The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BANK OF RICHMOND MONTHLY REVIEW Population is People International Trade Policy Peanuts: A Brief Biography Charge A ccount Banking POPU I O On November 20, 1967, at 11 :03 a.m., the Govern ment’s “ census clock” located in the lobby of the Commerce Department registered the birth of the 200 millionth living American. The incident was merely the result of the Census Bureau’s statistical average of net population increase which places one new birth every 14.5 seconds, and although no one knows exactly who the lucky baby was, his ap pearance has become one of the most talked about events in 1967. Newspapers around the world gave front page coverage to the new arrival while radio and television brought the news to homes everywhere. The notoriety received by this anonymous American citizen focused additional attention on population de velopments not only in the United States, but throughout the world. W hen the population of the United States reached the 200 million mark, new emphasis was placed on the problems that undesirable population trends can cause. Man has always been faced with demo graphic difficulties: the need for more people, the threat of too many. Modern man is no exception, but he has the advantage of relatively reliable census figures and projected data that give him meaningful guidelines to use in solving his problems. For this valuable information tom orrow’s planners can rely on today’s statisticians. Population Projections: Difficult But Essential Estimating and projecting population figures is per haps one of the most difficult tasks statisticians face. In their attempt to gather and process population data, they must overcome innumerable obstacles. For example, the national census occurs only every ten years, an interval much too long to detect short term changes for estimating purposes. data on local population are sparse. Digitized for2 FRASER Frequently, The nebulous l\| methods of estimating migration and fertility have to be defined and considered. There are many problems requiring special attention: the position of military personnel, crews on American ships, and college students have to be accounted for. In less literate and industrial countries than the United States the problems become even more numerous. Population projection, then, is a challenging and complicated assignment— but one of the most sought after commodities of the mathematical statistician. The difficulty in gathering and assimilating data on population has nothing to do with its popularity. Outside the circles of the professional demographers, guessing, projecting, and even prophesying popula tion developments have reached the popularity of a parlor game. People are always curious about their numbers. They want to know how many people there are now, where they are, and what can be ex pected for the future. Population troubles make the topic even more vital. Statistics on the highly publicized population explosion are discussed every where from conference rooms in the United Nations to crowded booths at the corner drug store. But possibly the prime reason for the attention given to population figures is that they are widely used in political, social, and economic planning. Changing population patterns are used by both Government and industry for making decisions and taking actions. Long-range plans by educators and businessmen depend on the population trends of their areas. Solutions to the problems of physical ex penditures, inventories, and location of new facilities can be reached more profitably and beneficially if the planner has accurate population projections on which to depend. Even developing cultural institu tions— museums, symphonies, and theaters— rely on statistics denoting demographic fluctuations. Prog- OPL ress in all facets of society can be more easily achieved if planners for the future make use of statistics de noting population shifts and trends. C onsidering the value of knowledge of population changes, it should prove interesting to see what lies ahead for the United States. The figures to be used are taken from Population Estimates, an October 1967 publication of the U. S. Department of Commerce. In the booklet, projected figures are divided into four series based on two underlying assumptions: national fertility and interstate migration. The following data are based on Series I-D , which assumes the con tinued decline of fertility from present levels, and migration rates which will continue within the range A L o o k a t W h a t ’s A h e a d observed in 1955-60 and 1960-65. According to Census Bureau Greeley’s advice of “ Go West, young man, go W est” may still prove valid. Both the Northeast and the North Central regions can expect population increases by 1985, although the rise will be below that of the nation as a whole. Projections indicate that by 1985 New England and calculations on April 1, 1960, there were approximately 179 million people in the United States. to 241 million by 1985. This represents an increase of 24.2% and a projected annual growth rate of 1.1%. Looking at a regional breakdown of the country, the South is expected to claim around 75 million people by 1985— an increase of 2 5% . The South Atlantic area, which includes all Fifth District states plus Delaware, Florida, and Georgia, will increase 31.2% , and will account for 15.7% of the total num ber of people living in the United States. Although the South will have more people by 1985 than any other region, the W est will show the greatest per centage increase in population. W ith a sizable jump of 46.3% , the W est will be well ahead of the national increase of 24.2% . A further breakdown of the area shows the Mountain states with an expected in crease of 38.4% , and the Pacific states registering the largest gain of any of the areas with 48.8% . Although the W est will experience a substantial e x pansion in population during the next 17 years, it still will have the smallest percentage distribution of any of the four regions. The eight Mountain states will account for only 4.4% of the population, while the five Pacific states will claim 15.0% of the U. S. populace. Most of this increase will be centered in the state of California, the one exception to the rule of scarcely populated Western states. W ith sparse population projected for this area, Horace the Middle Atlantic states should have around 56 million people, while the industrial states of the East The 1965 estimates North Central and the agricultural states of the West place total population for the country at 194 million, North Central can expect around 63 million by and projections show that the figure should jump that year. P O PU L ATIO N OF UNITED STATES A N D REG IONS Projected April Projected 1965-1985 1960 1965 (census) Estimates 1970 1975 1985 percentage Projections percentage 1980 1985 increase distribution 226,681 240,747 24.2 100.0 (thousands of persons) United States 179,323 193,795 203,940 214,384 Northeast 44,678 47,617 49,490 51,361 53,544 56,040 17.7 23.3 North Central 51,619 54,089 55,488 57,192 59,607 62,742 16.0 26.1 South 54,973 60,106 63,691 67,160 71,008 75,159 25.0 31.2 West 28,053 31,983 35,271 38,670 42,522 46,807 46.3 19.4 3 The State Scene P rojection s for individual states offer further evidence of the country’s shifting popu lation distribution and expansion. Florida’s popula tion will increase by 66.3% , Arizona’s by 63.8% , and California’s by 57.6%. Migration will have a great effect on the growth of these states: almost six million people will move to California, around three million to Florida, and half a million to Arizona. Measured as a per cent of the 1965 population of the states, these figures represent net migration rates of over 50% for Florida, around 33% for California, and 31% for Arizona. These states seem to offer advantages that a great many people find inviting. Perhaps some of the high migration rate is the result of the increase in the number of older citizens who seek the warm climates and easy living facilities that these states are able to provide. There are, how ever, numerous younger people, especially the sportsminded, who are also participating in the trek to the sun. The Western states of Nevada, New M exico, Utah, and Colorado, where population is relatively sparce will benefit too from a mobile populace. But even states with relatively high population densities such as Delaware, Maryland, and New Jersey will experience an influx of people over the next few years. Projections show that ex panding populations, as a result of either migration or birth rates, or both, will characterize every state in the Union over the next 17 years, with the ex ception of W est Virginia. According to the esti mates, during the period from 1965-1985 W est V ir ginia will lose approximately 150,000 people, a de crease of 8.2% . On the list ranking the states by the net migration rate, West Virginia appears in fiftieth place, with an almost 20% decrease. These projections, however, make no allowance for eco RE G IO N A L PO P U L A T IO N PROJECTIONS Projected 1965-1985 percentage increase Projected 1985 percentage distribution 19.1 17.2 5.5 17.8 18.7 9.4 18.9 7.2 31.2 14.2 23.1 15.7 6.1 9.5 Northeast: New England Middle Atlantic North Central: East North Central West North Central West: Mountain Pacific Digitized for4 FRASER Projections Reviewed A look at p rojections of the overall U. S. population picture for the next 17 years reveals a pattern of growth and expansion. The trend toward a national increase in population will persist in spite of a decline in the birth rate, which began decreasing as early as 1957. W ith the exception of W est Virginia, every state will be characterized by an increased populace. Migration will continue to be predominantly westward, but Florida will still attract large numbers of migrants. The distribution of the population will be heaviest in the East North Central and Middle Atlantic sec tions, but will remain relatively light in the West. Even with this panorama of continued growth, by 1985 the U. S. still will be lightly populated com pared with most other industrial nations of the world. Growth, then, although not as rapid as it was in the 1950’s and the early 1960’s will be the major trend in U. S. population developments over the next several years. There are many who find this continuing expansion frightening. Fear of the lack of space and the possibility of a scarcity of food lead some Americans to believe that overpopulation is one of the biggest problems facing the country today. Unless measures are taken to reduce substantially South: South Atlantic East South Central West South Central nomic development, or the demand for coal and other W est Virginia resources that could stimulate growtli for that state. Although interstate mobility is expected to in crease, the distribution of the nation’s population is projected to show little change from 1965 to 1985. In contrast to the small percentage of people in most of the Western states, California will remain the most populous state with 12% of the U. S. population. New Y ork is not far behind with 8.9% , and Texas will continue in third place with 5.6% . The in dustrial and urban states of Illinois, Ohio, and Penn sylvania follow with 5.3% , 5.1% , and 5.1% re spectively. For those who feel threatened by the overabundance of people, there is always the state of Alaska, which in 1985 will claim a mere 0.1% of the nation’s total population even though it is geo graphically the largest of the states. Vermont and W yoming, each with only 0.2% of the population, will also offer the crowd-conscious a less populated escape. So despite the fact that population will con tinue to grow, there still will be areas within the U. S., even in 1985, with relatively few people. 33.4 48.8 4.4 15.0 the growth rate, they conclude, the people boom will eventually “ use up the earth.” Others who are less pessimistic feel that an increasing population is es sential to the country’s welfare and must be accepted as a desirable challenge. Carla W . Russell A C e n t u r y of I n t e r n a t i o n a l T r a d e Policy 184 0-1940 During the one hundred years spanned by the period 1840-1940 the weight of world opinion con cerning international trade swung repeatedly from free trade to protectionism and back again. In the middle of the last century broad internationalism was widely evident in the commercial policies of many governments. Led by Great Britain, a number of countries substantially lowered their trade barriers and reduced discriminatory practices. The seventies, however, saw a reversal towards more protection. Unfavorable economic conditions, increasing in dustrialization and an emerging political nationalism all contributed to this shift in policy. After a moderate swing back toward freer trade around the turn of the century, the first W orld W ar considerably reduced the volume of international trade, as it led to many increases in direct and indirect controls. During the 1920’s, sporadic efforts were made to re turn to prewar conditions. The crisis of 1929 and the prolonged depression of the thirties not only off set what had been achieved in this direction, but also induced many nations to impose the most e x tensive trade barriers ever. The U. S. raised a formidable tariff wall with the Smoot-Hawley Act of 1930, but almost immediately began to take steps to mitigate the impact of the measure. The Trade Agreements Act of 1934 au thorized the President to negotiate with individual countries on reductions of as much as 50% in existing duties. This article will discuss in broad outline the com mercial policy of the leading trading nations in the period between 1840 and 1940. 1840-1870: An Era of Free Trade D u rin g these decades free trade philosophy made considerable headway. The theories of such “ classical” eco nomists as Adam Smith, David Ricardo, and John Stuart Mill induced many governments to strive towards liberalization of their international trade. Tariff walls were gradually lowered, the lists of dutiable items were shortened and many kinds of discriminatory practices were abolished. Great Britain, the world’s leading trading nation of those days, set the tone in this process. In 1846 Britain opened its markets to agricultural imports by repealing the Corn Laws that had long brought pro tection to this sector. Three years later W est minster abrogated the A ct of Navigation that, for almost two centuries, had protected the British carrying trade. Most important for the liberaliza tion movement was, however, the negotiation in 1860 of the Cobden-Chevalier trade treaty between Great Britain and France. The unconditional most favored nation clause contained in that treaty, later on copied by many other countries for their trade agreements, set off a chain reaction that let to a decade of un precedented free trade. A distinction should be made here between the conditional and the unconditional variant of the most favored nation clause (respectively c.m.f.n. and u.m.f.n.). In the latter case partners in a trade agreement pledge automatically to extend to each other the more favorable terms of any new agreement that either may enter with a third party. Suppose, for example, the U. S. has a standing agreement with France to levy a 5% import duty on French wine and the U. S. thereafter negotiates a new agree ment with Italy levying a 4 % tariff on Italian wine. France can then automatically claim the same treat ment for its product. Under the conditional form, however, France does not automatically get the new 4 % tariff. It will only obtain such treatment if it can give the U. S. an equivalent concession. The inherent difficulty of this system is, of course, how to determine what can be accepted as an “ equivalent” compensation. Following the 1860 Cobden-Chevalier treaty most European nations inserted the u.m.f.n. clause in their trade agreements. The U. S., however, continued to apply the conditional variant. In fact, it was this country which, at the conclusion of its first commercial treaty in 1778 introduced this form of the clause in international trade relations. The ex planation of this position may be found in the specific trade circumstances at the time of the founding of the nation. In those days tariffs tended in general (Continued on page 8) 5 ( c ( A Brief iography 4 HI M m. * Peanuts, the District's f o u r t h m a j o r sou rce o f c ro p in c o m e , i m p o r t a n t to th e e c o n o m y o f this a r e a f o r m o r e t h a n a c e n t u r y . h a v e be e n p r o d u c t i o n has in c r e a s e d . Record p e a n u t c ro p s h a v e r e s u lte d in re c e n t B r o u g h t to this y e a rs , w i t h th e a l l - t i m e h i g h o c c u r r in g in the D is tric t in 1 9 6 5 a n d in th e c o u n t r y f r o m A f r i c a a l o n g w i t h th e s la ve s in c o l o n ia l d a y s , the p e a n u t w a s n a t io n in 1 9 6 7 . f ir s t c u l t i v a t e d in o n ly a s m a ll a r e a o f e a s te r n V i r g i n i a . D istrict p e a n u t y ie ld s a r e w e l l a b o v e tho se in th e o t h e r t w o S o ld ie rs w h o a r e a s , a n d D istric t p r o d u c e r s h a v e a c c o u n te d f o r r o u g h l y 3 0 % o f t o t a l U n it e d f o u g h t in the V i r g i n i a c a m p a i g n s o f the W a r B e tw e e n th e States d e v e l o p e d a States o u t p u t d u r i n g th e p o s t w a r p e r io d . ta s te f o r p e a n u t s , c r e a t i n g a n in c re a s e d d e m a n d f o r th e m . This p r o v i d e d has c o m e f r o m th e S o u th e a s t a n d th e r e m a i n i n g 2 0 % f r o m t h e S o u t h w e s t, the f i r s t m a j o r im p e t u s f o r a n in c re a s e in p r o d u c t i o n , a n d c u l t i v a t i o n o f p e a n u t s spread ra p id ly in to o th er S outhern States. | D e v e lo p m e n t of P ea nu ts h a v e m a n y uses. s h e lle r w e r e of m a jo r im p o rta n c e in the e x p a n s io n of C ity a n d in N o r f o l k , V i r g i n i a . p ro d u c tio n . V i r g i n i a a n d 16 in N o r t h C a r o l i n a . ■ The A lo w -c o s t, h i g h - p r o t e i n f o o d a n d rich in e n e r g y , on e p o u n d o f peanuts 1.5 O f the 111 S l i g h t l y m o r e t h a n t h r e e - f i f t h s o f the t o t a l d i s a p p e a r a n c e o f p e a n u t s in 14 a r e lo c a te d in w a s in th e f o r m o f e d ib le p ro d u c ts , c h i e f l y The m o s t r a p i d e x p a n s i o n o f p e a n u t p e a n u t s , a n d p e a n u t s r o a s te d in th e she ll. p r o d u c t i o n o c c u r re d in th e C o tto n Belt f o l l o w i n g the fa s t m ig r a tio n 19 6 7 p e a n u t b u t te r , c a n d y , s a lte d C r u s h in g s f o r oil a n d m e a l o f a c c o u n te d f o r 2 4 % ; e x p o rt s , 9 % ; a n d seed, f e e d , a n d f a r m loss, 6% . Here the h e a v y loss o f c o tto n in c o m e ca u se d f a r m e r s to C o n s u m p t io n o f p e a n u t s ( f a r m e r s ' stock basis) has ris en f r o m 9 5 5 m i l l i o n p o u n d s lo o k f o r o t h e r sources o f in c o m e . acreage in c r e a s e d The peanut m a rk e d ly . to o k p la c e d u r i n g W o r l d W a r II w h e n to e n c o u r a g e p r o d u c ts f r o m A seco nd w a s b u i l t in N o r f o l k in 18 78 a n d p o u n d s o f C h e d d a r cheese, 9 p in ts o f m il k , o r 36 m e d i u m size eggs. p e a n u t sh e lle rs a n d crush ers t h r o u g h o u t the c o u n t r y t o d a y , and in d u s tria l T o d a y , h o w e v e r , t h e y a r e used p r i m a r i l y f o r f o o d in th e U n it e d States, 18 7 6 in N e w Y o r k f u r n i s h e s a b o u t the s a m e a m o u n t o f e n e r g y as 2 p o u n d s o f b e e f, a n o t h e r m u c h la r g e r o n e in S m it h f ie ld , V i r g i n i a , in 1 8 80 . t h e b o ll w e e v i l . The la te G e o r g e W a s h i n g t o n C a r v e r , in m a c h i n e r y fa c t, is s a id to h a v e m a d e m o r e t h a n 3 0 0 f o o d a n d f o r p l a n t i n g , c u l t i v a t i o n , a n d h a r v e s t in g a n d in v e n t i o n o f t h e m e c h a n ic a ^ *fh e m . f ir s t p la n ts f o r c l e a n in g a n d s h e llin g p e a n u t s w e r e b u i l t in H a lf o f t h e n a t io n 's p r o d u c t i o n pro d u ctio n o f peanuts fo r p r o m is e d Still a good a n o th e r w a v e a l t e r n a t i v e ^ 1 9 5 5 to a n e s t im a t e d 1 ,5 5 0 m i l l i o n in 1 9 6 7 , a g a i n o f 6 2 % . a c r e a g e a l lo t m e n t s w e r e t e r m i n a t e d o f th is w a s c o n s u m e d in th e f o r m c o n v e r s io n to oil. O n a p e r c a p it a o f e x p a n s i o n basis , the in c re a s e has be e n f r o m 5.8 p o u n d s t o 7.8 p o u n d s . A creage re a c h e d in c a n d y . A lm o s t 7 p o u n d s o f p e a n u t b u t te r , sa lte d p e a n u t s , a n d The r e m a i n d e r w a s d i v i d e d a l m o s t e q u a l l y b e t w e e n c le a n e d a p e a k d u r i n g th e w a r y e a r s , b u t w i t h th e d e c lin e in th e w a r t i m e d e m a n d f o r r o a s ti n g - s to c k p e a n u t s (the b a l l - p a r k t y p e ) a n d th o s e c o n s u m e d as f o o d p e a n u t o il, a c r e a g e w a s a g a i n 1949 a n d cut b a ck. A llo tm e n ts w e re h a v e be e n h e ld a t a p p r o x i m a t e l y th e le g a l 1.6 m i l l i o n acres f o r the n a t io n , since 1 9 5 6 . p ro d u ctio n th e fo r many decades V irg in ia -C a ro lin a e a s te rn N o rth has area, C a r o li n a , be e n c o n c e n tr a te d p rim a rily th e m in im u m in o n f a r m s . in three d i s tin c t V irg in ia la r g e - p o d d e d , and fl| R o u g h ly h a l f o f a ll e d ib le p e a n u t s used since 19 5 5 has g o n e in to le vel, fhe m a n u f a c t u r e o f p e a n u t b u t te r , f ir s t p r o d u c e d c o m m e r c i a l l y in 1 8 9 0 as a The n a t i o n s p e a n u t f 0 0 d f o r s o u t h e a s te r n p ro d u c in g reim pose d i n v a li d s . S a ltin g , the second la r g e s t o u t le t , has a c c o u n te d fo r a re a s : s l i g h t l y b e t te r t h a n o n e - f i f t h , w h i l e c a n d y m a n u f a c t u r e has used a r o u n d n o rth -o n e -s ix th . V irg in ia s used in c le a n e d , u n s h e lle d V i r g i n i a - t y p e h a v e c o m p r is e d a r o u n d 7% o f th e t o t a l. r o a s ti n g - s to c k f o r m M o s t o f th e R u n n e r a n d S p a n is h v a r i e t ie s ; t h e S o u th e a s t, c h i e f ly s o u t h w e s t e r n G e o r g i a a n d s o u t h e a s te r n A l a b a m a , v a r i e t ie s a r e used in m a k i n g p e a n u t b u t t e r a n d m o s t s h e lle d V i r g i n i a t y p e s w h e r e th e R u nn er, S p a n is h , a n d V i r g i n i a v a r i e t ie s a r e g r o w n ; a n d th e S outh- f o r s a l t i n g . w e s t a r e a , m o s t ly s c a tte re d sections o f T e x a s a n d m a in ly th e s m a ll- s e e d e d , S p a n is h peanuts. O k la h o m a , A creage in S p a n is h p e a n u t s a r e the m o s t w i d e l y used t y p e in c a n d y p r o d u c in g m a n u f a c t u r e . th e S om e o f ea c h t y p e a re used in a ll th r e e o u tle ts , h o w e v e r , Fifth U t i l i z a t i o n o f a ll th r e e ty p e s o f p e a n u t s has ris en. Use o f V i r g i n i a s , u p 7 2 % , District's a r e a o f p r o d u c t i o n , w h i c h c o r r e s p o n d s r o u g h l y to th e V i r g i n i a - has s h o w n th e b i g g e s t g a i n , f o l l o w e d b y S p a n is h , u p 5 5 % , a n d Ru nn ers w i t h C a r o l i n a a r e a , has c o m p r is e d a b o u t 2 0 % o f t h e n a t i o n a l t o t a l f o r th e pa st ten a rise o f 4 9 % . y e a r s a n d in 19 6 7 w a s e s t im a t e d a t 2 7 7 , 5 0 0 acres. The n a t io n 's processors o f r a w This is a 4 6 % d e cre a s e 2 9 o f the se lo c a te d in F if th D is trict states. f r o m the a l l - t i m e h i g h o f 5 1 5 , 0 0 0 a cre s h a r v e s t e d in 1 9 4 5 . d e c lin es h a v e be e n e v e n g r e a t e r in th e S o u th e a s t a n d S o u t h w e s t. | pean uts now to ta l 393, w ith D e s pite in c re a s e d c o n s u m p t i o n A c r e a g e i n ’ r e c e n t y e a r s , p e a n u t s u p p lie s r e s u lt in g f r o m th e g a in s in p r o d u c t i o n h a v e T here has b e e n la rg e r been a s h a r p u p t r e n d in y ie ld s p e r a c re t h r o u g h o u t t h e c o u n t r y , h o w e v e r , a n d excess, and th a n prices e d ib le to r e q u i re m e n ts . gro w e rs have The CCC ave rag ed has near ac q u ire d the the support le vel. A Century of International Trade Policy (Continued from page 5) to be low and of minor importance, but most Euro pean states applied a variety of discriminatory regula tions in their commercial policies. U. S. commerce and shipping tended to be either excluded altogether or discriminated against. The use of the con ditional form of the clause gave the new nation a strong bargaining position from which it could at tempt to improve its position. A more favorable treatment of a certain foreign product in the U.S. was not given automatically, but was made con ditional upon elimination of discriminatory rules ap plied by that country. The continued use of the conditional form by the U. S. after 1860 was a serious irritant to its trading partners. These countries had gradually abolished their discriminatory regulations and could offer the U. S. little as an “ equivalent” concession. A situation arose in which the U. S. could automatically claim “ most favored nation” treatment for its products, but in turn would refuse to automatically grant it. In due time European nations reacted by discriminating against the U. S. Nevertheless, this country con tinued to apply the conditional form till 1923. Another source of irritation abroad was the conparatively high level of tariffs maintained by the U. S. The Morrill Tariff A ct of 1861 had raised duties about 150%. During the W ar Between the States financial considerations spurred additional in creases in tariffs as well as a curtailment of the list of non-dutiable goods. After 1865 the dominant protectionist interest kept the U. S. on this course. 1870-1914 In the 1870’s and 1880’s the scene gradually changed as an increasing number of Euro pean countries turned protectionist. Only Great Britain and the Netherlands, both of whom had large interests in world trade, remained true to the free trade ideology. Various reasons can be pointed out for the shift to protectionism. A severe depression in the agricultural sector hit hard at the basis of most European economies. Besides, improved in ternational transport facilities had raised the volume of world trade, particularly in industrial products. The resulting increase in international competition had made the differences in industrial development among the various nations painfully clear. In 1879 Germany raised her duties on a variety of products and in the series of new trade treaties that were concluded in the early nineties a less liberal tone was noticeable. In France many commercial agreements that were revised in the eighties manifested a more protec tionist trend, too. In 1892 a system of maximum and minimum duties was introduced that was to stand till the first W orld W ar. The maximum rates could not be increased, but where agricultural products were concerned they could not be lowered either. The minimum rate could be conceded in special treaties in return for equivalent concessions from trading partners. Following the W ar Between the States the tariff question again became a major political issue in the U. S. Frequently a change in the political party in office would cause a change in duties, too. In the long run, however, tariffs in this period tended to rise and the free list tended to be curtailed. During the first postwar decade the tariff system underwent several revisions. Import duties on revenue articles were abolished, while those that protected domestic industries were maintained or increased. In 1890 the McKinley Tariff A ct raised rates on many articles while at the same time adding a large number of agricultural staples to the list of dutiable items. Reductions enacted into law in 1894 brought only a temporary reversal. Three years later, the Dingley A ct reimposed many tariffs, often at an even higher level. These lasted till 1913 when the Underwood Tariff A ct introduced major reductions, the first in half a century. Many raw materials were now put on the free list and protectionist duties on semi- or wholly-manufactured goods were markedly decreased, sometimes from highs of 100% or 150% to 35% . Besides, many complicated tariff rules were abolished. Even so, the influence of the new law was never very profound, as the outbreak of the first W orld W ar frustrated its application. Throughout this period the U. S. maintained its strong negotiating position through use of the c.m.f.n. clause. The McKinley Act consolidated this position by introducing the concept of “ penalty duties.” The President was authorized to impose such duties whenever he felt that countries that ex ported a certain commodity to the U. S. levied duties on U. S. goods that were “ reciprocally unequal and unreasonable.” The threat that this power could be applied quite often paved the way for a more favor able treatment of U. S. exports. In 1923 this au thority was abrogated. 1914-1940 T h e outbreak of the first W o rld W ar brought some important changes in international trade relations. Governments that so far had exercised control over imports only through import duties now took more drastic actions. Frequently, exports as well as imports would be directly forbidden, while duties on many items were raised considerably. As a result the volume of international trade fell markedly. During the early twenties many of the direct controls were again abolished. In the wake of the outbreak of the war Great Britain abandoned its traditional free trade policy. A t first this change seemed temporary and forced by the emergency situation. A s the years went by, however, it became apparent that protectionism was here to stay. In 1915 Britain imposed a duty 011 imports of luxury goods and in 1921 stiff anti-dump ing measures were specified to safeguard its industry. In postwar France the old, highly protective tariff regime remained in force. Any liberalization was subject to bargaining. In 1920 this situation came to an end when the government obtained a free hand to fix all duties via negotiation. The result was a very complex system of agreements that showed the funda mental contrast between the two elements of France's p olicy: the idea of bargaining and adherence to the unconditional most favored nation clause. The use of the clause in an important treaty with Germany in 1927 seemed to settle the issue in favor of the latter. The peace treaty of Versailles obliged defeated Germany to give most favored nation treatment to the Allies. These countries, however, did not have to reciprocate. After expiration of this provision in 1923, Germany established her own tariff system. W hile basically protectionist for both agricultural and industrial goods, lower duties could be obtained through negotiations. This regime was maintained till the depression of the thirties. In the postwar U. S., protectionist forces quickly gained momentum. New industries that had led a sheltered life during the preceding years now faced increased imports and asked for support. The openly aimed at the use of import duties to equalize foreign and domestic costs of production. The general trend towards more trade restrictions resulted in various attempts to reverse the movement. The 1927 W orld Economic Conference urged coun tries to lower their tariffs and recommended multi lateral action to expand the volume of world trade. Unfortunately neither this nor other similar con ferences achieved major successes. Yet, the crisis of 1929 and the following depres sion manifested the need for concerted international action even more. The 1930 Smoot-Hawley Act, which raised U. S. tariffs to all-time highs, resulted in a wave of widespread retaliation abroad which brought about even more general trade restrictions. Britain’s decision in September 1931 to devalue the pound dealt a fatal blow to the existing international monetary structure. Within three months fifteen nations had followed the example. This led to an atmosphere of uncertainty about the value of cur rencies which again hampered international trade. In reaction to depressed economic conditions most governments stepped up their intervention in foreign trade. Soon a number of nations used quotas, ex change controls and export premiums besides the traditional import duties. Although many warned against such “ beggar my neighbor” policies, no means for taking collective action against the deteriorating situation was found. The volume of international trade shrank further when nations adopted the policy of maintaining a balance of trade with each partner rather than an overall balance with all partners. Inevitably the flow of goods tended in each case to drop to the level of the weakest partner. By and large, governments persisted in fighting the inter national depression with policies aimed at national recovery. As regards the second half of the thirties this attitude can partly be attributed to the mount ing political uncertainty 011 the European Continent. During the same period, the U. S. followed a dif ferent course. The 1934 Trade Agreements Act 1920-21 depression and a new nationalism that had authorized the President to negotiate with individual emerged in reaction to the war strengthened the countries on a decrease in duties of as much as 50% . movement. After a change in the party in office By incorporation of the unconditional most favored the 1921 and 1922 tariff acts reversed the liberaliza nation clause maximum cooperation could be reached. tion trend set in by the Underwood Act. Duties on The clause, moreover, was to apply to tariffs as well a large number of agricultural goods were reimposed as to quotas and exchange controls. or increased by substantial amounts. decade of the program, agreements were signed with Protection for During the first manufactured goods became more extensive than 28 different countries. ever. subject to the agreements, duties were cut by the The newly created Tariff Commission was For almost half of the goods given certain powers to modify and adjust the tariffs. maximum 50% . The “ American Selling Price” which was used as a was given similar powers. basis for customs valuation of certain products In 1945 and 1955 the President Jan H. W . Beunderman 9 A"' READY CASH S fl0 P P [M Ch a rS e -A .C h e c k CHARGE CASH It): Mon.n 1ARGE I ACCOUNT C h eck • ■>< A ' C r e d i t S e r v i c e s on t h e cM o v e in t h e D i s t r i c t / charge plan ,o * e CS- " ° o , v? ■v % 'V , B A N K CREDIT B'f CHECK Check-Credit your Instant Money and Charg-It, or Check-A-Loan to Cash-A-Matic for Sure Credit on your Charge Plan . . . and the credit ball starts rolling. Commercial bankers appear to have focused much of their ingenuity on plans to finance the con sumer, and on efforts to dress their plans in catchy phrases. The result of these efforts is that con sumers now have a variety of options for arranging bank credit to cover virtually any kind of retail purchases. This array of options includes the check- credit and overdraft plans, and other revolving credit plans. Opinions differ as to the origin of credit cards, with some dating the origin from the first oil com pany card issued in 1924. Others trace credit card ancestry to department store charge accounts. R e gardless of its parentage, the credit card is rapidly emerging as a new symbol of this consumer-oriented economy. About 12 million credit cards are issued by the 1,100 banks active in this field. In addition, a number of banks are engaged in check-credit and overdraft plans which extend loans to customers and insure them against overdrawn amounts in their checking accounts. O f the $1,137 million outstand ing in credit plans reported by 848 insured com mercial banks on October 4, 1967, Fifth District banks held $46 million. A number of District banks are also among the 900 banks who participate in these plans as agency banks through correspondents on whose books the outstanding credit is carried. Retail Credit Cards T h e retail credit card is an instrument through which a bank extends credit to the consumer and takes over the collection function Digitized for1 FRASER ■0 ■ v -c ^ C > eC of the merchant. Cards are issued to consumers regardless of whether they are customers of the bank. The cardholder then has the privilege of charging purchases at any of the merchants subscribing to the plan. A “ floor limit” setting the maximum amount the cardholder may purchase without the bank’s ap proval is usually stipulated. This limit is customarily within the range of $25-50, and approval for amounts above this limit must be obtained at the time of sale. The bank sends a statement of purchases to the cardholder at the end of the month. The charges from the various merchants subscribing to the plan are totaled, and the cardholder then makes one pay ment to the bank. If the cardholder does not wish to pay the full amount of the bill in 20 to 30 days, he may use a revolving credit plan. For most plans there is a minimum payment of $10 or 10% of the amount billed, whichever is greater. A 1 to 1^2% monthly service charge is added to the unpaid balance. Merchants subscribe to the plan by paying an initiation fee, usually under $100, to the bank. There is also a fee for the use of the card imprinter. Merchants participating in the credit card plan obtain deposits to their accounts equaling the amount of sales slips less a discount, usually in the range of 3 to 7 % . This discount is a compensation to the bank for assuming the collection function of the merchant. The discount is usually based on the volume and average sales ticket size of the individual merchant. A rebate reduces the discount if the merchant’s volume or sales ticket size increases over the expected amount for a certain period of time. Am ong the pioneers in retail banking were two Fifth District banks: The Bank of Virginia which A s shown in the chart, these five plans had $29 started Charge Plan in February 1953, and First National Bank and Trust Company of Western million in credit outstanding as of October 4, 1967: a 29% increase was shown by the end of December, Maryland whose Shoppers Charge began in April when outstandings of more than $37 million were of the same year. reported. Although Charge Plan was originally a local operation, the Bank of Virginia has now become a member of Interbank Card. W ith Further growth is expected, because of the addition of three other District banks to the BankAmericard program. First & Merchants Na operations beginning on March 1, 1968, cardholders tional Bank, Richmond, announced in September may use Interbank Card at business establishments 1967 that it would operate a BankAmericard fran subscribing to the plan in at least seven states. The chise, and later announced that it would license its affiliated banks issue their own cards and enroll correspondent banks in Virginia to offer the card. merchants under their own terms, although they have Distribution of the cards will begin in early spring. now agreed to standardize their card size to permit First National Bank of Maryland joined the pro use in a common imprinter. gram in November, and South Carolina National Essentially, each plan will retain its local identity with only the Interbank Bank, the fourth in the District to offer Bank symbol on the card to associate it with a larger Americard, was licensed in January 1968. Riggs National Bank in Washington is negotiating to acquire the retail credit card system, Central operation. In keeping with the national trend, interest in credit cards waned in the Fifth District during the mid-1950’s. In 1959 new plans sprung up across CREDIT CARDS A N D RELATED PLANS A T FIFTH DISTRICT C O M M E R C IA L B A N K S the nation, and in July of that year, First Union National Bank of North Carolina started its credit card, also called Charge Plan. Number $ Million This new interest was short-lived, however, and only a few banks throughout the country initiated credit card plans in the following years. Beginning in 1966 bank credit card activity again picked up, and it is this “ phase three” that we are now experiencing. The Fifth 80 70 District’s entrance into this phase was initiated by Maryland National Bank and North Carolina National Bank, both be ginning plans in April 1967. 60 Maryland National Bank purchased Charg-It of Baltimore, a plan which had been in operation since April 1953. Maryland 50 National is now an associate member of Interbank Card. North Carolina National Bank obtained a license to offer BankAmericard. (The Bank America 40 Service Corporation, a subsidiary of Bank of America N T & SA , San Francisco, began in November 1966 30 to issue licenses which allowed out-of-state banks to participate in the BankAmericard program.) North Carolina National has licensed agency banks to offer 20 BankAmericard in areas where they have no branches. BankAmericard is an all-purpose card which can be used for airline travel, meals, lodging, and cash advances, as well as for retail purchases. 10 A s in the Interbank Card program, BankAmericard sponsoring banks have an interchange agreement which allows cardholders to use their cards at participating es Oct. Dec. 1967 Bank credit cards ^ Oct. Dec. 1967 Check-credit and other plans tablishments across the country. 11 Central Charge operates in up again in 1967 with five additional banks begin Virginia, Maryland, Delaware, and West Virginia, as well as in the District of Columbia. Charge Service, Inc. ning programs. A s of the December 30, 1967 call report, 27 District banks were offering check-credit Check-Credit and Other Plans Prim arily b e cause of the start-up costs, retail credit cards have been confined mostly to the larger banks. O f the eight District banks which have credit card plans announced or in operation, only one bank had de posits less than $50 million. Five of the other seven banks had deposits exceeding $500 million. Smaller banks have entered the credit field, how ever, by offering check-credit and other revolving credit plans. On October 4, 1967, 32 banks in the District were offering check-credit, overdraft, or non bank credit cards. Twenty of these banks were in the under $100 million deposit size class, with 13 of the 20 having deposits of less than $50 million. Credit outstanding at this time was over $17 million. W ith the addition of two banks with deposits under $50 million, outstandings at the end of December rose to almost $20 million, an increase of nearly 15% in less than three months. or overdraft plans. Am ong the various names are Ready ReservAccount, perma-Cash, and Sure Credit. Eleven District banks feature plans with the Check Credit name. Other plans are Snap Credit, Ready Cash, Charge-A-Check, and Instant M oney/Checking Plus. Ready Credit, Check-A-Loan, Cash-A-Matic, and Bank Credit By Check are also available to Fifth District banking customers. Bancardchek, a fram- chised check-credit plan, is offered by two District banks. Seven banks within the District are offering a non-bank credit card— the American Express, E xec utive Credit. Each of these plans went into opera tion in 1967. This card combines the travel and entertainment advantages of the American Express card with revolving credit plans offered by banks. Possession of this card entitles the holder to obtain cash, borrow money to pay regular American E x press bills, and to purchase travelers checks from American Express offices. Under a check-credit plan, a customer is given a book of special checks which, when cashed, act as a Credit Cards and the “ Checkless Society" Credit loan which has already been approved by the bank. cards have been called “ stepping stones” There is a fee for each check written, and interest “ checkless society” . of 1 to 1 ^2 % per month is charged on the unpaid with this concept, saying that the speed of payments balance. to the There are those who disagree The customer has the advantage of being is impeded when credit cards are used because able to write a check, up to a predetermined amount, former cash payments become credit transactions. regardless of the balance in his checking account. The use of credit cards, however, does help to pro Similar to the check-credit is the overdraft plan. vide conditions necessary for a “ checkless society” . Special checks may be issued, or the plan may be operated in conjunction with a regular checking ac programs and thus may contribute to the establish count. ment of automated central information files required These checks, like the check-credit, activate an approved loan when used. The customer may Computers are widely used in servicing credit card in a “ checkless society” . Credit cards bring banks overdraw his regular checking account, and the bank into close contact with merchants and require a will transfer funds to his account to cover the check. greater marketing effort on the banks’ part. The amount of credit to be extended is determined these plans educate the public to the use of cards by prior agreement between the bank and customer. or other identification forms for making purchases, Finally, There are monthly charges and checking account rather than using cash or checks. charges, and interest on unpaid balances. acceptance of these various bank credit plans is evi Some The increasing plans incorporate features of both the check-credit denced by the $57 million outstandings of Fifth Dis and the overdraft plans. trict banks as of December 30, 1967. If a time capsule year Am ong Fifth District banks, check-credit overdraft plans date from May 1959. and By the end were being prepared for the one thousand nine hundred and sixty-eight, a credit card, of 1960, 17 District banks offered variations of one and most probably a bank credit card, would be in or the other plan. cluded among the articles collected as an important Operations slowed somewhat in the following years, with only five banks initiating programs from 1961 through 1966. 12 Activity picked example of today’s economy. Eunice R. Dougherty