced

th e e s c a la t io n o f th e V ie t N a m

s e r v e r s w e r e c o m in g fa c e to fa c e w it h

h a lf

p r o g r e s s iv e ly r e d u c e d th e e c o n o m y 's

th e

r a p id l y o n e x p o r t s a n d th e la r g e t r a d e

m a r g in

f o r a ll its e n c h a n tm e n t, a l s o

In c r e a s e d e c o n o m ic a c t iv it y f o llo w ­

June

of

unused

1964

th e

re so u rc e s.

W ar
A fte r

u n e m p lo y m e n t

rate,

e m e r g in g ;
fa c t th a t

and

h ig h

le v e l

ob­

p ro s p e r ity ,
h a s its

Problems of an Expanding Economy

th a n

The

per

ce n t

fo r

18

m o n th s,

y e a r.

Im p o r t s

g a in e d

s u r p lu s w h ic h th is c o u n t r y h a d

p r o b le m s

of

an

e x p a n d in g

lo n g

T h e p r o b le m s o c c a s io n e d b y th e se
tre n d s

d id

d r o p p e d s h a r p ly , r e a c h in g 4 p e r cent

e c o n o m y a r e lik e ly to c e n te r a r o u n d

a c u t e in

b y th e e n d o f 1 9 6 5 .

th e re la t io n s h ip b e t w e e n th e g r o w t h

te n tio n .

S im u lt a n e o u s ly ,

m o re s t e e p ly in th e la tte r
th e

e n jo y e d w a s w h it tle d s t e a d ily a w a y .

p itfa lls.

w h ic h h a d a v e r a g e d s o m e w h a t m o re
5 .5

of

In te re st ra t e s

not

1965

becom e

s ig n if ic a n t ly

to c a tch

p o p u la r a t ­

B u t a s s p e n d in g c o n t in u e d to

in

ra t e s o f m o n e y e x p e n d it u r e s a n d th e

o u t p a c e p r o d u c t io n in 1 9 6 6 , th e r is in g

m a n u f a c t u r in g m o v e d u p a n d b y D e ­

o u t p u t o f g o o d s a n d s e rv ic e s ; th a t is,

co st o f li v i n g a n d e v e r t ig h t e r m o n e y

c e m b e r 1 9 6 5 w a s e s tim a t e d a t 91 p e r

b e tw e e n to ta l d e m a n d a n d to ta l s u p ­

b e c a m e c o m m o n p la c e to p ic s o f c o n ­

cent,

p ly in the e c o n o m y .

v e r s a t io n .

th e

ra te

of

a

c a p a c it y

le v e l

o p t im a l.

u tiliz a t io n

w id e l y

re ga rd e d

as

c a n e x p a n d r a p id ly w it h o u t c r e a t in g

of

on

p r o b le m s if to ta l s u p p l y is in c r e a s in g

tra c te d

o u t la y s

R e p o rt s o f la b o r b o ttle n e c k s

m u ltip lie d

and

u p w a rd

T o ta l d e m a n d

p re ssu re

th e

T h e d r a m a t ic b r e a k d o w n

w a g e - p r ic e

"g u id e p o s ts "

w id e s p r e a d

a tte n tio n .

a t the s a m e p a c e w it h o u t u n d u e i n ­

s t e a d y d e c lin e

f o r n e w p la n t a n d e q u ip m e n t , a lr e a d y

c r e a s e s in cost.

a n d c o n t in u e d g o ld lo s s e s to u c h e d o f f

a t u n u s u a l ly h i g h le v e ls, w e r e fu rth e r

c r e a s e s in to ta l s u p p ly d e p e n d o n th e

r e n e w e d c o n c e rn o v e r th e s t r e n g t h o f

a c c e le ra te d .

a v a ila b ilit y

th e d o ll a r a n d th e fu t u r e o f th e in te r­

w ages

in c r e a s e d .

By

B u s in e s s

su m m e r

1965,

the

of

In th e s h o r t ru n , i n ­
b a s ic

p r o d u c t iv e

re ­

o f th e

tra d e

a t­
The

s u r p lu s

e c o n o m y c le a r ly w a s in th e m id s t o f

so u rc e s. S o lo n g a s a s u b s t a n t ia l p o o l

n a t io n a l p a y m e n t s sy st e m .

th e

o f u n e m p lo y e d , q u a lif ie d la b o r , p r o ­

as

1 9 6 6 p r o g r e s s e d th e p r o b le m s o f

d u c tio n fa c ilitie s, a n d

an

econom y

greatest

in v e s t m e n t b o o m

sin c e

W o r ld W a r II.
A s 1 9 6 5 p r o g r e s s e d , th e u n e m p lo y ­
m e n t a n d s lo w g r o w t h

p r o b le m s re ­

th e

n e ce ssa ry

m a t e r ia ls e x is t in the e c o n o m y , s u p ­
p lie s c a n b e e x p a n d e d r a p id ly .

But

e x p a n d in g

In b rie f,

to o

r a p id ly

b e c a m e o b v io u s p r o b le m s , e v e n a t th e
p o p u la r level.

c e d e d in to th e b a c k g r o u n d . T h e q u e s ­

once

tio n

ste p p e d u p to th e p o in t o f a b s o r b i n g

Rates of Increase in Spending and Pro­
ducing In e a c h o f th e s ix y e a r s o f

g a v e w a y to the

th e p r e v io u s ly u n e m p lo y e d re so u rc e s,

th e c u rre n t u p s w i n g ,

q u e s t io n o f w h a t u n e m p lo y m e n t rate

th e ra te o f in c r e a s e in to ta l s u p p lie s

a s m e a s u r e d b y G N P in c u r re n t d o l­

re p re s e n t e d

b e lo w

o f g o o d s a n d s e r v ic e s w ill t a p e r o ff.

la r s g r e w fa s t e r t h a n r e a l o u t p u t a s

w h ic h th e r is k o f s e r io u s in f la t io n b e ­

U n le s s th e re is a c o r r e s p o n d in g t a p e r ­

m e a s u r e d b y G N P in c o n s t a n t d o lla r s .

cam e

in g in th e g r o w t h o f to ta l s p e n d in g ,

M o r e o v e r , in e a c h y e a r th e c o n s t a n t

p u b lic p o lic y . T h e F e d e ra l b u d g e t w a s

a n e x c e ss o f d e m a n d w ill d e v e lo p in

d o ll a r

in c r e a s in g ly

th e e c o n o m y .

b e h in d th e c u rre n t d o ll a r f ig u r e . F ro m

of

w h e th e r

th e

ra te w a s to o h i g h
th e

u n e m p lo y m e n t

m in im u m

u n a c c e p t a b le

as

e v a lu a t e d

a
in

m a tte r o f
te r m s

of

" f i s c a l s t im u l u s " p r o v id e d r a t h e r t h a n

p r o d u c t io n

ra t e s

have

been




la g g e d

i n c r e a s in g ly

It is r e a s o n a b l y cle a r, in re tro sp e c t,

1 9 6 0 to 1 9 6 4 th e in c r e a s e in G N P in

th a t th e g r o w t h o f d o m e s t ic s p e n d in g

c o n s t a n t d o lla r s w a s a b o u t o n e fo u r t h

b e g a n to o u t s trip th e g r o w t h o f o u t ­

le ss

p u t b y a s ig n if ic a n t a m o u n t s o m e tim e

d o lla r s .

in 1 9 6 5 .

th ir d less.

P rice s b e g a n to a d v a n c e a t

th a n

th e
In

in c r e a s e

1965

it

w as

in

c u rre n t
about

a

F o r th e f ir s t th re e q u a r t e r s

a n a c c e le ra te d p a c e , a n d la b o r m a r k ­

o f 1 9 6 6 it w a s lo w e r b y m o r e t h a n

ets tig h t e n e d

a h a lf.

sh a rp ly

as

th e

unem ­

p lo y m e n t ra te fe ll to th e lo w e s t le v e l

40

m e a su re

to ta l s p e n d in g

P ric e s a n d C o s t s

The y e a rs 1 9 6 1 -6 4

w e r e r e la t iv e ly fr e e o f p ric e p re ss u re s .
T h e c o n s u m e r p ric e in d e x ro s e

1 to

p o lic ie s o f th e se p ro d u c e rs.
out

1965

and

1966

T h ro u gh ­

p ro d u c e rs

in ­

a d d it io n s to th e la b o r fo rc e .
m id d le

of

1965

th e

B y th e

u n e m p lo y m e n t

c r e a s i n g ly c o m p la in e d o f r is in g costs,

ra t e h a d b e e n cu t to 4 .5 p e r c e n t a n d

1.5 p e r ce n t in e a c h y e a r , w it h th e

w h ile

o r g a n iz e d

la b o r

w as

in c r e a s e s c o n fin e d la r g e l y to th e s e r v ­

r is in g

co n su m e r

p rice s

ice s

co m p on e n t.

W h o le s a le

p ric e s

h ig h e r w a g e s .

fir s t b e g a n to m o v e u p in th e la s t h a lf

d u s t r ia l

of 1964

ceeded

b u t th e in d e x f o r th e y e a r

w a s s lig h t ly b e lo w its 1 9 6 0 level.
In 1 9 6 5 a ll p ric e in d e x e s r e g is te re d
s u b s t a n t ia lly

greater

g a in s

th a n

in

a n y o f th e p r e c e d in g f o u r y e a r s .

The

c o n su m e r

per

in d e x

advanced

2 .0

In

a re a s
th e

a rgu e d

th a t

d e c lin in g .

A d m in is t r a t io n 's

ex­

n u m b e r o f m a r k e t s it b e c a m e in c r e a s ­

g u id e -

i n g l y d if fic u lt f o r p r o d u c e r s to m e e t
la b o r ,

fu r t h e r u p w a r d

w as

p re s s u re o n

p ro d u c ­

T h is in te ra c tio n o f w a g e s
in

a

con­

a n d s a l a r y w o r k e r s a n d in a g r o w i n g

in c r e a s e s

t h e ir

p ric e s

w as

m a n y c ru c ia l in ­

w age

p r o d u c t iv it y in c re a s e s , a n d th is a d d e d

and

ra te

s id e r a b ly lo w e r f o r e x p e r ie n c e d w a g e

p o sts, w h ic h a r e g e a r e d to e stim a te d

tio n costs.

The

n e ce ssita te d

r e la t io n s h ip

under

la b o r
and
in

re q u ir e m e n ts .
e s p e c ia lly

an

In

s k ille d

i n c r e a s in g ly

b rie f,
la b o r ,

fa v o r a b le

s e lle r s ' m a r k e t t h r o u g h o u t 1 9 6 5 a n d
1966.

cent, w h il e th e w h o le s a le in d e x ro s e

w h ic h

e a c h t e n d s to p u s h th e o th e r

The

n e a r ly 3 .5 p e r cent.

u p w a r d , c o m m o n ly re fe rre d to a s th e

tu rn e d

w a g e - p r ic e s p ir a l, b e c o m e s o n e o f the

q u e s t io n o f w h e n , a s a p r a c tic a l m a t ­

o f th e w h o le s a le

A ll co m p on e n ts

in d e x g a i n e d

su b ­

s t a n t ia lly , b u t f a r m p ro d u c t s a n d p r o ­

t h o rn ie s t p r o b le m s

c e s s e d f o o d s ro s e a t a

econom y.

c o n s id e r a b ly

in a n

e x p a n d in g

W h i le th e m u t u a l u p w a r d

ter,

e v e r - t ig h t e n in g
a tt e n tio n

fu ll

once

e m p lo y m e n t

la b o r

m arke t

m o re

to th e

of

th e

fo r c e h a s b e e n a c h ie v e d .

la b o r

In a fr e e

f a s t e r p a c e t h a n in d u s t r ia l m a t e r ia ls

p r e s s u r e s d id n o t a s s u m e u n m a n a g e ­

so c ie ty , th e re w ill a l w a y s b e a m a r g i n

a n d p r o d u c e r f in is h e d g o o d s . T h e u p ­

a b le

o f w o r k e r s w h o a r e u n e m p lo y e d

w ard

in g r e d ie n t s

p r o p o r t io n s

w a g e - p r ic e

by

ch o ic e : th o s e m o v i n g o n to b e tte r jobs,

F o r th e fir st th re e q u a r t e r s b o th c o n ­

w e r e c le a r ly p r e s e n t in th e e c o n o m y .

t h o s e w h o le a v e a jo b v o lu n t a r il y in

s u m e r a n d w h o le s a le in d e x e s ro s e a t
a n a v e r a g e a n n u a l ra te in e x c e s s o f

The Labor Markets and Full Employ­
ment A fe a t u r e o f b a s ic s ig n ific a n c e

T h e q u e s t io n o f th e m in im u m s iz e o f

3 .5

1966.

a

1 9 6 6 , th e b a s ic
s p ir a l

m o v e m e n t q u ic k e n e d in

of

in

th e h o p e o f f i n d i n g a b e tte r o n e , etc.

in th e c u rre n t e x p a n s io n h a s b e e n the

t h is

w h o le s a le p ric e s s lo w e d in th e th ird

u n u s u a l ly

p o r t a n c e f o r th e p o lic y m a k e r b e c a u s e

q u a r te r.

t io n 's la b o r fo rc e .

per

cent,

a lt h o u g h

th e

ris e

B y c o n t ra s t w it h th e

in

1965

la r g e

in c re a s e

in th e n a ­

T h is r a p id g r o w t h

any

m a r g in

is

a tt e m p t

of
to

fu n d a m e n ta l
p u sh

im ­

e m p lo y m e n t

m o v e m e n t, m o s t o f th e 1 9 6 6 in c r e a s e s

o f th e m a n p o w e r p o o l a d d e d to the

b e y o n d th is m a r g i n t h r o u g h m o n e t a r y

in th e w h o le s a le i n d e x c e n te re d in the

d if fic u lt y o f r e d u c in g

a n d fis c a l a c t io n w ill a lm o s t in e v it a b ly

in d u s t r ia l m a t e r ia ls a n d th e p r o d u c e r

in

f in is h e d g o o d s c o m p o n e n t s .

B u t a s th e ra te o f s p e n d in g a c c e le r­

th is

a te d

a g re e m e n t.

M a n y o f th e w h o le s a le p ric e s r e p ­

th e e a r ly y e a r s
in

1964

u n e m p lo y m e n t

o f th e

and

1965

u p s w in g .
th e

new

c r e a t e i n f la t io n a r y p re ss u re .
q u e s t io n

re se n t, o f c o u rse , p r o d u c t io n c o st ite m s

w o r k e r s b e c a m e o f v it a l im p o r ta n c e

per

in

in

o th e rs

m any

sta ge s

of

p r o d u c t io n

and

a d d in g

to th e

e c o n o m y 's

ou tp u t.

ce n t o f

th e re

no

Yet on
ge n e ra l

S o m e a r g u e t h a t it is 5
th e

co n te n d

la b o r
t h a t th e

per

w h ile
can

t h u s in c r e a s e s in th e s e p ric e s a ffe c t
e ith e r th e p r ic in g

in g in 1 9 6 4 - 6 5 w o u l d h a v e g e n e r a t e d

e v e n 3 p e r ce n t w it h o u t s e r io u s ris k

in f la t io n a r y p r e s s u r e s a t a c o n s id e r ­

o f in fla t io n .




to 4

fig u r e

be

p r o d u c t io n

dow n

fo rc e ,

W it h o u t th e m , th e a c c e le ra te d s p e n d ­

o r th e

p u sh e d

is

cent o r

a b l y e a r lie r d a te .
E n h a n c e d b y th e in c re a s e d m ilit a r y
b u ild u p , th e e x p a n s io n in
1966

created

la b o r

1965 and

r e q u ir e m e n t s

g r e a t e r t h a n c o u ld b e m et o u t o f net

41

T h e e m p ir ic a l re c o rd o n th is q u e s ­
tio n is n ot a lt o g e t h e r c le a r.

It is p o s s ib le , o f c o u rse , to m a k e

Y e t in th e

to o m u c h o f th is re c o rd .

T h e m in im a l

of

th e

p r iv a t e

e c o n o m y o r o f th e p o lic y m a k e r s , to
" o v e r e m p l o y " th e

la b o r fo rc e .

to in d ic a t e s o m e in v e r s e r e la t io n s h ip

w it h p rice s t a b ilit y d e p e n d s o n a g r e a t

b e t w e e n p ric e m o v e m e n t s a n d u n e m ­

v a r ie t y o f fa c to rs , m a n y o f w h ic h a r e

E c o n o m ic

p lo y m e n t ra t e s w h e n th e la tte r d r o p s

n o t e a s ily m e a s u r a b le .

c h a ra c t e riz e 1 9 6 6 a s a y e a r o f b u s i ­

b e lo w 5 p e r cent.

a s p ir a t io n s o f th e la b o r fo rc e a n d in ­

n e ss

stitu tio n a l fa c t o r s t h a t b e a r o n p e r ­

la b o r m a r k e t s .

c o m p le te ly s t a b le in th e y e a r s 1 9 6 0 -

s o n a l in c e n tiv e s, a s w e ll a s o n

op­

w ill b e r e m e m b e r e d c h ie fly a s a y e a r

6 4 , w h e n th e u n e m p lo y m e n t ra te w a s

p o rtu n itie s o f i n d i v id u a ls to a c q u ir e

o f h i g h in te re st ra t e s a n d t ig h t m o n e y .

5 p e r ce n t o r h ig h e r .

n e w sk ills, a ll p l a y a

A s s h o w n in C h a r t
p ric e s

w ere

a lm o s t

A s th e latte r

c o n siste n t

be

m a r g in

w h o le s a le

u n e m p lo y m e n t

th e y

c u rre n t e x p a n s io n , th e r e c o rd a p p e a r s

X IX ,

of

w hether

T h e s k ills a n d

ro le in d e t e r­

T ig h t M o n e y a n d C re d it M a r k e ts
h is t o r ia n s

boom ,

r is in g

w ill

no

doubt

p ric e s, a n d

tig h t

B u t th e y e a r p r o b a b l y

In te re st ra t e s a c r o s s th e

b o a rd

ro s e

m in in g th is le v e l, a n d th e re is n o t h in g

to th e h ig h e s t le v e ls s in c e th e 1 9 2 0 's .

1 9 6 4 , the w h o le s a le i n d e x b e g a n to

m a g ic a b o u t a

M o r t g a g e m o n e y w a s a t a p r e m iu m

m o ve u p w a rd .

ce n t o r 3 p e r c e n t f ig u r e .

ra te a p p r o a c h e d

5

p e r c e n t in

late

M o r e o v e r , th e ste e p

5 p e r ce n t o r 4

per

B u t it is

d e c lin e in th e u n e m p lo y m e n t ra te to

c le a r th a t s u s t a in e d b u s in e s s e x p a n ­

4

s io n

per

cent

c o m p a n ie d

and
by

a

lo w e r ,

w as

s u s t a in e d

rise

ac­

can

be

th re ate n ed

by

e ffo rts.

and

y ie ld s o f 6

h ig h e r

issu e s. E v e n th e 9 0 - d a y o b lig a t io n s o f
th e T r e a s u r y

in

p e r ce n t o r

w e r e c o m m o n p la c e o n F e d e ra l a g e n c y
a p p ro a ch e d

th e 6

c e n t le v e l o n s e v e r a l o c c a s io n s.

w h o le s a le p ric e s.

per
The

p r im e ra t e o f c o m m e rc ia l b a n k s w a s
h ik e d to 6 p e r cent, th e h ig h e s t le v e l
in th e h is t o r y o f th a t rate.
Y e t t ig h t m o n e y m a y

b e m o re a

s y m p t o m t h a n a d is e a s e ; a n d it c a n
b e s y m p t o m a t ic o f a b a s ic a ilm e n t , th e
a p p r o p r ia t e p r e s c rip t io n f o r w h ic h is
n o s im p le m a tte r.
s it u a t io n o f
th is c la ss.

T h e t ig h t m o n e y

1 9 6 6 a p p e a r s to f a ll in

T h a t it w a s a re su lt o f e x ­

c e ss d e m a n d in th e e c o n o m y is c le a r
fr o m

th e d a t a .

su m m e r,
c h a rt

XIX

W HOLESALE PRICES A N D UNEMPLOYMENT

1 9 5 7 -1 9 5 9 = 1 0 0

and

T h r o u g h th e s p r in g ,
au tu m n

th e

m oney

s u p p l y a n d th e v o lu m e o f lo a n f u n d s
P e rC e n t

108

grew

at a

th e r a p id

p a c e o n l y s lig h t ly b e lo w
1965

ra te a n d

at a

con­

s id e r a b ly f a s t e r p a c e t h a n in th e e a s y
m o n e y p e r io d o f 1 9 6 1 - 6 3 .

106

O v e r th e

fir st th re e q u a r t e r s o f 1 9 6 6 , th e m o n e y
s u p p l y g r e w a t a n a n n u a l ra t e o f just
104 -

o v e r 4 p e r cent, c o m p a r e d w it h 4 .8
p e r ce n t in 1 9 6 5 a n d le ss t h a n 3 p e r

102

c e n t in 1 9 6 1 - 6 3 .

F o r to ta l lo a n s a n d

in v e s t m e n t s o f c o m m e rc ia l b a n k s th e
ra te o f in c r e a s e w a s 9 p e r cent, c o m ­

100

p a r e d w it h 1 0 .2 p e r ce n t in 1 9 6 5 a n d

W h o le s a le P ric e In d e x
(Left S c a le )

4 p e r c e n t in 1 9 6 1 - 6 3 .

98

The

h ig h

in te re st

ra t e s

and

th e

c re d it s t r in g e n c y t h a t d e v e lo p e d d e ­
96 -

-

t

±

_L
1961

S o u rc e :

1962

JL
1963

U. S. D e p a r t m e n t o f L a b o r.

42



1964

1965

1966

3

sp ite th e s e la r g e in c r e a s e s in m o n e y
a n d c re d it b e s p e a k a g r e a t s u r g e in

th e d e m a n d f o r f u n d s .
grew

That dem and

o u t o f th e a c c e le r a t e d ra t e o f

s p e n d in g

by

c o n su m e rs,

fo r so m e gro u p s.
th e s e

p r o b le m s

F u n d a m e n t a lly

re su lte d fr o m

sh arp

re c o rd

$ 6 .7

b illio n ,

over

g r e a t e r t h a n in 1 9 6 1 .

$1

b illio n

B u t in 1 9 6 5 im ­

b u s in e s s e s ,

c h a n g e s in c re d it f lo w s t h r o u g h th e

p o rt s g r e w b y n e a r ly $ 3 b illio n w h ile

a n d g o v e r n m e n t a n d re p re s e n t e d e f ­

n a t io n 's f in a n c ia l m a rk e ts. B e c a u s e o f

e x p o r t s in c r e a s e d o n l y a b o u t $1

fo rt s o n th e ir p a r t to r a is e th e f u n d s

le g a l lim it a tio n s o n s o m e in te re st ra te s

lio n , r e d u c in g th e s u r p lu s to $ 4 . 8 b il­

n e c e s s a r y to f in a n c e e n la r g e d s p e n d ­

and

a

lio n .

T h e s a m e t r e n d s c o n t in u e d

in g

g e n e ra l

o f c re d it u s u a lly

1966

and

p la n s .

The

h ig h

in te re st

ra te s

oth e r

m arke t

im p e rfe c tio n s,

t ig h t e n in g

w e r e s im p ly th e m a r k e t 's re fle c tio n o f

m e a n s th a t s o m e m a r k e t ra te s m o v e

th e fa c t t h a t th e s a v i n g s o f th e p u b lic

up

and

n a t u r a l ly f l o w to th o s e m a r k e t s p a y ­

th e

new

c re d it c re a te d

b y th e

fa ste r

th a n

o th e rs.

C r e d it

w ill

b a n k i n g s y s t e m w e r e n o t su ffic ie n t to

in g

m eet

m a r k e t s w ill a c c o r d in g ly b e s t a r v e d o f

a ll

th e s e

dem ands

and

th a t

s o m e r a t io n in g w a s r e q u ir e d .
The

t ig h t

m oney

th e

greater

re tu rn

and

som e

f u n d s m o r e q u ic k ly th a n o th e rs.

"p r o b le m "

ob­

A t­

by

th e t h ir d

b il­
in

q u a r t e r th e

s u r p lu s o n a n a n n u a l ra te b a s is w a s
o n ly

$ 2 .8

b illio n , o r a b o u t

h a lf

its

v a l u e in 1 9 6 4 .
T h is

d e c lin e

h a n d ic a p p e d
e lim in a t e

in

th e

tra d e

s u r p lu s

th e c o u n t r y 's e ffo rt s to

its

b a la n c e

of

p a y m e n ts

te m p ts to r e d re s s s o m e o f th e e ffe cts

d e ficit, w h ic h h a d b e e n re d u c e d f r o m

v i o u s l y w o u l d h a v e b e e n a lle v ia t e d if

o f t ig h t m o n e y o n cre d it f l o w s in 1 9 6 6

$ 4 b illio n in 1 9 6 1 to o n l y a b o u t $ 1 . 5

th e s u p p l y o f lo a n f u n d s h a d g r o w n

have

b illio n in 1 9 6 5 .

A t th is w r it in g th e

fa st

tio n s. In a d d it io n , th e F e d e ra l R e s e rv e

p r o s p e c t is

1966

to ok

d e fic it o n a liq u id it y b a s is o f a b o u t

enough.

H ig h e r

ra t e s

s h o u ld

w o r k in th is d ir e c tio n b y r a is in g th e
re w a rd f o r s a v in g s .

B u t if th e d e ­

m a n d c o n t in u e s t o o u t p a c e th e f u n d s

been

d is c u s s e d

a c t io n d e s ig n e d

in e a r lie r s e c ­
to

re d u c e

th e

r e la t iv e a m o u n t s o f b a n k c re d it g o i n g
in to b u s in e s s lo a n s .

th a t

b e a lle v ia t e d o n l y b y in c r e a s in g th e

tig h t m o n e y in 1 9 6 6 w a s a p r o b le m

w e a k e n in g

of

N o n e t h e le s s ,

g e n e ra l

o v e r s p e n d in g

by

con­

T h is w o u l d in c r e a s e b o t h th e v o lu m e

s u m e r s , b u s in e s s e s , a n d g o v e r n m e n t ,

o f c re d it e x t e n d e d to b o r r o w e r s a n d

t a k e n in th e a g g r e g a t e .

th e m o n e y h o l d i n g s o f th e p u b lic a n d

d u c tio n

w o u ld

a lm o s t

fu r t h e r

c e r t a in ly

in c r e a s e

in

le a d

to

s p e n d in g .

s ig n if ic a n t

q u e s t io n

w h eth e r a

h ig h e r

in

ra te

a

The

1966

w as

o f s p e n d in g

c o u ld h a v e b e e n m a t c h e d b y a c o m ­
p a r a b le

in c r e a s e

in o u t p u t .

in

th is

O n l y a re ­

a ggre ga te

ra te

of

m a in e d

stro n g

1966

th e

th e

o v e r a ll

U.

S.

c o u p le d

w it h

d e s p it e

tra d e

w o r s e n in g

p a ym e n ts
th e

th e

s u r p lu s .
of

th e

p o s it io n

c o n t in u in g

d if f i ­

c u ltie s o f th e B ritis h p o u n d p o s e d im ­

s p e n d in g c o u ld e lim in a t e th e d ile m m a

p o r t a n t p r o b le m s o f c o n fid e n c e in th e

of

e x is t in g i n t e r n a t i o n a l f in a n c e m e ­

h a v in g

to

cho ose

b etw een

tig h t

m o n e y a n d in fla t io n .

c h a n is m , w h ic h

The Declining Trade Surplus

R is in g

d o ll a r a n d

re sts h e a v i ly o n th e

th e p o u n d .

T h e se p ro b ­

p ric e s, t ig h t la b o r m a rk e ts, a n d t ig h t

le m s, in tu rn , h a v e a n im p o r t a n t b e a r ­
i n g o n th e a b ilit y o f th e e x is t in g p a y ­

The

m o n e y a ls o c re a te d s e r io u s p r o b le m s
f o r th e p o s it io n o f th e d o lla r a b r o a d

m ents

syste m

a c c e le r a t io n o f p ric e ris e s in 1 9 6 6 a r e

and

t in u e d

gro w th

s t r o n g e v id e n c e th a t m o r e s p e n d in g

tin u e d d o m e s t ic p ro s p e rity .

c o u ld

th e re w a s

by a

in

in

t ig h t e n in g o f la b o r m a r k e t s a n d th e

not h a v e b e e n m atched

a

F o r e ig n c o n fid e n c e in th e d o ll a r re ­

B a s ic a lly , h o w e v e r , th e p r o b le m o f

b a n k c re d it c re a te d .

sh ow

$ 2 . 5 b illio n .

o f fe re d , u p w a r d p r e s s u r e o n ra t e s c a n
am ount of new

w ill

p ose d

a
a

s e r io u s th r e a t to c o n ­
sh arp

to a c c o m m o d a t e
in f o r e i g n

con­

tra d e a n d

In 1 9 6 6

in v e s tm e n t , w h ic h , in t h e ir tu rn , b e a r

in th is

h e a v i ly o n th e c o n t in u a t io n o f p r o s ­

in c re a s e

c o u n t r y 's im p o r t s a n d o n ly a re la t iv e ly

p e r it y in th e e n tire fr e e w o r ld .

M o re ­

b u t in s t e a d w o u l d h a v e le d to la r g e r

s m a ll g a i n in its e x p o rts.

over

U.

p ric e in c r e a s e s a n d

w as

c o m p a ra b le

in c r e a s e in

r e a l o u tp u t,

a f a s t e r ra te o f

g r o w t h in c re d it d e m a n d s .
T ig h t m o n e y in 1 9 6 6 c re a te d s e r io u s
p r o b le m s

fo r

econom y.

A s p i r i n g h o m e o w n e r s , th e

c o n st ru c t io n
k in d s

of

la r g e

gro u p s

in d u s tr y ,

f in a n c ia l

in

and

in stitu tio n s

th e

a

s ig n if ic a n t

T h e re su lt

d e c lin e

in

th is

c a st

n e g o t ia t io n s

t o w a r d e lim in a t in g the d e fic it

in th e

U. S. b a la n c e o f p a y m e n ts .

c e rt a in

U s u a lly ,

w ere

econom y

in

a

r a p id ly

m o re

r a p id l y t h a n e x p o rt s .
e x p a n s io n ,

c h o ic e

g e n e r a lly k e p t p a c e w it h im p o r t g a i n s

p r o b le m s o n
f la t io n

on

th e o n e

th e

o th e r.

t ig h t
hand

m oney
and

D u rin g

in ­

1966

u n til

1965.

h o w e v e r,

dam per
to

p a ym e n ts

of

th e

a p p e a rs

to

on

S.

have

in t e r n a t io n a l

re fo rm

th e

m e c h a n is m

in t e r n a ­
w it h

a

v i e w to a v o i d i n g th e d e v e lo p m e n t o f

e x p a n d in g

im p o r t s in c r e a s e

t io n a l

a

a ls o

a r r e s t e d th e p r o g r e s s m a d e sin c e 1 9 6 3

g e n e r a l d ile m m a in 1 9 6 6 in v o lv e d a
th e se

p o s it io n

w o r s e n in g

c o u n t r y 's t r a d e s u r p lu s w h ic h , in tu rn ,

e s p e c ia lly a ffe c te d . B u t th e e c o n o m y 's
b etw e e n

th e

p u r e ly f in a n c ia l o b s t a c le s to t r a d e a n d
in v e s t m e n t e x p a n s io n .

In th e c u rre n t
e x p o rt

gro w th

A c t u a lly , th e s u r p lu s o f

e x p o r t s o v e r im p o r t s in

1964 w as a

s o m e a c t io n s w e r e t a k e n to a lle v ia t e
th e p r o b le m s w h ic h t ig h t m o n e y m a d e




43

H o w e v e r th e c u r re n t b u s in e s s e x ­
p a n s io n

m ay

eventuate,

it is

c le a r

ro se b y a b o u t 6 0 p e r cent, p r o v i d i n g

w ere

b o th

m o n e t a r y e x p a n s io n .

th e

in c e n tiv e

and

th e

m eans

s u p p lie d

to

su p p o rt

ste a d y

M e a su re s w ere

th a t it w ill c o m m a n d th e c lo se s t u d y

fo r

o f e c o n o m is t s a n d e c o n o m ic h is t o r ia n s

W a g e s ro s e s t e a d ily b u t p r o d u c t iv it y

b a la n c e

fo r m a n y y e a rs.

g a in s

lo n g -t e r m ra t e s w e r e d e lib e r a t e ly h e ld

It is o f h isto ric d i ­

e f f ic ie n c y - im p r o v in g

in v e stm e n t.

kept

pace

and

w it h

credit, a n d

to ta l

s p e n d in g

m oney,

t a k e n to k e e p s h o rt -te rm ra te s u p f o r

g r o w in g

dow n

h e ig h t, a n d in its d e t a il it w ill p r o b ­

c o m m e n s u r a t e ly w it h o u tp u t, th e a d ­

m ent.

a b ly

m e n s io n s

in

le n g th ,

b re a d t h ,

and

vance

w as

p o r t u n it y to e v a lu a t e th e s u c c e ss o f

w ard

p re ssu re

sp e c ific

rates.

p re s e n t

an

p o lic y

u n p a r a lle le d

a p p lic a t io n s

in

op­
o v e r­

a c h ie v e d
on

w it h

little

up­

of

p a ym e n ts

to e n c o u r a g e

re a so n s

but

d o m e s t ic in v e s t ­

O n th e f is c a l sid e , in v e s t m e n t

in c e n tiv e s

w ere

p r o v id e d

th ro u gh

p ric e s o r in te re st

m o r e g e n e r o u s d e p r e c ia t io n ru le s a n d

M o s t o f th e u p w a r d ra te a d ­

t h r o u g h in v e s t m e n t t a x c re d its to b u s i ­

c o m in g c y c lic a l te n d e n c ie s in b u s in e s s

ju stm e n ts w e r e in th e sh o rt-te rm a r e a ;

n e ss.

a c tiv ity .

lo n g

th e m a s s iv e t a x cu ts th a t p r o v id e d a

F ro m th e s t a n d p o in t o f th e

h is t o r y o f e c o n o m ic p o lic y , th e p e r io d
is d o u b ly in t e re s t in g
fr o n t e d
b o th

d o m e s t ic

and

p r o b le m s

of

in t e r n a t io n a l

At

The
1961

th e

c u r re n t

ju n c tu re

it

is,

of

e c o n o m y 's
to

1964

w as

th is

c o u n t r y 's

p erh ap s

h ist o ry .

co u rse , p r e m a t u r e to o f f e r a d e f in it iv e

p ly in g
to

th e te rm

Eu rop e a n

fr o m
as

re ­

Eu rop e an

a c c u s t o m e d to a p ­
" e c o n o m ic

p o stw a r

T h e n in 1 9 6 4 a n d

1965 cam e

m a j o r n e w s t im u lu s to e x p a n s io n .

p e rfo rm a n c e

o b s e rv e rs , g r o w n

a sse ssm e n t.

Y e t c e rt a in fe a t u r e s o f

so m e w h a t

m a r k a b le a s in a n y f o u r - y e a r p e r io d
of

s ta b ilit y .

a c t u a lly

lo w e r in 1 9 6 4 t h a n in 1 9 6 1 .

in th a t it c o n ­

s im u lt a n e o u s ly

ra te s w e r e

m ir a c le "

re c o v e ry ,

A t s o m e p o in t in 1 9 6 5 , th e ra te o f
s p e n d in g

began

to

s h a r p ly a w a y fro m
put g ro w th .

d iv e r g e

m o re

th e ra te o f o u t ­

S o m e o v e r h e a t in g w a s

e v id e n t in th e fir s t q u a r te r, b u t th is
w a s w id e l y a tt rib u t e d to th e im p a c t

in ­

o f th e a u t o m o b ile s trik e o f la te 1 9 6 4 .

th e p e r io d a l r e a d y s t a n d o u t in relief.

c r e a s in g ly p o in te d

o u t th e e c o n o m ic

W h e n th is e ffe ct w o r e o ff, h o w e v e r ,

F irst is th e r e m a r k a b le s t a b ilit y a n d

m ira c le o f U. S. e c o n o m ic g r o w t h w it h ­

it b e c a m e o b v io u s t h a t th e o v e r h e a t ­

e x te n t o f th e a d v a n c e in its first f o u r

o u t in fla t io n in th e 1 9 6 0 's .

in g

ye a rs.

o b s e r v e r s a t h o m e w e r e e m b o ld e n e d

c a u s e s.

to ta lk a b o u t th e o b s o le s c e n c e o f th e

6 5 w e r e f o llo w e d b y g r e a t in c r e a s e s

fo u r t h w h il e in d u s t r ia l p r o d u c t io n in ­

b u s in e s s cy c le a n d fo re c a s t e rs s h o w e d

in c o n s u m e r o u t la y s .

crea se d

little h e sit a tio n in p ro je c tin g th e a d ­

in g f o r n e w p la n t a n d e q u ip m e n t w a s

of

F ro m e a r ly 1 9 6 1

1964,

GNP

grew

by

to th e e n d
over

b y n e a r ly o n e th ird .

one
Som e

f o u r m illio n n e w jo b s w e r e c re a te d in

vance

th e

s u g g e s t e d b y e x p e r ie n c e .

w e ll

beyond

S im ila r ly ,

th e o u t e r

lim its

w as

due

to

m o re

fu n d a m e n ta l

T h e la r g e t a x cuts o f 1 9 6 4 -

r a p id l y a s s u m in g

B u s in e s s s p e n d ­

boom

p ro p o r tio n s .

C o n f id e n c e

T h e n in e a r ly 1 9 6 5 b e g a n a s te p -b y -

t e c h n o lo g y , m u c h o f it o f th e la b o r -

in the a b ilit y o f p o lic y m a k e r s to t a ilo r

ste p e s c a la t io n o f t h e V ie t N a m W a r ,

sa v in g

p o lic y m e a s u r e s to fit th e r e q u ir e m e n t s

e a c h s te p i n v o l v i n g la r g e in c r e a s e s in

fa c e

of

r a p id

v a r ie t y .

im p r o v e m e n t

C o rp o ra te

in

p ro fits

o f a n e v e r - a d v a n c in g

econom y w as

p r o b a b l y a t a h ig h p o in t.
T h ro u gh o u t
m o n e ta ry
c lo s e ly

th e

and

p e r io d

fis c a l

c o o r d in a t e d

th is h a p p y e n d .

to

1 9 6 1 -6 4 ,

p o lic ie s

w e re

b r in g

about

T h e p r o b le m s c o n ­

d e fe n se

P a r a lle lin g

th e se

e x p e n d it u r e s ,

C o n g r e s s p a s s e d in e a r ly 1 9 6 5 a se rie s
of new

and

e x p e n s iv e

d e v e lo p m e n t

m e a su re s.

dence

of

e n la r g e d

w e lf a r e a n d
The

o u t la y s

c o in c i­

by

con­

s u m e r s , b u s in e s s e s , a n d g o v e r n m e n t ,

o f re so u rc e s a t h o m e a n d b a la n c e o f

c o m in g a t a tim e w h e n th e m a r g in o f

n a t io n a l sp h e re .
p o lic y




o u t la y s .

fr o n t e d w e r e th o s e o f u n d e r u t iliz a t io n
p a y m e n t s d is e q u ilib r iu m in th e in te r­

44

d e fe n se

a u gm en te d

r e m a in e d

M oney and
e a sy

and

c re d it

re s e r v e s

u n u s e d re s o u r c e s w a s r a p id l y d w i n ­

th e b a la n c e o f p a y m e n t s p ro b le m .

d lin g , le d to a n a c c e le r a t io n in t h e ra te

b rie f,

it a p p e a r s

O n th e o t h e r h a n d , a r a p id l y g r o w ­
in g ra te o f s p e n d in g is lik e ly to g e n ­

by

b y o u t p u t g a i n s e v e n in th e f a c e o f

o p e r a t in g

i m p r o v i n g t e c h n o lo g y a n d a g r o w i n g

c a p a c it y a n d th a t th e h ig h e r ra te o f

la b o r fo rc e .

T h e b a la n c e d g r o w t h o f

p r e c e d in g

fo u r y e a rs

had

q u it e

d e f in it e ly b e e n in te rru p te d .

fo rm e d

u n d e r u t iliz a t io n
in to a

econom y

near

beyond

c r e a s in g ly

to

th a t

e n c o u n t e re d

w as

o p t im u m
tim e

p r o b le m s

tra n s­

o f re so u rce s

o v e r u t iliz a t io n is p r o b le m a t ic a l.

That

su b je c t

to

e ra te , a t le a s t f o r a tim e , a p o p u la r
a i r o f e u p h o r ia .

jo b s a n d to s e c u re p a y ra is e s ; m o r e ­

of

o v e r, t h e y p r o v id e a c lim a te c o n g e n ia l
to th e o b je c t iv e s o f o r g a n iz e d la b o r.

im p o r t a n t

p o litic a l

and

E a s y m o n e y a n d lo w in te re st co sts fit
w e ll n o t o n l y w it h th e e x p a n s i o n p la n s

s o c ia l c o n st ra in ts w h ic h v a r y w it h th e

o f b u s in e s s e s b u t a ls o w it h th e a i m s

n a tu re

o f th e o r d i n a r y h o m e o w n e r a n d th e

of

th e

p r o b le m s

c o n fro n te d .

a n a c c e le r a t io n in th e ra te o f a d v a n c e

D e m o c ra t ic so c ie tie s te n d to b e m o re

c o n s u m e r.

o f m o s t im p o r t a n t b u s in e s s in d ic a t o r s

c o n g e n ia l to p o lic ie s d e s ig n e d to e n ­

s p e n d in g

t o o k p la c e in e a r ly

co u ra g e

th e fu lle r

re so u rc e s

oth e r

d ire c t

f r o m th e c h a rt s in th e p r e c e d in g s e c ­

th a n

th o s e

to

re s tra in

o fte n

a

t io n s o f th is

o v e ru tiliz a t io n .

fo rm e r

p o lic ie s

s iz a b le

fro m

e a r ly

1966,

la b o r

1965

re p o rt.
1965

In

any

th ro u gh

m arke ts

g r e s s i v e ly a n d

is e v id e n t
e v e n t,

m ost

tig h t e n e d

o rd e r b a c k lo g s

of
p ro ­

p ile d

T ig h t la b o r m a r k e t s

e n h a n c e th e a b ilit y o f w o r k e r s to f in d

in ­

P o lic y m a k i n g in a n o p e n so c ie ty is

o f re ­

w as

p r o b le m

s p e n d in g

or

o v e r e m p lo y m e n t .

P re c is e ly w h e n th e p r o b le m
s o u rc e s

at

th e

In

re tro sp e c t th a t

o f s p e n d in g th a t c o u ld n o t b e m a t c h e d

th e

m id - 1 9 6 5

in

se e k

to
to

u se o f

re q u ir e d
The

stim u la te ,

w h ile

th e

latter

n e c e s s a r ily a im a t d a m p e n in g , s p e n d ­
in g .

H ig h ra t e s o f g o v e r n m e n t
p le a s e

p u b lic o f f ic ia ls a n d

b e n e f ic ia r ie s ,

so u rc e

of

e le m e n t s

and

s a t is f a c t io n
in

th e

a re
to

b u s in e s s

c o m m u n it y .
In

any

e v e n t,

th e

p r o b le m s

con­

T o re d u c e th e ra te o f in c re a s e in

f r o n t in g th e p o lic y m a k e r in a r a p id l y

s p e n d in g , it is n e c e s s a r y to d o su c h

e x p a n d i n g e c o n o m y a r e n o t e n t ir e ly

t h in g s a s r a is e ta x e s , re d u c e g o v e r n ­

e c o n o m ic

m o n e y a n d c re d it c o n t in u e d to e x p a n d

m e n t s p e n d in g , a n d

the

la r g e p o lit ic a l a n d s o c ia l c o m p o n e n t s

a t a b o u t th e s a m e ra te a s in

g r o w t h ra te s o f th e m o n e y s u p p ly a n d

w h ic h p o s e a s e r io u s c o n st ra in t o n th e

up.

P r e s s u r e o n b o th co sts a n d p ric e s

b e c a m e in c r e a s in g ly o b v io u s .

W h i le
1964,

s lo w

dow n

p r o b le m s .

They

c o n t a in

e v e r - e n la r g i n g c re d it d e m a n d s p u s h e d

bank

re ­

p o lic y

m a k e r 's

m a r k e t in te re st ra te s s t e a d ily h ig h e r .

d u c tio n s in g o v e r n m e n t s p e n d in g a re ,

t io n a l

s o lu t io n s .

B y th e la s t q u a r t e r o f

in

s o c ia l e le m e n t s in th e o v e r a ll p r o b le m

1965

it w a s

credit.

T a x in c re a s e s a n d

th e ir n a tu re ,

u n p o p u la r a n d

a re

a b ilit y
The

to

adapt

p o lit ic a l

s h o u ld b e in c lu d e d a s a n

ra ­
and

im p o r t a n t

o b v io u s th a t th e d is p a r a t e m o v e m e n t

lik e ly to a r o u s e

o f ra te s, e s p e c ia lly o f

In th e fa c e o f a g r o w i n g p r iv a t e d e ­

p a r t o f th e c h a lle n g e o f m a in t a in in g

m arket

ra t e s

p o litic a l o p p o s itio n .

r e la t iv e to in st itu t io n a l ra te s, w a s d is ­

m a n d , h e a v ie r g o v e r n m e n t b o r r o w in g

s t a b ilit y

in

to r t in g th e f l o w o f f u n d s t h r o u g h th e

a n d a re d u c e d ra te o f le n d in g b y th e

econom y.

T h e y c le a r ly p la y e d a n im ­

c a p it a l m a r k e t s.

b a n k i n g s y st e m w ill a lm o s t in e v it a b ly

p o r t a n t ro le in d e t e r m in in g b o t h th e

A t a b o u t th e s a m e

a

fu ll

b e a c c o m p a n ie d b y tig h t m o n e y a n d

c h a ra c t e ris t ic s

s e r io u s

h ig h a n d r is in g in te re st ra tes, w h ic h ,

m o n e t a r y a n d f is c a l p o lic y m e a s u r e s

t h r e a t to c o n t in u e d p r o g r e s s in s o lv i n g

in tu rn , b e a r h e a v i ly o n la r g e g r o u p s

in 1 9 6 5 a n d 1 9 6 6 .

tim e , th e s h a r p
r e la t iv e

to

u p tre n d

e x p o rts

p ose d




o f im p o r t s
a

and

e m p lo y m e n t

th e

t im in g

of

o f b o r r o w e r s a n d a r e lik e ly to b e o n ly
s lig h t ly le ss u n p o p u la r t h a n
c re a se s.

ta x

in ­

M o r e o v e r , b o th fis c a l a n d

m o n e t a r y m e a s u r e s a r e lik e ly to ra is e
s e r io u s q u e s t io n s o f s o c ia l e q u it y sin c e
it is n o t c le a r th a t th e ir in c id e n c e a f ­
fe cts a ll g r o u p s e q u a lly .

45

H IG H LIG HT S OF 1966
EARN INGS A N D
CAPITAL ACCO U NTS
Net
to

e a rn in g s

th e

ro se

b e fo re

U n it e d

in

th e

o t h e r t h a n h a lf d o lla r s w e r e in s u f ­

T re a su ry

fic ie n t s u p p ly . A n a ll-o u t e ffo rt b y th e

re c o rd

B u r e a u o f th e M i n t p r o d u c e d a b o u t

1966.

Mem ber

9 b illio n p ie c e s o f c o in in 1 9 6 6 c o m ­

D istric t

re c e iv e d

$ 2 6 ,3 3 9 ,0 5 2 .9 0

banks

in

F ifth

D u r in g th e latte r p a r t o f 1 9 6 6 , c o in s

p a ym e n ts

State s

$ 1 1 5 ,5 2 5 ,6 2 8 .9 9

to

a

s t a t u t o r y d iv i d e n d s o f 6 p e r ce n t p e r
a n n u m , t o t a lin g

$ 1 ,7 4 7 ,4 3 7 .8 8 ,

$ 1 1 2 ,2 9 4 ,9 4 1 .1 1
T re a su ry a s

w as

w it h

ro s e

3 .4

b illio n

Bank,

th e

jo in e d th e

J o h n s o n v il le

J o h n s o n v ille ,

So u th

S ta te

C a r o lin a ,

b e c a m e a sta te m e m b e r .

CH ANG ES IN DIRECTORS

FUNCTIONAL COST ANALYSIS

F e d e ra l

Re­

D u r in g th e f a ll o f 1 9 6 6 th e B a n k

$ 1 ,4 8 3 ,2 5 0 .0 0

and

p ie c e s

th e

in itia te d

s to c k

o n ly

to a n a t io n a l c h a r t e r a n d
S y s te m ,

in 1 9 6 2 .

to

p a id

in te re st o n

p are d

T h e W illia m s b u r g State B a n k,

K in g s t re e , S o u t h C a r o lin a , c o n v e rt e d

and

s e r v e n ote s.
C a p it a l

1966.

THE C O IN SITUATION

a

F u n c tio n a l

C ost A n a ly s is

In

th e

f a ll

of

1966

F ifth

m e m b e r b a n k s e le cte d

D istrict

o n e C la s s

A

a n d o n e C la s s B d ir e c to r to t h r e e - y e a r
te rm s o n th e B o a r d o f D ire c t o rs a t th e

P ro g ra m fo r m e m b e r b a n k s.

T h is is

H e a d O ffic e .

to $ 2 9 , 5 7 5 , 7 0 0 . 0 0 a n d th e s u r p lu s a c ­

a

s e rv ic e

dent

count

d e s ig n e d to p r o d u c e cost a n d e a r n i n g s

A m e r ic a n

f ig u r e s f o r th e

p a n y , W a s h in g t o n , D . C., w a s e le cte d

w as

in c r e a s e d

$ 1 ,4 8 3 ,2 5 0 .0 0

to $ 2 9 , 5 7 5 , 7 0 0 . 0 0 .

s im p lifie d

d e p o sit,

CHECK COLLECTION
The

num ber

of

checks

p ro c e s s e d

c o n tin u e s to c lim b e a c h y e a r .
1966

th e in c r e a s e w a s

11

w it h

p o r a t io n

A m e ric a n

c a p it a l

in v e s t in g ,
trust,

a C la s s A d ire c to r, s u c c e e d in g R o b e rt

tio n s o f e a c h p a r t ic ip a t in g b a n k a n d

th e B o a r d , F irst & M e r c h a n t s N a t io n a l
B a n k , R ic h m o n d , V i r g i n i a .

Electe d a s

a

Thaddeus

p a r t ic ip a t in g

Stre e t,

C o u r ie r C o r ­

and

b a n k s co lle ct th e d a t a

fo rw a rd

Bank,

w h ic h

th e m
in

w e re

h e ld

in

banks

to

tu r n

f in is h e d re p o rts.
C h a rlo tte , a n d

th e

R e s e rv e

p re p a re s

th e

O r ie n t a t io n s e s s io n s
R ic h m o n d ,

B a ltim o re ,

R o a n o ke fo r m em be r

in te re ste d

in

th e

NEW CULPEPER FACILITY

o u r c a s h le tte rs a n d re s u lt in a re d u c ­
In la te S e p t e m b e r c o n st ru c t io n w a s

tio n in b o t h c o lle c tio n tim e a n d flo a t.
c h e c k h a n d l in g e q u ip m e n t w a s c o m ­
p le te d a t th e B a lt im o r e a n d C h a rlo tte
ye a r.

B a ltim o re

a c q u ir e d t w o I B M " 3 6 0 " s y ste m s, a n d
C h a r lo t t e

in s t a lle d

tw o

IB M

"1 9 7 9 "

begun

a

C o m m u n ic a t io n s

tic ip a te d in 1 6 m o n th s.

and

T h e b u ild in g ,

la r g e ly u n d e r g r o u n d , w ill b e lo c a te d
on

a

1 6 -a c r e

site

near

C u lp e p e r ,

V ir g in ia .

w ho

T h re e
banks

Head

O ffic e .

n e w ly fo rm e d

e n te re d

th e

Fifth

F e d e ra l

F in is h in g C o m p a n y ,

fills

th e
H.

d e s ig n a t e d

C o lle g e

R o c k H ill, S o u t h

B o a rd

U n iv e r s it y

P ark,

of

G o ve rn o rs

W i ls o n

H.

of

E lk in s,

M a r y la n d ,

M a r y la n d ,

as

D e p u ty

R e s e rv e

C h a i r m a n o f th e B o a r d o f D ire c to rs, a
p o s it io n p r e v io u s ly h e ld b y M r . G r ie r .

Bank

The Second N a ­

o f G ra fto n ,

The

P re sid e n t,

of

Bank

Law so n

G r ie r , P re sid e n t, R o c k H ill P r in t in g a n d

a ls o

D istrict

M r.

e x p ir a t io n o f th e te rm o f W i lli a m

B lu e v ille

R e se rve B a n k s

B o a rd ,

v a c a n c y o n th e B o a r d c a u s e d b y th e

tio n a l B a n k , R ic h m o n d , V i r g i n i a ; T h e

1 9 6 6 , th a t a s o f S e p t e m ­

th e

y e a r te rm a s a C la s s C d ir e c to r a t th e

A u g u s t 8,

1, 1 9 6 7 , F e d e r a l

of

C h a r le s t o n O ffic e , S t e p to e & J o h n s o n ,

S y s te m m e m b e r s h ip .

ber

R o b e rt E. L. J o h n s o n ,

C h a ir m a n

C h a r le s t o n , W e s t V i r g i n i a , to a th re e -

in th e F ifth D istric t w e r e n o t ifie d o n

to

S h ip p in g

T h e B o a r d o f G o v e r n o r s a p p o in t e d

m e r n o n m e m b e r b a n k s c o n v e r t e d to

e ff o r t

C a r o l in a

to n , D. C.

S y s t e m d u r i n g th e y e a r , a n d t w o f o r ­

fu rth e r

w as

W o o d w a r d & L o th ro p , Inc., W a s h i n g ­

s t re a m lin e

a

su c c e e d s

fo rm e r

c h e c k c o lle c tio n o p e r a t io n s a ll b a n k s

In

d ire c to r

P re sid e n t,

C a r o lin a .

NEW MEMBER BANKS

w a s p la c e d in J u l y f o r th re e B u r r o u g h s
s p r in g o f 1 9 6 7 .

on

R e c o rd s C e n te r, w it h c o m p le t io n a n ­

c o n f ig u r a t io n s . A t R ic h m o n d a n o r d e r
" 3 0 0 " s y s t e m s to b e in s t a lle d in th e

B

R o b e rt W . L a w s o n , Jr., S e n i o r P a rtn e r,

w ill a s s u r e m o r e p r o m p t d e liv e r y o f

e le ctro n ic

C la s s

C o m p a n y , C h a r le s t o n , S o u t h C a r o lin a ,

p ro g ra m .

w h ic h w ill b e in it ia t e d e a r l y in 1 9 6 7 ,

th e

Com ­

T. M a r s h , Jr., H o n o r a r y C h a i r m a n o f

o f o u t g o in g c a s h ite m s to v ir t u a lly a ll

d u r in g

B o a rd ,

sa fe

b a n k s in th e F ifth District. T h is se rvice ,

o f fic e s

th e
T ru s t

th e i n d iv id u a l b a n k is c o m p a r e d . T h e

have a r­

of new

of

and

p e r cent

f o r m o t o r c a r r ie r t r a n s p o r t

T h e in s t a lla t io n

S e c u r it y

c o m p u te r s e rv ic e f u n c ­

d e p o sit, a n d

fu n d s,

R o b e rt C . B a k e r , P re si­

C h a ir m a n

D u r in g

In a n e ff o rt t o fu r t h e r im p r o v e th e
ra n g e d

le n d in g ,

and

f ig u r e s f o r s im ila r b a n k s w it h w h ic h

o v e r th e p r e v io u s y e a r .
c h e c k c o lle c tio n s y s t e m w e

co st a c c o u n t in g

G ra fto n ,

B o a rd

of

D ire c to rs

th e

B o a rd ,
of

N o rth

F irst

U n io n

C a r o lin a ,

N a t io n a l
C h a rlo tte ,

W e st V ir g in ia ; a n d

a n y c h e c k s th a t a r e n o t in s c rib e d in

tio n a l B a n k o f H u n t in g t o n , H u n t in g t o n ,

th e

m a g n e t ic

W e st

m em ber

o c c a s io n e d b y th e r e s ig n a t io n o f C a r l

f o r th e first tim e in

G . M c C r a w , f o r m e r C h a i r m a n o f First

w it h

r o u t in g

s y m b o l-

tr a n s it n u m b e r s o f d r a w e e b a n k s .

46



V irg in ia ,

b a n k s o p e n in g

w e re

th e

Na­

R ic h m o n d

w ill d is c o n t in u e h a n d l in g a s c a s h ite m s
in k

T he V a lle y

The

a p p o in t e d C . C . C a m e r o n , C h a i r m a n

N o r t h C a r o lin a , to fill a v a c a n c y o n
B o a rd

of

th e

C h a r lo t t e

B ra n ch

Summary of Operations
U n io n N a t i o n a l B a n k o f N o r t h C a r o ­
lin a .

The

re cto rs

R ic h m o n d

a ls o

B o a rd

a p p o in t e d

of

J.

D i­

W illis

1966

1965

C H E C K C L E A R I N G & C O L L E C T IO N
D o l la r a m o u n t

C a n t e y , P re sid e n t, C it iz e n s & S o u t h e r n

C o m m e r c ia l b a n k c h e c k s * ................. 1 2 2 , 4 5 5 , 8 5 0 , 0 0 0

N a t io n a l B a n k o f S o u t h C a r o lin a , C o ­

G o v e r n m e n t c h e c k s * * .......................

lu m b ia , S o u t h

O th er

C a r o lin a , to a

th re e -

y e a r te rm o n th e B o a r d o f th e C h a r ­
lotte B ra n c h .

M r . C a n te y succe e ds W .

W . M c E a c h e r n , C h a ir m a n , T h e S o u t h
C a r o l in a

N a tio n a l

Bank,

G r e e n v ille ,

ite m s .......................................

1 0 8 ,6 8 3 ,0 0 6 ,0 0 0

1 0 ,4 5 8 ,4 7 8 ,0 0 0

9 ,4 6 8 ,1 5 8 ,0 0 0

8 31 ,0 4 3 ,0 0 0

7 0 1 .1 9 1 .0 0 0

N u m b e r o f ite m s
C o m m e r c ia l b a n k c h e c k s * .................

3 8 5 ,8 4 4 ,0 0 0

3 3 9 .6 9 8 .0 0 0

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

5 9 ,0 9 7 ,0 0 0

5 9 ,4 2 3 ,0 0 0

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

4 ,8 5 1 ,0 0 0

4 ,3 1 2 ,0 0 0

2 ,4 7 0 ,3 8 7 ,4 4 5

2 ,2 9 3 ,7 5 9 ,3 2 0

1 0 8 ,1 7 1 ,4 4 5

6 9 ,1 2 1 ,6 0 5

G o ve rnm e n t c h e c k s**
O t h e r ite m s

S o u t h C a r o lin a .
C U R R E N C Y & C O IN

FEDERAL ADVISORY COUNCIL
T h e B o a r d o f D ire c t o rs se le c te d J.

C u r r e n c y d is b u r s e d — D o lla r a m o u n t .......
C o in

d is b u r s e d — D o lla r a m o u n t ...........

of

D o lla r a m o u n t o f c u r re n c y w it h ­
d r a w n f o r d e stru c tio n .........................

1 ,0 1 6 ,2 3 0 ,0 5 2

8 3 4 ,7 7 1 ,4 0 0

V ir ­

D o lla r a m o u n t o f c u r re n c y b u r n e d .......

4 7 9 ,3 3 7 ,6 0 0

5 9 ,9 4 8 ,4 0 0

g in ia , to s e r v e a s th e m e m b e r o f th e

D a i l y a v e r a g e o f c u r re n c y b u r n e d .......

H a r v ie
th e

W ilk in s o n ,

B o a rd ,

C o m m e rc e

Jr.,

C h a ir m a n

S t a t e -P la n t e rs
&

T ru sts,

Bank

R ic h m o n d ,

of

F e d e ra l A d v i s o r y C o u n c il r e p r e s e n t in g

D o l la r a m o u n t ...................................

1 ,8 9 4 ,6 1 5

2 3 6 ,0 1 7

th e Fifth F e d e ra l R e s e r v e D istric t f o r

N u m b e r ...............................................

6 6 4 ,4 3 5

1 8 0 ,6 6 7

th e y e a r

1967.

ceeds Jo h n

M r . W i lk i n s o n

su c­

F. W a t lin g t o n , Jr., P re s i­

d e n t, W a c h o v i a

Bank

& T ru s t C o m ­

p a n y , W in s t o n - S a le m , N o r t h C a r o lin a .

CHANG ES IN OFFICIAL STAFF

D I S C O U N T & C R E D IT
D o l la r a m o u n t
T o ta l lo a n s m a d e d u r in g y e a r ...........

4 ,7 4 4 ,1 7 3 ,0 0 0

4 ,6 1 0 ,8 3 6 ,6 6 7

D a i l y a v e r a g e lo a n s o u t s t a n d i n g .......

2 9,3 3 0 ,2 1 6

2 4 ,9 6 9 ,6 6 9

N u m b e r o f b a n k s b o r r o w in g
d u r i n g th e y e a r ...................................

120

95

D o l la r a m o u n t ...................................

7 ,6 5 3 ,3 1 0 ,1 8 2

8 ,2 7 6 ,8 8 0 ,6 6 8

N u m b e r ...............................................

1 9 8 ,4 3 1

1 7 4 ,5 9 3

R o g e r P. S c h a d , A s s is t a n t G e n e r a l
A u d it o r , r e s ig n e d e ffe c tiv e A u g u s t 1,
a n d J o s e p h M . N o w la n , V ic e P re s id e n t
a n d C a s h ie r , re tire d o n S e p t e m b e r 1.
E ffe c tiv e S e p t e m b e r 1, H a r m o n H.
H aym es
w ere

and

A u b re y

e le cte d to th e

N.

S n e llin g s

p o s it io n

of A s­

F IS C A L A G E N C Y

A C T IV IT IE S

M a r k e t a b le se c u ritie s d e liv e r e d
o r re d e e m e d

C o u p o n s re d e e m e d

s is t a n t V ic e P re sid e n t in th e R e s e a r c h

D o l la r a m o u n t ...................................

1 0 6 ,2 0 8 ,8 8 0

1 0 0 ,1 0 9 ,8 6 0

D e p a rt m e n t , a n d W i lli a m

N u m b e r ...............................................

3 7 2 ,8 4 0

3 7 1 ,7 6 3

D o l la r a m o u n t ...................................

3 8 5 ,7 3 3 ,0 9 2

3 4 8 ,9 1 0 ,3 7 2

N u m b e r ...............................................

8 ,8 2 7 ,4 5 9

8 ,4 1 8 ,4 4 9

F. U p s h a w

jo in e d th e B a n k a s A s s is t a n t G e n e r a l
C o u n s e l.
gan,

O n O c t o b e r 1, J o h n C . H o ri-

f o r m e r ly

C h ie f

E x a m in e r ,

w as

a p p o in t e d A s s is t a n t G e n e r a l A u d it o r ,
a n d L lo y d W . B o s t ia n , Jr., w a s e le cte d

S a v i n g s b o n d iss u e s (in c lu d in g re issu e )

S a v in g s

b o n d re d e m p tio n s

A t th e e n d o f D e ­

D o l la r a m o u n t ...................................

4 5 4 ,2 1 6 ,0 0 1

4 1 8 ,4 7 8 ,2 3 6

c e m b e r, H. E rn e st F o rd , A s s is t a n t V ic e

N u m b e r ...............................................

9 ,1 9 5 ,4 6 2

8 ,7 2 6 ,8 5 7

E x a m i n in g O ffic e r.

P re sid e n t, w a s p r o m o t e d to C a s h ie r ;

D e p o s it a r y re c e ip ts f o r w it h h e ld ta x e s

J. L a n d e r A llin , Jr., w a s a d v a n c e d to

D o l la r a m o u n t ...................................

3 ,2 5 3 ,6 0 1 ,4 0 2

2 ,5 0 1 ,0 1 7 ,1 2 1

A s s is t a n t V ic e P re sid e n t; a n d A n d r e w

N u m b e r ...............................................

9 3 7 ,3 6 7

8 5 9 ,1 0 8

D o l la r a m o u n t ................................... 1 8 7 , 2 5 6 , 2 0 2 , 9 4 3

1 5 9 ,0 3 9 ,4 7 0 ,2 9 5

L. T ilto n w a s e le cted A s s is t a n t C a s h ie r .
M r . A l l i n 's d u tie s a r e in th e M o n e y ,
P r in t in g

and

S u p p lie s , a n d

B u ild in g

a n d E q u ip m e n t D e p a rt m e n t s , a n d M r .
T ilto n

is

a s sig n e d

to

D e p a rt m e n t .




th e

T r a n s it

TRA N SFERS O F

FUNDS

N u m b e r ...............................................

3 0 6 ,8 3 5

2 8 3 ,6 1 9

* Excluding checks on this Bank
** Includes postal money orders

47

COM PARATIVE
Condition
Decem ber 31, 1 96 6

D ecem b er 31, 1 96 5

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

$ 1 ,0 4 3 ,5 4 9 ,1 5 7 .2 7

$ 1 ,0 1 2 ,4 8 6 ,4 3 6 .6 6

1 5 7 ,2 7 3 ,3 5 2 .0 0

1 4 2 ,5 1 2 ,5 5 0 .0 0

T o ta l G o l d C e rtific a te R e se rv e s .................................... ..........

1 ,2 0 0 , 8 2 2 , 5 0 9 . 2 7

1 ,1 5 4 ,9 9 8 ,9 8 6 .6 6

F e d e ra l R e s e r v e n o te s o f o th e r F e d e ra l R e s e rv e B a n k s ............ ..........
..........

8 6 ,9 8 8 ,5 8 3 .0 0

1 0 2 ,0 1 0 ,1 4 9 .0 0

1 5 ,8 4 6 ,1 1 9 .6 0

8 ,7 7 3 ,8 2 3 .5 2

D is c o u n t s a n d a d v a n c e s .............................................................. ..........

4 ,0 0 0 ,0 0 0 .0 0

2 ,6 5 0 ,0 0 0 .0 0

6 4 3 ,6 8 6 ,0 0 0 .0 0

G o ld

c e rtific a te a c c o u n t

R e d e m p t io n f u n d f o r F e d e ra l R e se rv e n o te s

U. S. G o v e r n m e n t se cu ritie s:
..........

8 5 5 ,1 7 5 ,0 0 0 .0 0

..........

3 1 5 ,2 3 1 ,0 0 0 .0 0

..........

1 ,5 4 3 ,3 2 7 ,0 0 0 .0 0

1 ,7 5 6 , 0 1 5 , 0 0 0 . 0 0

..........

4 4 9 ,1 0 0 ,0 0 0 .0 0

4 6 3 ,2 5 4 ,0 0 0 .0 0

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

3 ,1 6 2 ,8 3 3 ,0 0 0 .0 0

2 ,8 6 2 ,9 5 5 ,0 0 0 .0 0

T o ta l L o a n s a n d Se c u ritie s

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

3 ,1 6 6 ,8 3 3 ,0 0 0 .0 0

2 ,8 6 5 ,6 0 5 ,0 0 0 .0 0

C a s h ite m s in p r o c e s s o f co lle ction

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

8 1 1 ,1 4 5 ,0 8 2 .4 4

6 9 9 ,6 2 5 ,0 4 8 .5 9

T o ta l U. S. G o v e r n m e n t S e c u ritie s

5 ,5 1 4 ,7 6 9 .2 1

4 ,7 3 6 ,3 0 9 .2 7

..........

6 8 ,1 6 7 ,2 5 8 .6 3

5 3 ,5 2 0 ,6 7 3 .8 0

T O T A L A S S E T S ................................................................ ..........

$ 5 ,3 5 5 ,3 1 7 ,3 2 2 .1 5

$ 4 ,8 8 9 ,2 6 9 ,9 9 0 .8 4

LIABILITIES:
F e d e ra l R e s e r v e n o te s ...........................................................................

$ 3 ,6 8 0 ,4 0 8 ,1 5 1 .0 0

$ 3 ,3 8 8 ,3 0 0 ,6 1 6 .0 0

D e p o sits:
M e m b e r b a n k — r e s e r v e a c c o u n ts .......................................................

9 6 1 ,6 5 4 ,8 9 8 .4 9

8 2 4 ,9 1 5 ,0 7 0 .6 6

U. S. T r e a s u r e r — g e n e r a l a c c o u n t .....................................................
F o r e ig n
............................................................................................

5 6 9 ,6 3 7 .2 3
8 ,1 6 0 ,0 0 0 .0 0

6 8 ,8 3 0 ,6 3 2 .6 4
7 ,5 0 0 ,0 0 0 .0 0

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

1 4 ,5 2 0 ,3 5 0 .6 4

1 2 ,7 4 9 ,8 0 7 .2 6

T o ta l D e p o s it s ...........................................................................

9 8 4 ,9 0 4 ,8 8 6 .3 6

9 1 3 ,9 9 5 ,5 1 0 .5 6

D e fe rr e d a v a i l a b i l i t y c a s h ite m s ...........................................................

6 1 4 ,5 2 3 ,8 4 9 .6 1

5 1 8 ,0 5 2 ,2 1 5 .2 7

Q th e r

O th er

lia b ilit ie s .....................................................................................
T O T A L L IA B IL IT IE S .....................................................................

....... 1 6 , 3 2 9 , 0 3 5 . 1 8

1 2 ,7 3 6 ,7 4 9 . 0 1

5 ,2 9 6 ,1 6 5 ,9 2 2 .1 5

4 ,8 3 3 ,0 8 5 ,0 9 0 .8 4

CAPITAL ACCO UNTS:
C a p it a l p a id i n .......................................................................................

2 9 ,5 7 5 ,7 0 0 .0 0

2 8 ,0 9 2 ,4 5 0 .0 0

S u r p lu s

2 9 ,5 7 5 ,7 0 0 .0 0

2 8 ,0 9 2 ,4 5 0 .0 0

...................................................................................................
T O T A L L IA B IL IT IE S A N D

C A P IT A L A C C O U N T S .......................

C o n t in g e n t lia b ilit y o n a c c e p ta n c e s p u r c h a s e d f o r f o r e ig n
c o r r e s p o n d e n t s ..............................................................

48



$ 5 ,3 5 5 ,3 1 7 ,3 2 2 .1 5

9,781,800.00

$ 4 ,8 8 9 ,2 6 9 ,9 9 0 .8 4

$

7,180,000.00

STATEMENTS

Earnings and Expenses
E A R N IN G S :

1966

D is c o u n t s a n d

a d v a n c e s ........................

$

In te re st o n U. S . G o v e r n m e n t s e c u ritie s .................................

1 ,3 5 3 ,1 0 3 .8 3

1965
$

1 ,0 4 8 ,5 9 1 .0 4

1 2 9 ,4 2 8 ,4 8 1 .0 5

1 0 3 ,1 2 0 ,7 6 0 .2 2

1 ,1 2 0 ,7 5 6 .8 9

6 9 9 ,2 1 0 .8 2

3 0 ,2 0 7 .6 9

2 0 ,5 3 8 .0 4

1 3 1 ,9 3 2 ,5 4 9 .4 6

1 0 4 ,8 8 9 ,1 0 0 .1 2

O p e r a t in g e x p e n s e s ( in c lu d in g d e p r e c ia t io n o n b a n k p re m ise s) a fte r
d e d u c t in g re im b u r s e m e n t s re c e iv e d f o r c e rta in F isc a l A g e n c y a n d
o t h e r e x p e n s e s .................................................................................

1 3 ,7 2 1 ,3 0 8 . 5 1

1 2 ,8 4 4 ,8 1 1 .2 5

A s s e s s m e n t s f o r e x p e n s e s o f B o a r d o f G o v e r n o r s ...........................

4 6 2 ,0 0 0 .0 0

4 28 ,9 0 0 .0 0

C o s t o f F e d e ra l R e s e rv e c u r r e n c y .......................................................

2 ,1 2 8 ,8 7 9 .5 9

2 ,5 2 1 ,5 2 2 .6 5

N E T E X P E N S E S ...........................................................................

1 6 ,3 1 2 ,1 8 8 .1 0

1 5 ,7 9 5 ,2 3 3 .9 0

C U R R E N T N E T E A R N I N G S .........................................................

1 1 5 ,6 2 0 ,3 6 1 .3 6

8 9 ,0 9 3 ,8 6 6 .2 2

A d d it io n s to C u r r e n t N e t E a r n in g s .......................................................

8 0 ,3 2 9 .7 2

9 7 ,8 6 0 .4 7

F o r e ig n

c u r re n c ie s ................................................

O t h e r e a r n i n g s ....................................................
T o ta l C u r r e n t E a r n i n g s ...........................................................
EXPEN SES:

D e d u c t io n s F ro m C u r r e n t N e t E a r n in g s :
L o ss o n s a le s o f U. S. G o v e r n m e n t se c u ritie s (net) ...........................

1 73 ,2 4 4 .9 4

8 4 0 .2 7

A l l o t h e r .............................................................................................

1 ,8 1 7 .1 5

4 ,3 1 0 .3 3

T o ta l D e d u c tio n s .......................................................................

1 7 5 ,0 6 2 .0 9

5 ,1 5 0 .6 0

9 4 ,7 3 2 .3 7

9 2 ,7 0 9 .8 7

$ 11 5 ,5 2 5 ,6 2 8 .9 9

$ 8 9,1 8 6 ,5 7 6 .0 9

$

$

N E T A D D I T I O N S O R D E D U C T IO N S ...........................................
N E T E A R N I N G S B E F O R E P A Y M E N T S T O U. S. T R E A S U R Y
D iv id e n d s p a i d ...................................................................................

-

1 ,7 4 7 , 4 3 7 . 8 8

1 ,6 2 9 ,6 3 2 .1 1

P a y m e n t s to U. S . T r e a s u r y (in te re st o n F e d e ra l R e s e rv e n o t e s ) .......

1 1 2 ,2 9 4 ,9 4 1 .1 1

8 5 ,6 0 3 ,8 9 3 .9 8

T r a n s f e r r e d to s u r p lu s ............................................................ ..........

1 ,4 8 3 ,2 5 0 .0 0

1 ,9 5 3 ,0 5 0 .0 0

$ 1 1 5 ,5 2 5 ,6 2 8 .9 9

$ 8 9 ,1 8 6 ,5 7 6 .0 9

TOTAL

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

SURPLUS ACCO U NT
B a la n c e a t c lo s e o f p r e v io u s y e a r ...................................................

$ 2 8 ,0 9 2 ,4 5 0 .0 0

$ 2 6 ,1 3 9 ,4 0 0 .0 0

A d d it io n a c c o u n t o f p ro fits f o r y e a r ...............................................

1 ,4 8 3 ,2 5 0 .0 0

1 ,9 5 3 ,0 5 0 .0 0

B A L A N C E A T C L O S E O F C U R R E N T Y E A R .................................

$ 2 9 ,5 7 5 ,7 0 0 .0 0

$ 2 8 ,0 9 2 ,4 5 0 .0 0

B a la n c e a t c lo se o f p r e v io u s y e a r ...........................................................

$ 2 8 ,0 9 2 ,4 5 0 .0 0

$ 2 6 ,1 3 9 ,4 0 0 .0 0

Is s u e d d u r in g th e y e a r ...........................................................................

1 ,5 7 0 ,4 5 0 .0 0

1 ,9 7 8 ,2 0 0 .0 0

CAPITAL STOCK ACCOUNT
( R e p r e s e n t in g a m o u n t p a id in, w h ic h is 5 0 % o f a m o u n t s u b s c r ib e d )

2 9 ,6 6 2 ,9 0 0 .0 0

2 8 ,1 1 7 ,6 0 0 .0 0

C a n c e lle d d u r in g th e y e a r .......................................................................

8 7 ,2 0 0 .0 0

2 5 ,1 5 0 .0 0

B A L A N C E A T C L O S E O F C U R R E N T Y E A R ...............................

$ 2 9 ,5 7 5 ,7 0 0 .0 0

$ 2 8,0 9 2 ,4 5 0 .0 0




49

FEDERAL RESERVE
Directors

(DECEMBER 31, 1966)

E D W IN H Y D E

C h a ir m a n o f th e B o a r d a n d F e d e ra l R e s e rv e A g e n t

W IL S O N

D e p u t y C h a i r m a n o f th e B o a r d

H. E L K IN S

CLASS A
G E O R G E B L A N T O N , JR .

P re sid e n t, F irst N a t i o n a l B a n k
S h e lb y , N o r t h C a r o l in a
(Te rm e x p ir e s D e c e m b e r 3 1 , 1 9 6 7 )

W IL L IA M

P re sid e n t, P e o p le s B a n k o f M u l le n s
M u lle n s , W e s t V i r g i n i a
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 8 )

A.

D A V IS

R O B E R T T. M A R S H , JR .

H o n o r a r y C h a i r m a n o f th e B o a r d , F irst & M e r c h a n t s N a t i o n a l B a n k
R ic h m o n d , V i r g i n i a
(Term e x p ir e d D e c e m b e r 3 1 , 1 9 6 6 )
Succeeded by:

R o b e rt C . B a k e r
P re s id e n t a n d C h a i r m a n o f th e B o a r d
A m e r ic a n S e c u r it y a n d T ru st C o m p a n y
W a s h i n g t o n , D. C.
(T e rm e x p ir e s D e c e m b e r 3 1 , 1 9 6 9 )

CLASS B
R O B E R T R IC H A R D S O N C O K E R

R O B E R T E.

L. J O H N S O N

P re sid e n t, C o k e r 's P e d ig r e e d S e e d C o m p a n y
H a rtsv ille , S o u t h C a r o l in a
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 7 )
F o r m e r C h a i r m a n o f th e B o a r d (R e tire d), W o o d w a r d & L o th ro p , Inc.
W a s h in g t o n , D. C.
(Te rm e x p ir e d D e c e m b e r 3 1 , 1 9 6 6 )
Succeeded by:

C H A R L E S D. L Y O N

T h a d d e u s S tre e t
P re sid e n t, C a r o l in a S h i p p i n g C o m p a n y
C h a r le s t o n , S o u t h C a r o l in a
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 9 )

P re sid e n t, T h e P o t o m a c E d is o n C o m p a n y
H a g e rsto w n , M a r y la n d
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 8 )

CLASS C
W IL S O N

H. E L K IN S

W IL L IA M

H. G R IE R

P re sid e n t, U n iv e r s it y o f M a r y l a n d
C o lle g e P a r k , M a r y l a n d
(Te rm e x p ir e s D e c e m b e r 3 1 , 1 9 6 8 )
P re sid e n t, R o c k H ill P r in t in g & F in is h in g C o m p a n y
R o c k Hill, S o u t h C a r o l in a
(Te rm e x p ir e d D e c e m b e r 3 1 , 1 9 6 6 )
Succeeded by:

E D W IN

HYDE

R o b e rt W . L a w s o n , Jr.
S e n i o r P a rtn e r, C h a r le s t o n O ffic e , S t e p to e & J o h n s o n
C h a r le s t o n , W e s t V i r g i n i a
(Te rm e x p ir e s D e c e m b e r 3 1 , 1 9 6 9 )

P re sid e n t, M i l l e r & R h o a d s , Inc.
R ic h m o n d , V i r g i n i a
(Te rm e x p ir e s D e c e m b e r 3 1 , 1 9 6 7 )

MEMBER FEDERAL A DVISO RY COUNCIL
JO H N

F. W A T L I N G T O N , JR .

P re sid e n t, W a c h o v i a B a n k a n d T ru st C o m p a n y
W in s t o n - S a le m , N o r t h C a r o l in a
(Term e x p ir e d D e c e m b e r 3 1 , 1 9 6 6 )
Succeeded by:

50



J. H a r v ie W ilk in s o n , Jr.
C h a i r m a n o f th e B o a r d
S t a t e -P la n t e r s B a n k o f C o m m e r c e & T ru sts
R ic h m o n d , V i r g i n i a
(T e rm e x p ir e s D e c e m b e r 3 1 , 1 9 6 7 )

B A N K OF R I C H M O N D
Officers
EDW ARD

A . W A Y N E , P re sid e n t

A U B R E Y N . H E F L IN , F irst V ic e P re sid e n t

R O B E R T P. B L A C K , V ic e P re sid e n t

J O H N L. N O S K E R , V ic e P re s id e n t

J. G O R D O N D IC K E R S O N , JR., V ic e P re s id e n t

J A M E S P A R T H E M O S , V ic e P r e s id e n t

W E L F O R D S . F A R M E R , V ic e P r e s id e n t a n d G e n e r a l C o u n s e l

B. U. R A T C H F O R D , V ic e P re s id e n t a n d S e n io r A d v is e r

DO NALD

R A Y M O N D E. S A N D E R S , JR., V ic e P re s id e n t

F. H A G N E R , V ic e P re sid e n t

E D M U N D F. M A C

D O N A L D , V ic e P re s id e n t

J O S E P H F. V IV E R E T T E , V ic e P re s id e n t

U P T O N S . M A R T I N , V ic e P re sid e n t

H. E R N E S T F O R D , C a s h ie r

J. L A N D E R A L L IN , JR ., A s s is t a n t V ic e P re sid e n t

J I M M I E R. M O N H O L L O N , A s s is t a n t V ic e P re sid e n t

C L IF F O R D B. B E A V E R S , A s s is t a n t V ic e P re sid e n t

A R T H U R V . M Y E R S , JR., A s s is t a n t V ic e P re sid e n t

J O H N G . D E IT R IC K , A s s is t a n t V ic e P re s id e n t
V . E. P R E G E A N T , III, A s s is t a n t V ic e P r e s id e n t a n d S e c r e t a r y
W IL L IA M

C . G L O V E R , A s s is t a n t V ic e

P re sid e n t

W I L L I A M B. H A R R I S O N , III, A s s is t a n t V ic e P re s id e n t

A U B R E Y N . S N E L L IN G S , A s s i s t a n t V ic e P re sid e n t

HARMON

W I L L I A M F. U P S H A W , A s s is t a n t G e n e r a l C o u n s e l

H. H A Y M E S , A s s is t a n t V ic e P re s id e n t

E D W A R D L. B E N N E T T , E x a m i n in g O f f ic e r

C H E S T E R D. P O R T E R , JR., E x a m i n in g O f f ic e r

L L O Y D W . B O S T I A N , JR ., E x a m i n in g O f f ic e r

R. H E N R Y S M A R T , E x a m i n in g O f f ic e r

JO H N

A N D R E W L. T IL T O N , A s s is t a n t C a s h ie r

E. F R IE N D , A s s is t a n t C a s h ie r

J A C K H. W Y A T T , A s s is t a n t C a s h i e r

R O B E R T L. M IL L E R , A s s is t a n t C a s h ie r

G.
JO H N

H ARO LD

SN EAD,

C . H O R IG A N ,

G e n e r a l A u d it o r

A s s is t a n t G e n e r a l A u d it o r

BALTIMORE BRANCH

CHARLOTTE B R A N C H

D O N A L D F. H A G N E R , V ic e P re s id e n t

E D M U N D F. M A C

A . A . S T E W A R T , JR., C a s h ie r

S T U A R T P. F IS H B U R N E , V ic e P re s id e n t a n d C a s h ie r

B. F. A R M S T R O N G , A s s is t a n t C a s h i e r

W IN F R E D W . KELLER, A s s is t a n t C a s h ie r

E. R I G G S J O N E S , JR ., A s s is t a n t C a s h ie r

F R E D C. K R U E G E R , JR., A s s is t a n t C a s h i e r

G E R A L D L. W I L S O N , A s s is t a n t C a s h i e r

E. C L IN T O N




D O N A L D , V ic e P re s id e n t

M O N D Y , A s s is t a n t C a s h ie r

51

Directors

(DECEMBER 31, 1966)

B A L T IM O R E B R A N C H
JO SEPH

B. B R O W N E

P re sid e n t, U n io n T ru st C o m p a n y o f M a r y l a n d
B a ltim o re , M a r y l a n d
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 8 )

E. W A Y N E C O R R I N

P re sid e n t, C o n s o lid a t e d G a s S u p p l y C o r p o r a t io n
C la r k s b u r g , W e s t V i r g i n i a
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 8 )

L E O N A R D C . C R E W E , JR.

C h a ir m a n o f th e B o a r d , M a r y l a n d S p e c ia lt y W ire , Inc.
C o c k e y s v ille , M a r y l a n d
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 7 )

A R N O L D J. KLEFF, JR .

M a n a g e r , A m e r ic a n S m e lt in g a n d R e f in in g C o m p a n y
B a ltim o re , M a r y l a n d
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 9 )

A D R IA N

L. M c C A R D E L L

P re sid e n t, F irst N a t io n a l B a n k o f M a r y l a n d
B a ltim o re , M a r y l a n d
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 7 )

M A R T IN

P IR IB E K

E x e c u tiv e V ic e P re sid e n t, T h e F irst N a t io n a l B a n k o f M o r g a n t o w n
M o rg a n to w n , W e st V ir g in ia
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 7 )

JO H N

P. S IP P E L

P re sid e n t, T h e C it iz e n s N a t i o n a l B a n k
La u re l, M a r y l a n d
(Te rm e x p ir e s D e c e m b e r 3 1 , 1 9 6 9 )

CHARLOTTE B R A N C H
W ALLA C E W . BRAW LEY

P re sid e n t, N a t io n a l B a n k o f C o m m e r c e o f S p a r t a n b u r g ( O r g a n iz i n g )
S p a r t a n b u r g , S o u t h C a r o l in a
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 7 )

C. C . C A M E R O N

C h a ir m a n o f th e B o a r d , F irst U n io n N a t io n a l B a n k o f N o r t h C a r o l in a
C h a rlo tte , N o r t h C a r o l in a
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 7 )

JO H N

E x e c u tiv e V ic e P re sid e n t, C a r o l in a F r e ig h t C a r r ie r s C o r p o r a t io n
C h e r ry v ille , N o r t h C a r o l in a
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 8 )

L. F R A L E Y

W. W . M cEACHERN

C h a ir m a n a n d C h ie f E x e c u tiv e O f fic e r , T h e S o u t h C a r o l in a N a t i o n a l B a n k
G r e e n v ille , S o u t h C a r o l in a
(Term e x p ir e d D e c e m b e r 3 1 , 1 9 6 6 )
Succeed ed by:

W IL L IA M

B. M c G U I R E

J. W i lli s C a n t e y
P re sid e n t, T h e C it iz e n s & S o u t h e r n N a t io n a l
B a n k o f S o u t h C a r o l in a
C o lu m b ia , S o u t h C a r o l in a
(Te rm e x p ir e s D e c e m b e r 3 1 , 1 9 6 9 )

P re sid e n t, D u k e P o w e r C o m p a n y
C h a rlo tte , N o r t h C a r o l in a
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 7 )

J A M E S A . M O R R IS

V ic e P re sid e n t, D iv is io n o f A d v a n c e d S t u d ie s a n d
o f S o u t h C a r o l in a
C o lu m b ia , S o u t h C a r o l in a
(Term e x p ir e s D e c e m b e r 3 1 , 1 9 6 9 )

G. H ARO LD

P re sid e n t a n d T ru st O f fic e r, F irst N a t i o n a l B a n k
L in co ln to n , N o r t h C a r o l in a
(Te rm e x p ir e s D e c e m b e r 3 1 , 1 9 6 8 )

M Y R IC K

52



R e se a rc h , U n iv e r s it y