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Magnetic Ink and the Paper Mountain
Is Monetary Policy Stifling Economic Growth?
W hat Should the Wage of Labor Be?
FE D E RA L
RESERVE
BANK
OF
PHILADELPHIA
A MESSAGE TO B A N K ER S AND BU SIN ESSM EN A BO UT
MAGNETIC INK
AND THE PAPER MOUNTAIN
The hanking system is facing a
“ check explosion. " Banks and busi
nesses now can insure continued effi
ciency in the handling o f checks by
printing magnetic ink characters in
specified locations on all check form s.
Inquiries concerning magnetic ink
check imprinting will be welcomed by
the Check Department o f this Bank.
Machines which read characters printed in magnetic ink
promise to enable banks to deal with an ever-growing
mountain of paper work. Late this year the banking sys
tem will begin to realize tangible benefits from the new
equipment, as checks begin to clear through pilot installa
tions in several Federal Reserve Banks.
These advances in the mechanization of check handling
do not come too soon. Th is year American banks will
handle well over ten billion checks; by 1970 it is expected
that number will at least double. Present machines and
methods fo r handling checks cannot cope with so pre
cipitate a growth in volume without increases in costs and
serious declines in speed and efficiency. It is fortunate
indeed that electronic systems are coming into use that
promise to do the job without increasing costs or impair
ing the expeditious check clearing we now enjoy.
W e must have more than machinery, however. Checks
have to be imprinted in a language which can be read by
the machines which sort the checks, as well as by people. It
was the development of such a common machine lan
guage that made the new systems possible. The machine
language consists of characters and numerals printed in
(Continued on page 15)
•••
IS MONETARY POLICY STIFLING
ECONOMIC GROWTH?*
In recent years, we have become growth-con
direct controls to prevent rising prices and
scious. The average annual increase in our total
inflation.
output of goods and services in real terms dur
some rather strong medicine. Before ac
ing the past 120 years has been estimated at
cepting such ideas we should make a
3.7 per cent. This means that output doubled
careful diagnosis of the relation of monetary
every 19 years. For the past 40 years the average
policy to our rate of growth.
These
suggestions
prescribe
annual increase was 3 per cent. This is a remark
My primary purpose is to try to put monetary
able record, but many are apprehensive that our
policy in proper perspective— to show how it
fits in with the determinants of our rate of
rate of economic growth is not fast enough.
to
economic growth. To do this one needs to con
increasing concern about our growth rate. Most
sider some basic questions. What kind of growth
Several
developments
have
contributed
important, perhaps, is Mr. Khrushchev’s state
are we seeking? What are the more significant
ment that Russia will soon catch us and eventu
determinants of our rate of economic growth?
ally bury us. This is regarded as a threat to our
Where do we place a more rapid rate of growth
security. Another development is the postwar rise
in our scale of economic and social values?
in the rate of population growth. Economic
growth is essential if we are to keep an increasing
population fully employed.
WHAT KIND OF ECONOMIC GROWTH?
The primary function of any economic system
Apprehension about our growth rate has fo
is to produce goods and services for people to
cused attention on certain factors influencing
consume. In an economy such as ours, produc
growth. “ Tight” money, in particular, has come
tion is for the market. The consumer is king. It
in for criticism. To avoid the alleged retarding
is the consumer who largely determines the
effects of credit restraint on growth, some have
types of goods and services produced. This is
suggested that we accept slowly rising prices as
quite different from a totalitarian system in
a necessary cost of a more rapid rate of growth;
which such decisions are made by a few top
others have suggested that we maintain low inter
officials.
est rates to encourage investment and resort to
A talk by Clay J. Anderson, Economic Adviser, Federal Reserve
Bank of Philadelphia, to the Bank Management Conference,
Columbia, Missouri.
We should ever be on guard against permit
ting the money and credit mechanism to obscure
this ultimate function of our economic system.
3
business review
Money is a means to an end, not the end itself.
ices, we must either increase the number of
Surely, the growth that we seek is in physical
hours worked or produce more per hour. There
quantity of goods and services— not in dollar
is no other way.
volume. More money contributes to more goods
The number of hours devoted to production
only to the extent that it brings an increase in
can be increased by enlarging the labor force,
physical output. And if we are to have a higher
or by the same size labor force working more
standard of living, we must have an increase in
hours. The size of the labor force usually ex
output per capita.
pands as population increases; it may also be
In short, it seems that growth should meet
enlarged by a larger proportion of the popula
three criteria: an increase in physical output,
tion being in the labor force. But gains in out
not just dollars; the mix of goods and services
put per capita are more likely to result from
produced to be adjusted to consumer wants;
increases
and it should be achieved within the framework
worked and in the proportion of the population
of a reasonable degree of economic freedom.
employed.
in the average
number
of
hours
As we shall see later, the mix of goods and serv
Improved productivity— more output per man
ices we choose has a significant influence on our
hour— is one of the more promising ways of
rate of economic growth.
increasing our total production of goods and
services. Many factors influence productivity.
WHAT DETERMINES THE RATE OF GROWTH?
Only a few of the more significant ones will be
In a market economy, two basic conditions are
mentioned here.
essential for sustained economic growth. One
The quality and efficiency of the labor force
is an increase in capacity to produce goods and
have an important influence on productivity.
services; the other is a corresponding increase
Output per man-hour may vary widely among
in demand for the goods and services produced.
employees doing the same type of work even
If capacity outstrips demand— or is not geared
though equipment and working conditions are
to the kinds of goods and services people want—
identical. Some are more skillful than others,
idle plants and unemployed workers impede
and some are more diligent than others in using
further growth in output and capacity. If de
their skills. In part, skill may be something we
mand
capacity,
are born with, but it can be improved by educa
sooner or later prices rise, anticipatory spending
expands
more
rapidly
than
tion, training, and experience. Diligence in using
is stimulated, and waste, inefficiency, and specu
skill is influenced by a host of things, such as
lative activities are encouraged. Sooner or later,
incentives, working conditions, union regula
too, the boom ends in recession. The inefficien
tions, intensity of desire for the goods that more
cies and distorted use of resources created by the
income will buy, attitudes toward the job, and
boom, as well as the unused resources created
home environment.
by recession, are barriers to a sustained and
high rate of growth.
A country’s stock of plant, machinery, and
equipment— quantity and quality— is a second
major
factor
influencing
productivity.
With
Increasing productive capacity
primitive tools even the hardest labor yields
To increase our total output of goods and serv
only a meager output. The quantity and the
4
business review
quality of the machinery and equipment we have
ment of new products. A growing economy is
to work with are one of the principal reasons
dynamic— some industries expanding, others de
for the high productivity and the high standard
clining. Anything which delays the shifting of
of living in the United States.
workers and productive facilities from declining
Research is a third factor contributing to an
to growing industries tends to prolong unemploy
increase in productivity. Basic research pushes
ment and idle plant facilities. Delay in introduc
back the frontiers of knowledge and provides the
ing
foundation for applied research and improved
methods of production retards an increase in
technology. Our scientific and research labora
productivity.
tories are a principal source of innovations— new
prompt adoption of more efficient methods of
products, new machines, and improved produc
production thus contribute to productivity and
tive processes.
a higher rate of economic growth.
improved
machines
Mobility
of
and
more
resources
efficient
and the
If the improved technology made possible by
discoveries and innovations is to be fruitful, it
Balance between capacity and demand
requires substantial sums for new plant and
For many years, economists stressed the fact that
equipment. The volume of saving and investment
production creates its own demand— that is,
is a fourth major influence on productivity. We
turns out enough purchasing power to buy back
can’t consume all that is produced and add to
all of the goods and services produced. More
our plant and equipment. Saving reduces con
recently the trend has been toward tbe reverse—
sumption, and releases resources which, by way
spending creates its own output.
of investment, are used to increase productive
Neither of these generalizations is necessarily
capacity. We should not permit any illusion
true. Production does create enough purchasing
about money and credit to obscure this essential
power to buy all that is produced, and obviously
role of saving and investment. Money contrib
we cannot buy more than is produced. But total
utes only to the extent that it facilitates the
spending and total output may temporarily get
saving-investment process. The proportion of our
out of balance. One reason for this is the use of
resources devoted to investment is a significant
credit, i.e., the spending of tomorrow’s income
determinant of the rate of economic growth.
for today’s purchases. Credit expansion may
The work of the entrepreneur is a fifth factor
cause total demand to rise beyond capacity to
that has a significant influence on productivity.
produce. When demand presses against capacity
He performs the essential function of bringing
to produce there is a tendency for prices to rise,
together and coordinating the use of labor, ma
which in turn tends to generate an unsustainable
terials, plant and equipment in the actual produc
boom. On the other hand, credit contraction—
tion of goods and services. Management makes
the use of today’s income to pay for yesterday’s
the decision whether to invest or not to invest,
purchases— may drag total demand below ca
and managerial policies toward employees affect
pacity, resulting in a decrease in production,
worker morale and efficiency.
employment, and income. Too much demand
Mobility of resources is a sixth factor. In a
tends to generate rising prices and an unsustain
free economy, the product mix is continually
able
being altered by changing wants and the develop
recession, unemployment, and unused resources.
boom ;
too
little
demand
brings
on
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business review
Sustained economic growth requires that total
suing a policy of restraint. The objective is to
demand be geared closely to the rise in total
prevent total money demand from rising too
output.
rapidly; for if it does, the result is likely to be
another upturn in the price-wage spiral and the
ROLE OF MONETARY POLICY
development of an unsustainable boom. What
There are two principal avenues through which
the Federal Reserve is striving for is a sustained
monetary policy may contribute to economic
rise in total output and employment rather than
growth.
recurring booms and recessions. I believe that
Monetary policy has a primary responsibility
striving for sustained growth will result in a
to help keep total money demand in balance
higher average annual rate of increase than will
with capacity to produce. This means that mone
a policy of permitting booms and recessions to
tary policy should be flexible. It should restrict
produce wide upward and downward swings in
total output and employment.
credit expansion when total demand threatens
to raise prices and generate an unsustainable
Monetary restraint has been criticized on the
boom; it should make credit readily available
ground that it retards business expansion and
and encourage expansion when a deficiency in
absorption of the unemployed. It is true that the
total demand is causing a decline in production
percentage of our labor force unemployed is
and employment.
other words, monetary
still somewhat above the postwar average. But
policy can contribute to economic growth by
would an easier money policy solve the unem
helping to maintain price stability and a reason
ployment problem? Available evidence suggests
ably full use of productive resources.
that a deficiency of total money demand is not
In
A second and related channel through which
the primary cause. A recent study of unemploy
monetary policy may influence growth is in
ment during the period 1955-1957, made by the
helping to provide an environment favorable to
United States Department of Labor, found that
saving and investment. Experience demonstrates
approximately one-half of the unemployment
clearly that people are reluctant to save money
resulted from frictional causes such as the con
that is expected to depreciate in value. Price
tinuing entry of new workers most of whom
stability encourages saving which is the principal
soon found jobs, voluntary shifting from one
source of funds for financing research and im
job to another, and seasonal fluctuations in em
proved plant and equipment. Price and business
ployment. Shifts in demand, improved tech
stability, by creating confidence in the future,
nology which enables the same amount of goods
encourage a high level of investment. Monetary
to be produced with fewer workers, the reloca
policy thus contributes to growth by: (a) help
tion of industry, and other structural changes
ing to iron out upward and downward swings
temporarily displace workers. Such changes to
in prices and total business activity, and (b)
gether with a rather high degree of immobility
providing an economic environment favorable to
of
a high level of saving and investment.
unemployment.
labor
have
created
pockets
of
chronic
Now let us turn for a moment to the “ tight
Easier money is not a remedy for these types
money policy” that some people fear is stifling
of unemployment. It would not reduce seasonal
economic growth. The Federal Reserve is pur
fluctuations in employment, cause people to burn
6
business review
coal instead of oil, or shift workers and plant
Keeping total demand in balance with total
facilities from one type of production to another.
production
Monetary policy can only facilitate adjustment
monetary policy. But fiscal and debt manage
to such shifts— shifts which are characteristic of
ment policies also play significant roles. A deficit
a dynamic economy— by helping to maintain
in the federal budget tends to put more funds in
stability and sustained growth.
the hands of the people and increase total demand;
is
a
primary
responsibility
of
An easy money policy might for a short time
a surplus absorbs spendable funds and reduces
accelerate somewhat the rate of increase in real
demand. Fiscal and debt management policies
output. But such a policy would involve serious
can either contribute significantly to keeping
risks. I doubt that those who urge easy credit
demand and productive capacity in balance or
at low rates until our resources are fully utilized
they can make the role of monetary policy more
would, for example, instruct the driver of their
difficult or even impossible.
automobile to hold his foot on the accelerator
The productivity of labor— ignoring for the
until he reaches the stop sign. Neither is it advis
moment the machinery and equipment labor has
able to pursue an easy money policy right up to
to work with— is influenced by many things. A
the point where resources are fully utilized. To
simple one that was impressed upon me when
do so would likely result either in rising prices
I lived for a while in an underdeveloped country
and the development of an unsustainable boom;
is the intensity of one’s desire for goods and
or to avoid the boom, restraint would have to
services to consume. I recall, too, the reply of a
be applied so drastically that it might precipitate
a recession. Easy money too long maintained
high West German official when I asked him to
what he attributed West Germany’s remarkable
sows the seeds of another recession. Gradual
progress in the postwar period. He said, without
pressure on the credit brake as total demand
approaches a reasonably full use of resources
hesitation, “ The people wanted many things
they had been compelled to do without, and
is a much more promising way of preventing
they were willing to work hard to get them.”
an unsustainable boom and, in turn, of diminish
Health, nutrition, and climate are other factors.
ing the severity of
a subsequent recession.
Education and training are becoming increas
Monetary policy alone cannot eliminate booms
ingly important as professional,
semi-profes
and recessions, but it can significantly reduce
sional, and highly skilled jobs
constitute a
their intensity.
growing proportion of the total. Yet, there seems
to be general agreement that there is a serious
OTHER POLICIES AFFECTING GROWTH
shortage of qualified teachers and educational
When one considers the range of influential
facilities. Reports indicate that Russia is placing
forces— total demand geared to productive ca
great emphasis on the education of scientists,
pacity, size and efficiency of the labor force, the
mathematicians,
composition of output, especially as between
Moreover, the high esteem in which these pro
consumption and investment, the role of manage
fessions are held is a strong incentive for young
ment, the mobility of resources— it is apparent
people to choose them.
that many policies other than monetary policy
affect the rate of economic growth.
engineers,
and
technicians.
Another important influence is worker morale.
Wars and emergencies indicate what we can do
7
business review
when we really put “ our shoulders to the wheel.”
great sacrifices in terms of consumption goods.
That most of us work considerably below our
In a totalitarian system, such as Russia’s, the
capacity, I believe few would deny. To find
division of output between investment and con
incentives and to achieve a morale that will lift
sumption goods is determined by those in charge
the output of people engaged in economic pur
of economic planning. In a free economy, such
suits closer to their potential capacities present
as ours, the choice ultimately resides with the
an
Employer-
people. Spending, in effect, is casting dollar votes
employee relations, wage and salary administra
tion, and personnel policies are among the
for production of the goods and services we
purchase. If we spend practically all of our in
policies that have an important influence in this
come for consumption, then nearly all of our
area.
opportunity
and
a challenge.
Despite the high level of investment in the
resources will be used to produce consumer
goods and only a small amount will be devoted
postwar period, substantial sums are needed to
to the production of capital goods and an in
modernize our business plant and equipment.
crease in our productive capacity. Maybe we
One study shows that the average age of our
need an advertising campaign to promote saving
business plant is 24 years, and the average age
and make businessmen unhappy with obsolete
of equipment is approximately nine years. In
plant and equipment, instead of one to make
terms of 1959 prices, over $140 billion would be
consumers dissatisfied with last year’s model
required to replace plants over 30 years old,
even though functionally it may still be as good
and over $110 billion to replace equipment over
as a new model.
10 years old. If old and obsolete plants and
Many policies other than monetary policy
equipment could be replaced with the more
influence saving and the allocation of resources
modern ones that research and technological
between consumption and investment. Tax poli
progress have made possible, the result would
cies in particular affect incentives both to save
surely be a sizable increase in productivity.
and to invest. Policies designed to stimulate both
Russia’s economic challenge is not so much
saving and investment are one of the more prom
in terms of growth in total output as in the
ising avenues to increased productivity and a
amounts being devoted to research and invest
more rapid rate of growth.
ment. It has been estimated that industrial in
Mobility of resources contributes to a high
vestment takes 21 per cent of Russia’s total
rate of growth in a dynamic economy. Laborers
output of goods and services as compared with
and resources idled by production shifts from
9 per cent in the United States. As a result of
goods in less demand to those in greater demand
this emphasis, Russia, with a total output 40
will remain unused longer the less their mobility.
per cent of ours, invests 90 per cent as much
Pockets of chronic unemployment in hard coal,
in industrial plant and equipment. The high
textile, and similar centers are a stark reminder
proportion of output devoted to investment prob
that labor does not shift readily from declining
ably reflects, in part, the fact that Russia has
to expanding industries. The farm price support
just moved into the industrial stage; it reflects
program and similar “ prop-up” policies retard the
also a determination of that country’s leaders to
shifting of resources in accordance with human
expand industrial capacity even though requiring
wants. Monopolistic power dulls the incentive for
8
business review
efficiency that derives from competition, and
inimical to sustained growth.
sometimes enables producers to delay the intro
Economic growth is not unique in that it can
duction of newer, more efficient techniques and
be achieved without giving up something in
equipment in order to protect existing invest
return. It carries a price tag. Our growth rate
ments.
is determined largely by our scale of values—
CONCLUDING REMARKS
of how we choose among such basic alternatives
It would be unfortunate if preoccupation with
as more work or more leisure, diligence or
“ tight” money should divert attention from the
indifference in applying our talents to the job
fundamental
economic
at hand, using more of our resources for re
growth. The role of monetary policy is chiefly
search and investment or more for consumption,
factors
influencing
one of helping to maintain an economic environ
and policies that promote or policies that impair
ment conducive to growth; it is not an impor
efficiency and productivity.
tant motive force determining the rate of increase
In a totalitarian system, these decisions are
in productivity and our capacity to produce. The
made by a few top officials in charge of economic
current policy of restraint instead of stifling
planning. A free economic society affords us
growth is stifling the development of inflation
the privilege of making the decisions; and it also
and an unsustainable boom both of which are
places squarely on us responsibility for the results.
9
The steel strike is settled and fast
becoming just another historical dip
in our index o f industrial production
But the basic question it raised is far
from answered.
.
WHAT SHOULD THE WAGE
OF LABOR BE?
Ever since some men began working for others
novel. Over the course of time people have peri
in return for a money wage, there have been
odically grown uncomfortable with the level of
disagreements over the amount. Perhaps disa
wages and how they were set. Other societies in
greement isn’t a strong enough word. Throughout
other times have asked these same questions.
the world the issue of wages has provoked men
Scholars have spent long years reflecting on
to anger, violence, cruelty, and revolution, as well
them and innumerable hours in research before
as work stoppages and peaceful picketing.
coming
In the United States today there seems to be
up
with answers.
Others
have
had
answers ready and waiting. All were trying to
widespread dissatisfaction with wage disputes
meet the labor problems of their day. Many
that idle key industries for long periods. Our so
published their ideas widely, propagandized and
ciety doesn’t like running on four cylinders when
agitated for change. Many of these ideas have
it seems awfully important to get the maximum
helped shape our current attitudes and laws.
performance out of all eight. This strike is
Many of them are still knocking about in the
settled-—fine. But what should the wage of labor
press, on television and radio, in the halls of
be anyway? And can’t it be arrived at with a
Congress, and on the streets of Pittsburgh.
little less sound and fury?
If, today, idle men, damped furnaces, and
This article will not answer these compelling
smokeless chimneys demand a new approach, it
questions. Frankly we don’t know anyone who has
is absolutely necessary to know how the old
the answers. But we do know the questions aren’t
approach developed. The past won’t tell us what
10
business review
the wage of labor should be, but it will help us
able commercial possibilities. The distinctive
clear the underbrush of old worn-out answers
feature of the sixteenth through eighteenth cen
that were, at best, passing-good when they were
turies was the growth of commerce. This was
formulated and which are of little use now.
accompanied by the growth of new economic
ideas known as mercantilism.
WAGES IN THE MIDDLE AGES
The mercantilist pamphleteers dealt with a
The past begins, for our purposes, in the Middle
very modern objective— economic growth. They
Ages— that dim, overcast period that stretches
believed the economic growth of a nation de
about a thousand years from the collapse of the
pended on its ability to bring about an inflow of
Roman
gold; and they knew that a country could do this
Empire to
the great discoveries
of
Columbus and Vasco da Gama.
by exporting more goods than it imported. To
We don’t have to pause here long. There is no
promote an inflow of gold they recommended,
burning wage issue because there is only a small
lobbied for and to a certain extent successfully
wage-earning class. There is no industrial war
achieved a planned economy.
fare to speak of because there is no industry to
speak of.
Working people were of central significance
in their plans. They argued that a low wage in
There is, however, an idea. It’s promulgated
creased the worker’s contribution to national
by the scholars of the Church— Thomas Aquinas,
wealth. A high wage, they believed, would induce
and others. The Church is the one international
the worker to spend some of his time in idle
influence that pervades the everyday activities of
ness; it would also increase costs of production
baron and serf, peddler and tradesman.
The idea is simply this: It’s right for a man
to seek the wealth he needs to maintain his cus
and weaken the competitive position of the na
tion in international trade. They concluded that
the
government
should
generally
administer
tomary station in life. To seek more, however,
wages at levels just high enough to permit the
is avarice, and avarice is a deadly sin. A just price
worker to maintain his health and raise a
and a just wage permit the seller, be he merchant
family— future workers.
or craftsman, to maintain his customary station
Many in Europe and its possessions chafed
in life. “ Give me neither riches nor poverty,” said
under the harsh mercantilist restraints— none
the Book of Proverbs, “ but enough for my sus
more, we might add, than the Englishmen in the
tenance.”
thirteen original colonies.
Thus the conclusion: prices and wages should
be fixed by public officials with a view toward
THE FREE MARKET
justice. This was no more than any energetic
1776 was a momentous year. A statesman in
mayor would happily do before breakfast.
Philadelphia wrote the Declaration of Independ
ence;
THE COMMERCIAL REVOLUTION
The feudal society of the Middle Ages gradually
a
practical
Birmingham
engineer
constructed
the
at
Soho
first
near
successful
steam engine; a scholar residing in Kirkcaldy,
faded before the growing power of kings and
Scotland published An Inquiry Into the Nature
merchants for whom the discoveries of America
and Causes of the Wealth o f Nations.
and sea routes to the Far East opened unbeliev
Adam Smith wanted exactly the same thing
11
business review
as the mercantilists— economic growth. But he
tion. . . . However much the market price
advocated exactly opposite ways of achieving it.
of labour may deviate from its natural
His policies for increasing the wealth of nations
price, it has . . . a tendency to conform to it.”
can be summed up in two words— laissez faire.
Smith, it has been said, saw a Scotsman inside
Others took up the theme: the total amount
everybody— a person who could shrewdly decide
of wages, they argued, is fixed by the amount
how to best pursue his economic ambition. He
of savings already accumulated for the purpose
wanted to give this inner-man free reign, and
of paying wages— a wage fund. If workers or
argued that each man, pursuing his own self
governments are temporarily successful in forc
interest, “ is led by an invisible hand to promote
ing up wages, profits will fall, saving will be
an end (economic growth) which was no part
discouraged, and the wage fund— the demand for
of his intention.” Smith’s “ invisible hand” was
labor— reduced. Moreover, temporarily higher
free, competitive markets.
wages will encourage working people to marry
Smith didn’t take it upon himself to say what
earlier and raise more children. This will in
the wage of labor should be. He contented him
crease the supply of labor. A decrease in demand
self with saying that wages should be determined
and an increase in supply will automatically
competitively. As the wealth of nations increased,
reduce wages to their natural level— subsist
he visualized real wages rising also.
ence.
Smith called the turn in 1776; and the econo
“ Against these barriers,” said the prominent
mies of the Western World, rolling along at high
economist J. E. Cairnes in 1874, “ trade unions
speeds, went screeching around it on two wheels.
must dash themselves in vain. They are not to
But once the turn was made, many of Smith’s
be broken through or eluded by any combination
expositors and supporters forgot what had been
however universal; for they are the barriers set
around the corner. They began to assume that
by Nature herself.”
free markets were natural and permanent; and
they found it hard to conceive of any other way
WAGES AND PRODUCTIVITY
It wasn’t until the latter part of the nineteenth
of organizing economic activity.
As a result they developed some pretty stiff-
century that an earlier idea— forgotten for 50
collared ideas about wages and also a belief that
years— was revived by the American economist,
all attempts by governments and trade unions to
John Bates Clark. With careful logic he showed
improve the lot of the workingman were doomed
that the wage of labor under competitive condi
to failure.
tions is related to the productive contribution
David Ricardo, wealthy financier, landowner,
of the individual worker. Now this seemed rea
and member of Parliament— master of long
sonable in a fast-growing industrial economy. To
chains of deductive thinking and intricate sen
many, including Clark, it seemed not only rea
tence structure, set the tone:
sonable but eminently fair and just.
“ The natural price of labour is that . . .
However,
the
phrase
“ under
competitive
the
conditions” was one fly in this particular oint
to subsist and perpetuate
ment. It’s one thing to argue that a just wage
their race, without either increase or diminu
is determined by competition when the worker
which
is
necessary
labourers . . .
12
to
enable
business review
is a journeyman and the employer a master
OLD IDEAS AND NEW
craftsman. It’s quite another thing when the
Today, both management and labor agree that
employer is a large, impersonal corporation.
the wage of labor should be just— as did the
Adam Smith had seen that laissez faire could
medieval schoolmen. “ The men who make steel,”
not work when some had more economic power
the United Steelworkers said this past July,
than others. He had bet everything on competi
“ want . . . fair wages, a just share of the indus
tion and he had boiled over at monopoly. John
try’s wealth. . . .” Industry spokesmen responded
Bates Clark, moved by the same feelings, became
that they also wanted only a fair share for their
a vigorous opponent of both business and labor
stockholders. To the nation’s regret, labor and
practices that limited competition.
industry could not agree on a definition of
“ fair.”
A BARGAINED WAGE
Competition, however, did not present an alto
The old definitions certainly don’t help much.
We cannot say in 1960 A.D. that the wage of
gether rosy picture in an imperfect world. Care
labor should be only enough to permit each man
ful observers of actual conditions such as John
to maintain his station in life. Nor can we say
R. Commons in the United States and Sidney
it should be only enough to permit the worker
and Beatrice Webb in England argued effectively
to sustain his health and raise a family. The
for labor laws to protect the individual worker
modern
from fierce rivalry among employers to lower
“ fairness” complicated, if not impossible; he
costs— child labor, women’s hours, industrial
has retreated from earlier attempts to picture
safety laws, and others.
any particular wage as just.
economist
finds
attempts
to
define
These writers also pointed out that the indi
The truth of the matter is, that we cannot say
vidual worker is at an inevitable disadvantage
what the wage of labor should be without saying
when bargaining with a large business. A busi
why it should be. Our ideas of “ fairness” are in
ness may not lose any income when it loses a
evitably related to our objectives. In 1960 A.D.,
worker; a worker generally loses all income
from the public’s point of view, there are certain
when he loses a job.
limits to a “ fair wage.”
At the time, however, collective bargaining
In the past two decades rising prices have in
was under a legal cloud. Labor unions could be
flicted hardships on large groups of people in the
prosecuted as illegal conspiracies; and, in the
United States. Today, many people feel a wage
United States, under the antitrust laws as well.
so high that it pushes up costs and prices is
In addition, employers could easily obtain in
an unfair wage. On the other hand, in any de
junctions against strikes to prevent “ irreparable
pression, with men out of work and resources
damage” to their businesses.
going to waste, a wage so low as to drastically
Big markets and big technology seemed to
curtail consumption similarly would be unfair.
demand big business. John R. Commons and the
Collective bargaining, some have pointed out,
Webbs recommended that workers be permitted
may produce a fair wage within these limits;
to organize to enable them to bargain with man
but perhaps only at a very high cost. We have
agement on an equal footing. Big labor was just
equalized bargaining power in many important
a step behind; and sometimes a step ahead.
industries and permitted both labor and manage
13
business review
ment sufficient economic power to hold out for
Yet the public does have a legitimate concern
long periods. When the giant steel industry and
with wages and how they are set; wage policies
the giant steelworkers’ union disagree about the
of management and unions can sometimes con
wage of labor, the prosperity of the economy and
flict with public interest. Somehow, it is clear, the
the security of the nation can be put in jeopardy.
public concern must make itself known and ef
The pat answers of the past don’t tell us how
to procure fair wages at a minimum cost— but
fective.
Many have expressed dissatisfaction over the
they do tell us how not to. The mercantilists,
recent steel strike settlement. Yet the way the
with their direct controls, made a good many
people miserable in sacrificing individual welfare
settlement came about is particularly interesting.
From mediation, to fact-finding studies, to inquiry
to what they believed was national expediency;
boards, to direct intervention by public repre
after 180 years of relatively free markets, a
sentatives in high office— the public’s concern
planned economy would no doubt be misery
was presented first in one way then in another.
compounded. On the other hand, the labor market
It seems, we are currently passing through a
competition of the late nineteenth century seems
period of trial and error— groping at alterna
no more desirable today than do mercantilist-type
tives. It is conceivable that historians 100 years
controls. Both detailed regulation and intensive
from now will look back on the steel settlement
competition have been tried and found wanting.
of 1960 and mark it as one of the key events in
Neither has filled the bill as handmaiden to the
the reshaping of collective bargaining to meet
public interest in labor markets.
the problems of our day.
14
business review
( Continued from Page 2)
ink which contains particles of iron oxide. As
check forms. One has to do with costs. Costs of
checks imprinted with this ink enter one of the
magnetic ink check imprinting are negligibly
new sorting systems, they go through a device
higher than for present methods. There may be
which magnetizes the ink. Then they pass a
an additional cost at the time of changeover, if
reading head which reads the magnetized char
check forms must be redesigned to free space
acters. A computer performs the necessary listing
for the magnetic ink imprinting. This cost, how
and arithmetic operations, controls the high
ever, is non-recurring, and when allocated to
speed sorting of the checks, and feeds a high
quantities of checks should not be large per check.
speed printer which prints out the required
records at rates up to 900 lines per minute.
With such systems, we can conquer the paper
mountain. But it won’t
A more general question concerns the benefits
to be expected by the individual bank or business
which puts magnetic ink characters on its checks
but does not expect to in
THE CHECK OF 1960
happen until the checks
stall any of the compati
going through the collec
ble accounting equipment
tion system are imprinted
which accepts input data in
with the proper characters
magnetic ink. The benefit
in magnetic ink, in the
to
proper space. That space,
must be expressed in terms
set aside by agreement
among
the
American
these
organizations
of the system of which
they are a part. Accurate
and fast check handling at present costs cannot
Bankers Association, office equipment manufac
turers, and the check printers of the country,
long continue without automation. Magnetic ink
extends five-eighths of an inch up from the bot
encoding makes automation possible. If banks
tom edge of the check. In it a specific location is
and their customers are to continue to have effi
provided for the routing symbol and transit num
cient handling of checks, magnetic ink encoding
ber which now appear at the upper right of every
is a necessity.
check. The fact that these numbers are known
Banks
and can be imprinted in advance is what makes it
Publication
have
possible to have check-handling systems which
Association, The Common Machine Language for
147
received
of
the
Bank
Management
American
Bankers
accept checks directly, with no necessity for time-
Mechanized Chech Handling. It contains a com
consuming and costly preparatory processing.
plete account of the program and explains the
Banking this year can take a long step forward
new check forms. Copies can be obtained for
toward keeping pace with the growing demands
$1.00 from the American Bankers Association,
of commerce and industry, if only each bank
12 East 36th Street, New York 16, New York.
will print its routing symbol-transit number in
Firms which stock their own check forms should
magnetic ink in the proper place on its check
consult their banks concerning magnetic ink
forms, and insure that its customers who use
printing and the possibility that some redesign
specially designed forms do the same.
Questions naturally arise when organizations
are requested to put magnetic ink characters on
of check forms may be necessary in order to
clear the space set aside for the machine lan
guage symbols.
15
FO R TH E R E C O R D . . .
M EM BER B A N t S 3RD F.R.D.
BILLI ONS $
B A N K IN G
1
1
10 "
1
\
/s
J /TV
D EPO SITS
^ W
v/|
A/
j
W
T / V
\/ V
V *
7i *
(20 CITIES)
\
LO A N S
_______B —
3 “
IN V E STM E N TS
YE AR
AC3 0
2 YEARS
AGO
Third Federal
Reserve District
United States
Dec. 1959
from
mo.
ago
year
ago
12
mos.
1959
from
year
ago
Dec. 1959
from
mo.
ago
year
ago
12
mos.
1959
from
year
ago
1
+ 18
+ 5
2
+ 1
1
- 7
+
+
-
4
0
5
+
3
— 6
2
+10
Sto cks
Per cent
change
Dec. 1959
fro m
Per cent
change
Dec. 1959
fro m
Per cent
change
Dec. 1959
fro m
year
ago
m o.
ago
year
ago
+
+
0
+
3
+
i
2
+
9
+
0
0 +
4
0
3
1
+
La n c a ste r . . . .
1
2
+
+
7
+
+
2
2
+
+
2
6
3
+
+
2
9
+
+
+
+
4
+
+
1
+
3
m o.
ago
year
ago
year
ago
m o.
ago
Per cent
change
Dec. 1959
fro m
m o.
ago
year
ago
+ 12
+
+
5
i
+23
+ 15 +
2
-
3
+
2 +
6
+
6 +
3
+
7
+
+
4
+
1 +
8 +
3
+
1 +
3
+
7
+ 19 +
5
+
8 +
5
0
3
+
7
+ 16 -
1
0
+
3
+
3
9
-
8
4
-
6
+
5
0
-
4
+ 12
-
1
+ 18
+ 14
— 3
+
EM PLO YM ENT AND
IN C O M E
Factory employment
(Total) ...............................
Factory wage income.......
Sa le s
mo.
ago
+
Check
Paym ents
P a y ro lls
Per cent
change
Dec. 1959
fro m
LO C A L
C H A N G ES
OUTPUT
Manufacturing production.
Construction contracts . . .
Coal mining ......................
D e p a rtm e n t S to re f
Em p lo y
m ent
Per cent change
Per cent change
SUM M A RY
F a c to ry *
DEC.
1959
+
4
+
4
P h ila d e lp h ia
.
9
9
TRADE*
Department store sales . . .
Department store stocks ..
4
7
1
+
+
+
+
+
+
+
+
4
2
2
2
0
I8{
1
+ 13
- 7
— 9
— 3
+ 5{
+
4
+ 9
— 1
— 1
4" 1
+ Mt
+
+ 3
+ 2
0
0
+ 1
+ 20
0
+ 14
- II
— 14
— 1
+ 9
+ 3
+ 1
1
- 2
+
3 +
4
+
2
0
-
2
-
2
Tre n to n
...........
W ilk e s- B a rre
+
1 +
1
9
+
9
+ 19 + 18 +
3
. -
+
2
+
3
+
3
+
1 +
6
+44
U
{20 Cities
0
0
+
0
1
+
0
1
1 -
1 +
4
+ 14 + 11
{Philadelphia
+
7
-
3
+
8
0
+
1 +
2
0
0
2 +
1 -
W ilm in g to n ..
-
2
-
5
+
1 +
1
..................
+
1 +
Y o rk
0{ + 2{ +
‘Adjusted for seasonal variation.
.........
— 4
+ 4
+ 10
PRICE S
Wholesale ..........................
Consumer ...........................
.........
+
7
BANKING
(A ll member banks)
Deposits .............................
Loans ...................................
Investments ........................
U.S. Govt, securities.......
Other .................................
Check payments ...............
Rea ding
Sc ranto n
3
+
+ 13
+
*Not restricted to corporate lim its of cities but covers areas of one
or more counties.
{Adjusted for seasonal variation.
@FedFRASER