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SEPTEMBER 1962

BUSINESS
REVIEW

How Recessions Hit Philadelphia
New Jersey's Fifty-Million-Dollar
Vegetable Garden

FEDERAL

RESERVE

BANK

PHILADELPHIA

B U S IN E S S R E V I E W
is produced in the Department of Research.
Bertram W . Zumeta was primarily respon
sible for the article “ How Recessions Hit
Philadelphia” and Evan B. Alderfer for
“ New Jersey’ s Fifty-Million-Dollar Vege
table Garden.” The authors will be glad to
receive comments on their articles.
Requests for additional copies should be
addressed to the Department of Public In
formation, Federal Reserve Bank of Phila
delphia, Philadelphia 1, Pennsylvania.

HOW RECESSIONS HIT PHILADELPHIA
For m ore than a decade, the Philadelphia area has turned in a sluggish cyclical
performance. M ore often than not, economic activity has started to recover
som e months later in Philadelphia than in the nation. Recoveries here have
been less vigorous than in the country, and dips into recession at times have
been deeper. The area's manufacturing industries account for most o f its cycli
cal m ovem ent. During the last decade, declines in the textile and transportation
equipment industries retarded local economic expansions. Electronics and
electrical equipment makers, growing fast, should now give the area more
impetus during expansions, but perhaps not enough to offset the retarding
effect if em ploym ent in metals manufacturing continues to decrease.
The

spills

recession is under way. A particular strike is a

over city boundaries into eight counties in two

industrial region

Philadelphia

happening virtually unrelated to the course of

states. This interstate region has a work force

economic events in general, and it usually can

of almost two millions. Practically all of these

be identified with specific, often fairly simple

people work in industry or sell and provide

causes. Seasonal occurrences are regularly repet

services to persons who work in industry. A

itive, and predictable within reasonable limits.

most obvious characteristic of all this industrial

But recessions are another matter. They repeat,

activity is that it fluctuates. In one year during

but not regularly; their causes are generalized

the 1950’s, the Philadelphia area’s manufactur

and diffuse and complex. The explanation of

ing employment alone decreased by 55,000 per

recessions and expansions of economic a c tiv ity -

sons or 9 per cent. In another single year, it

business cycles— has perplexed and fascinated

increased

cent.

economists ever since cycles appeared concomi

Changes of those proportions have obvious ef

tantly with the rise of industrial societies two

fects:

centuries ago.

33,000

unemployment,

persons— 6
inefficiency,

per

wasted

overused resources, social pressures. How do

To study the progress of recessions and ex

these fluctuations occur? How severe are they?

pansions in an economy,

Are

separately the changes in economic activity which

they diminishing?

Does local economic

one must identify

activity vary more or less than in the United

are not seasonal, nor caused by specific events

States generally?

such as strikes, or by the chance vagaries of

To attack such questions, one must somehow

weather, human failings, or random happenings.

classify changes in economic activity. If em

This article records an attempt to do just that

ployment drops in, say, January, it may be

— to identify changes which were linked to busi

mainly because of a strike, or it may be a

ness recessions and expansions. It states the

seasonal event which occurs in about the same

findings of a systematic investigation of fluctua

way each January, or it may be because a

tions in economic activity since 1949 in the
Philadelphia Metropolitan Area. It focuses on

* ’’P h ila d e lp h ia ," as used herein, refers to the eight-county
region: Bucks, Chester, Delaw are, M o n tgo m e ry, and Philade lphia
counties in Pennsylvania; Burlington, C a m d e n , and G louce ste r
counties in N ew Jersey.

how business cycles in Philadelphia differed
from cycles in the United States, and then on

business review

how those differences were associated with the

manufacture, for instance— would move widely.

kinds of industries operating in Philadelphia,

But the two regions would differ in cyclical

and with their growth or decline. A more com

performance, because in one more jobs are pro

plete report, stating conclusions and data and

vided by one kind of industry and in the other

describing analytical methods in detail, is avail

by a different kind.

able on request.1

There is more to it. Philadelphia and United
States business fluctuations may differ because

Sh ou ld P h ila d e lp h ia be d iffe re n t?

of differing qualities of business. For example,

Every major industrial classification is repre

a local plant may be an efficient, low-cost pro

sented in Philadelphia. The region has a varied

ducer; its production then should encounter the

manufacturing economy similar to the nation’s.

effect of a recession later than that of a less effi

It isn’t dependent on just a few major industries,

cient plant elsewhere. A local industry, because of

and therefore vulnerable to upsets because of

good marketing practices and product quality,

lack of diversification. It should move through

may have as customers stronger, more credit

business cycles about as the nation does.

worthy distributors;

its business then might

The reasoning above, plausible as it seems, is

fall off more slowly in recession. Differences of

arguable. For one thing, Philadelphia’s indus

this kind must contribute something to differ

trial structure is not in fact a scaled-down

ences in regional patterns of fluctuation. These

replica of the country’s. For example, apparel

differences would occur even if industrial dis

and electrical machinery plants are more im

tributions were identical.

portant locally, and the transportation equipment

Growth rates make a difference, too. Local

and ordnance industries are more important

industries may grow faster or slower than their

nationally. For that matter, manufacturing ac

national counterparts. Even if local and national

tivity of all kinds provides a substantially greater

distributions were identical at some time, dif

proportion of Philadelphia’s total employment

ferent rates of growth and decline would soon

than it does in the nation. A great deal of this

result in different industrial structures. Different

difference of course results from the greater

industrial structures would induce differences in

importance of farming in the United States. Even

response to business expansions and recessions.

when the comparison is confined to employment
in nonagricultural establishments, however, 36

Should Philadelphia be different?

Only a

most unusual coincidence could make economic

per cent of the region’s total is provided directly

fluctuations in Philadelphia exactly match na

by manufacturing industries, compared with 30

tional movements. All the various ways in which

per cent nationally.
Suppose all national

the regions differ would have to offset so nicely
and local industries

that total movements would be identical. It’s like

moved in just the same way through recessions

the parachutist landing on a big, soft haystack;

and recoveries. Stable industries such as food

it can happen, but don’t count on it.

processing would have identical, mild swings of
employment and output; variable ones— metals
1 Economic Fluctuations in the Philadelphia Metropolitan Area, 1949-1961.
A d d r e s s requests to Dep artm e nt of Pub lic Inform ation, Federal
Reserve Bank of P hila delphia, P h ila d e lp h ia 1, Pennsylvania.

Is P h ila d e lp h ia d iffe re n t?
The parachutist did not hit the haystack. We
are dealing with what two million people did in

business review

a decade. Since people are complex and often

ness recession and expansion until the seasonal,

contradictory in their economic behavior, as

irregular, and accidental variations have been

in all that they do, our findings are not simple

eliminated. Techniques for statistically redis

or definitive. But they show one thing clearly.

tributing these variations have existed for years,

Philadelphia is different.

but it was a brave calculating machine driver

How? What are the disparities? To answer,

indeed who would attempt the tedious labor

some explanation is necessary. Reducing what

required to develop the correct method for a

two million people did in a decade to a short

data series and then carry it out. Fortunately,

list of conclusions requires approximations, sim

a transistorized combination calculating machine

plifications, and assumptions. Above all, it re

and driver was available to perform these tasks.

quires information.

The aforesaid creation— a digital computer—
was employed to convert each series of data into

The d a t a # a n d h ow th e y danced

a form such that the month-to-month movements

To study how an economy moves into and out

reflected little or no effect of seasonal, irregular

of recessions, one must be able to trace the

or accidental factors.

output,

After this preliminary treatment, it was pos

trade, and so on. For the United States, there

sible to ascertain two things about each economic

monthly

movements

employment,

is an abundant supply of such data series; for

indicator,

Philadelphia, the only type of activity covered

expansion:

for

each

phase

recession

and

reasonably well is the condition of the work

When reversal from recession to expansion—

force. The following series of monthly data ex
tend back at least to the early 1950’s, and are

“ upturn” — or from expansion to recession—
“ downturn” — occurred.

available in comparable form for both Philadel
phia and the United States:
1. Average weekly hours worked in manufac
turing establishments

How much expansion or recession occurred.
The following charts and tables which com
pare the timing of upturns and downturns and
the extent of expansions and contractions all

2. Index of help-wanted advertisements

refer to data which have had this preliminary

3. a. Index of United States industrial pro

treatment.

duction, manufacturing component
b. Index of electric power consumption in
manufacturing industries, for a region

H ow P h ila d e lp h ia d iffe rs
Beginning in 1949, there were four years in

roughly corresponding to Philadelphia.

which

Power consumption is a fairly reliable

activity reversed direction, and recoveries be

indicator of manufacturing activity.

gan. Three of the recoveries, those beginning

recessions

of United

States economic

4. Employment in manufacturing industries

in 1949, 1954, and 1958, reached peaks. These

5. Employment in all nonfarm activities

peaks— reversals from expansion into recession

6. Unemployment as a percentage of the labor

again— occurred in 1953, 1957, and 1960. The

force
The monthly movements of employment or
production do not reveal much concerning busi

fourth, so far as we know, has not yet oc
curred.
Events in the Philadelphia area followed the

business review

national pattern in a general way. There were

than at troughs. The process of reversal took

two kinds of similarity:

longer at the top of the cycle.

1. The orders of events in each successive

The event-sequences shown on the chart are

upturn and in each successive downturn

reasonable. Generally, in upturn periods:

period were not greatly different, either in

manufacturing hours first are increased, fol

the nation or in Philadelphia.

lowed, naturally, by (c) output. Then (d) man

2. The order of events in Philadelphia in any
given upturn or downturn period was rather

ufacturing employment,
vertising, and (e)

(b)

(a)

help-wanted ad

total employment begin to

like what happened in the country.
It is possible to measure to what extent in

increase. Finally, the train of events brings
about the actual hiring of marginal workers and

dividual events in different groups occur in the

entices more persons into the labor force, so

same sequence. The measuring scale runs from

(f) the unemployment rate begins to decrease.

-100, which means the sequences could not

You may have noticed, above, that (b ), help-

be more unlike, to — 100, which means the
(
—

wanted advertising, seemed out of place. The

sequences are exactly the same. For example,

sequence went almost alphabetically except for it.

the sequence (a,b,c,d,e,f), compared to the re

That is because upturns were the subject of

verse order of events (f,e,d,c,b,a), would result

discussion. One does not expect firms, when busi

a measure

But

ness is just improving, to advertise for help

would

before the recession’s slack has been taken up.

yield -(-100. Situations in between would yield

Workers first will be called back or put on full

in-between numbers, such as -(-o0, indicating

time;

considerable likeness in sequence, or -70, indi

authorized.

cating a great deal of unlikeness.

employees.

(a,b,c,d,e,f)

association

compared

-100.

(a,b,c,d,e,f)

perhaps some
Only

overtime work

then

will

firms

will be

seek

new

The Philadelphia-United States associations,

The situation is different at peaks. The chart

according to this scale, are consistently about

shows that (b ), the help-wanted index, usually

90 in upturn periods. In downturns, however,

declines early in downturns. Hours are cut, ad

the association measures, though always positive,

vertising for help is cut; then comes the sorry

are quite variable, ranging from 40 to 33. A

sequence of cuts in production and employment,

glance at Chart I will confirm that at downturns

and rising unemployment.

the ordering of events is more confused, harder

Chart I is deceptive in that you may think it

to link up as between Philadelphia and the

provides a handy tool kit for do-it-yourself busi

United States, than at upturns.

ness forecasting. On almost every line of the

This finding parallels the general experience

chart, (a) or (A ) occurs first. And in downturn

of those who concern themselves with trying to

periods (b) and (B) occur early in the game.

identify reversals— peaks and troughs— of eco

So why not wait until manufacturing hours turn

nomic activity. It is never easy to recognize

up or down, and at peaks wait for confirmation

when a turning point has occurred, but it is

by a downturn of the help-wanted index, and

even more difficult at the top than at the bottom.

then call the turn in the business cycle? It

Another look at the chart will reveal that at

might work, sometimes. But be cautious. Re

peaks events were spread out over more time

member, the chart reflects what happened to

The order in which things happen in cyclical peaks and valleys is about the same, cycle after cycle, in Philadelphia and in
the United States. But economic activity often has risen some months later in Philadelphia than in the nation.
CHART I

MONTHS WHEN ECON O M IC ACTIVITIES BEGAN TO SHIFT
Months when economic activities began to decline

Months when economic activities began to rise
d

a
A

D
F

In each instance, the

sm all letters represent Philadelphia;

CAPITALS, the United States.

b
1 9 5 1 -5 3

a
f

e
C
D

Economic activities are represented according to the following key:
a. Average weekly hours per worker, manufacturing

c
A
C

s
B D
E

c. Measure of manufacturing output
d. Manufacturing employment
e. Employment in all nonfarm activities

C B
D
E

C C

1 9 5 5 -'5 7

f. Unemployment rate

«■ c b
/

IM llt

b. Index of help-wanted advertisements

a
c
/

d
c b e
C B
E D

B D
C

business review

series which have been carefully adjusted to

differences can arise made it clear that perfect

eliminate seasonality and other irregularities.

correspondence is unlikely. If there w
’ere no

Remember, also, the chart show's only that manu

major difference between the regions, one would

facturing hours turned early in every business

expect the table to record approximately an

cycle, but it does not follow that every time hours

equal number of leads and lags, as well as a

reversed direction of movement a cyclical turn

number of coincidences. What does the table
actually show?

soon occurred!
Having begun by saying that Philadelphia
differs, so far the burden of the story has been
that Philadelphia undergoes roughly the same

The Philadelphia area has tended to be late in
beginning business recoveries. The area has not

chain of happenings as the nation. But it ought

lagged appreciably going into recessions.

to. There is no reason why regions, whether
more or less sensitive to boom and recession,
should not all undergo about the same logical
sequence,

from

internal

adjustments

within

businesses to actual hirings and firings, that was
traced out above. It is when one examines the

TABLE 1

NUMBER OF MONTHS BY WHICH CYCLICAL RE
VERSALS IN PHILADELPHIA OCCURRED LATER
OR EARLIER THAN REVERSALS IN UNITED STATES
(Minus signs indicate Philadelphia reversal occurred
earlier.)
Upturns

Downturns

1949 1954 1958 1961

1953 1957 I960

actual months of reversals that differences begin
Economic Activity

to appear.
Local recoveries a rriv e late
The accompanying table is derived from Chart I.
It lists the number of months by which cyclical
turning points in Philadelphia occurred earlier
(indicated by minus sign)

or later than the

month of the corresponding United States re
versal. At the bottom, the table summarizes the

a. A v e r a g e H o u rs W orke r
in M a n u fac tu rin g
2
*
b. H e lp -W a n te d Index
*
c. M a n u fac tu rin g O u tp u t
d. M a n u fac tu rin g
Em ploym ent
-1
e. Total N onfarm
*
Em ploym ent
f. U nem ploym ent Rate
Total Leads
Total Lags
C o in c id e n ce s

1
1
0

i
2
-2

0
0
0

5
1
*

0
0
6

0
2
2

— 1

— 1
1

2
0

4
-2

4
—6

-3
0

2
4
0

0
3
3

0
1
5

2
3
0

2
2
2

1
3
2

* Inform ation not a v aila b le .

It shows a considerably greater number of

leads (Philadelphia reversal occurred earlier),

lags in upturn periods. For downturns, it records

lags (Philadelphia reversal occurred later), and

a less clear situation. Although in downturns

coincidences in timing separately for upturn and

also there is a preponderance of lags, it is small.

downturn periods.

In fact, it is well within the bounds of what

How would this table appear if Philadelphia

could occur if there were no real difference

and the United States did not differ materially

between the regions. Putting the situation an

in the timing of cyclical reversals? It probably

other way: the imbalance of lags in upturn

would not record coincidences only, because

periods is close to the limit, that is, close to the

perfect correspondence would be very unlikely.

worst imbalance that could possibly occur; but
r

Methods of cyclical analysis are inexact, and

in downturn periods the imbalance is not at all

some apparent leads and lags would occur for

close to the limit.

that reason. Also, earlier in this article, exam

Leaving aside the technical issue of how far

ination of the many ways in which cyclical

out of balance is imbalance, let us simply sum

business review

marize the evidence we have been

able to

Philadelphia, represented by the left-hand bar

marshal. During reversals from recession to re

of each pair, compared with the United States.

covery,

seldom

Reading across, one sees how this comparison,

turned upward earlier than United States indi

as well as the magnitude of expansions and

cators, and they often turned upward later. In

recessions, has been changing.

the

Philadelphia

indicators

downturn periods, however, Philadelphia turns

The measures of manufacturing output have

were less often late and more often early, al
though late events still outnumbered early ones.
We conclude, therefore, subject to the qualifi
cations already stated, that Philadelphia has
tended to reach cyclical turning points later than
the United States, and that this tendency has
been more pronounced when the turn was toward
recovery than when the turn was toward re

Philadelphia usually recovers less in expansions
and declines more in recessions than the nation.
CHART II

PERCENTAGE RISE AND FALL OF ECONOMIC
ACTIVITIES DURING BUSINESS RECESSIONS
AN D EXPANSIONS

cession.
One further point about Table 1: the situation
seems to be improving. In upturn periods, the
proportion

late

upturns

Philadelphia

decreased steadily as time passed (it progressed,
in order from 1954: % , % , /« ) and the propor
tion of early downturns likewise decreased (it
ran: % , % , % ) . Now, decreasing proportions

NONAGRICULTURAL EMPLOYMENT

of late upturns and early downturns mean that
the area shows a tendency to recover com
paratively sooner from recessions and drop com
paratively later into recessions. Of course, the
numbers of observations involved in these com
parisons are small. Nevertheless, the tendency
toward improved cyclical performance is there,
and it is worth noting.

UNEMPLOYMENT RATE

P h ila d e lp h ia ’s re ta rd e d recoveries
So much for the question of when reversals oc
curred. What of “ How m uch?” Did economic
activity in Philadelphia expand commensurately
with United States expansions? Did it contract
as much in recessions?
Chart II provides the answers. By reading up
or down the chart, one can see how the per
centage rise in each measure of activity in

business review

been omitted from these comparisons, because,

The Philadelphia area has tended to recover

although they should yield valid comparisons of

less and decline more than the United States.

turning point dates, they are so constructed
that it is doubtful whether they can be validly
compared as to the magnitude of fluctuation.
Again, a table can be derived from the chart.
It lists, separately for recovery and recession
periods, the number of series expanding or con
tracting more or less in Philadelphia than in
the nation. One comparison stands out. In the
recession of 1953-1954, every one of the Phila
delphia series declined more than the compa
rable United States measure. In the following

TABLE 2

NUMBER OF ECONO M IC ACTIVITIES EXPAND
ING AND CONTRACTING IN RECESSION AND
RECOVERY
Philadelphia
Movement

Recoveries

Recessions

1949-53

1954-57

1958-60

1953-54

1957-58

1960-61

Exceeded
United
States
Did N ot
Exceed
United
States

recovery, during 1954-1957, four of the five
series expanded less in Philadelphia than in the

Cyclical activity is concentrated

United States. The fifth— average hours worked

in m an u factu rin g industries

in manufacturing— moved to almost the same

Total nonfarm employment is made up of two

extent in both regions.

main components: employment in manufacturing

during

1953-1957

Something happened

which

Philadelphia’s cyclical

seriously

performance

affected
in

those

years.

and in nonmanufacturing industries. Chart III
shows that the cyclical variations in nonmanu
facturing

The general impression from the comparisons
of cyclical movements

is that Philadelphia’s

employment

Identifying the

have

reasons

for

been

negligible.

the unfavorable

cyclical action of employment in Philadelphia,

economic activity has tended to expand less and
contract more than has activity in the United
States. The unfavorable performance, however,
was concentrated in the mid-fifties. Except for
then, the cyclical swings of the whole group of

Employment in manufacturing industries rises
and declines with business expansions and reces
sions. Nonmanufacturing employment hardly
changes.

Philadelphia series were not demonstrably dif
ferent from United States movements.
The unfavorable aspects of cyclical action in
Philadelphia are most evident in employment.

CHART III

EMPLOYMENT IN MANUFACTURING
AND NONMANUFACTURING INDUSTRIES,
PHILADELPHIA METROPOLITAN AREA, 1952-1961

During the period under investigation, Phila

T H O U SA N D S O F P ER SO N S (RATIO SCALE)

delphia’s total nonagricultural employment never

1000

increased as much in expansions and always

900

decreased more in recessions than employment

800

in the United States. Employment is the basic
means

economic

activity.

Philadelphia’s

700
600

cyclical performance has been worst where it
hurts most.

500

1952 1953

1954

1955

1956

1957

1958

1959

I9 6 0

1961

business review

therefore, requires close study of employment

Manufacturing employment in the Philadelphia

in manufacturing industries, where the cyclical

area has recovered from recessions later and

fluctuations were concentrated.

less than U. S. employment.

Table 3 summarizes the cyclical patterns of
manufacturing employment in Philadelphia and
in the United States since 1949. It is evident
that, except for 1949, employment in Philadel
phia has recovered later and less than United

TABLE 3

CYCLICAL CHARACTERISTICS OF MANUFACTUR
ING EMPLOYMENT, PHILADELPHIA AND UNITED
STATES, 1949-1961

States employment. The performance in 1954^Lag

1957 was particularly bad. Employment did not
then begin to increase in Philadelphia until four
months after the United States turn, and the
total recovery was only about one-fourth as great
as in the nation. In recessions, the action has
not been so unfavorable. Philadelphia dropped a
month earlier in 1953 and 1957, but, after
going down considerably more in 1953, man
aged to slide a little less severely in 1957. In the
most recent decline,

or L e a d

o f P h ila d e lp h ia
Turn in M o n t h s
(M in u s s ig n
in d ic a te s le a d )

P e rc e n ta g e
In c r e a se or D e c re a se
P h ila d e lp h ia

U n ite d Sta te s

U p tu r n s :

1949-1953
1954-1957
1958-1960

—

D o w n tu r n s:

1953-1954
1957-1958
1960-1961

—
—

1
4
1

20
2
6

28
8
9

1
1
3

1
2
8
3

1
0
1
0
6

1960-1961, Philadelphia

exhibited what almost amounted to cyclical in

The more likely sources of cyclical disparities

sensitivity, for it dipped three months later than

are differences in growth and differences in the

the United States and went down only half as

importance of industries with poor cyclical per

much.

formance. Growth differences cut two ways. If

In general, Philadelphia’s manufacturing em

an industry is declining in a region or growing

ployment has fluctuated less than United States

slowly while a national industry is growing more

employment, but until recently the fluctuations

rapidly, the lag of the local industry may mani

have been least in the worst possible way-—
namely, upward.

fest itself in weakness during business expan
sions. But a local industry might have a tendency

What could account for the above patterns?

to swing more widely or recover later than a

It could be because in industries with unfavor

national one, yet be growing more rapidly. Its

able cyclical characteristics Philadelphia

increasing importance locally would impair the

ploys a greater proportion of people than does

region’s cyclical pattern.

the nation. It could be because Philadelphia’s

The relationship between growth and cyclical

individual industries have less favorable cyclical

performance has long been a matter of discus

patterns

sion. It has been contended, for example, that

than

their

national

counterparts.

Finally, the retarded recoveries might be linked

rapid growth

to slow rates of growth. The bad situation at

argued that cyclical performance can be sep

mid-decade must have resulted from some kind

arated from growth considerations. Here we have

not attempted to analyze cyclical patterns apart

especially

severe

drag

manufacturing economy.

Philadelphia’s

implies instability. Some have

from growth trends. The period of time under

business review

study is short for identifying long-term trends,

textiles, apparel, and printing and publishing—

and trend analysis in any case depends too

do not expand rapidly in recovery periods.

heavily on the analyst’s luck in picking the

Furthermore, their expansions in Philadelphia

“ right” trend. Furthermore, the cyclical patterns

have been weaker than in the nation in general.

of the real world contain a growth component.

In the cases of apparel and printing and pub

What is of wide interest is how business actually

lishing, weakness during expansion is expected,

expanded and contracted during recoveries and

for neither is a highly cyclical industry. Since

recessions, including the effects of industrial

they don’t decline a great deal in recessions, they

growth and decline.

haven’t much to recover in expansions.
The textile industry is a special case. It is a

Table 4 records some essential information
about the 20 manufacturing industries:

how

declining industry. It is the only one of the six

important they are, whether they are becoming

that declined rapidly throughout the period of

more or less important, and which industries

study, and throughout the period it declined

are more important in Philadelphia than in the

faster, compared with its United States counter

nation. The industries have been divided into

part, than any of the six. Between 1949 and

four groups: important employers which pro

1961, the textile industry dropped from the top

vide a greater proportion of manufacturing jobs

rank— Philadelphia’s number-one employer in

in Philadelphia than in the nation; important

manufacturing— to ninth.

employers which provide less employment here
than in the United States;

Of the six large manufacturing industries

and two similar

which are relatively more important as employ

breakdowns for industries which rank lower in

ers in Philadelphia than in the country as a

importance as employers.

whole, five, then, have contributed in some de

The six industries in Group I of Table 4 are

gree to Philadelphia’s tendency to recover slowly

the most likely sources of disparities in cyclical

from recessions. The worst situation has been

performance

the

in textiles. The rapid decline of that industry as

many

an employer nationally was more than matched

people, and because each provides a greater

in Philadelphia, where the industry has been

proportion of the manufacturing jobs in Phila
delphia than in the nation. One of these indus

an important retarding factor. The printing,
publishing, and apparel industries, though they

tries— chemicals-—did not contribute to Phila

are not subject to very wide cyclical swings,

delphia’s tendency to recover from recession less

contribute to Philadelphia’s slow recovery pace

United

between

States,

because

Philadelphia
each

and

employs

rapidly than the United States. The chemicals

in two ways. First, because they are more im

industry recovers well in business expansions,

portant industries locally than nationally, their

and in Philadelphia it has tended to do a little

inherent tendency not to swing upward very

better than in the nation generally. Two more

much is magnified in its effect on Philadelphia.

of the six— electrical machinery and fabricated

Second, both these industries have recovered

metals— expand employment rapidly in business

less strongly from recessions in Philadelphia

recoveries, but they have tended not to expand

than in the nation. The electrical machinery and

quite so rapidly in Philadelphia as in the United

fabricated metals industries, though they move

States. The other three important industries—

up strongly in recovery periods, have not usually

business review

patterns. The fourth— transportation equipment

risen so much in Philadelphia as nationally.

— was a major factor in the 1953-1957 retarda

The next group of industries, though they are
important as employers in Philadelphia, are less

tion

in Philadelphia. During that period, it

important here than in the United States. Three

dropped so precipitously in importance locally

of them— machinery, primary metals, and food

that it did not even react to the cyclical recovery

— have not contributed in any large degree to

of 1954^-1957. It just continued to decline. But

Philadelphia’s over-all weakness in recoveries,

after that debacle, the industry settled into its

because they have relatively favorable cyclical

usual wide-swinging cyclical pattern. The effects

Six major industries employ proportionately more people in Philadelphia than in the nation. One of
these six— the electrical machinery industry— is Philadelphia’s largest and fastest-growing employer.
These six, plus the transportation equipment industry, account for most of Philadelphia’s poor
cyclical performance.
TABLE 4

CHARACTERISTICS OF MANUFACTURING INDUSTRIES, PHILADELPHIA METROPOLITAN AREA
Employment in Industry
os Per Cent of Total
Manufacturing Employment
1961
Industries

Philadelphia
Employment:
1961 as Per Cent
of 1949

1949

Phila.

U.S.

Phila.

U.S.

Phila.

U.S.

E le c t r ic a l m a c h in e ry
F a b r ic a t e d m e tals

13.6
7.9

8.8
6.6

8.1
7.7

6.0
6.1

169
102

167

T extiles
A p p a re l
P rin tin g a n d p u b lish in g
C h e m ic a ls

5.8
10.0

5.4
7.4
5.7
5.1

1 1.5
1 1.4
6.2
6.2

8.2
8.1
5.1
4.3

8.6
4.4
6.2
9.4

8.6
9.4
7.0
10.9

7.4
6.0
5.1
9.4

1955
1961
Employment Employment
as Per Cent as Per Cent
of 1949
of 1955
Employment Employment

GROUP 1*

7.2
7.2

51
88
1 16
115

122
74
102
125
134

130
1 10
67
96
106
105

130
93
76
92
109
1 10

8.2
8.4
7.9
12.3

1 16
73
123
99

1 19
126
101
100

108
100
139
103

108
72
89
96

1.7
3.2
0.8
1.5

150
116
38

145
130
83

107

139
109
74
102

3.6
2.9

105

1 10
142

105
104

81
129

85
120

101
63
85
105

1 16
93

126
74

50
100

113

103

GRO UP II*
M a c h in e r y
T ra n s p o rta tio n e q u ip m e n t
P rim a r y m e ta ls
Food
GROUP III*
In stru m e n ts
Paper
Tobacco
P e tro le u m

2.7

2.1

1.8

4.1
0.6
3.5

3.6
0.6
1.2

3.5
1.5
4.0

2.6
1.5
0.5
2.1

3.5
3.6
3.7
2.2

2.4
2.2
0.7
1.7

1.4
1.0

2.3
2.2

1.2
1.9

5.1
2.0
2.2
2.7

100

106
51
84

GROUP IV*
S to n e , c la y , g lass
M is c e lla n e o u s & o rd n a n c e
Lum b er & wood
R u b b e r & m is c e lla n e o u s
F u rn itu re & fixtures
L e a th e r
ALL M ANUFACTURING
* G ro u p
G ro u p
G ro u p
G ro u p

66
72
126
117

I: L a rg e e m p loye rs who e m p lo y pro p o rtio n a te ly m ore p e o p le in P hila d e lp hia than in the U.S.
II: L a rg e e m p loyers w ho e m p lo y pro p o rtio n a te ly m ore p e o p le in the U.S.
III: Lesser em p lo ye rs w ho e m p lo y p ro p o rtio n a te ly m ore p e o p le in P hila de lphia.
IV: Lesser e m p loyers who e m p lo y pro p o rtio n a te ly m ore p e o p le in the U.S.

business review

in Philadelphia are damped now, because the

phia

industry is considerably less important here as

recessions.

has

not

recovered

well from

postwar

an employer than in the United States.
The remaining ten manufacturing industries

P ro gn o stication s

are of lesser importance in both the nation and

Someone once said that foretelling the future is

the Philadelphia area. Their relative distribution

akin to peering into a completely dark cage and

as between the region and the United States is

attempting to describe the details of a black

favorable, because those with the least favorable

panther that isn’t there! Perhaps this section

cyclical characteristics (Group IV in Table 4)
are less important locally, and those with more

should be entitled “ Guesses.” It is an attempt
to discern what, if anything, past developments

favorable characteristics

may reveal about future patterns.

are more

important

(Group I I I ) .
So far, we have ignored the timing aspects of

First, a summary of past developments will
be useful.

cyclical performance in order to concentrate on

Over-all economic indicators reveal that Phila

why Philadelphia’s manufacturing employment

delphia’s cyclical performance was rather poor

recovered so sluggishly after the postwar reces

in the period since 1949. In particular, em

sions. The trouble, unhappily, was concentrated

ployment in manufacturing, the major cyclical

in five of the six large industries which are more

component of employment, tended to recover

important employers in this region than they

little and late after business recessions. This was

are nationally. In addition, the transportation

because the six large industries which employ

equipment industry contributed strongly to the

proportionately

pronounced retardation in the mid-fifties. What

than in the United States all in some respect

of the tendency of these industries to move up

performed poorly over the cycle. These industries

late or early in upturn periods?
The six large employers which are relatively

people

in Philadelphia

are electrical equipment, fabricated metals, tex
tiles,

apparel,

printing

and

publishing,

and

more important locally all fall in mid-ranges in

chemicals. In addition, the transportation equip

inherent tendency to begin recoveries early or

ment industry was a retarding influence in the

late. None are consistent leaders; none are con

mid-fifties, and the machinery industry con

sistently late. But all except the textile industry

tributed to the lateness of upturns during the

have usually reached the point of upturn later

period.

in Philadelphia than in the United States. The

The most noteworthy recent development is

same is true of the transportation equipment

the emergence of a new industrial leader. The

industry, which also tends to be rather late at

electrical machinery industry is now the Phila

upturns regardless of region.

delphia area’s most important manufacturing

For the most part, Philadelphia’s large manu

employer. It provided 8 per cent of the manu

facturing industries, particularly those which

facturing jobs in 1949; in 1961 it provided

are more important as employers in Philadelphia

almost 14 per cent of the jobs. The growth of

than in the nation, are not good performers over

this industry in Philadelphia has recently ac

the business cycle. They lean to late and sluggish

celerated so much that it almost skipped the

recoveries. That is why employment in Philadel

1958-1961 business cycle. There was no dis

business review

cernible peak in I960— merely a leveling off of

One other industry— chemicals—-has recently

the rapid rise which started in 1958. Electrical

shown an accelerated growth advantage in Phila

machinery was the fastest-growing industry in

delphia

Philadelphia (and in the United States) during

counterpart. This industry does not fluctuate

as compared

with its United States

1949-1961. (Second place for growth goes to

widely over the cycle, nor does it have unusual

the related and similarly fluctuating instruments

timing characteristics.
The two problem industries of the middle

industry.)
If we divide the period of study in half, and

fifties— textiles and transportation equipment—

focus on the years from 1955 to 1961, we find

have already readjusted drastically, and now

that the Philadelphia area’s manufacturing em

are considerably less important in the region.

ployment decreased about 3 per cent, com

The big industries which have newly turned

mensurate with a national decrease of 4 per

from growth to decline are the metals manufac

cent. But earlier, during 1949-1955, Philadel

turers. Both primary and fabricated metals have

phia’s employment grew only 3 per cent, while

ceased to grow. Both have wide-swinging cy

the nation’s grew 17 per cent. The electrical

clical patterns similar to the new leaders, the

machinery

machinery group.

industry contributed most of the

second-half growth required to wipe out the

Putting it all together, what conclusions are

earlier relative disadvantage Philadelphia had

implied? As usual, they are not definitive. There

experienced. It increased its total employment

is a threat: that the metals industries may be

30 per cent, compared with a national increase
of only 15 per cent from 1955 to 1961. Only

the retarding factor of the sixties, as textiles
and transportation were in the fifties. There

one other local industry— machinery other than

is a promise:

electrical— had an important growth advantage

instruments

over its national counterpart during the same

provide the impetus that will maintain Phila

period.
The machinery industries, electrical and non

delphia’s industrial employment. These indus
tries have rather wide employment fluctua

electrical, are evidently becoming more impor
tant as employers in Philadelphia. Together, they

tions in business cycles. An ideal goal would
be industrial growth uncomplicated by reces

now account for almost one-quarter of the area’s

sion. The recent rise of these industries which

total manufacturing employment. They have simi

fluctuate as they grow

lar cyclical characteristics:

large fluctuations,

ideal. But in the real world, where recessions

with both upturns and downturns coming some

do occur, growth with fluctuation is better than

what late in the sequence of cyclical events.

no growth at all.

that electrical machinery and

manufacturers

will

continue

does not satisfy the

NEW JERSEY’S FIFTY-MILUON-DOLLAR
VEGETABLE GARDEN

Corn-on-the-cob

and

sliced

tomatoes

are

All of South Jersey is in the Atlantic Coastal

gustatory delight. A table with a big platter

Plain, where there are no hills to speak of—

heaped high with golden corn piping hot and

only occasional swells. Much of the area, indeed,

with several platters of red-ripe sliced tomatoes

is wooded; but west of the scrub pines is a

resting on beds of deep green water cress is a

fertile stretch of sandy loam cutting across

joy to behold. The eating is ecstasy in excelsis.

Burlington, Gloucester, Salem, and Cumberland

Corn is at its best fresh from the field, strictly

counties. These four counties have 75 per cent

fresh. As the Pennsylvania Dutch say: first put

of New Jersey’s vegetable acreage, grow 75 per

the water on the stove to boil, then go out in the

cent of the state’s vegetables, and have given

garden to pluck the ears. Philadelphians can

New Jersey its reputation as the Garden State.

just about do that because of the nearness to

Here you see, in season, on both sides of the

New Jersey’s fifty-million-dollar vegetable gar

roads, long, long rows of asparagus, sweet corn,

den. Jersey corn and Jersey tomatoes have an

cabbage, lettuce, onions, peppers, snap beans,

enviable reputation in metropolitan Philadelphia

tomatoes, sweet potatoes, and other vegetables.

where they have been served for generations.

You see also numerous apple and peach orchards,

Strange as it may seem, many of the dwellers

fruit and vegetable auctions, loading platforms,

on the west bank of the Delaware have never

federal inspection stations, box and basket fac

visited the 110,000 acres of vegetable gardens

tories, canneries and freezers, and fields dotted

across

with Puerto Ricans, gathering in the fruit of

the river

in South Jersey. Although

thousands of Philadelphians scamper to the New

the soil in harvest time.

Jersey seashore every summer, most of them

A sizable proportion of the vegetables grown

bypass the heart of the garden spot which lies

for the fresh market is sold by the farmers at

south and west of the heavily traveled highways

fruit and vegetable auction markets. The farmers’

through the Jersey pines to the shore resorts.

vegetable harvest turns into cash rapidly at nine

business review

of these auction markets at various locations in

ping stories. Others sat on the steps leading to

South Jersey, as shown in the map, which op

the catwalks, drinking soda pop obtained from

erate throughout the entire season to handle all

a small store across the street. There was con

vegetables ranging from early asparagus in the

siderable joshing both in English and in Italian,

spring to sweet potatoes late in the fall.

and a game of pinochle was being played on

The S w e d e sb o ro Auction in action

were awaiting the opening of the 9 o’clock

Raccoon Creek flows through Swedesboro in the

auction.

the tailboard of one of the trucks in line. All

western corner of Gloucester County, and a lot

On the outside wall of the auction building

of vegetables flow through the Swedesboro Auc

hung a slate on which had been chalked a big

tion. Though not the plushest of the South

Arabic number 1 above a big Arabic number 2,

Jersey auctions, it outranked the others for years

indicating which lines of trucks were to move

in dollar volume of sales. The headquarters of

up to the auction building first. The batting

the Swedesboro Auction is a small frame build

order had been determined by the flip of a

ing which houses the manager and a small staff

coin by the auction manager. Promptly at 9

of clerks to assist in the keeping of records and

o’clock the opening of the auction was an

the writing of checks. Nearby is the auction

nounced, and the drivers in lines 1 and 2 has

building— a square, frame structure not much

tened to their trucks, starting the parade to the

more than two tomato trucks length in either

auction block. Very businesslike, the auctioneer,

direction. The auctioneer’s block faces a grand

with microphone in hand, proceeded to his post,

stand with six or seven rows of seats, each row
higher than the one in front, with a total seating

and the buyers— representatives of chain stores,

capacity for about 35 or 40 buyers. Along each

ly climbed to the grandstand seats.

supermarkets, and independent brokers-—leisure

of the two open sides of the building is a runway

The driver of the first truck that comes to a

for the trucks bringing in their loads of vege

halt in the auction runway hands the clerk a

tables, and each runway is flanked by a catwalk

ticket indicating his name and the number of

for spectators. Between the grandstand and the

baskets of tomatoes being offered for sale. Upon

auction block is a runway for assistants to carry

turning off the ignition, the trucker picks up a

sample baskets of vegetables from the trucks to

basket at random and hands it to an assistant

the display counters. On a far corner of the

who dumps the contents on one of the two

spacious auction grounds is a large open shed

display counters in plain view of all interested

for temporary storage of vegetables. Here the

parties.

grading and inspection take place.

The chant begins: “ What am I bid and how

At 8:30 on a hot, early August morning, four

much a package on fifty-six climax of tomatoes;

rows of trucks were lined up the full length

I’m bid a dollar willyu go five, now ten and

of the auction yard. Some were laden with

give fifteen; I’m bid one-fifteen now go twenty

baskets of tomatoes, others with peppers or egg

and now five, and at thirty willyu give five and

plants. Two small benches on the shady side of

now one-thirty-five, willyu give forty, one-forty,

the headquarters building were occupied

one-fort), dollar-forty anywhere? Sold to----------

farmers discussing crops and prices, and swap

at $1.35.”

business review

Bids are indicated by the raising of an arm,

And so the auction goes every day except

or a hand, or a finger, and in some cases just

Sunday. On a busy day, sales may hit a peak of

an eyebrow. While the first sale is in process, a

$50,000 or more. Total sales last year ran in

basket of tomatoes from the truck in the oppo

excess of $1% million. Some auctions handle

site runway is put on display and the auctioneer

almost the full line of vegetables and fruits as

proceeds immediately to the next sale. Mean

they ripen; others are more restricted, depend

while, a clerk who has prepared the first bill of

ing on the products in which local farmers

sale hands a pink copy to the buyer and a

specialize.

yellow copy to the farmer who promptly drives
his truck away, making room for the next in line.

The variety of vegetables grown in the Garden
State and the money they put into the pockets

By 9:50 a.m. the auctioneer had chanted about

of the farmers last year are shown in the table.

$15,000 out of the coffers of the merchants and

Some of the vegetables go to the canneries and

middlemen into the pockets of the farmers. At

freezers for processing, and others go directly

10 o’clock

into the fresh market. Last year, $20 million

the

auctioneer

was

back

at his

real-estate and insurance office, and the auction

worth was sold to the processors and $32 million

was completely deserted except for the crew

worth went to the fresh vegetable market.

sweeping up the spilled vegetables, and a stray
The to m ato

cat purring on the catwalk.

King of the vegetable domain, is the tomato. It

NEW JERSEY’S 1961 VEGETABLE CROPS

Vegetable

Thousand
dollars

Asparagus ................................... 8,824
Beets .........................................
363
Broccoli ......................................
998
C a b b a g e ....................................
2,770
Cantaloupes ................................
240
Carrots ......................................
474
Cauliflower .................................
248
283
Celery .......................................
Cucumbers .................................
838
Eggplants ...................................
655
Lettuce ...................................... 2,585
Lima b e a n s .................................
376
O n io n s .......................................
1,610
Peppers ...................................... 2,928
Snap b e a n s.................................
1,896
Sweet corn .................................
4,301
Spinach ......................................
998
Tomatoes ................................... 15,911
Others .......................................
5,848
Total ............................. 52,146
Source: 1961 N e w Jersey Agricultural Statistics.

is predominant in seed catalogues, in the fields,
in the factories, in the markets, in the diet, in

( Cash receipts from farm marketings)

the laboratories, in the literature— everywhere
except in the Soil Bank. The tomato, like most
vegetables, thrives without charity of parity.
The tomato belongs to the nightshade family,
along with the potato, eggplant, pepper, tobacco,
petunia, nightshade, Jimson weed, and other
plants— nutritious

and pernicious.

Arguments

once raged as to whether the tomato is a berry,
a fruit, or a vegetable. Actually, it is all three.
By culture it is a vegetable. Botanically, it is a
fruit; and among fruits it is a berry, being
indehiscent (non-shedding) and pulpy, with one
or more seeds that are not stones. Anyhow, the
Supreme Court decided in 1893 that the tomato
is a vegetable, and that settled the argument.
The plant seems to have originated in PeruEcuador-Bolivia, migrated via Mexico to Europe
where it was grown as a curiosity before the
end of the 16th century. There is no record of

business review

its culture in this country before 1781, when

farmer makes fuller use of his productive fa

it was grown in the garden of Thomas Jefferson,

cilities. Moreover, a plan of crop rotation not

many

only helps to control tomato diseases, like Fu-

years, people believed the tomato to be poisonous.

sarium, hut also helps to rebuild soil fertility

The tomato is the most versatile of vegetables.

inasmuch as tomatoes are heavy users of plant

It is good fresh or canned, green or ripe, and

food. For example, the sequence in a crop rota

may

tion system may be tomatoes, corn, pumpkins,

stuffed. Tomatoes appear on menus as an appe

carrots; and then tomatoes. How much acreage

tizer, soup, entree, sandwich, salad, or dessert.

a farmer will put in tomatoes in any given year

In one form or another, the tomato also enters

is also influenced by market expectations.

that incurably

curious

baked,

President.

scalloped,

fried,

For

stewed,

into catsup, sauce, puree, chow chow, India

The tomato is a perennial, grown as an annual.

relish, piccalilli, tomato pickle, chilli con carne,

Tomato seeds are sown under glass as early as

pizzas, tortillas, tamales, and— have you ever

February. Upon germination, the young plants

tasted green tomato pie? How did chefs cook in

are transplanted to a cold frame, and late in

pre-tomato ages?

April or early May they are planted in the fields

Tomato-growing is an art, a science, a busi

in rows adequately spaced to permit periodic

ness, a gamble, and hard work. How well the

cultivation to keep the soil loose and free from

grower makes out depends on many things: how

weeds.

many acres he plants, the vagaries of weather,

Throughout the growing season, tomato fields

the ravages of pests, the price of labor (always

require not only frequent cultivation but fre

a big item), and whether he grows for the fresh
market or for processors. Last year, New Jersey

quent spraying to prevent damage from insects
and diseases. Some farmers spray their fields

farmers planted over 26,000 acres of tomatoes

about every ten days. Inasmuch as a tomato is

and harvested 362,000 tons. Precisely 316,000

essentially a package of water and vitamins,

tons

which

tomato plants must have adequate moisture.

yielded the growers more than $10 million, and

Most farmers no longer depend solely upon

were

grown

for

the processors

46,000 tons were sold on the fresh market for

rainfall.

$5.7 million.

equipped for irrigation. Water for irrigation is

A tomato is a tomato, to be sure, but growing

and

of the farms

are

generally obtained from streams running through

for the fresh market and growing for the pro

the farms or, in the absence of streams, farmers

cessors are two almost entirely different kinds

either drill artesian wells or build ponds to catch

of business. Let’s consider first the fresh-market

and store rainfall.

grower because there are more of them.

Tomatoes for the fresh market are harvested
mature but green, and must be picked the mo

G ro w in g fo r the fre sh m a rk e t

ment the first pink blush appears. After they are

Farmers usually grow several other vegetables

brought in from the field they are prepared for

along with tomatoes and perhaps a cover crop

market. After the culls are removed, the market

in accordance with a planned agricultural pro

able tomatoes are cleaned, polished, sorted as

gram. By producing several vegetables maturing

to size, and packed into baskets ready for de

at different periods of the growing season, the

livery to the auction.

business review

Commercial banks play an important role in
vegetable farming. In the spring the growers go

LOCATION OF VEGETABLE AUCTIONS
AND MAJOR PROCESSING PLANTS

to their local bankers to borrow money. They
need funds to buy seed, plants, fertilizer, in
secticides, and perhaps machinery; and, as the
harvest approaches, they need additional funds
for payroll purposes. In the fall when the vege
table harvests turn into money, the farmers re
pay their loans. Bank lending may be done on
the strength of the borrower’s credit or the bank
may take a lien on his crops. Banking statistics
of the area reflect a heavy movement of funds
out of banks in the spring and an equally heavy
return in the fall. By the end of the year, most
of the loans have been repaid.
G ro w in g for the processors
A tomato processor is either a canner or a bot
tler of tomatoes or tomato products. In view of
the importance of tomato growing in South
Jersey, it is not surprising to find throughout
the region a number of tomato processors. The
names and locations of the leading processors
of the region are shown on the map. Of course
some of them process vegetables other than to
matoes—Tut let’s complete the tomato story.
In

the New

Jersey

Agricultural Statistics

(compiled by the New Jersey Department of
Agriculture in cooperation with the U. S. De
partment of Agriculture), statistics on tomatoes
for the fresh market are reported in hundred
weight, and tomatoes for processing, in tons;
and that is perhaps the most distinguishing char
acteristic of tomatoes for processing. It is a ton
nage affair. They are grown for maximum ton

O P R O C E S S IN G

plan ts

1. Stokley-Van Camp, Inc.

□

a u c t io n

m arkets

1. Hightstown

2. Campbell Soup Co.

2. Beverly

nage yield per acre, are sold by the ton to the

3. Frances C. Stokes Co.

3. Swedesboro

processor, and hauled to the factory by the ton

4. California Packing Corp.

4. Glassboro

5. H. J. Heinz Co.

5. Pedricktown

6. Venice M aid Co., Inc.

6. Hammonton

on huge trucks heaped wondrous high with
baskets of red, ripe tomatoes.
Unlike the grower for the fresh market who

7. Uddo and Taormina Corp. of Vineland

7. Landisville

8. Seabrook Farms Corp.

8. Vineland

9. P. J. Ritter Co.

V. Cedarville

10. Hunt Foods & Industries, Inc.

business review

doesn’t know what his crop will bring until the

the vegetable belt, there is a saying that a dry

auctioneer cries “ Sold,” the farmer who grows

year scares you to death and a wet year starves

for the processors knows what prices he will

you to death. The year 1955 was double death

receive before he does the planting. The business

because the prolonged drought was followed by

arrangement has been called selling acres rather

deluges of rain. It was bad for both types of

than selling vegetables, and this is how it works

growers. In most years, however, tonnage per

with one of the leading processors that operates

acre averages two to three times higher for

a big soup factory in the shadow of the Benjamin

process tomatoes.

Franklin Bridge.
Early in the spring, the canner and the farmer

In the factory

enter into a contract in which the farmer agrees

Ripe tomatoes are over 90 per cent water and

to grow a specified number of acres of tomatoes

can’t be kept waiting. In the fields and in the

for the canner. The canner agrees to buy all the

factories, the labor force must be augmented

tomatoes grown on that acreage, except the culls,

when the tomato avalanche occurs around mid-

at a specified price. For example, the price

August.

agreed upon may be $38 a ton for the tomatoes

Migrant workers are employed in large num

that come up to U.S. No. 1 grade and $24 for

bers for the big job of harvesting tomatoes as

those that fall into the U.S. No. 2 grade. Top

well as other crops. The Glassboro Service Asso

grade means firm tomatoes of good red color,

ciation has an agreement with the Puerto Rican

size, shape, and practically free from defects

Labor Department for recruiting workers each

such as sunburn, sun scald, cracks, catfaces, etc.
To assist the farmers in producing heavy ton

year. The labor camp, a subsidiary of the New

nage and high quality, the canner furnishes at

air, provides interim room and board, medical

cost, tomato plants specially grown in Georgia.

and dental service, interpreters, and other ser

The canner also approves the pesticide chemicals

vices. The camp is reimbursed by the farmers

to be used, and has field representatives who

who also pay service fees, based on their pay

periodically visit the farmers to make recom

rolls, to cover operating expenses. Farmers who

mendations on growing practices and to inspect
the crop.

use the Glassboro Service may specify individual
workers to be assigned to them, and many

The obvious advantage to the grower is that

workers return year after year to the same farm.

Jersey Farm Bureau, pays for transportation by

he is assured of a market at a definite price. In

When tomatoes arrive at the factory at the

that respect he has fewer worries than the grower

rate of tens of thousands of baskets a day every

for the fresh market. In a good year when

thing is jumpy. It takes the utmost in mechani

tomatoes are plentiful, prices decline to the dis

zation,

advantage of the grower for the fresh market;

operations to handle the deluge.

extra

workers,

and

around-the-clock

but the grower for the processor gets his con

Upon arrival at the canner’s receiving yard,

tract price howsoever large the crop. In a bad

a truckload of tomatoes goes through a dusting

year, fresh-market prices of course are high and

tunnel for a thorough spraying with a chemical

growers for that market make out well if they

to chase the sour flies. The next stop is the fed

are lucky enough to have tomatoes to sell. In

eral inspection station for grading and inspec-

business review

tion, and then to the factory. There the baskets

ing but production is increasing, as the panel

are unloaded on to an inclined moving belt to

of charts shows. The growers, especially the con

an upper floor of the factory, and what started

tract growers, are getting increasingly higher

as a basket parade emerges later at the shipping

yields per acre but not without increasingly

platform as a parade of cartons of canned soup

higher costs. Yields averaged 17 tons an acre last

and other tomato products stacked into freight

year, the highest ever.

cars for the trip to market. The inside of a

Only a few years ago it was a mark of distinc

tomato factory is an enormous incredibility of

tion to belong to the 10-ton-tomato-club but the

washing, rinsing, skinning, seeding, straining,

standards have been raised. Today the select

sterilizing, labeling, packaging, and endless test

growers are the 15-tonners and last year’s cham

ing and inspecting.

pion harvested almost 33 tons an acre.

In the la b o ra to ry

matoes is largely attributable to agricultural re

Tomatoes have been grown in South Jersey for

search. Prior to World War II, tomato research

many years but never with such productivity

was directed principally toward the application

Improvement in the yield and quality of to

as today. New Jersey’s tomato acreage is declin-

of fertilizers to improve productivity. Following
the severe blight in 1946, research emphasis

NEW JERSEY TOMATOES
P R O C E S S IN G

shifted toward disease control and the develop
FRESH M A RKET

AC REAGE HARVESTED

THO U SAN DS

ment of disease-resistant varieties. Yields rose
with the extension of improved spraying prac
tices.
In 1947, Campbell started breeding tomatoes
to develop strains more resistant to cracking and
Fusarium wilt caused by a fungus. Yields per

YIELD PER ACRE

acre have gone up steadily with wilt-resistant
and crack-resistant varieties, and constant efforts
are being made to improve both color and flavor.
These and other research developments have
PRODUCTION

THO U SAN DS OF TON S

TH O U SAN DS OF TON S

done much to promote Jersey tomatoes in com
petition with those of other areas.
A freezer of 3 0 m illion pou nd s capacity
At Seabrook, north of Bridgeton in Cumberland
County, is a freezer of 30 million pounds capac
ity. It is a warehouse building to store frozen
foods at 10 below zero Fahrenheit. It is a part
of the world’s largest combined farming and
freezing operation.

1955

1957

1959

1961

Source: New Jersey C r o p R e p ortin g Service.

All the other operations of the enterprise run
into large numbers. Over 3 million pounds of

business review

seed are sown annually on about 40,000 acres

winter, packages products frozen in bulk during

extending over a 45-mile domain. Planting is

the harvesting season. Total annual output is

done by tractor-drawn machines, spraying by

100 million pounds.

airplane, irrigation by pipelines that water more
than 7,500 acres, and fleets of harvesting ma

In conclusion

chines and motor trucks work in unison to

Vegetable growers in the Garden State are en

gather in the crops— lima beans, peas, asparagus,

joying another good year, judged by late-Aug-

spinach, snap beans, broccoli, corn, potatoes,

ust reports. Late-maturing vegetables, however,

and cauliflower, but no tomatoes.

have not yet been harvested, so it is too early

In the factory, likewise, practically all opera

to assess the season. Ordinarily, only minor

tions are performed mechanically. Rows upon

changes in acreage planted of each vegetable

rows of specialized machines snip the ends off

take place from one year to the next, but yields

the snap beans, grade them for size, cut them

and total production of each must await the end

into segments or

of the crop year.

slice

them

lengthwise

for

Frenching. On the potato line, machines do the

Over the years, however, perceptible trends

washing, peeling, cutting, French frying, weigh

in the production of individual crops are ob

ing, and packaging. Standby laboratories test

servable. During the seven years ending 1961,

every batch for color, texture, purity, and other

production of tomatoes has increased for reasons

aspects of quality control.

already mentioned. Production of cabbage, cu

For most products, quick freezing is the final

cumbers, eggplant, and sweet corn is also on

operation. But for the absence of heat, the rows
of quick-freezing units might be mistaken for

the increase. During the same period, produc
tion of carrots, celery, and cauliflower declined.

ovens. When packed and labeled, a cartload of

Vegetable growing in New Jersey faces not

packages stacked almost door-high is shoved into

only the competition of other vegetable-growing

an opened freezer where they are hugged by

states as far west as California but also the

colder-than-ice double contact plates. In less

local competition of land for other purposes.

than three hours the brick-hard packages of

Urbanization

frozen vegetables are removed to the refrigera

ing fast progress in South Jersey. Some citi

tor warehouse. The plant processes vegetables

zens of the area deplore the trend;

through eight months of the year, and during the

welcome it.

and

industrialization

are

mak
others

FO R TH E R E C O R D . . .

Third Federal
Reserve District

United States

Per cent change

Department Storef

Factory*
Employment

Payrolls

Sales

Stocks

Check
Payments

Per cent
change

from

SUM M ARY
7
mos.
1962

July 1962
from
mo.
ago

year
ago

7
mos.
1962

July 1962
from
mo.
ago

year
ago

LOCAL
CH A NG ES

TRADE***
Department store sales...........
Department store stocks..........
B A N K IN G
(All member banks)
Deposits..............................
Loans.................................
Investments..........................
U.S. Govt, securities.............
Other...............................
Check payments....................

— 6
- 2
- 1
- 2
-1 2
-3 2
+
+

2
1

+ 7
+ 2
+ 1
+ 4
+ 14
-1 4
+
+

3
8

1 + 4
0
4" 5
+ 1 4" 5
0
+ 2
+ 2 + 12
- 4f + 17t

+n
+ 4
+ 2
+ 7
+24
+ 10
+

- 4
-4 2
+

4
0

+ 6
-1 8
+
+

5
8

+ 8
+ 9 + 6 +
+ 15+ -

1
1
0
1
2
4

+ 6
+ 9
+ 5
- 2
+26
+ 13

0
0

+
+

4* 5

4“ 5

Consumer............................
•Production workers only.
••Value of contracts.
•••Adjusted for seasonal variation.

mo.
ago

2 +

— 6 + 12

+ 4

year
ago

0 +

1 +

mo.
ago

year
ago

mo.
ago

year
ago

mo.
ago

1
1

+ 14
+ 9

Lancaster........

1 + 14

3 +

1 +

2 + 17

Philadelphia. . . .

3 +

5 +

1 +10

6 + 17

Reading..........

2 +

Scranton.........

1 +

2 +

9 +

1 +

W ilkes-Barre. . .

1 +

+ 7
+ 7
+ 9
4- 5
+21
+ 11

Wilmington......
ot +

year
ago

+ 10

PRICES

from

mo.
ago

M ANU FA C T U RING
Electric power consumed......
Man-hours, total*................
Employment, total..................
W a ge income*.....................
C O N S T R U C T IO N **
C O A L PRODUCTION

from

year
ago

f20 Cities
^Philadelphia

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

8 + 15

7 + 11

1 +

6 +

— 2 +

2 +

+60

1 + 3
4 +

0 + 13 +
-

1 +

4 +

8 +

1 +

4 +

5 +

3 +

2 +

4 +

+ 16

1 +

-1 0
-

+43

4 +

•Not restricted to corporate limits of cities but covers areas of one or more
counties.
fAdjusted for seasonal variation.

SSURING THE
R EE WORLD’S LIQUIDITY

BY ROBERT V. ROOSA, UNDER SECRETARY OF THE UNITED STATES TREASURY FOR MONETARY AFFAIR

BUSINESS S U P P L E M E N T
REVIEW

FEDERAL RESERVE BANK OF PHILADELPHIA

ASSURING THE
FREE WORLD’S LIQUIDITY
By Robert V. Roosa
Under Secretary of the United States Treasury for Monetary Affairs
(ED ITO R’S NOTE: Widespread current interest in the problems of maintaining international liquidity
sent us for an informed opinion to Robert V. Roosa who, as Under Secretary of the United States
Treasury for Monetary Affairs, is intimately associated with efforts to strengthen the free world’s
monetary system.)
In the present international financial climate,

of the International Monetary Fund at the end

three familiar proposals are being widely dis

of World War II.

cussed again on the grounds that they can assure

The paradox is understandable, for while the

the international liquidity that is necessary to

nature of practical monetary operations demands

absorb the shocks of any spreading disturbances:
— Devaluation of the dollar by doubling or

that they be established with the knowledge and
the confidence of responsible financial officials

trebling the dollar price of gold.

in other countries, it is equally necessary that

— “ Guaranteeing” the dollar’s present price so

progress of this kind must initially evolve within

that other countries can readily go on accumu

a framework of confidential discussions and

lating more dollars to provide their needed

limited, step-by-step operations. There are grave

increases in liquidity.

risks of setting off disruptive speculation if there

— Immediate launching of plans for pooling

should be haphazard or uncoordinated release of

all the international reserves of the Western

information on any negotiations in process, or

W orld’s monetary systems in a new suprana

if new steps should be initiated or announced

tional bank— usually visualized as one empow

without preparation for cooperation by other

ered to create additional supplies of a new

affected countries.

international reserve currency that all subscrib

That is why— although Treasury and Fed

ing countries would bind themselves to accept.

eral Reserve officials have been negotiating

The latest expressions of support for these

and designing and installing parts of the

revolutionary approaches come at a time, perhaps

new structure for the past year and a half—

surprisingly, when the United States, in coop

it has not been possible in public discussion

eration with most of the other free industrial

to make more than a few hinting references

countries, is completing the groundwork for the

to the over-all pattern as a whole.

most comprehensive restructuring of interna

That is why some alert critics have, quite

tional liquidity arrangements since the founding

understandably, charged that those bits and

pieces of the new machinery which were

restate briefly the problems implied by the wide-

actually installed and publicly announced

ranging consideration of international liquidity

seemed to be only a patchwork improvisa

and to take a look at the way devaluation, or

tion of minor devices.

guarantees, or a super-bank might be expected

And that is also why, during the recent un

to cope with such problems.

settlement over economic conditions here—
coming

before

the

United

States

had

achieved the fundamental correction of its

International liquidity is needed to service the

balance of payments position upon which
the real strength of the dollar in the world

regular flow of payments among countries, to
finance the shortfall when any particular country’s

depends— responsible observers have turned

out-payments temporarily exceed its in-payments,

to the better-known, widely discussed pro

and to meet large withdrawals caused by out

posals of earlier periods of unrest, instead

flows of capital. The responsible financial officials

of joining in an appraisal of the poten

of virtually all countries are agreed that aggre

tialities of the new design.

gate monetary reserves on hand or mobilizable

Fortunately, enough has now been accom

in the world today are adequate for regular pay

plished to be able to put together a sketch, if

ments and for temporary swings in needs. The

not a blueprint, of the structure as a whole.

three debatable questions are: (1) whether par

Each of the pieces already in place has been

ticular countries, notably the less developed, have

reviewed and approved by President Kennedy;
those which involved interpretations of existing

access to enough reserves for their regular needs,
that is, whether the distribution of existing re

legislative authority have been discussed in ad

serves should be improved;

vance with the Chairmen of the respective Con

emergency sources of liquidity, particularly in

gressional

the event of runs on any of the larger countries,

Committees;

some

have

required

(2)

whether the

legislation, which has either been obtained or is

are adequate; and (3) whether existing facilities

now before the Congress. Other steps are ahead,

assure an adequate growth of total reserves for

but they will need to be shaped by critical public

the future needs of an expanding world economy.

discussion, just as all of the measures already

Devaluation, guarantees, and a super-bank are

taken will be adapted on the basis of the ex

all proposed to answer, in one way or another,

perience now being gained.

these three questions. Yet each would, in provid

Even the steps already taken would seem, how

ing its answers, gravely alter important parts of

ever, to remove most of the premises on which

the monetary system on which the world de

cases have been built in the past for devaluation,

pends, and which everyone takes for granted

or guarantees, or a heroic new supranational

today. The new convertible gold-dollar arrange

organization. Appraisals in the future will have

ments, however, build upon existing currencies

to take into account all of the new developments,

and payments facilities; recognize the limitations

as well as the vast array of new dangers that any

upon monetary devices as solutions for funda

one of these three other approaches would create.

mental economic problems (including those un

But before turning to the sketch of what is new

derlying the recent United States balance of

— a sketch that can be filled out more fully

payments deficits) ; and avoid the hazards of

before the end of this year as other still-con

despair and economic disruption so likely to re

fidential efforts mature— it should be helpful to

sult from the displacement of the dollar as the

universally recognized supplement and alterna

dismissed devaluation of the dollar as a practical

tive to gold in meeting the international liquidity

possibility,

reserve needs of the world.

“ guarantees,” or the founding of a super-bank,

and

has

turned

instead

toward

or both.
II
Raising the price of gold by devaluing the dollar

Ill

would certainly be followed by similar action on

The appeal of a dollar “ guarantee” is that it

the part of other countries. An increase in the

presumably assures the world that devaluation

gold price would thus not help the United States

will not occur. For the key provision of any

balance of payments. It would, however, mean

generalized guarantee must be that all dollars

writing up the gold reserves now held by any

held as monetary reserves would receive full

country, presumably providing a “ profit” which

compensation for all losses in the event of de

would permit all countries, large and small, to

valuation. The aim of such contractual assur

start afresh with a feeling that, by the stroke of

ances is, of course, to persuade the other coun

a pen (or a legislative act), they had become

tries of the world that they can readily go on

richer. Any present maldistribution would pre

accumulating more dollars without any risk of

sumably seem less constricting with everyone

loss. If guarantees were in this way able to as

suddenly better off; the greatest gainers might

sure all needed increases in liquidity without any

feel better able to lend reserves to those still in

offsetting consequences, it would seem that they

some need; total reserves would be so much

could fit in very well as simply another feature

greater that concern over future liquidity re

of the new structure being erected for the con

quirements would disappear;

vertible gold-dollar system.

and the larger

totals would provide fresh supplies of liquidity
to meet any capital flight likely to occur— or so

ing maldistribution of liquidity could be met

the argument goes.

through assistance from the United States, with

In that event, so the argument goes, any exist

But, in fact, devaluation of the dollar would,

no risk that the further shifting about of such

for practical purposes in the future, virtually

reserves, following their use by the needy coun

destroy as much reserve liquidity as it might

tries, would bring them into the hands of un

seem to create. For every holder of dollars be

willing holders. With everyone made absolutely

fore devaluation would have been tricked into

certain that dollars held in monetary reserves

heavy losses; losses as large as the gains would

would be revalued in the event of changes in the

seem to be to those who had held gold instead.

United States gold price,

The possibility that the dollar could again serve,

might ensue for effecting a uniformity in the

quick negotiations

in any meaningful volume, as a useable part of

ratio between gold and dollars in the reserves of

general monetary reserves would disappear. In

other countries. Presumably there might even be

effect, the dollar holdings of other countries would

a major move to turn in gold and acquire addi

thereafter be consumed, and the large part of

tional dollars, on which interest might be earned.

world liquidity now represented by dollars would

There would seem to be no problem then of

be gone. The world would be left without a major

assuring ample liquidity for the indefinite future;

currency, generally acceptable as a supplement

an increasing supply of dollars would always be

to gold. That is why most serious consideration

acceptable to fulfill such needs. Moreover, there

of international monetary reform has long since

would never be reason to fear the effects of any

sustained balance of payments deficit, or to be

with country after country. The end result would

concerned if domestic developments in the United

be either disciplines or constraints upon our own

States caused investors to move large blocks of

economic policy which, at the very best, could

capital out to other countries— in any such cir

be no different from those already apparent, and

cumstances, the United States could simply take

which might at the worst, become a complicated

it for granted that the additional supplies of

straightjacket of additional obligations, or the

dollars thus created would end up in the mone

guarantee would be found unacceptable and all

tary reserves of other countries, who would be

its supposed advantages would be lost.
Many countries today object to our balance of

content to hold them because of the guarantee.
But this recital of the gains to be expected

payments deficit, on the grounds that we are

from the use of guarantees itself suggests that
perhaps the prescription is too good to be true.

could not afford, or would not willingly under

Those who have become enthusiastic proponents

take, by foisting on them dollar deposits which

of guarantees seem sometimes to forget that the

they have no need to hold. Why should they,

strength of the signature on any guarantee de

simply because they are offered a contractual

financing an aid and military effort which they

pends upon sustained confidence in the credit

guarantee, become implicit partners in under

worthiness of the signer.

writing programs that they themselves would

Moreover, the highest credit standing— and a

reject? On the contrary, how much more likely

currency capable of supplying the monetary re

may it be that one country after another will

serves of the world should scarcely aim for less

interpose conditions on its readiness to accept a

— is that of the debtor whose net worth is so

guarantee— conditions that will at the least inter

great, and whose performance is so reassuring,

pose their judgments more specifically into the

that supporting guarantees would never be of

determination of our military, aid, or investment

fered or required. What this means, translated

activities abroad, or perhaps be made dependent

into the position of the United States as supplier

upon our adopting their own formulas for achiev

of reserves for the world, is that we cannot

ing the needed further shrinkage of our over-all

escape a fundamental interdependence between

balance of payments deficit? And where would

the strength of our economy, our balance of

we find ourselves when the demands of one of

payments, and the dollar.

our guaranteed creditors conflicted with those of

The case for guarantees rests upon a contra

another? How close might our position then

diction: in giving a guarantee, the United States

seem to be to that of the debtor approaching

would expect to release its domestic economic

receivership, with tier upon tier of first, second,

performance in some measure from the con

and third mortgage claimants to satisfy? Rather

straints imposed by the need for balance of

than negotiate the relative priorities of such con

payments equilibrium; in accepting a guarantee,

tractual liens, the United States might be better

other countries would expect the United States

advised (as Chairman Martin has recently in

to maintain their confidence in its internal and

timated when asked about guarantees by the

external economic performance; otherwise, the

Joint Economic Committee) to give up altogether

guarantee would not be granted or renewed.

the obligations of maintaining a reserve currency

Thus the United States would, in relying upon

for the rest of the free world.

guarantees,

There are many of the industrial countries,
too, which fear any further substantial diversion

incur

obligation

initially

eventually to engage in recurrent negotiations
6

of the resources of the International Monetary

illustrations suggest. The one way to be assured

Fund into the financing of recurrent distress

of greater freedom is to achieve balance of pay

situations in many of the underdeveloped coun

ments equilibrium and, from time to time, a

tries— distress

affected

surplus in our own balance of payments. The

countries customarily view in simple terms as a

effect of guarantees is, indeed, instead of creat

situations

which

the

shortage of liquidity available to them. Can we

ing greater freedom for us, to center all respon

expect these same critical industrial countries to

sibility upon us. For those in the position of

accept more dollars, just because they carry a

accepting guarantees are able to dictate their

guarantee, if the dollars arise from continued or

terms. If, instead, there can be a sharing, in

additional American effort to supplement the

some increasing degree, of the responsibilities

contributions being made by the International

now borne so largely by the dollar alone, the

Monetary Fund toward these frequent “ liquidity”

leeway remaining to use for independent action

requirements of the less developed countries?
Some part of the current movement of capital
from the United States toward Europe is appar

on our own initiative should broaden rather than
shrink as expanding liquidity needs are met over
the years ahead.

ently induced by interest rate differentials that

And in all of these reservations concerning

are somewhat higher than normal relationships

the possible role of guarantees, there is another

would otherwise bring about. Will the monetary

pervading theme which cannot be obscured. The

authorities of other countries be content to go

United States abrogated a gold clause in con

on acquiring more and more short-term dollar

tracts once; the action was supported by the

liabilities, as the by-product of these capital

Supreme Court and approved by joint resolution
of Congress. What assurance can a mere guaran

movements, simply because their gold value is
underwritten by a contractual guarantee? Or will
they take advantage of the negotiations relating

tee provide again? Is not the real basis for any
confidence to be found in the strength, perform

to the introduction of guarantees to lay down

ance, and credibility of the American economic

their own conditions with an impact at least as

and financial system, and only there?

severe, perhaps considerably more so, than that
now exerted?

Surely any responsible financial official in

One great attraction of a super-central bank, or

this country would expect to negotiate in ex

“ an International Federal Reserve System,” is

actly that manner, and to exact much more pre

that it would clearly provide for a mutual shar

cise and limiting conditions, if we were being

ing of responsibilities by all of the countries of

expected to rely on a guarantee of the gold value

the world. Whether created out of the existing

of any one other currency to provide a major

International Monetary Fund, or established as

part of our own international reserve needs. The

a completely new institution, its role would be

financial officials of the other countries are

to pool the reserve balances held by all countries,

neither more modest nor reluctant to exact con

or at any rate all countries of the Free World.

ditions than we would be.

The deposits held in the super-bank could be

There is, in fact, no real escape, certainly not

transferrable on its books, so that the resulting

so long as we maintain a reserve currency for

differences between inflows and outflows of any

the world, from the kinds of limits upon our

given country could be settled through a central

complete freedom of action which these various

clearing house. The dollar would no longer have

any special role to perform as a reserve cur

of the richest nation on earth, the performance

rency; that role would instead be shifted to some

of the United States in providing additional re

newly christened monetary unit of account, rep

serves has been at times rather conspicuously

resenting the deposit balances held at the super

called into question. And in our case, the world

bank.
While gold might still hold some attraction,

has the basic assurance that our performance

and could be used as an alternative means of

nomic requirements because otherwise pressures

settling differences of accounts among countries,

can be exerted upon us through our own balance

there would presumably be no essential role for
gold in the system. Much of it might find its way

of payments. There will be no comparable assur

into the vaults of the super-bank itself, or grad
ually disappear in industrial uses.

the new body. Instead reliance must be placed
upon the conflicting interests represented in a

will continue broadly to meet the tests of eco

ance, and no comparable underlying strength in

On the assumption that the total supply of

multi-national legislative body, to judge and re

reserves available at the super-bank could grow,

solve conflicting demands for larger or smaller

and grow at a controlled rate that would pre

increases in the supply of the new monetary

clude world-wide inflation and a reluctance to

unit, or for a greater or lesser shifting of its

hold the reserve balances on deposit there, any

lending power toward one group of countries or

long-run growth needs could be readily satisfied.

another.

The liquidity requirements of underdeveloped

Even accomplishment of the first steps would

countries might be met through advances or

be an heroic achievement. Simply to establish

loans extended to such countries by the super

the super-bank would require all countries of the

bank itself. And any serious pressures on a given

world to give up their present reserves and accept

country, because its balance of payments was in

instead the fiat issue of a super-authority exist

grave deficit on trade account, or because capital

ing without a super-state. But assuming that

was leaving the country in heavy volume, could

could be done, what would happen when differ

also be met through loans and overdrafts on the

ences of view begin to exercise conflicting pulls

books of the super-bank.

upon the central organization? So long as mone

There are many variations and nuances and

tary systems within individual countries continue

combinations of these several features which

to be managed by men who think and act as

have been suggested in the writings of various

bankers, one after another will begin to hedge

proponents. But all such elaboration would rep

his country’s own position either by acquiring

resent a fruitless exercise if the basic premises

gold or by acquiring increasing holdings of one

on which the establishment of such a super-bank

or more currencies of other countries in which

rests should prove unsupportable. That, perhaps

he has confidence. And so long as trade continues

regrettably, is the inescapable conclusion dictated

among sovereign nations the opportunity to con

by the actual ways of the world— today and for

vert holdings of the super-bank’s monetary unit

any foreseeable future.

into holdings of one currency or another will be

The money created by a super-bank would be

available.

the most high-powered ever generated by a man

Thus it would be inescapable, so long as major

made institution, yet it would have no support

differences in economic policy arise among dif

ing super-government to make good on its debts

ferent countries, that those differences will pre

or claims. Even with all the underlying resources

vent the systematic direction of the super-bank

on uniform and consistent lines. The outcome,

an expanding world economy for some years

if it is not utter chaos and impairment of normal

ahead.

payments transactions among nations, is likely

Further potentialities may come into view as

instead to be a drifting back toward systems of

and if the Common Market becomes a unified

reliance upon clusters of currencies, and de

monetary system, and forward planning for that

pendence on the strength given to them by the

eventuality may soon introduce a new dimension

economies which underlie them. The drift, if it

into the consideration of arrangements for in

is in that direction, will indeed be back toward

ternational liquidity. But at least until that

a system of arrangements very similar to that

greater fusion of the Common Market countries

now evolving as part of the structure of the new

occurs, the essence of the monetary system of the

convertible gold-dollar system.

free world will no doubt continue to be the fixed
relationship between gold and the dollar, with

the United States standing ready to buy or sell

The claims for this evolving convertible gold-

gold at its established price of $35 per ounce.

dollar system are necessarily modest. The ex

The principal source of increases in liquidity

perience gained as step-by-step innovations are

will continue to be the annual increments of gold

being put in place is providing ample evidence

to the monetary reserves of the world, supple

that workable arrangements depend fundamen

mented from time to time by controlled increases

tally upon confidence rather than upon binding

in the dollars held by other countries as a part

compacts— and confidence in monetary affairs,

of their monetary reserves.

as in political or business life, is not attained

Standing astride the gold and dollar reserves
of most countries of the world will be the Inter

once-for-all in a single negotiation, or a single
declaration or compact, but is gained through

national Monetary Fund, into which all member

continuing performance. Moreover, it has become

countries have contributed working balances of

irrefutably clear, if there was ever any doubt,

gold and their own currencies, in amounts re

that major initiatives cannot succeed unless the

lated to their own quotas (or conditional “ draw

leading countries are prepared to support them
by working toward equilibrium in their balance

ing rights” ) in the Fund. Surrounding the dollar

of payments accounts, whenever internal disturb

is a constellation of special bilateral relationships
between the dollar and the separate currencies of

ances, outside events, or ordinary economic de

most of the other leading industrial countries.

velopments create other pressures away from

Surrounding the gold reserves is a set of rela

balance.

tionships now largely worked out through the

Nonetheless, it already seems reasonably cer

London gold market, but representing participa

tain that the new structure being erected around

tion by the leading European central banks,

the established gold-dollar system can make pos

known colloquially as the “ Basle group” which

sible important additions to the liquidity of un

now also includes the United States.

ample

The innovations of the past year and a half

resources for promptly meeting heavy drains or

have centered upon the resources and usability

a run on the currency of any leading industrial

of the International Monetary Fund, upon the

country, including the United States; and can

direct relations between the dollar and other

assure the flexibility and growth in total liquid

leading currencies highlighted by our initiation

ity needed to serve the requirements of trade in

of activity in the foreign exchange markets, and

derdeveloped

countries;

can

provide

upon the special arrangements for influencing

aid as can effectively be absorbed from which

the flow of gold into the world’s monetary re

ever industrial countries are able to provide it;

serves. Virtually all of the changes have repre

and for emergency facilities to provide needed

sented, and resulted from, a growing readiness

foreign exchange to bridge unexpected seasonal

on the part of the other leading industrial coun

or cyclical reverses. None of these needs can be

tries to begin to consider, and cautiously to

met simply through broad global action; all are

undertake, some sharing of the responsibilities

the object of energetic further effort by the

formerly carried so largely by the dollar.

United States and various international bodies

Comprehending and reinforcing all of the new
arrangements are the various activities of the

at the present time.

OECD, and more particularly, its working party

So far as aid is concerned, the activities of
already existing international institutions are

devoted to balance of payments and financial

being reinforced through the establishment of

problems. Here, the opportunity for continuous

consortia to attract, into each of the underde

interchange of information and criticism, among

veloped countries as programs are developed,

the leading industrial countries, provides the

additional funds from the more prosperous coun

base of communications needed to carry forward

tries of Western Europe. And with respect to

operations that require mutual understanding of

emergency requirements, joint action by the

current developments and current policies. At

International Monetary Fund and interested out

the same time, it is conceivable that work can

side governments (often accompanied by leading

go forward through this and other organs of

commercial banks) provides practical possibili

the OECD toward preparing the way for the

ties for the kind of emergency assistance that

next stage of practicable and foreseeable innova

can be used without abuse.

tion in the area of international financial ar

The most prominent question currently, how

rangements— the fusing of the United Kingdom

ever, is whether the new arrangements of the

into the Common Market; the evolution of a

convertible gold-dollar system, once established

unified financial mechanism to serve the ex

and understood, can provide a mobilization of

panded Common Market; and the forging of

reserves to meet sudden and heavy drains upon

appropriate operating and policy links between

the dollar itself. So far as the precipitation of a

that organization, once it emerges, and our own

run through pressures on the London gold mar
ket may be concerned, the Basle group has al

financial institutions.
Meanwhile, it would be quixotic to hope, how

ready achieved important results. Price changes

ever, that the new arrangements will solve the

are occurring only over a range wide enough to

liquidity needs of the underdeveloped countries;

make speculation costly, and there is now a

for in a full sense, nothing can. So long as these

close, participating interest on the part of the

countries are energetically pursuing development

principal European countries, as well as the

programs, any international reserves not actually

United Kingdom and the United States, in the

required as current working balances will be

maintenance of orderly conditions there. To be

consumed in the purchase of more imports. Mere

sure, so long as nations and individuals are free

increases in reserves, therefore, will largely dis

to exercise choices, and so long as changes occur

appear. The need of these countries is for some

in the degree of confidence in the dollar or in

greater assurance concerning the markets and

other currencies, it will be impossible to escape

prices of the raw materials they sell; for as much

pressures. The gain has come in curbing capri

cious or mere follow-the-leader raids upon the

made. By providing additional standby resources

gold which serves the world’s monetary reserve

for the International Monetary Fund, the ten

needs, and in sharing the responsibility for re

leading industrial countries, whose actions will

quired action. Perhaps in an ideal world the

become effective as soon as the necessary legis

interrelated monetary systems would function

lation passes through the appropriations process

even better if private individuals were not al

in the American Congress, have made certain

lowed to own gold in any country, and if no

that adequate supplies of other currencies will

London gold market existed. But for the world

be available to meet any needs that we might

that we have, the present arrangements represent

expect to face. So far as other countries are con

a marked change and improvement— a change

cerned, the recent mobilization of more than

which necessarily rests upon mutual and volun

SI billion within a forty-eight hour period to

tary action based upon confidence.

stop a raid on the Canadian dollar provides

In a somewhat comparable way, through re

striking evidence of the flexibility, the speed,

ciprocal holdings of currencies, through engag

and the magnitude of the facilities now available.

ing in forward transactions in currencies, and

And it is interesting evidence of the results that

through the outright borrowing of dollars or of

Canada has already, even before its longer range

other currencies from foreign

countries, the

program has been announced or implemented,

United States has developed arrangements to

regained within two months roughly two-thirds

cushion or offset a substantial part of any dis

of all the reserves it had lost over the first six

ruptive short-term capital outflows, or to mini

months of the year.

mize the impact on our central gold reserve
caused by shifts of monetary reserves from coun

Looking further ahead, the new arrangements
also are capable of providing for a steady growth

tries whose gold ratios are low to those whose

in the monetary reserves needed to service the

gold ratios are high. To be sure, these arrange

trade

ments, too, could not be worked out if other

Dollars are still the currency to which all coun

countries felt that the credit risks were great;

tries turn for a substantial part, if not the entire

that is, if their confidence should weaken in our

amount, of their international payments. Our

ability and determination to regain the initiative

financial institutions and our markets are in
creasingly well equipped to service the payments

in controlling our own balance of payments, and
to maintain the freedom of our capital markets

requirements

an expanding

world.

requirements of the world. It is a role which

as well as the ready interchangeability between

naturally accompanies our leading economic and

dollars and gold. Nothing has been done which

political position. The only reason that the use

has not reflected the combined judgment of both

fulness of the dollar has come into doubt is that,

countries involved in every set of bilateral re

for some time, dollars have been added to the

lationships. Given that basic approach, and the

“ money supply,” i.e., the monetary reserves, of

mutual confidence it implies, however, a new

other countries at too fast a pace. That is be

pattern of arrangements can provide an increas

cause our balance of payments deficit was, in

ing measure of protection for the dollar against

effect, creating reserve dollars for others, at a

incipient

rate which outran the current requirements for

developments

that

might

otherwise

grow into serious runs.

liquidity in the world’s monetary reserves. In

But for the eventuality that a run might ac

those circumstances, just as occurs when money

tually occur, new arrangements have also been

is created too rapidly inside any single country,

renewal of the ready acceptability of the currency

What this may mean in the future in the way

depends upon limiting further increases until

of additional consultation and negotiation with

the uses for that liquidity should have caught up.

respect to the particular currencies so used, and

Once the United States has its balance of pay

the manner in which such currencies may cush

ments fully under control, the rate of increase

ion drains upon the dollar at particular times—

in the supply of dollars available to serve the

serving in that respect as a substitute for drains

international

the

upon the gold reserve itself— all remain to be

world can also be managed. Whether or not there

worked out in the tests of day-by-day experience.

is a corresponding proportionate increase in the
underlying supply of gold in the world’s mone

But the structure of the new relationship has

liquidity

requirements

tary reserves, additional increases in the supply

already been established. Its potential capabilities
for meeting the world’s longer run liquidity re

of dollars can rest upon an accumulation by the

quirements are clearly at least as promising as

United States of incremental amounts of the

any of the more familiar proposals. And its pos

currencies of

sibilities for practicable operation in everyday

other leading countries. These

other currencies, while not equally capable of

affairs are clearly much enhanced by the fact

serving the multitude of functions required of a

that the new system builds directly upon the

reserve currency, can, as the United States ac
quires holdings of them, be brought into a

existing payments procedures to which govern
ments and individuals are already well accus

further mutual sharing of some of the responsi

tomed. This would seem to be not only the most

bilities which the international reserve system

promising, but also the most reliable, pattern

must itself carry.

for new developments to follow.

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