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Stock Market Commission Fees:
Competition or Bust . . . or Be Busted?
Closing Uncle Sam's Trade Gap
Fiscal Alternatives for Philadelphia

FEDERAL RESERVE BANK of PHILADELPHIA

1973

Stock Market Commission Fees:
Competition or Bust . . . or Be Busted?
. . . Fixed-fee commissions on stock market
trading are on the wane as institutional in
vestors and others hasten the trend toward
a competitive-fee system.
Closing Uncle Sam's Trade Gap
. . . Although America's '71 trade balance
showed a deficit, currency realignments and
controls on domestic inflation may enhance
the prospects of reestablishing a surplus.
Fiscal Alternatives for Philadelphia
. . . Covering Philadelphia's fiscal deficit
may involve not only using local funds, but
also tapping the resources of the Common
wealth and Federal governments.

On our cover: Located at 3rd, Walnut, and Dock streets is the Philadelphia Exchange building. Designed
by William Strickland and built between 1832 and 1834, it housed the Philadelphia Stock Exchange for
many years. Only the exterior has been restored.

BUSINESS REVIEW is produced in the Department of Research. Ronald B. Williams is Art Director and Manager,
Graphic Services. The authors will be glad to receive comments on their articles.
Requests for additional copies should be addressed to Public Information, Federal Reserve Bank of Philadelphia, Philadelphia,
Pennsylvania 19101.

FEDERAL RESERVE BANK OF PHILADELPHIA

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In 1776 Adam Smith, the father of modern
economics, wrote:
People of the same trade seldom
meet together, even for merriment
and diversion, but the conversation
ends in a conspiracy against the
public, or in some contrivance to
raise prices.1
Less than two decades later, 24 securities
traders gave lasting testimony to Smith's dis
cerning view of businessmen's behavior
when they gathered under a buttonwood
tree at the foot of Wall Street to create a
"regular market" in financial securities. Their
first order of business was to fix prices by
solemnly pledging that "we will not buy or
sell from this day for any person whatso
ever, any kind of public stock at less than

1 Adam Smith, An Inquiry into the Nature and
Causes of the Wealth of Nations, intro. M. Blaug
(Homewood, III.: Richard D. Irwin, 1963), p. 103.

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one-quarter percent commission on the
specie value." In such nonmarket fashion, a
bulwark of modern American capitalism— the
New York Stock Exchange (NYSE)— was born.
For nearly two centuries, Big Board
brokers faithfully adhered to their ancestors'
pledge. Today, they still resist the appeals
of customers, regulatory agencies, and econ
omists to let their charges be determined
— like most other services — by the mar
ket forces of supply and demand. Mem
ber brokers' reluctance to open the Ex
change to competition is grounded in their
contention that free-market pricing will re
duce their volume of business. Economists
suggest, however, that competitively deter
mined fees for purchases and sales of stock
should increase NYSE business and that
there is no logical justification for maintain
ing price floors in the market for equity
shares.
While the movement to a competitivefee system has finally been set in motion,
there are several pitfalls that could slow its

BUSINESS REVIEW

N YSE

M IN IM U M

APRIL 1972

C O M M IS S IO N S

D EPEN D ON

V A LU E

O F

THE

TRADE *

PRICE PER SHARE
SIZE
OF ORDER:
20
Shares

$10

$30

$20

$40

$50

$100

8.40

$ 12.40

$ 16.40

$ 20.40

$ 23.00

$ 36.00

50
Shares

14.40

23.00

29.50

36.00

42.50

65.00

100
Shares

25.00

38.00

49.00

58.00

65.00

200
Shares

50.00

70.00

88.00

106.00

124.00

130.00

1000
Shares

172.00

262.00

322.00

362.00

402.00

602.00

*Schedule effective March 24, 1972.

extension to cover all stock transactions,
regardless of size. These include the pro
posed legislation to exempt the NYSE from
antitrust legislation and the view that srnall
investors must be encouraged to deal in
the market for common stocks by keeping
the cost artificially low.

service. The NYSE is a legally sanctioned
cartel2, however. This means that market in
centives (such as entry of new firms) which
would force commission charges to the
level of the cost of performing an additional
exchange are frustrated.
Brokers argue that the price floor does
not eliminate competition, but merely shifts
the battle for customers to the nonprice
front. Most Exchange members offer "free"
services such as custody of stock certificates,
dividend collection, monthly statements,
and investment advice to their customers.
This method of doing business will prove
satisfactory to the users of Exchange facil
ities provided they require these additional
services, and their "price"— the premium of

HOW THE COMMISSION SYSTEM WORKS
Under the fixed-commission arrangement,
investors pay brokers a fee for executing
orders to buy and sell shares of common
stock. This fee depends on the price of the
stock and the number of shares involved
(see Table). The Board of Governors of the
NYSE determines the minimum charge, sub
ject to the approval of the Securities and
Exchange Commission (SEC). If competition
reigned, this charge would equal the cost to
the firm of performing the brokerage func
tion— arranging, executing, and clearing an
exchange of equity shares — and would in
clude a "normal" return for providing this

2 The number of "seats” on the NYSE is determined
by the Board of Governors of the Exchange, a 33-man
body which must approve all applications for mem
bership. At the end of 1970 there were 572 member
organizations in the Exchange.
4

FEDERAL RESERVE BANK OF PHILADELPHIA

pushed high enough, some customers will
be driven away. Until 1968 there was little
evidence that the fixed-commission system
adversely affected the relative volume of
business on the NYSE. Since then, however,
increasing portions of NYSE-listed stocks
have been traded on the 16 regional ex
changes and on the "Third Market," where
listed securities are traded "over-the-coun
ter" (see Box for explanation of markets).

actual brokerage charges above the cost of
producing them — is not higher than it
would be if these same services were ob
tained elsewhere.
The existence of this nonprice competi
tion, however, does not mean the NYSE can
ignore price competition. Shares of com
mon stock can be traded anywhere, so that
if the price of the NYSE's product (facilita
tion of exchange plus ancillary services) is
B U Y IN G

AND

S E L L IN G

COM M ON

STO CK

Many of us know little about how shares of stock of established corporate giants
and struggling neophyte firms are traded among the portfolios of some 30 million
American investors. While stocks can be traded without the aid of an intermediary
(broker), the high costs of locating a trading partner and negotiating an exchange means
that most investors will use the broker's services. Stocks of well-established companies
are typically accepted for trading ("listed") on organized "exchanges" such as the
New York Stock Exchange and American Stock Exchange. On the NYSE, for example,
some 1330 issues of domestic corporations have satisfied the requirements for listing.
In addition to the NYSE and AMEX, there are 16 "regional exchanges" (such as the
Pacific Coast and the Philadelphia-Baltimore-Washington exchanges). Their original
purpose was to carry out transactions in stocks of local interest, but presently most
trading on regional exchan g es is in se cu ritie s also traded on the NYSE. Although the
relative volume of regional exchange business (excluding AMEX) has increased since
1965, the NYSE continues to account for the lion's share of exchange business — over
70 percent in 1970.
Trades on the organized exchanges are characterized by the "auction method."
Brokers fill "market orders" to purchase shares of company XYZ by making bids at
the "trading post" for XYZ on the floor of the exchange. The rules of business typically
require that all bids to buy and offers to sell be made by open outcry and that all
orders be brought to the floor. Thus, a purchaser obtains his stock at the lowest pos
sible price at which someone is willing to sell. If there are no matching sell orders for
XYZ at the time, the broker can obtain the stock from the "specialist," a special sort
of exchange member who maintains an inventory of certain stocks for the purpose of
buying and selling from the public.
Investors can only trade the issues of about 3000 companies on organized exchanges.
Where, then, can they buy and sell the stocks of some 10,000 companies whose issues
are not acceptable for exchange trading ("unlisted" securities)? The answer: in the
"over-the-counter" (O-T-C) market. In this market, buying and selling orders are not
matched at a centralized location such as an exchange floor, but rather through a
massive network of telephone and teletype wires linking thousands of securities firms.
The essence of the O-T-C market is that prices are arrived at by negotiation — by
bargaining with the broker or dealer in question — and not by auction techniques.
Listed securities can also be traded in the O-T-C market. Such transactions are referred
to as "Third Market" trades.

APRIL 1972

BUSINESS REVIEW

CHART

ance companies. Institutions have consider
able incentive to scuttle the fixed-fee sys
tem, for the premium above cost these
investors pay under such a system is con
siderably larger than that for small investors.
Obviously, an order that is ten times as
large as a round lot (100 shares) does not
involve ten times as much telephoning,
bookkeeping, execution, and delivery costs.
Yet until this year, commission charges on a
1000-share order were ten times as large as
the fees on the round-lot transaction. As the
broker's profit per order increases with the
size of the transaction, so does his cus
tomer's incentive to expropriate that portion
of this profit he considers above "normal"
for providing this service.
Until 1968, NYSE member brokers could
discourage large institutions from taking
their business elsewhere by offering an
assortment of rebates or kickbacks of com
mission charges (some rebates were as large
as 75 percent of the commission fee). How
ever, late that year, the SEC approved an
amendment to the NYSE constitution which
prohibited customer-directed "give-ups,"
but allowed for fixed "volume discounts"
on orders exceeding 1000 shares. The per-

T H IR D - M A R K E T
R E L A T IV E

TRA D ES

N YSE

SO A R

TRA D ES.

Percent of Share Volume*

1965 1966

1967

1968 1969

1970

1971

*Third-Market volume/NYSE volume.
Source: New York Stock Exchange Fact Book, 1971.

For example, share volume on the Third
Market hit a new high in 1971, accounting
for 7 percent of total NYSE trading volume
as compared to only 2.7 percent in 1965
(see Chart 1). Moreover, while Third Mar
ket share trading increased at an average
annual rate of over 34 percent from '67
through 71 , NYSE volume increased only
8 percent yearly, and even declined in '69.
INSTITUTIONAL INVESTORS: CATALYSTS
FOR COMPETITIVE RATES
When Wall Street historians begin tracing
the decline and fall of the fixed-commission
system, they will embark from the doorsteps
of the institutional investors, such as banks,
mutual and pension funds, and life insur

FEDERAL RESERVE BANK OF PHILADELPHIA

CHART

P E N S IO N

FU N D S

PA CE SPURT

IN I N S T I T U T I O N A L

IN V E S T M E N T .

Billions of Dollars

centage discount on these large trades
ranged from 48 percent for a $20 stock, to
8V2 percent on $80 stocks, to nothing on
stocks selling above this figure. Since the
discount was inflexible and rebates were
illegal, the incentive for institutions to trade
off the floor of the NYSE grew, especially in
high-priced stocks. Thus, most Third Market

volume is accounted for by institutional in
vestors, and a Fourth Market has arisen in
which institutions deal directly with each
other in negotiating exchanges and bypass
the middleman altogether. In addition, large
institutions have stepped up their campaign
with the SEC to be admitted to the NYSE as
member firms.3

3 Institutions prefer to reduce trading costs by seek
ing exchange memberships rather than expanding the
Fourth Market because dealing directly with potential
trading partners requires disclosure of identity. Any
prior exposure of interest is feared likely to affect
price negotiations. Some regional exchanges do admit
institutions (or subsidiaries thereof) as members. For
instance, the Philadelphia-Baltimore-Washington Ex
change lists the three largest insurance-companies in
the U.S. among its 42 institutional member firms.
Until recently, the NYSE has been able to dissuade

the SEC from permitting institutional membership,
mainly by arguing that their admittance would induce
these institutions to engage in "excessive" trading in
order to generate commission income. This might con
flict with customers' profit interests, member brokers
contend. Last February the SEC announced that it
favored exchange membership for brokerage affiliates
of institutions, provided that a predominant portion
of their business (more than 80 percent) comes from
unaffiliated public customers.

APRIL 1972

BUSINESS REVIEW

the SEC and more-than-veiled threats from
the Department of Justice. In April 1971
negotiated rates on the portion of trades
over $500,000 ("overage") were established.
This minimum transaction size for competi
tive fees will soon be reduced to $300,000,
and the Chairman of the SEC recently an
nounced that his Commission is aiming for
a $100,000 cutoff for negotiated rates by
1974. Some observers have noted that since
the Department of Justice has stated that it
does not believe that fixed fees are either
"required or justified," it may only be a
matter of time until negotiated fees on all
transactions are the norm. However, several
pitfalls remain along the path to fully com
petitive pricing in securities markets.

CHART 3
G R O W T H IN B IG B L O C K S R E F L E C T S
I N S T IT U T I O N A L A C T I V I T Y .
Millions*

FULLY COMPETITIVE FEES AROUND THE
BEND — NOT IF BROKERS HAVE
THEIR DRUTHERS
Though negotiated rates appear to be a
juggernaut edging toward a fully competi
tive securities market, most member brokers
and some stock market reformers (see Box
on Martin Report) continue to resist the ex
tension of competitive fees to smaller trades.
The Exchange's official position is that elim
ination of minimum commissions would
diminish incentive for Exchange member
ship, and thus reduce trading volume on
the floor of the NYSE.4The maximum charge

*Shares Traded in Units of Over 10,000.
Source: New York Stock Exchange Fact Book, 1971.

The pressures on the NYSE and the SEC
to take action to stem the loss of large-cus
tomer business by instituting flexible com
mission charges were compounded by the
expanded role these institutions have come
to play in equity markets (see Charts 2 and
3). In the 1960s, institutional share volume
grew almost five times as fast as individual
investor volume. By 1970, institutions ac
counted for 56 percent of public share vol
ume, compared to only 31 percent in 1960.
And no one doubts that the trend of the
70s is toward more "institutionalization" of
stock market activity.
In order to stem the flow of business
away from the NYSE, member brokers
moved toward flexible brokerage fees, but
only after less-than-subtle prodding from

4 Another justification suggested by the NYSE for a
fixed-fee mode of business was that the securities
business constituted a "natural monopoly" such as
electricity-supply and telephone companies. A monop
oly is "natural" when the economic characteristics of
an industry are such that competition automatically
leads to all but one firm being driven from the
market. As a result, entry into the industry must be
regulated and prices determined in noncompetitive
fashion. Economists have found the Exchange's statis
tical support for this contention to be severely want
ing, however, and have presented contrary evidence
which suggests that the securities industry is not
characterized by economies of large-scale production.
For a review of all the evidence, see R. West and S.
Tinic, "Minimum Commission Rates on NYSE Trans
actions," Bell Journal of Economics and Management
Science, 2 (Autumn 1971): 377-605.
8

FEDERAL RESERVE BANK OF PHILADELPHIA

TH E

M A R T IN

REPO RT:

REFO RM

TH ERA PY?

In August 1971, the much-awaited study of securities markets prepared by William
McChesney Martin, former Chairman of the Federal Reserve Board and onetime Presi
dent of the NYSE, was released to the public. While the Martin Report offered several
broad recommendations for the industry — including centralization of the various ex
changes— the fixed-commission system (with negotiated rates on trades over $500,000)
was endorsed for the present, and the merits of a more competitive structure of fees
received little consideration. The Report's neglect of the commission-fee problem is
unfortunate since many of the questions considered are intimately related to the type
of commission structure which should exist in equity markets. For example, on the
question of institutional membership (which the Report opposes), it should be em
phasized that competitive fees would remove much of the incentive of the investment
intermediaries to apply for Exchange membership. Likewise, trading volume on the
Third Market (which the Report suggests should be eliminated) would probably be
restricted to trades in large "blocks" (10,000 shares or more) under a negotiated-rate
regime.* In essence, the Martin Report treats the symptoms of a "malaise" (fragmented
stock markets) whose ultimate cause (the fixed-fee system) was, for the most part, only
touched upon. It is probably best viewed not as an instrument for reform, but an at
tempt to shore-up the existing system by closing the various loopholes for reducing
trading costs. Past experience has shown that this approach typically leads to the
expenditure of additional resources to devise new methods for avoiding the artificial
constraints on trade.
*Very large transactions (block positioning) in listed securities in the O-T-C market might not be
eliminated by competitive fees because such trades typically require a search for matching interest on
the other side of the market rather than mere acceptance of a bid or offer. They, therefore, constitute a
different product than smaller transactions. If O-T-C dealers have a better “ feel” of block markets than
Exchange specialists (perhaps because of their continuous and well-developed relationship with large
customers), their ability to execute large trades will be superior to that of member brokers.

change is seeking to slow or halt the spread
of the competitive-fee system by seeking
explicit exemption from antitrust legislation.
Some basic economic logic suggests, how
ever, that competitive pricing will boost rel
ative trading on the NYSE rather than cause
the decline in business that brokers fear.
The reason is simple. Under the fixed-free
system of the NYSE, Third Market and re
gional exchange trading provide savings to
cost-conscious customers which attract them
to these markets. Competitively determined
fees will eliminate this cost advantage.
A simple analogy makes this point clear.
Consider the case of Jones, Smith, and Farns

members pay for trading on the Exchange is
a small floor broker's fee; nonmembers pay
the same high commission rates charged to
the public. Competitive rates would narrow
this differential and would supposedly in
duce some firms to surrender their member
ship. Investors would suffer, the Exchange
argues, because trades transacted in other
markets are "inferior" products compared
to those on the NYSE. The NYSE's strict self
regulation policy purportedly results in more
and better surveillance to insure proper
trading procedures are followed than on the
regional exchanges or in the O-T-C market.
Partly on the basis of this argument, the Ex

BUSINESS REVIEW

APRIL 1972

worth, who make their living selling iden
tical shoelaces in the same market area.
Jones and Smith agree to form a trade as
sociation whose primary purpose is to fix
the price of shoelaces. If they set the price
above the cost of producing an additional
pair of laces, however, Farnsworth will cap
ture the entire market by setting a lower
price, assuming everyone is aware of it. The
reason that Smith and Jones can typically
stay in business, despite the pesky Farns
worth, is that information concerning the
markets is costly to obtain and the associa
tion may succeed in "differentiating" its
product from Farnsworth's (different colors,
longer guarantee, and the like). Should
Smith and Jones allow competition to de
termine the price, however, the cost ad
vantage accruing to Farnsworth's customers
would be eliminated.
In the securities business, the "Third Mar
ket" dealer/broker has played the role of
Farnsworth to the hilt. For once an investor
decides to buy or sell shares of some listed
stock, a complementary decision on where
it should be traded is also required — on or
off the NYSE (not all listed stocks are traded
in the Third Market). The investor would
naturally prefer to execute the transaction
at the best available price and the lowest
cost, including the cost of his time and
effort as well as the nominal trading charges
of the broker. Except for very large blocks
of stock, however, trades on the floor of
the NYSE are typically executed with light
ning speed — perhaps before the customer
hangs up the telephone after placing his
order. The advantage of Third Market trad
ing thus lies principally in its lower cost.5
Investors can achieve cost advantages in

Third Market trades because the middleman
often acts as a principal (dealer) in the
transaction rather than an agent (broker). In
such a case, the intermediary buys and sells
shares for its own account at a "net" (retail)
price which includes a "markup" over the
(wholesale) price it paid to acquire the
stock. Under the present commission sys
tem, this markup — which covers the cost
of performing the brokerage charges — can
be adjusted by Third Market firms to make
their retail prices less than the sum of the
NYSE price plus the fixed commission. But
if NYSE commission charges were competi
tively determined, Third Market dealers
could not profitably maintain their charges
below those of the NYSE members. Trading
volume on the Exchange would increase as
many institutional customers returned to
purchase the "superior" services of the
NYSE. Member firms would consequently
have little incentive to surrender their seats.
Thus, economic logic suggests that fixedcommission fees are neither necessary for
the continued existence of an organized
stock exchange nor vital for making its self
regulation policies effective. Consequently,
passage of the proposed antitrust exemption
would only grant the force of explicit gov
ernment sanction to the present noncom
petitive-pricing procedures of the Exchange
and impede or reverse the movement to
ward com petitive pricing in securities
markets.

5
Lack of public disclosure of transactions volume
constitutes yet another incentive for institutional trad
ing of listed securities in the O-T-C market. Hope
fully, this motivation will soon be eliminated when
the SEC promulgates rules that all Third Market price
and volume data be reported by dealer-brokers to
the National Association of Securities Dealers for
release to the public news media on a daily basis.

BUTTONWOOD IN REVERSE:
MAXIMUM FEES?
A watchful government eye may also be
required to prevent another potential pitfall
in the movement toward a flexible-fee sys
tem. As the cutoff size slowly6 declines to
lower levels, the remaining fixed commission
6 The SEC's justification for moving to competitive
rates in step-by-step fashion is that a "precipitate
movement" toward a negotiated structure would
effect such a severe decline in revenues in the securi
ties industry that a "crisis of confidence" would be
inevitable.

FEDERAL RESERVE BANK OF PHILADELPHIA

instance, some brokers have suggested that
current total charges on small orders may
be less than the processing cost of execu
tion and delivery. Competitive rates would
then drive these charges up since low rates
on small transactions could no longer be
supported by "excess" profits earned on
large orders.
But even if commission charges remained
at the current level or declined, many small
investors would find that their total costs of
dealing in the stock market had risen. For a
competitive fee structure would force brok
erage firms to assess separate charges for
formerly "free" services such as certificate
custody, dividend collection, and invest
ment research and advice. Individual in
vestors could then choose from this "un
bundled" package only those services they
wanted. But unless the cost of the ancillary
services purchased was offset by a decline
in trading fees, total trading costs would
increase. As a result, the proportion of
public trading accounted for by noninstitutional investors would probably decline
even more rapidly than at present.
A completely flexible commission regime
will likewise affect the structure of the
brokerage industry. Inefficient firms cannot
survive under the "discipline of the market."
Thus, the trend to a flexible rate structure
will be accompanied by a gradual "shake
out" of the least efficient securities firms,
mostly through merger or acquisition. This
does not mean, however, that, once all
firms have adjusted to the competitive set
ting, a handful of giant firms will shape the
securities industry. Just as thousands of
"mom-and-pop" grocery stores compete
with mammoths like A & P and Safeway,
smaller securities firms will attract cus
tomers by emphasizing specialized services,
convenience, and "the personal touch." For
example, some firms might focus on invest
ment counseling and portfolio management
or other areas in which they can stress the
"customer-relationship" aspect of their
product.

charges may attain a new rationale as the
maximum (rather than minimum) charges
permitted to be assessed for brokerage serv
ices. The argument may be advanced that
price ceilings are necessary to stimulate
small-investor participation in equity mar
kets in order to insure the "depth, breadth,
and liquidity" of the market. That such max
imum charges will result in the same in
efficiencies as the present system should be
evident. If small investor charges are fixed
below the cost of producing an additional
exchange, brokers will either refuse to proc
ess small orders or attempt to offset their
losses on smaller trades by charging their
large customers prices which include pre
miums above the costs of production. Forc
ing brokers to accept unprofitable small
trades will thus create incentives for large
investors to expend resources in avoiding
NYSE trading in precisely the same fashion
as a minimum commission system.
If it becomes desirable to subsidize small
trades for whatever reasons, methods in
volving tax deductions for commissions paid
or direct subsidies likely will be more effi
cient than price fixing, which often results in
a poor use of society's resources. Moreover,
those who would argue that "large" in
vestors should subsidize "small" investors
on income-distribution grounds should re
call that the customers of large institutional
investors such as mutual and pension funds
(who would finance these transfers) are
typically less wealthy than those individuals
who manage their own investment port
folios.
AFTER COMPETITIVE RATES:
"SHAKEOUTS" "UNBUNDLING," AND
HIGHER FEES FOR SMALL INVESTORS?
While large investors will benefit from a
competitive-fee structure thanks to lower
trading charges, many small investors may
find their commission savings minuscule or
possibly discover they are paying higher
charges than under a fixed-fee system. For

BUSINESS REVIEW

APRIL 1972

A MANDATE FOR COMPETITIVE FEES?
Despite efforts on the part of the NYSE
to retain the fixed-fee system, the Buttonwood Tree Agreement appears to be
dying — a victim of com petition. But
while the regulatory agencies consider and
debate the least painful path to interment,
the death papers have not yet been signed.
A firm commitment to fully competitive
pricing would erase the current uncertainty
concerning the future structure of securities

NOW
BROCHURE

markets and thereby smooth the process of
adjustment within the industry. In the ab
sence of such a mandate from the regula
tory agencies, Congress may have to declare
the present commission structure in explicit
violation of U.S. antitrust laws. Only then
could the public rest confident that the in
equities and inefficiencies of the current
noncompetitive system will not be perpetu
ated through antitrust exemption or smallinvestor subsidies.
■

A V A IL A B L E
AND

TRUTH

F IL M

S T R IP

L E N D IN G

Truth in Lending became the law of the land in 1969. Since
then the law, requiring uniform and meaningful disclosure of the
cost of consumer credit, has been hailed as a major breakthrough
in consumer protection. But despite considerable publicity, the
general public is not very familiar with the law.
A brochure, "What Truth in Lending Means to You," cogently
spells out the essentials of the law. Copies in both English and
Spanish are available upon request from the Department of Bank
and Public Relations, Federal Reserve Bank of Philadelphia, Phila
delphia, Pennsylvania 19101.
Available in English is a film strip on Regulation Z, Truth in
Lending, for showing to consumer groups. This 20-minute presen
tation, developed by the Board of Governors of the Federal
Reserve System, is designed for use with a Dukane project that
uses 35mm film and plays a 33 RPM record synchronized with
the film. Copies of the film strip can be purchased from the
Board of Governors of the Federal Reserve System, Washington,
D. C. 20551, for $10. It is available to groups in the Third Federal
Reserve District without charge except for return postage.
Persons in the Third District may direct requests for loan of
the film to Truth in Lending, Federal Reserve Bank of Philadelphia,
Philadelphia, Pennsylvania 19101. Such requests should provide
for several alternate presentation dates.

FEDERAL RESERVE BANK OF PHILADELPHIA

Closing Uncle Sam's
Trade Gap
by Alan ). Krupnick
THE
IN

F IR S T

U .S .

TRADE

D E F IC IT

YEA RS . . .

Billions of Dollars

Tried-'n-true formulas almost never seem
to hold anymore. For years the U.S.'s inter
national economic formula called for large
trade surpluses offsetting large long-term
capital outflows to keep the balance of pay
ments reasonably in line. But as imports
burgeoned in the late sixties our trade sur
pluses dwindled. Finally in 1971, with the
additional effect of dock strikes, our trade
account moved into a deficit.

Source: International Financial Statistics

APRIL 1972

BUSINESS REVIEW

RESU LTED
SPU RT

PART

EXPO RT

FR O M

IN F L A T IO N A R Y

P R IC E S .

Export Price Index
(1963 = 100)

125

120

115

110
105

100
Source: International Financial Statistics

While several related forces contributed to the trade deficit,
one has been gnawing at our trade surpluses for a number of
years — domestic inflation. As a result, U.S. export prices have
risen more rapidly than those of most other industrial nations.
U.S. goods, therefore, have had fewer foreign buyers. Moreover,
as inflation continued at home, American consumers found Volkswagens, Sonys, and bottles of Bordeaux relatively cheaper than
their domestically produced counterparts. Hence, imports surged
ahead of flagging exports.

FEDERAL RESERVE BANK OF PHILADELPHIA

THE

U .S .

LO O KS

R E A L IG N M E N T

EXCH A N G E

RA TES...
Percent
C H A N G E IN C E N T R A L RAT ES OF
S E L E C T E D C U R R E N C I E S RE LA TIV E
TO T H E U .S . D O L L A R B E C A U S E OF:
—

In part, the United States is counting on
currency realignments to reverse its trade
deficit. Lowering the price of the dollar in
terms of other currencies makes our exports
more competitive in foreign markets while
making foreign goods less competitive here
at home.

FOREIGN UPVALUATION
DOLLAR DEVALUATION

14
12

—

10
8
6

—

<
CL
<

<
2

LU
O

0
* Italian Devaluation of 1.09 Percent.
Source: International Monetary Fund, International
Financial News Survey, December 22-30,
1971.

APRIL 1972

BUSINESS REVIEW

AND

C U R B IN G

BA LA N CE

IT S

D O M E S T IC

TRADE

IN F L A T IO N

P O S IT IO N .

Percent Change

Controlling inflation at home, however, remains a key element
in the U.S. trade balance. Using consumer prices as one measure
of inflationary pressures, the most recent international compari
sons show the U.S. doing a better job of slowing rising prices
than most of our major trading partners. Additional progress in
dampening the pace of inflation, of course, would enhance the
prospects of reestablishing a trade surplus.

FEDERAL RESERVE BANK OF PHILADELPHIA

Fiscal Alternatives
for Philadelphia1
by Anita A. Summers

As we try to devise ways of dissolving and
resolving Philadelphia's financial deficit, we
should recognize that we are not alone. We
are not alone in having the problems, and
we do not stand alone in attempting to
provide relief. In every la’rge city in the
country, needs, as they are now defined,
have become greater than the capacity to
raise revenue. As people interact in an
increasingly urbanized environment, needs
assume new dimensions. Demands for public
services become more sophisticated and
more insistent. This unremitting pressure for
additional revenue poses a clear-cut chal
lenge to a decentralized form of govern
ment — because political influence and
control tend to gravitate to that level of
1 Text of an address before the Committee of
Seventy Assembly at Sugarloaf, Philadelphia, Pennsyl
vania, February 4, 1972. The Committee of Seventy is
a 68-year-old citizens' watchdog group concerned with
research and education on subjects related to Phila
delphia government.

government that experiences the least polit
ical difficulty in raising revenues.
There are a number of basic fiscal prob
lems which Philadelphia has in common
with those of all large cities: Local tax
receipts are sluggish without frequent in
creases in rates (property and other taxes
increase no more than income but expendi
tures increase much more). The tax base has
been moving to the suburbs. Nonresidents
enjoy many City services, including trans
portation, but do not pay for them. And
city governments rush in where others de
cline to tread. Where other governmental
levels and the private sector have not
taken on responsibilities, municipalities have
picked up the check for services, some of
whose benefits extend way beyond city
boundaries.
What can be done, then, about Philadel
phia's large and growing deficit that reflects,
among other things, a long laundry list of
civic distresses? Before reviewing the alter
natives, I would like to make two points

APRIL 1972

BUSINESS REVIEW

despite resistance, have, on the whole, ac
cepted incremental increases in taxation —
how much more they will accept to help
meet the deficit is something you will need
to make a judgment about. It is important
to point out, however, that while the slug
gish movement of local taxes is an element
of the growing deficit, the greatest source
of the problem is on the side of over
burdened expenditures, not underburdened
revenue.
Reforming Taxes. Apart from directly rais
ing taxes, some growth in revenue might be
forthcoming if administrative procedures on
existing taxes were improved. Improved
procedures do not necessarily raise more
revenue. They may, however, change who
pays the tax to a more equitable basis —
and, in so doing, if equity has been the
source of protest, some taxes might be in
creased with less resistance. The real estate
tax and the wage and earnings tax are the
two leading sources of city revenue and,
as such, they warrant some procedural
review.
Property taxes are under attack from many
circles these days; so perhaps we should
join the fray. Lack of equalization and irreg
ularity of assessment are the two chief pro
cedural problems. In some wards in Phila
delphia, the assessment ratio was 39.5 per
cent, and in some, 66.3 percent. A man
owning a $10,000 house in the first ward
would have an assessed valuation of about
$4000 and pay about $180 in real estate
taxes; a man owning an identically priced
house in the second ward would have
an assessed v a lu a tio n of about $6500
and pay about $300 in taxes! To put this
in another perspective, Philadelphia ranks
eighth out of the ten largest cities in the
United States in achieving equalization.
Seven of the ten achieve greater equal
ity than we. Whether or not more revenue
is raised by equalization depends upon the
rate at which you equalize. If you equalize
at the average ratio of assessed value to
market value, the revenue will be un

that might be useful to keep in mind as we
look at urban problems through the urban
budget.
First, though individual budget items are
located on separate lines, each item is not
separate unto itself. The full implication in
any budget allotment — or change in allot
ment— cannot be looked at in a frag
mented way. Interrelationships exist among
the items. In my first graduate course in
economics the professor began the semes
ter by saying that the most profound insight
we could have into the structure of the
economy was to consider it as a perfectly
balanced aquarium — if you move any part,
effects are experienced by other parts. Ele
ments of the budget should be viewed
similarly. If you increase the budget of the
streets department by increasing streetlight
ing, you may reduce the need for some
police expenditures. If you reduce the allot
ment for the hospital care of drunks, you
may need to increase the allotment for the
police department. Each element of the
budget, as you appraise it, needs to be con
sidered in terms of its impact elsewhere.
Second, it is important to recognize, as
you look at operating budgets, that empha
sis is usually placed on the year ahead. But
we need to display some concern with the
long run — first aid is essential, but cures
depend on dealing with basic medical prob
lems. Successful, forward-moving business
concerns allocate funds for research and
development. They look ahead — so, per
haps, should city governments.
ALTERNATIVE 1: INCREASING TAX
REVENUES
Raising Taxes. An obvious alternative for
narrowing the deficit is that of increas
ing tax revenue — either by increasing the
rates now in existence or by adding new
taxes. However you put it, this means more
taxes — something the present Administra
tion has vowed not to levy and something
taxpayers have resisted in recent years. (These
are not unrelated events!) But taxpayers,

FEDERAL RESERVE BANK OF PHILADELPHIA

But now, when so much of wealth and in
come is divorced from real estate, it is an
unambiguously regressive2 tax. This is, per
haps, the only opinion upon which you
could get a unanimous vote from members
of the American Economic Association.
The second, and major, source of revenue
in Philadelphia is the wages and earnings
tax. Here, let me just mention that it might
be worthwhile to consider a collection pro
cedure used by many communities in the
country. In several states, local communities
have piggy-backed their local income taxes
to the state income tax. Now that the Com
monwealth has an income tax, the pro
cedure of tying local taxes to the state tax
liability calculated on the state income tax
form might be advantageous. The prepara
tion of tax returns is simpler, collection is
more efficient since only one collection sys
tem is required, and income (not just wages
and salaries) can be tapped. But, I would
remind you, again, that we are talking about
procedural improvements here, which will
not significantly increase the City's revenues
unless the changes make the tax more
palatable.

changed; if you equalize at 65 percent — a
number which is often stated as an objec
tive — then $55 million additional revenue
will be forthcoming, according to last year's
report of the Director of Finance. But it
should be clearly recognized that this, in
every way, is equivalent to an increase in
taxes.
The second point about assessment pro
cedures is that they are irregular. It fre
quently comes as a surprise to learn that
Commonwealth law requires that assess
ments be done annually. Just how infre
quently they are reviewed is difficult to pin
down, but several members of the Board
of Revision of Taxes have stated that Phila
delphia real estate is reassessed every three
years — on paper. The significant cost of
irregular, infrequent, or nonexistent re
assessment is that it results in a very slow
response of the property tax to changing
economic conditions. The loss of revenue
is caused by not capturing the changes in
value which have occurred in real estate —
and these have been large in the past
decade.
The resolution of both these problems
appears to lie in computerized procedures
for automatic reassessment and equaliza
tion, such as the procedure now being in
troduced in Montgomery County and else
where in the country. But before too much
attention is lavished on the reform of this
tax, I would offer two caveats. First, the real
property tax as a local tax has been brought
into question. Recent court decisions in
California, New Jersey, Texas, Michigan,
and Minnesota call for an equalized revenue
base for education beyond local govern
ment boundaries. Such a case has not been
tried yet in Pennsylvania, but many lawyers
here are preparing to enter the fray. Sec
ondly, there can be no doubt that the prop
erty tax is a regressive tax. It is an American
adaptation of a medieval fiscal arrange
ment. Long ago, when a man's total income
and wealth were closely connected with real
estate, it may have been a progressive tax.

ALTERNATIVE 2: CURTAILING
EXPENDITURES
A second candidate for closing the gap is
curtailing expenditures. Recessions have a
way of causing much attention to be paid
to this side of the ledger.
Eliminate Functions. Eliminating functions
is popular in the abstract, but, as you look
at specific activities such as the police, fire,
and welfare departments, it is hard to find a
candidate. Functions can be "eliminated" in

2 A regressive tax is one that results in persons in
low-income brackets paying a higher proportion of
their income in the tax than those in high-income
brackets. The head tax is a classic example of a re
gressive tax. Progressive taxation, such as the Federal
income tax, results in persons in low-income brackets
paying a lower proportion of their income in taxes
than those in high-income brackets.
19

APRIL 1972

BUSINESS REVIEW

ilies, but involve institutional care of chil
dren, the aged, and prisoners. If the Federal
Government took over this responsibility,
the principal relief to Philadelphia would
come indirectly through eased pressure on
the Commonwealth budget.
Increase Efficiency. Another way to cut
expenditures is to increase efficiency, and
we're all for that! The City Controller has
recently issued two reports containing rec
ommendations on how to reduce the deficit
in the City budget and on how to realize
savings from coordinating many functions
performed by the City and School District
of Philadelphia. Clearly, these efficiency pro
posals should be implemented where desir
able but, in appraising the desirability, two
thoughts should be kept in mind.
First, the full consequences of each of the
proposals need to be explored. What losses
will occur elsewhere when some of the cost
cutting activities occur? If you transfer all
custodial work in schools to night work to
improve efficiency — one of Mr. Gola's pro
posals— will you find yourself unable to
attract the nighttime work force because of
the dangers in going to work at odd hours?
If you close school libraries, and have stu
dents use the public libraries — another
proposal — you will, indeed, have a savings
in the school budget equal to the cost of
libraries. But, it will be offset elsewhere, in
the city budget, by increases in the cost
of public libraries.
Second, even if savings are taken where
considered appropriate, the deficit will not
be entirely removed, though it will be low
ered. The unremitting concern for higher
quality municipal services, the eroding tax
base, and the burdens the city carries for
others, still dominate the deficit.
Perhaps, then, there is a need for another
kind of efficiency investigation. Manage
ment consultants usually come in to search
for efficiency improvements in response to
crises. Shouldn't we give some thought to
the desirability of having a group that will
seek continuing systematic improvements,

a different way, however — they can be
transferred. Here, I am talking about expen
ditures that should be made, but not by the
city alone. The fundamental question here
is: Which level of government is most appro
priately responsible for which function?
Ideally, each type of service should be
voted on and paid for by the residents of
the area benefitted. But, in the real world
public services are not so easily classified —
that is, it is not so easy to determine the
beneficiaries — and political jurisdictions
clearly do not necessarily coincide with the
benefitting areas.
City Line Avenue, for example, may de
lineate Philadelphia from Lower Merion
Township politically, but it is not the line
between those who benefit from City serv
ices and those who do not. Certainly, some
consideration should be given to having sur
rounding communities contribute to munici
pal expenditures from which they clearly
benefit. It would be possible to go much
further than we now do in having the users'
services charged accordingly. The public
transportation system, the Art Museum, and
the streets of Philadelphia all benefit many
more than Philadelphians. We need to de
termine whether the users are realistically
tapped.
Functions can be eliminated by transfer
ring them to higher levels of government.
There are two major candidates for this
functional transfer — education and welfare.
Recent court cases point strongly in the
direction of transferring the revenue aspect
of education to the state, but the implica
tions of this for the administration of expen
ditures are not yet clear. In any case, the
notion of raising more money for urban
education by extending tax boundaries into
the surrounding areas, or by consolidating
with nearby districts, would now not seem
to be a permanent resolution of the prob
lem. Welfare is another possibility for trans
fer, with the Federal Government as the
most likely candidate. Most of Philadelphia's
welfare expenditures are not for needy fam

FEDERAL RESERVE BANK OF PHILADELPHIA

that will think as designers, not as repair
men? We need to engage, perhaps, in social
engineering. If we are to respond to the
multiple urban demands — equalization of
opportunity, more efficient municipal serv
ices, citizen participation — then we must
consider devoting resources to improving
radically our ability to predict the effects of
our public policies.
In New York City, and elsewhere, some
work of this sort is being done by staffs of
professional social scientists. Two million
dollars has been spent on this research in
New York City, and it is estimated that
twenty million is now being saved annually.
In the Fire Department, for example, a com
puterized system for deploying fire equip
ment (based on a statistical analysis of the
likelihood of certain types of alarms occur
ring at various locations and times of day)
has improved responses where needed,
without adding to capacity. This redeploy
ment, if freely implemented, could save
New York over $10 million a year. Similar
investigations into the effectiveness of patrol
activities, efficiency in the courts, and public
hospital utilization are being made.
In all these procedures the purpose is to
examine the policy to see if the real objec
tives are being achieved. We have too often
seen Cinderella's coach become a pumpkin:
Much money has been spent on education,
but the community does not feel its objec
tives have been attained. Some thought
needs to be given to long-run improvement,3
so that we do not think only in terms of
existing procedures, and so that we do not
take a myopic view of our alternatives.
ALTERNATIVE 3: INCREASE
COMMONWEALTH RESPONSIBILITY
Another relief proposal is to have the
3 For a discussion of a broad concept of produc
tivity— urban productivity — see David P. Eastburn,
"Productivity in Urban Areas," Business Review of the
Federal Reserve Bank of Philadelphia, February 1972,
pp. 3-9.

Commonwealth take on new functions — by
raising revenue for local governments or by
raising revenue and spending it. This deci
sion— the decision as to which functions
might be assumed by the State — should
not be based on playing the game of tag,
where one unit of government says to the
next higher unit — "You're it!" The decision
should be based either on having the re
sponsible governmental level related to the
area over which the benefits are spread or
on the desirability of guarding equalization
of opportunity. Education is a prime candi
date for the shift on both counts, as recent
court decisions in many states suggest.
The relief for local governments will not
be equal to the amount of spending taken
over by a higher level of government. How
Philadelphia would fare depends on which
tax would be chosen. The final effect on a
taxpayer will depend on the changes in who
bears the tax burden as a consequence of
moving from the local tax to the chosen
state tax. If a move is made to finance pub
lic education with a statewide property tax,
then large cities, if they have high real
estate taxes, will get relief. If they do not
(Philadelphia's tax rate for public education
is way below the average for the state, it
should be noted), then real estate taxpayers
will end up paying more. The formula for
returning the money to local districts would,
however, determine whether there is a net
benefit to the city. If the movement is away
from the real estate tax to a proportional
income tax, then there will be a movement
away from regressivity. The poor will bene
fit, and cities, with a high proportion of
poor, will get tax relief (though higherincome residents will be worse off). If the
move is to a graduated income tax, then
there will be an even stronger movement
from regressivity to progressivity. The relief
to areas with a large concentration of poor
will be even greater, though high-income
residents will pay even more.

BUSINESS REVIEW

APRIL 1972

this form of aid argue that the Federal
Government is appropriately concerned with
nationwide benefits and minimum expendi
ture levels for "merit" goods, such as school
lunches — but that across-the-board help,
supporting any or all services, is not justi
fiable.
Revenue sharing, with untied funds, is
advocated by many. Those who favor this
form of aid argue for it on two bases. First,
it is argued, the Federal income tax is the
"best" of all taxes. Anything which operates
in the direction of substituting Federal taxes
for state and local taxes is an improvement.
The objective is to change the tax burden
arrangements, so that any Federal revenue
raising arrangement which is agreeable to
state and local governments — in this case,
untying funds — is preferred. Second, it is
argued, state and local governments are
closer to the people and, therefore, untied
money enables the maintenance of a Fed
eralist form of government. It protects the
political integrity of a decentralized form
of government.
What is the present status of revenue
sharing? The present Federal Administration
is supporting revenue sharing, with the allo
cations to state and local governments re
lated to population and tax effort. Wilbur
Mills has opposed this plan and favors much
greater restrictiveness. Funds would be re
turned to states on the basis of the extent
to which they rely on state income taxes,
and to local communities on the basis of
the number of low-income families. One
possible compromise may take the form of
grouping the 400-odd direct grants we have
now given to states and local governments
into much broader groups.
President Nixon's new budget contains a
$5 billion allocation for revenue sharing for
fiscal 1973. (Some of this, however, may
substitute for categorical grants.) Based on
last year's budget figures and the Adminis
tration's proposal for sharing, it is estimated
that Philadelphia would receive a little less
than $40 million. This certainly appears to

ALTERNATIVE 4: INCREASING FEDERAL
RESPONSIBILITY
A sought after source of relief is the
Federal Government. It could assume new
functions or it could take on more revenue
raising responsibilities. Though revenue
raising for education has received a good
deal of support, the leading candidate for
functional transfer is welfare. The case for
the transfer relates to the criteria already
mentioned: Who are the beneficiaries (who
should pay?), and is there a need to insure
equalization?
Who are the beneficiaries of welfare sup
port? Those who favor moving the welfare
function to the Federal Government argue
that help to the disadvantaged in Philadel
phia has benefits which clearly do not ac
crue just to Philadelphians, or to Pennsyl
vanians— but to Alaskans and Hawaiians
too. To put it another way, supporters would
argue that, while the fact that Abington is
close to Philadelphia may be good reason
to call upon its residents to contribute to
commuter facilities, it is not a good reason
for Abington to pay a disproportionate share
of the City's welfare costs. These are spill-ins
from national problems.
The argument for Federal assumption of
welfare functions rests on a second basis —
the desire to equalize among states. The
disadvantaged in Tennessee, it is argued,
should be helped in the same manner as
the disadvantaged in Philadelphia.
There is another form of relief, apart from
assuming direct responsibility for new func
tions, that is under active consideration —
revenue sharing. Revenue is raised via Fed
eral taxes and returned, in one form or
another, to state and local governments.
Currently, this is done through direct
grants, which is really revenue sharing with
strings. In this form of aid, considerable
emphasis is placed on the objective of in
suring equalization of opportunity through
out the country. The allocation of the aid
is related to this objective. Those who favor

FEDERAL RESERVE BANK OF PHILADELPHIA

represent a real contribution to Philadel
phia's fiscal problems. But it is essential to
recognize that this is a gross benefit esti
mate, not a net benefit estimate. If any
Federal expenditures which were allocated
to the City in a direct grant form were cut,
or if any new money which would have
been allocated in the form of direct grants
was rechanneled, then the $40 million would
not be all new money. If Federal reve
nue-sharing funds are not merely replace
ments for direct, already-existing, grants,
then additional Federal taxes will be re
quired (the President has suggested the
possibility of a value-added tax). Relief to
Philadelphia, then, will be offset, in a
way which depends upon the Federal tax
chosen, by the additional burdens of Federal
taxation.

possible effect of taxpayer resistance. Cur
tailing expenditures has to be appraised in
terms of potentiality for increasing efficiency
within the present structure of City govern
ment operations — but a sharp eye needs
to be kept for any losses that may occur
as a consequence. Curtailment of expendi
tures should be reviewed by "social engi
neers," those who appraise the expenditures
in terms of the real policy alternatives.
Transferring revenue raising or, even more,
transferring functions to higher levels of
government are other alternatives now being
sought. The merits of insuring equalization
of opportunity and the definition of the
geographical area of the beneficiaries are
the criteria to be used as the basis for
decision-making. Full recognition should be
given to the fact that, in shifting responsi
bility to a higher governmental level, a shift
in who is paying how much taxes is occur
ring— the local taxpayer is not freed of his
tax burden for the service.
Education and co n sen su s-ta kin g on the
issues discussed here need to be done
throughout the community. The path to ac
tion in urban problems is something of a
minefield producing scars on the way. But,
it is the only path open, if our fiscal prob
lems are to be alleviated.
■

CONCLUSIONS
These, then, are the alternatives to be
weighed. Reality calls for the recognition
that progress in dissolving Philadelphia's
expected deficits will result from the use of
a number of the alternatives. No one choice
will be adequate or acceptable. Increasing
tax revenues has to be appraised mainly in
terms of improving tax procedures and the

FOR THE R E C O R D ...

SU M M ARY

Third Federal
Reserve District

United States

Percent change

Feb. 1972
from
mo.
ago

MANUFACTURING
Production .............................. —
Electric power consumed + 3
Man-hours, total* ........... + 1
Employment, t o t a l..............
0
Wage income* ...................... + 1
CONSTRUCTION** .............. + 7
COAL PRODUCTION ........... - 2
BANKING
(All member banks)
Deposits ................................
Loans ........................................
Investments ...........................
U.S. Govt, securities . .
Other .....................................
Check payments*** . . . .

2
mos.
1972
from

year
ago

+ 5
- 3
- 3
+ 3
+ 49
- 1

+ 4
- 3
- 3
+ 4
+ 16
- 3

Feb. 1972
from

Manufacturing

2
mos.
1972
from

mo.
ago

year
ago

+ 3

Standard
Metropolitan
Statistical
Areas*

+ 14
+ 12
+ 15
+ 2
+ 23
+ 15t

+ 16
+ 10
+ 17
+ 4
+ 24
+ 17t

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

•Production workers only
4“Value of contracts
444Adjusted for seasonal variation

+ 3* + 3$

Payrolls

Check
Payments**

Total
Deposits***

Percent
change
Feb. 1972
from

year
ago

month year
ago
ago

month
ago

Wilmington

.. . -

-1 0
- 4

+ 14
- 8

+ 27
- 7

0
+ 1
0
- 1
+ 1
N/A

+ 12
+ 10
+ 11
+ 1
+ 17
N/A

+ 12
+ 10
+ 11
+ 1
+ 18
N/A

+ 1
0

+ 4
+ 4

1 15 SMSA’s
^Philadelphia

month
ago

year
ago

- ii

+ 17

+ 21

+ 14

+ 10

+ 1

+ 14

+ 1

+ 28

N/A

+ 32

+ 11

+ 7

+ 2

+ 10

+ 23

+ 12

+ 2

N/A

+ 3

+ 7

+ 16

+ 1

Atlantic City . .

Trenton

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

+ 1

Altoona

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

Harrisburg . . . .
Johnstown
+ 1
+ 2
0
- 4
+ 2
ot

Employ
ment

PRICES
Consumer

LO C A L
CH A N G ES

Banking

+ 7

month year
ago
ago

....

+ 1

+ 2

+ 4

+27

+ 8

Lancaster ...........

+ 1

+ 7

+ 2

+ 14

+ 5

+ 14

+ 2

+ 10

+ 1

+ 16

+ 1

+ 2

+ 5

+ 12

+ 1

+ 14

Lehigh Valley . .
Philadelphia

Reading ..............

+ 1

+ 3

+ 7

+ 16

+ 8

Scranton

+ 1

+ 4

+ 9

+ 7

+ 2

+ 1

+ 18
+ 23

...........

Wilkes-Barre

+ 1

+ 2

+ 7

+ 5

+ 34

+ 1

Williamsport

N/A

+ 2

+ 8

+ 41

+ 13

York ......................

•Not restricted to corporate limits of cities but covers areas of one
or more counties.
••All commercial banks. Adjusted for seasonal variation.
•••Member banks only. Last Wednesday of the month.

Full text of Business Review (Federal Reserve Bank of Philadelphia) : April 1972

FRASER