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JAN U A R Y 1969

THIS

ISSUE

Som e Reflections on
Recent M o n e ta ry Policy

C o rp o ra te M e r g e r
Activity in Selected
Fourth District Cities,
1 9 5 0 -1 9 6 7
. . . .

FEDERAL

RESERVE

BANK

CLEVELAND

Additional copies of the E C O N O M IC REVIEW may
be obtained from the Research Department, Federal
Reserve Bank of Cleveland, P.O. Box 6387, Cleveland,
O hio 44101. Permission is granted to reproduce any
material in this publication.

JANUARY 1969

SOM E REFLECTIONS O N
RECENT MONETARY POLICY*
The Federal Reserve attempts to implement
monetary policy in a way that assures a flow
of money and credit consistent with the needs
of the economy. In short, the Federal Reserve
is concerned with financial flows (money and
credit) and interest rates that are associated
with the expected dimensions of economic
activity. The Federal Reserve conducts mone
tary policy in discretionary fashion—without
a predeterm ined rule or a constant operating
guide. A discretionary approach allows the
Federal Reserve to respond quickly and flex
ibly to changing business and financial con
ditions in the overall economy as well as in
the various sectors of the economy.
There is little quarrel with the fact that
errors are sometimes made in monetary
policy. However, these are errors in ju d g
ment, which largely reflect the fact that there
is no one explanation of the monetary process
that can anticipate or provide for unexpected
changes in factors outside the influence of
monetary policy—such as swings in fiscal

* Summary of a presentation by members of ihe Research
staff at a Joint Meeting of the Boards of Directors of the
Federal Reserve Bank of Cleveland and the Cincinnati
and Pittsburgh branches, on December 12, 1968.

policy, abrupt shifts in business and consumer
spending patterns (for exam ple, in the case
of the consumer, as a result of a sharp re
duction in the personal saving rate), chan ges
in the public's attitudes or expectations about
the future, institutional rigidities or con
straints, etc. At the sam e time, discretionary
monetary policy faces the problem of uneven
and delayed responses to its actions.
It is commonly recognized that there is a
lack of unanimity on whether monetary policy
should be discretionary, although most ob
servers feel there should be at least some
degree of discretion. In addition, there is
even less agreem ent on whether the Federal
Reserve looks at the appropriate monetary
and financial variables. Finally, there is con
siderable criticism regarding the slippage
between the intent of monetary policy and
actual perform ance. This discussion addresses
itself to some of these issues. Part I discusses
the operation of monetary policy, with em pha
sis on the theoretical controversy in monetary
econom ics between the income-expenditure
approach (the so-called Keynesians) and the
quantity theory approach (the so-called mon
etarists). Part II reviews the intent and per
formance of monetary policy since 1965.
3

E C O N O M I C R E VIEW

C h a r t 1.

V I E W S of the M O N E T A R Y P R O C E S S

In f lu e n c e

S o u rc e :

F e d e r a l R e s e r v e B a n k o f C le v e la n d

I
Monetary economists have posited several
descriptions of the relationship between
monetary policy and changes in economic
activity. The various descriptions generally
fall into two catego ries—the income-expenditure approach, which is largely the legacy
of John M aynard Keynes, and the quantity
theory approach, which is most frequently
associated with Professor Milton Friedman.
The two views are summarized in Chart 1.
The income-expenditure approach focuses
on the total amount of spending in the econ
omy (G ross National Product) as well as the
major spending sectors: business, consumer,
4 FRASER
Digitized for

government, and foreign1. The income-ex
penditure approach attempts to explain the
various factors and forces that influence the
spending of each sector. Such spending can
be either induced or autonomous. Although
different analysts may make different assum p
tions, as a general matter, induced spend1 For purposes of illusiraiion, the descriptions of the two
approaches are simplified. For more detailed descriptions,
among others, see Lawrence S. Ritter, "The Role of Money
in Keynesian Theory," in Banking and Monetary Studies,
Deane Carson (ed.), Homewood: Richard D. Irwin, Inc.,
1963; and various selections in Milton Friedman, Dollars
and Deficits: Inflation, Monetary Policy and the Balance
of Payments, Englewood Cliffs: Prentice Hall, Inc., 1968.

JANUARY 1969

ing depends primarily upon chan ges in
income and includes a large proportion of
con su m p tion e x p e n d itu re s. A u tonom ou s
spending, on the other hand, is not as closely
associated with changes in income, but is de
pendent on other external factors. For example,
a decision to change Federal Government
spending may reflect policies and actions of
the President and C ongress, which are non
economic in intent but have economic con
sequences. In addition, business spending
and consumer investment, which represent
the rem aining major types of autonomous
spending, are dependent to an important
extent on such factors as changes in prefer
ences and tastes, technology, population, etc.
The money supply is important in the income-expenditure approach, but only as one
of many variables that directly or indirectly
influences spending decisions of businesses
and consumers. Under the income-expenditure approach, the effects of monetary policy
and monetary chan ges are assum ed to be
transmitted first to market rates of interest;
interest rate chan ges then influence business
spending on investment and consumer spend
ing on durable goods; and finally, total spend
ing determines income. The flow of influence
runs from monetary policy to interest rates to
spending to income. Therefore, according to
the income-expenditure view, changes in the
money supply have only an indirect influence
on GNP.
There are also other important aspects of
the income-expenditure view. For one thing,
the view contends that fiscal policy has an
important influence on private spending. In
its simplest form, it is argued that an increase
in Government spending for goods and ser

vices directly affects total expenditures in the
economy and thus economic activity, regard
less of how the resulting deficit may be fi
nanced; conversely, a tax reduction in creases
the spendable income of businesses and indi
viduals, and hence actual spending. In ad
dition, economists who subscribe to the in
come-expenditure approach are usually con
cerned with possible im balances among the
various sectors of the economy (for example,
too much capital spending and not enough
spending on residential construction) as well
as the absolute level and rate of growth of
total spending.
Economists following the income-expendi
ture approach have developed several largescale econometric models to improve under
standing of the structure of the economy and
to attempt to explain chan ges in economic
activity. Econometric models permit econo
mists to trace out and evaluate the effects of
alternative policy actions, as indicated in
Chart 2.
The major theoretical alternative to the
income-expenditure approach is the quantity
theory. In recent years, the quantity theorists
have received w idespread attention, largely
as a result of their criticisms of discretionary
public policy—both monetary and fiscal
policy. O ne strength of the quantity theory is
that it is subscribed to by a fairly large num
ber of articulate and outspoken economists
who have also generated a considerable
amount of research.
While both the income-expenditure and
quantity theory approaches agree that mone
tary policy has an important influence on the
economy, quantity theorists believe that mone
tary changes are more important than do
5

E C O N O M I C R E V IEW

C h a r t 2.

THE T R A N S M I S S I O N of M O N E T A R Y P O LI C Y in the FRB-MIT M O D E L

economists following the income-expenditure
approach .2 Quantity theorists emphasize the
relation between income and the amount of
money individuals desire to hold. They assum e
that desired money holdings are closely re
lated to income and that desired money hold
ings change in a stable and predictable fash
ion. If actual money holdings, which can be
altered through chan ges in monetary policy,
differ from what individuals want to hold,
individuals will adjust spending to bring
- For further discussion of some of these issu es see
Maurice Mann, "How Does Monetary Policy Affect the
Economy?", Staff Economic Study, Federal Reserve Bul
letin, October 1968.

money balances to desired levels. Spending
adjustments will continue until actual money
holdings are in line with what individuals
want to hold.
In effect, individuals as a group cannot
change the total quantity of money held, but
can change total spending, which in turn
affects the level of GNP. As a result, GNP will
change until the desired relationship b e
tween income and money is achieved. In an
extreme version of the quantity theory, fiscal
policy plays only a minor role. A ccording to
such a version, the size of the Federal budget
deficit is not important. What is important is
how the deficit is financed. If the deficit is

JANUARY 1969

financed by creating new money, then such
action will affect the growth of GNP. This is
the case becau se the money supply will ex
pand and not because of the size of the deficit
p e r se. Thus, quantity theorists did not expect
prompt or direct effects from the income tax
surcharge that becam e effective last July. On
the other hand, all things being equal, the
quantity theorists would expect that the tax
increase might have an indirect effect over
time by slowing the growth of the money
supply, since additional tax revenues would
reduce the need to finance large budget
deficits through the creation of new money.
Recently, the quantity theory has received
increased attention, primarily becau se of the
proponents' criticisms of frequent shifts and
wide swings in monetary and fiscal policy.
In general, these criticisms reflect the qu an
tity theorists' contention that over long periods
of time there is a close relationship between
money and GNP. In addition, some quantity
theorists have found that chan ges in the
money supply precede chan ges in GNP,
although by long periods that vary over time.3
The close relationship between money su p
ply and GNP, coupled with the fact that
changes in the money supply tend to lead
changes in GNP, provides the major basis for
the quantity theory as well as for the policy
recommendations growing out of that point
of view. In the extreme, some quantity theorists
recommend that the money supply should be
increased at a constant rate. In support of
3 Other quantity theorists have found that the la g is not
very long and that it is fairly stable. See Leonall C.
Andersen and Jerry L. Jordan, "M onetary and Fiscal
Action: A Test of Their Relative Importance in Economic
Stability," in Federal Reserve Bank of St. Louis Review,
November 1968.

this view, quantity theorists argu e that, since
money supply ch an ges affect GNP only with a
lag, and since the ability to predict future
GNP is not very good, it is better to provide a
constant rate of growth in the money supply.
The alternative, they argue, is to follow a
discretionary policy that may actually be the
wrong policy when it becom es effective.
The quantity theory approach is based
upon several assertions that may not be com
pletely acceptable in practice. These asser
tions include: (1) the Federal Reserve System
has virtually complete control over the money
supply; (2) chan ges in the money supply are
the major determinant of chan ges in GNP;
and (3) the time lag between money supply
chan ges and GNP is both long and uneven.
As a result, quantity theorists conclude that
monetary policy should not be discretionary,
but should follow a rule providing for money
supply growth at a steady rate.
Be that as it may, given the wide range of
objectives and goals of monetary policy, the
Federal Reserve does not have as precise and
complete control over the money supply as
the quantity theorists suggest. In fact, there is
wide agreem ent am ong economists on the
large number of possible slippages between
Federal Reserve actions and the behavior of
the money supply—for exam ple, unpredict
able shifts in dem ands for excess reserves
and borrowings from the Federal Reserve
by commercial banks shifts in the public's
preference for various types of bank deposits,
shifts in expectations and preferences of fi
nancial institutions, shifts in funds between
private and public deposits, and international
leakages.
In addition, it is conceivable that a constant
7

E C O N O M I C R EVIEW

rate of growth of the money supply, if it
could be achieved, might cause interest rates
to fluctuate in an unpredictable and perhaps
undesirable fashion and possibly to a much
greater extent than at present. Such fluctu
ations might be inconsistent with the wide
range of goals and objectives of monetary
policy. For exam ple, constantly changing demand-supply relationships for money could
cause chan ges in interest rates that the Fed
eral Reserve would not offset if it were main
taining a constant rate of growth in the money
supply. In turn, wider fluctuations in interest
rates might increase already serious balance
of payments problems, might add to the prob
lems of Federal Government financing opera
tions, and might conceivably lead to swings
in investment spending that could result in
even wider fluctuations in GNP. G reater
fluctuations in interest rates, by affecting the
amount of money individuals want to hold,
could also increase the difficulty of maintain
ing a constant rate of growth in the money
supply.
Moreover, operating under a rule calling
for a constant rate of growth in the money
supply, the Federal Reserve could not adjust
to special or unusual developments, such as
wars, international financial crises, devalu
ations, etc. The quantity theorist might permit

from the fact that the Federal Reserve fol
lows a discretionary policy. Instead, such
criticism usually is leveled at the assortment of
objectives and priorities that the Federal
Reserve is seeking to achieve.
Quantity theorists argue that some of the
problems that have concerned the Federal
Reserve System, such as conditions in the
housing market in 1966, would not have
occurred if the money supply had been grow
ing at a constant rate. Moreover, it is argu ed
that other problems, such as the balan ce of
payments, would be self-correcting if the
appropriate institutional framework were
adopted. According to the quantity theorists,
correcting or reducing some of these prob
lems is not a legitimate function of monetary
policy. It goes without saying that those in
volved in making monetary policy decisions
would find it hard to agree.
Even if money supply growth were indeed
the crucial determinant of GNP, so that
knowledge of, say, the amount of money
supply growth in the first quarter cf 1969
would allow an accurate forecast of GNP in
the third quarter of 1969, such knowledge
would not reveal how to achieve the specified
growth of the money supply in the short run,
the real forces and financial conditions asso
ciated with that particular money supply and

some exceptions from the rule of constant
money supply growth for such developments,
but once this is done it would be hard to d e
termine where exceptions stop. If many e x
ceptions were permitted, the result would be
a discretionary policy.
Although mistakes are admittedly m ade in
discretionary monetary policy, much of the
criticism of monetary policy does not stem

GNP growth, or the composition of GNP in
the third quarter. For exam ple, the resulting
situation in residential construction and state
and local government expenditures in the
third quarter of 1969 would not be known,
and a large number of individuals would
consider this knowledge as significant from
the standpoint of economic and social pri
orities and objectives.

JANUARY 1969

In any event, the present state of economic
knowledge is such that neither the incomeexpenditure approach nor the quantity theory
approach can provide final authority on how
monetary policy works or should work.4 While
know ledge of the m onetary an d fin an cial
p r o c e ss h a s im p ro ved an d c o n tin u e s to
advance, many unsettled questions remain,
including, perhaps ironically, the question of
what is the best m easure of the money supply.5
In short, available evidence is not sufficient
to resolve all of the important issues pertain
ing to the best approach to m aking monetary
policy—and to making it work effectively.
The lack of agreem ent is evidenced by the
variety of views of economists as to how mone
tary policy should be conducted. Most econ
omists, however, favor to varying degrees, a
discretionary and flexible monetary policy.6
Thus, for the present, agnostic eclecticism as
opposed to some form of enlightened monism
is likely to remain the watchword of policy
makers' faith.
II
This section reviews the record of the in
tent and perform ance of monetary policy
during 1965-1968. The review addresses

4 Mann, op. cit.
5 See "Definitional Aspects of the Money Supply," Eco
nomic Commentary, Federal Reserve Bank of Cleveland,
November 9, 1968.
(i U. S., Congress, House, Committee on Banking and Cur
rency, Compendium on Monetary Policy Guidelines and
Federal Reserve Structure, submitted to the Subcommittee
on Domestic Finance, 90th Cong., 2nd Sess., U. S. Govern
ment Printing Office (Washington, D.C.), December 1968.

C h a r t 3.

E C O N O M IC AC T IV IT Y and PUBLIC PO LIC Y
B illio n s o f c u rre n t d o lla r s
CHANGE

llllllll

P e rc

in G N P

_ C H A N G E in G N P

S E A S O N A L L Y A D JU S T ED |
Q U A R T ER L Y

PRIC E DE FL > U O R ^

( S E A S O N A L L Y A D JU S T E D
A N N U A L RATE
I
Q U A R T ER LY

B illio n s o f d o lla r s
+ 10 N E T C H A N 3 E

0
-

-10

in N I A
.

B U D G E T P O S IT IO N

SEAS ) N A L L Y A D JU S T E tT
Q U A R T ER L Y

— .............. __J

I N TE N T of M O N E T A R Y P O L IC Y

LiJJJJULJJLIJLLLl
Last entry:

3Q,

S o u r c e of d ata :

N o v e m b e r 1 96 8
B o a r d of G o v e r r

of the F e d e r a l Re

itself to the question of how various monetary
and financial m easures have perform ed in
the past few years as well as to the question
of whether perform ance has been consistent
with the expressed intent of monetary policy.
A s background, it should be helpful to
sketch major econom ic developm ents during
1965-1968. Since 1965, the escalated d e
fense effort in Vietnam has been the major
influence on the United States economy. The
top panel of Chart 3 shows that the economy
built up steam in 1965, largely as a result of
involvement in Vietnam. Quarterly chan ges
in GNP were large throughout 1966, and
credit dem ands soared. In early 1967, eco
nomic activity becam e quite subdued, due
in part to restraining actions taken in 1966
by the Federal Reserve System. But the virtual
leveling of GNP in the first quarter of 1967
was followed after midyear by a very sharp
recovery, and gain s in total output becam e
9

E C O N O M I C R E VIEW

excessive in the first half of 1968. After mid
year, GNP continued to increase at an ex
cessive rate, despite the program of fiscal
restraint that was introduced in July.
As shown in the second panel of Chart 3,
price pressures erupted in 1966 in response
to the econom y's surge in 1965, although
price increases slowed somewhat in early
1967 as GNP growth slackened. Since mid1967, prices again have risen at an excessive
rate, and inflation has become the most
serious econom ic problem facing the nation.
In this environment, fiscal policy, as m easured
by the n e t c h a n g e in the status of the national
income budget, was an important influence
on economic developments. As shown in the
third panel of Chart 3, the budget becam e
quite expansionary in 1965, shifting from a
move toward surplus to a change toward
deficit, as defense spending rose sharply.
The net shift between the first and third qu ar
ters of 1965 represented an im pact of about
$ 1 3 billion. In general, the fiscal position
tended to be expansionary until 1968, when
the combination of smaller increases in spen d
ing and higher tax receipts sharply reduced
the national income deficit. This was particu
larly true in the third quarter when the in
come tax surch arge took effect.
Throughout the 1965-1968 period, con
siderable attention was focused on the need
for an appropriate mix of monetary and fiscal
policy. Monetary policy is widely recognized
to be the more flexible of the two, in that mon
etary policy can adjust easily and quickly to
a changed economic situation or to a changed
em phasis on specific economic goals. In fact,
in the past few years, monetary policy was
forced to adjust more than usually to fiscal
10FRASER
Digitized for

policy and related developments. For ex
ample, the monetary authorities were con
strained in late 1967 and early 1968 by ex
pectations of C ongressional action on the
fiscal restraint program, which was repeat
edly delayed. In addition, monetary policy
was influenced on many occasions by the
need to ensure appropriate financial market
conditions for large-scale Treasury financing
operations.
During the 1965-1968 period, there were
a number of overt chan ges in monetary policy.
Monetary policy was intended to be firm
during most of 1965; in December, the dis
count rate was in creased from 4 percent to
percent and Regulation Q ceilings were
changed. In February 1966, the Federal
O pen Market Committee voted to tighten
policy even further in view of substantial
gains in GNP (due to in creased defense spen d
ing, capital investment, and an inventory
boom) that were leadin g to rising p ric es.7
The d egree of monetary restraint in creased
as the period progressed; in June and August,
reserve requirements against time deposits
were increased, and in July and Septem ber,
Regulation Q ceilings were again changed.
In Septem ber, member banks were requested
to moderate the rate of expansion of loans,
particularly business loans.
Restraint was ended in late 1966, when
the Federal Reserve System moved to accom
modate severe needs for liquidity and to
counteract a slackening in credit expansion

7 See the "Record of Policy Actions of the Federal Open
Market Committee" in the Annual Report of the Board of
Governors of the Federal Reserve System, 1966, pp. 127130.

JANUARY 1969

M O N ETARY PO LICY: INTENT AN D PERFORM AN CE
Intent of Monetary Policy
Firm

Restraint

Ease

Restraint

Firm

Subperiods
Feb. 1965Jan. 1966

Feb. 1966June 1966

July 1966Nov. 1966

Dec. 1966M ar. 19 6 7

Apr. 1967Nov. 19 67

Dec. 1 967Feb. 1968

M ar. 1968June 1968

July 1968Nov. 1968

Annual Rates of Change
(percent)
Total reserves

5.2 %

3.7 %

12.3 %

8.6 %

7.8 %

Nonborrowed reserves

4.8

1.5

0.1

18.1

9.1

4.2

— 3.3

9.8

Bank credit proxy*

8.6

6.3

— 0.5

12.1

10.8

6.0

2.0

12.6

— 2.4 %

0.6 %

7.4 %

M oney supply

5.0

3.6

— 0.5

5.2

6.6

3.7

7.6

5.9

Time deposits

13.9

9.3

3.2

17.1

14.0

7.0

4.8

17.0

verage Levels
Bank borrowings
(mil. of $)
Net reserve position
(mil. of $)

478
— 103

610
— 265

37 7

721
— 355

110

+ 251

279
+

698

— 349

514
— 224

U.S. Treasury bill ratef

4 .0 1 %

4 .5 9 %

5 .1 5 %

4 .6 2 %

4 .1 4 %

4 .9 7 %

5 .4 2 %

5 .2 8 %

Federal funds rate

4.11

4.76

5.45

4.94

3.95

4.59

5.70

5.88

* Excluding Eurodollars,
f Three-month bills.
Source: Board of Governors of the Federal Reserve System

and economic activity. O pen market opera
tions, on balance, becam e quite expansion
ary; reserve requirem ents on some time d e
posits were d ecreased in February 1967; and
the discount rate was reduced in April.
The policy of ease was maintained until
late November 1967, when the discount rate
was raised following the British devaluation.
By Decem ber, sharply rising prices and a re
surgence of the United States economy after
settlement of the auto strikes prompted a shift
in monetary policy back to firmness. In gen
eral, this policy stance was continued in the
first half of 1968. The discount rate was raised
in both M arch and April (reaching 5 ^ per
cent), and higher reserve requirem ents on
dem and deposits becam e effective in January.
A modification of policy toward less restraint

occurred in the middle of the year, when the
Federal O pen Market Committee decided to
a cco m m o d a te

th e

e a s ie r

c r e d it

c o n d it io n s

that had developed as a result of the enact
ment of the fiscal restraint program .
The basic policy periods of monetary policy
during 1965-1968 are shown graphically in
the bottom panel of Chart 3. The policy periods
are based on statements in the policy records
of the Federal O pen Market Committee,
which at this writing are published through
O ctober 8, 1968.
The actual perform ance of monetary policy,
in comparison with the intent of policy, should
be reflected in the behavior of major monetary
and financial variables. The accom panying
table shows nine m easures frequently used to
evaluate policy. These m easures reflect the
11

E C O N O M I C R E V IE W

position of com m ercial banks, the state of the
money market, and System influences on the
flow of money and credit. Noticeable varia
tions in the monetary and financial statistics
suggest that there were a number of su b
periods within the overall policy periods
specified during 1965-1968. The sub-periods
reflect either shadings in monetary policy
within the basic policy periods or the in creas
ing "g r ip " of policy as the intent of policy
materializes.
Thus, when additional monetary restraint
was imposed early in 1966, the rates of growth
of total bank reserves and nonborrowed re
serves slowed noticeably from the averages
of the 1965 policy period. In the second half
of 1966, however, total reserves showed an
absolute decline and nonborrowed reserves
were virtually unchanged, reflecting the in
creasing grip of restrictive monetary policy.
Similar patterns of restraint between February-June 1966 and July-November 1966 are
apparent for the bank credit proxy, the money
supply, and time deposits. At the sam e time,
member bank borrowings increased sharply
in 1966, as commercial banks cam e under
severe restraint. Net borrowed reserves d eep
ened throughout the period, and the Federal
funds rate rose in response to heavier bank

end of the period. Thus, the annual rate of
gain in nonborrowed reserves from April
through November 1967 was only half as
great as in the preceding four months; the
rate of gain in the bank credit proxy also
slowed modestly. However, the rate of ex
pansion of the money supply in creased slightly
as the period of ease lengthened. (This was
one of several occasions during 1965-1968
when the money supply behaved differently
from other financial indicators or from what
appeared to be the intent of policy.) Con
ditions in the money market also continued
to ease during the April-November 1967
policy period, as reflected in further declines
in short-term interest rates. In the second half
of 1967, commercial banks reported net free
reserves and nominal borrowings from the
Federal Reserve banks.
The data in the table su ggest that monetary
policy eased in early 1967 much more rapidly
than policy tightened in 1966. Several factors
may have been involved. For one, the mone
tary authorities may have intended to produce
a more substantial reaction starting in Decem
ber 1966. Second, it may be a fact of life that
it is easier to ease than it is to tighten. Finally,
financial markets may have anticipated to a

dem ands for such funds. Other money m ar
ket rates, represented in the table by the
three-month Treasury bill rate, also increased
in the face of large credit demands.
In the succeeding period of monetary ease,
which roughly covered the period from De
cem ber 1966 through November 1967, a
different pattern in the numbers is apparent
in the table: financial conditions first eased
abruptly, but the easing tailed off toward the

that occurred at the end of 1966 than the
tightening that occurred in early 1966.
In D ecem b er 1 9 6 7 , m on etary p o lic y
w as shifted back tow ard firm n ess in the

Digitized for12
FRASER

larger extent the easing in monetary policy

a b se n c e of C o n gressio n al tax action. With
an income tax surch arge proposed to C on
g r e s s in Ja n u a ry an d a g a in in A u g u st
1967, the Federal Reserve System stayed
its hand until late November in the hope
that the tax p r o p o sa l would b e a d o p te d

JANUARY 1969

quickly, even though the System was con
cerned that the economy was expanding too
rapidly.8 A grad ual turnaround in the mone
tary and financial m easures, as the table
shows, occurred in the early months of 1968.9
At the sam e time, the monetary authorities
accom odated an orderly adjustment to a twotier gold system, following massive specu
lation in gold and foreign exchange markets
in March.
By the second quarter of 1968, it becam e
apparent that firmer monetary policy was
beginning to bite. Nonborrowed reserves de
clined absolutely, and total reserves increased
only slightly. Member bank borrowings in
creased very sharply, on average, and com
mercial banks again experienced net bor
rowed reserves. Interest rates rose to record
levels during the second quarter, following
another increase in the discount rate in April.
But at the sam e time, the money supply in
creased at a rate twice as fast as in the pre
ceding three months, primarily becau se of a
substantial decline in Government dem and
deposits. Thus, any observer who concen
trates on the narrowly defined money supply
as the sole indicator of monetary policy would
h av e a m u ch d iffe re n t in te rp retatio n of
monetary policy in March-June 1968 than,
in fact, did the Federal Reserve System.
The last column shown in the table refers
to the sub-period from July through November
1968. All but two indicators su ggest a sub8 Annual Report, B o a rd of G o v ern o rs of the F e d e r a l
Reserve System, 1967, pp. 153-178.
9 Borrowed Eurodollars are not included in the bank credit
proxy shown in the table; the ad d itio n of Eurodollars
would substantially increase av erag e rates of growth
in 1968.

stantial easing in policy after midyear, where
as the policy record implies a modest modi
fication of the degree of monetary firmness.
The income tax surch arge was passed in
June, and key interest rates declined. The
"ea sin g tendencies in money market con
ditions" were acknow ledged by the Federal
Reserve System and were to be confirmed
(or ''accom m odated'') "in the period ah ead ”
by the m anager of the System O pen Market
Account.10 This directive was followed later
by a discount rate reduction of one-quarter
of 1 percent in A ugust (to a level of 534 Per_
cent).
During July-November, rates of growth in
bank reserves and the credit proxy were very
large, and the money supply in creased at a
rapid but somewhat reduced pace. If time d e
posits were added to the money supply, the
resulting rate of chan ge in the broadly d e
fined money supply would be the largest for
any of the sub-periods shown in the table.
Although member bank borrowings rem ained
high during July-November, the level of bor
rowings was down somewhat from the average
March-June level; net borrowed reserves also
becam e less deep. The Treasury bill rate de
clined slightly, on average, although it re
turned to historically high levels at the end of
November. The av erage level of the Federal
funds rate was somewhat higher than in the
preceding sub-period.
On balance, it could be said that the b e
havior of monetary and financial variables
during July-November 1968 was not entirely
consistent with the intent of monetary policy,
which was to be somewhat accommodative but
10 Federal Reserve Bulletin, October 1968, p. 859.

E C O N O M I C R E V IEW

was to remain generally firm—particularly if
bank credit growth significantly exceeded
expectations. In retrospect, the credit ex
pansion allowed by the Federal Reserve
System during the past summer was inap
propriate in view of the rapid expansion of
the economy and the rapid increases in prices.
As it turned out, the discount rate was in
creased again on D ecem ber 17. The increase
was motivated by "the resurgence in infla
tionary expectations that is im peding the res
toration of economic stability."11 The dis
count rate action was "taken in furtherance
of a policy of restrain t."12
The foregoing discussion indicates that
during 1965-1968 the performance of mone
tary policy tended to conform to the intent of
policy during broad policy periods, but that
perform ance frequently diverged from intent
during shorter run periods. The discussion
also indicates that the intent of monetary
policy is difficult to discern from an analysis
of the behavior of key financial and monetary
variables in the short run. Exam ples of shortrun divergences between intent and p er
formance are illustrated in Chart 4, where
the average rates of change in three major
monetary indicators and the average level of
the bill rate for each of the basic policy periods
are plotted as gray lines. The gray line
should be interpreted as follows: in the period
of restraint in 1966, the seasonally adjusted
annual rate of increase in the money supply
was about 1 1 percent, while the bill rate, on
average, was at a level of nearly 5 percent.
11 Press Release, B o a rd of G o v ern o rs of the Federal
Reserve System, December 17, 1968.
1- Ibid.

Digitized for14
FRASER

C h art 4

INTERPRETING M O N E T A R Y POLICY
P e rc

+ 20

M O N E Y SU PPLY

+10

0
+ 20 . C H A N G E in B A N K C R E D IT P R O X Y
+10

^ —V ’

-10
+ 30

+ 20

+ 10

0
-10
6

Last entry:

N o v e m b e r 1968

S o ur c e of data:

B o a r d of G o v e r n o r s of the F e de r al R e s er v e Sy st em

In general, over complete policy periods,
shifts in av erage rates of change in the var
ious reserve and monetary m easures and the
level of the bill rate are fairly consistent with
the intent of monetary policy. For exam ple,
during the 1966 period of restraint, rates of
change in the money supply, the credit proxy,
and nonborrowed reserves dropped notice
ably from the preceding policy period, while
the av erage bill rate was nearly 1 percentage
point higher. Such developments would be
expected under normal responses to ch an ges
in monetary policy. Similarly, the reserve and
monetary m easures shown in the chart ex
panded sharply during the 1967 period of
ease, while the bill rate declined slightly,
though not back to its 1965 level. This, too,
would be considered a normal response.
With the return of restraint in December
1967, reserve and credit growth was con
tained sharply; money market conditions

JANUARY 1969

tightened, with the average bill rate moving
to a new high level of 5.65 percent in May
1968. However, the rate of growth of the
money supply between December 1967 and
June 1968 was almost unchanged from the
preceding period of ease, which, it can be
argued, was not an expected response. Rapid
gains in reserve and credit m easures during
July-November 1968 stand out in Chart 4.
Growth in nonborrowed reserves surged
ahead, while the bank credit proxy increased
at a record rate. In contrast, the average in
crease in the money supply held fairly steady
(instead, time deposits shot up), and the bill
rate, on average, rose 5 basis points further.
When the monthly changes in, or levels of,
these m easures are also considered, it b e
comes apparent that there are serious dangers
in paying too much attention to short-term
changes in monetary and financial variables.
For exam ple, the sharp decline in Decem ber
1967 in nonborrowed reserves—a variable
over which the Federal Reserve System has a
considerable amount of control—would have
suggested severe monetary restraint. But su c
ceeding monthly rates of change in early
1968 did not support such an interpretation,
and instead indicated an easier policy stance
(see Chart 4).
Sizable divergences from the average b e
havior can usually be explained away, but
not always. For exam ple, in response to Trea
sury financing operations in January and
August 1968, the System supplied a sub
stantial volume of bank reserves. Following
the January experience, nonborrowed re
serves actually declined in March and April,
indicating that the System withdrew reserves
that had been used to support the Treasury

financing. In sharp contrast, the large volume
of nonborrowed reserves supplied to help
support the Treasury financing in August was
not re-absorbed. In fact, nonborrowed re
serves continued to increase until November,
when they declined moderately.

CONCLUDING COMMENTS
It is clear that the record of monetary policy
in the past four years is not flawless. In
part, this reflects the increased complexity
of domestic and international financial m ar
kets. In addition, seem ing inconsistency b e
tween the perform ance and intent of policy
may have reflected delayed and uneven re
sponses to chan ges in policy or, the in
consistency may simply reflect the difficulty
of m easuring the intent and behavior of
monetary policy.
The sometimes seem ingly perverse b e
havior of monetary and financial variables
may also be symptomatic of the difficulty ex
perienced by the Federal Reserve System in
attaining the entire set of financial and credit
market conditions included in near-term
policy objectives. In other words, monetary
policy may be overly concerned with achiev
ing too many things at on ce—a "sh otgu n "
approach that may contribute to wide sw ings
in the behavior of monetary and financial
variables within policy periods.13 The large
number of near-term objectives may also lead

13 In this regard, a number of economists feel that mone
tary policy should be concerned with a more limited set
of target variables, such a s reserve growth, money, or the
monetary b ase. See U. S., Congress, House, Committee on
Banking and Currency, op cit.

E C O N O M I C R E V IEW

to frequent fine-tuning. For exam ple, an un
w illingness or inability to allow wide fluctua
tions in interest rates and the net reserve
position of banks, when aiming for a given
rate of growth of bank credit, may involve
continuing adjustments in open market oper
ations that contribute to the perversity of the
behavior of monetary and financial variables.
Nevertheless, it is important to remember
that the environment in which monetary
policy had to function in the past few years
often added to the difficulty of designing

16FRASER
Digitized for

appropriate monetary policy. As a case in
point, monetary policy had to be concerned
with complications resulting from delay in the
enactment of n eeded fiscal restraint and from
frequent international financial crises. The
Federal Reserve System cannot be impervious
to these kinds of complications, even though
they make the job much harder. In any event,
it would seem that a major advantage of d is
cretionary policy is being able to adjust to
disruptions in an increasingly com plicated
economic and financial world.

JANUARY 1969

CORPORATE MERGER ACTIVITY
IN SELECTED FOURTH
DISTRICT CITIES, 1950-1967

Business m ergers have an important influ
ence not only on the structure of an industry,
but also on the organizational structure of
firms that are m erged. Frequently, the result
ing firm is decentralized so that, while a c
quired firms may remain in the original head
quarters location, the basic decision-making
authority of the acquired firm is considerably
reduced or circum scribed, at least to the ex
tent that control over assets, sales, and pro
ductive capacity is transferred to the acquiring
firm. In this regard, the implications for the
economic well-being of a community are per
haps even greater when the acquired firm is
fully consolidated with the acquiring firm,
since the consolidation may involve physical
relocation of the acquired firm's headquarters
to another city. It is therefore not surprising

that community leaders are seriously con
cerned about the implications of losses of
corporate headquarters as a by-product of
intensified corporate m erger activity.
An earlier article in E c o n o m ic Review dis
cussed corporate m erger activity in the Fourth
Federal Reserve District during the 19501967 period.1 This article reviews highlights
of such activity in Cleveland, Pittsburgh, and
Cincinnati—the three largest cities in the
District. Not surprisingly, the three cities
accounted for the bulk of m erger activity
within the District during 1950-1967.

1 "Corporate Merger Activity in the Fourth Federal Re
serve District, 1950-1967," Economic Review, Federal
Reserve Bank of Cleveland, Cleveland, Ohio (October
1968), pp. 3-10.

E C O N O M I C R E VIEW
TABLE I
A cquisitions Involving Firms in C le v elan d ,
Pittsburgh, and Cincinnati
1 9 5 0 -1 9 6 7
Firms Headquartered Inside
Cleveland

Pittsburgh

Cincinnati

Firms Acquired Inside City

-0 -

-o -

Manufacturing and mining

386

262

All other

103

489

300

130

530

313

132

Manufacturing and mining
All other
Total
Firms Acquired Outside City

Total
Total acquisitions by firms
based in respective cities

Firms Headquartered Outside
Cleveland

Pittsburgh

Cincinnati

Firms Acquired Inside City
Manufacturing and mining
All other
Total
Net difference between
acquisitions outside city by
firms based in respective
city and acquisitions in
respective city by firms
based outside

123

72
1

132

357

233

Sources: Federal Trade Commission and Federal Reserve Bank of
Cleveland

NUMBER OF ACQUISITIONS
The data in Table I provide background on
the pattern of acquisitions in Cleveland, Pitts
burgh, and Cincinnati. As the data show,
C leveland had by far the greatest amount of
m erger activity during 1950-1967. The data
also show that the highest proportion of acqu i
sitions m ade by firms headquartered in each
of the three cities involved manufacturing
firms, reflecting the importance of industrial
activity in the city. Moreover, the highest
proportion of acquisitions m ade by firms
Digitized for18
FRASER

b ased in each of the cities involved firms
located outside the respective city. Business
firms headquartered outside the three cities
also concentrated acquisitions among m anu
facturing firms.
Perhaps the most important point indicated
by the data in Table I is that the num ber of
acquisitions by firms b ased inside each of the
three cities sharply exceeded the number of
firms acquired by outside firms. During 19501967, Cleveland-based firms acquired 489
firms headquartered outside Cleveland. In
contrast, 132 Cleveland-based firms were
acquired by firms based outside of Cleveland.
As a result, Cleveland-based firms acquired
357 more firms from outside the city than the
city "lo st" to outside companies. Interestingly,
the number of Cleveland -based firms a c
quired by firms headquartered outside of the
city was nearly equal to the number in the
other two cities combined. During the sam e
period, acquisitions by Pittsburgh- and C in
cinnati-based firms also sharply exceeded the
number of locally b ased com panies that were
acquired by outside companies. The relative
showing of Cincinnati, however, was not as
favorable as that of the other two cities.
Although each of the three cities showed a
net gain in the number of acquisitions, it does
not necessarily follow that there was a similar
addition to the number of headquarters-based
firms. In fact, only a few of the acquisitions
involved relocation of headquarters to the city
of the acquiring firm. On the other hand, each
city lost headquarters-based firms as a result
of acquisitions m ade by firms located in other
cities. Although other factors are obviously
important, for exam ple, insufficient sales vol
ume to be included in the listing, an im pres

JANUARY 1969

sion of the im pact of merger activity on h ead
quarters located in the three cities under
review can be glean ed from data on the
nation's largest firms, as shown below:
Num ber of Firm s H eadquartered
in Selected Fourth District C ities*
Industrial

Merchandising

Transportation

Tota

Cleveland
1955

-0 -

1960

-0 -

1965

-0 -

1966

1967

1955

-0 -

1960

-0 -

1965

-0 -

1966

-0 -

1967

-0 -

Pittsburgh

Cincinnati
1955

-0 -

1960

-0 -

1965

-0 -

1966

-0 -

1967

-0 -

* Based on 50 0 largest industrial firms (manufacturing and mining)
in United States, 50 largest merchandising firms, and 50 largest
transportation firms. Except for transportation firms, d ata are
based on sales volume; for transportation firms, the d ata are
based on operating revenues.
Source: Fortun e D ire cto rie s

ACQUISITIONS A N D ASSETS
Although all three cities registered a net
gain in the number of acquisitions, a slightly
different picture of merger activity in the
three cities is apparent when asset size is
considered. Based on acquired firms with
assets of $10 million or more, outside acqu i
sitions by Cleveland-based firms represented
more than twice the number and more than
three times the asset value of local firms that
were acquired by businesses outside of C leve

land (see Table II). That is to say, during
1950-1967, Cleveland experienced a sizable
net gain in both number of acquisitions and
asset value. In fact, of the 45 outside firms
acquired by Cleveland-based com panies, six
had assets of $ 1 0 0 million and over. In con
trast, only one Cleveland-based firm acquired
by an outside company had assets of more
than $ 100 million at the time of acquisition.
As suggested in Table II, the average asset
value of firms acquired by Cleveland-based
firms was somewhat larger than that of C leve
land firms acquired by outside com panies.
Although the number of acquisitions by
Pittsburgh-based firms was nearly twice the
number of local firms acquired by outside
companies, the net gain in asset value to
Pittsburgh was nominal (see Table II). That
development reflects the fact that three major
Pittsburgh-based firms with assets of $ 100
million or more were acquired by firms based
outside of the city, while Pittsburgh-based
firms acquired three outside firms with assets
of $ 100 million and over. If the asset value of
firms with assets of $ 1 0 0 million or over is
excluded from the data, the av erage asset
size of outside firms acquired by Pittsburghbased firms was slightly larger than that of
local firms acquired by outside com panies.
Acquisitions by Cincinnati-based firms
were larger in terms of number and asset
value than the corresponding figures of local
companies acquired by outside firms. In fact,
Cincinnati clearly fared better than Pittsburgh
with regard to asset value gained (see Table II).

ASSET SIZE OF ACQ UIRING FIRMS
Distribution of m ergers by asset size of
acquiring firms in each of the selected Fourth
19

E C O N O M I C R E V IE W

District cities shows a number of contrasting
patterns. As shown in Table III, the largest
proportion of acquisitions by Cleveland-based
firms during 1950-1967 was in the $10 to
$ 5 0 million asset size class (44 percent), a
proportion considerably larger than in the
nation as a whole (32 percent) during a simi
lar time period. On the other hand, the largest
proportion of acquisitions by firms based in
Pittsburgh was in the $100 million and over
size class (50 percent), a proportion more
than twice as large as in the United States
(23 percent). In fact, more than two-thirds of
the acquisitions by Pittsburgh-based firms
during 1950-1967 were made by firms with
assets of $ 5 0 million and over.
The high proportion of m ergers by firms
with assets of $ 5 0 million and over is not sur
prising in view of Pittsburgh's high rank
among leading cities in the number of major
firms. Another factor accounting for Pitts
burgh's high proportion of acquisitions in the
$ 1 0 0 million and over asset size class is that,
am ong the three cities, Pittsburgh showed, on
average, the largest number of acquisitions
per firm. During 1950-1967, the bulk of acqu i
sitions in $ 1 0 0 million and over asset size
class was m ade by relatively few Pittsburgh
firms.
In sharp contrast to Pittsburgh (as well as
to the nation), the most acquisition-minded
firms in Cincinnati had assets of less than $50
million. In fact, firms in the under $10 mil
lion and $ 1 0 to $ 5 0 million asset size classes
accounted for 73 percent of acquisitions by
Cincinnati-based firms during 1950-1967. In
view of the small number of national firms
headquartered in Cincinnati, there were rel
atively few acquisitions by firms in the $100
0
Digitized for2 FRASER

million and over asset size class in com pari
son with Cleveland and Pittsburgh.

ASSET SIZE OF ACQUIRED FIRMS
Although asset data on acquired firms are
fragmentary on both the national and regional
levels, sufficient information is available to
allow some com parisons between m erger
activity in the Fourth District and in C leve
land, Pittsburgh, and Cincinnati.2 During
1950-1967, the most notable difference b e
tween m erger activity in the Fourth District
and in the three cities was apparent in m erg
ers involving acquired firms with assets
below $50 million. As shown in Table IV,
where assets are known, three-fifths of a c
quired firms in the Fourth District had assets
under $ 1 0 million and more than one-fourth
had assets of $10 to $50 million. The pattern
in Cleveland was identical to that for the Dis
trict; on the other hand, in Pittsburgh and
Cincinnati, the pattern was only slightly dif
ferent from C leveland and the Fourth Dis
trict with the relevant proportions about the
same for the two cities (see Table IV).

INDUSTRIES OF ACQUIRING FIRMS
Not surprisingly, com panies in the Fourth
District most active in acquiring other firms
during 1950-1967 are situated in industries
that are the most important in the industrial
life of the region. For exam ple, within the
District as a whole, the seven industries with
firms most active in acquisitions are the sam e
2 A sset d ata are not av ailab le for about three-fourths of
the acquired firms in the Fourth District and in the three
cities under review.

T ABLE II
A c q u isitio n s o f Firm s W ith A sse ts o f $10 M illio n a n d O v e r
C le v e la n d , P ittsb u rgh, a n d C in c in n ati
1950-1967
Acquired b y
Firms Inside

Acq uired b y
Firms O utside

N um b e r

Assets
(mil. o f $)

C le v e l a n d ..........................

$ 2 ,0 0 3

P it t s b u r g h ..........................

1 ,1 3 3

C in c in n a t i..........................

461

196

C ity

Assets
(mil. o f $)

N um b e r

N um ber

Assets
(mil. o f $)

590

$ 1 ,4 1 3

1 ,0 53

265

Sources: Federal T rad e Commission and Federal Reserve Bank of C leveland

TABLE III
D istrib u tion of M e rg e r s b y A sse t Size of A c q u irin g Firm s*
United States (1955-1967) a n d C le ve la n d , Pittsburgh, a n d C in cin n ati (1950-19 67)
United States
19 5 5 - 1 9 6 7
Asset Size
(mil. of $)

N um ber

C leveland
1950- 1 9 6 7

Percent

Pittsburgh
1 9 5 0 -1 9 6 7

Percent

N um ber

Num ber

Under $ 1 0 ......................

. . . .

2 ,7 6 4

25%

$ 1 0 to $ 5 0 ..................

. . . .

3 ,5 7 9

$ 5 0 to $ 1 0 0 ..................

. . . .

1,278

$1 0 0 and o v e r ...............

. . . .

2 ,5 4 9

. . . .

1,0 6 0

. . . .

1 1 ,2 3 0

Total ..........................

90
21 1

100%

476

Percent

N um ber

Percent

33%

147

19%

100%

Cincinnati
1950- 1 9 6 7

295

110

100%

* Includes only manufacturing and mining.
Sources: Federal Trade Commission and Federal Reserve Bank of C leveland

TABLE IV
D istrib u tion of M e rg e r s b y A sse t Size of A cq u ire d Firm s
Fourth District a n d C le v e la n d , Pittsburgh, a n d C in cin n ati
1950-1967
Fourth District

C leveland

Asset Size
(mil. o f $)

N um ber

Including
Unknown
Class

Under $ 1 0

209

16%

Pittsburgh

Percent

Percent
Excluding
Unknown
Class

Cincinnati

Percent

Num ber

Including
Unknown
Class

Excluding
Unknown
Class

Percent

Num ber

Including
Unknown
C lass

Excluding
Unknown
Class
55%

Num ber

Including
Unknown
Class

Excluding
Unknown
C lass

13%

54%

61%

17%

62%

13%

$ 1 0 to $ 2 5

$ 2 5 to $ 5 0

$ 5 0 to $ 1 0 0

$ 1 0 0 to $ 2 5 0

$ 2 5 0 and over
Unknown
Total

8
—

—

931

—

307

—

208

—

100%

425

100%

275

100%

1 ,2 76

100%

N OTE: Defails m ay not a d d to totals because o f rounding.
Sources: Federal Trade Commission and Federal Reserve Bank o f C leveland

—

E C O N O M I C R E V IE W

industries that provide the bulk of employ
ment within the District. The situation appears
to be generally similar in each of the major
cities under review. Where there are differ
ences, they are due largely to the particular
industry mix in the individual cities. For ex
ample, firms in the nonelectrical machinery,
electrical machinery, chemicals, food, and
tra n sp o rta tio n eq u ipm en t in d u strie s a c
counted for the largest number of acquisitions
in the United States during 1950-1967. Ex
cept for food, those industries also accounted
for the bulk of acquisitions by firms in C leve
land, but were of less importance in both
Pittsburgh and Cincinnati.
The chart shows the distribution of m ergers
by industry for each of the selected cities
under review during 1950-1967. (The left
scale shows the major industry of the firms
most active in m ergers in that city, with in
dustries identified in descending order of
importance. The horizontal bars show the
industries of the acquired firms, which are
also listed in descending order of importance.)
During 1950-1967, firms in nonelectrical
m achinery, transportation equipment, elec
trical machinery, chemicals, and fabricated
metals accounted for about four-fifths of the
acquisitions by Cleveland-based firms. In
Pittsburgh, firms in primary metals, chem icals,
fabricated metals, nonelectrical machinery,
and professional and scientific industries
accounted for nearly three-fourths of the
acquisitions m ade by firms in that city. In
Cincinnati, firms in the chemicals, printing and
publishing, leather, nonelectrical machinery,
and lum ber industries accounted for more
than four-fifths of the acquisitions m ade by
firms b ased in the city.
Digitized for22
FRASER

The distribution of m ergers by industry of
acquiring firms in each of the three cities
generally corresponded to the distribution of
employment in each city. However; there
were important exceptions. For exam ple,
although the chem ical industry in Cleveland
ranked am ong the top five industries in acqu i
sitions, it is not as important in terms of its
contribution to manufacturing employment.
O n the other hand, although the primary
metals industry was not am ong the leaders in
acquisitions, it ranks am ong the top five in
dustries in terms of m anufacturing employ
ment. In Pittsburgh, the chem ical industry
ranked second in the number of acquisitions,
but accounts for a relatively small proportion
of m anufacturing employment. The largest
divergence between acquisitions and indus
trial composition is in Cincinnati, where two
of the five most active acquiring industries
(leather and lumber) are not am ong the top
manufacturing industries in that city in terms
of employment. In part, industry differences
between the number of acquisitions and em
ployment patterns in a city are due to the
fact that important operations or subsidiaries
of large firms, while frequently major em
ployers in a city, make no decisions with
respect to acquisitions of the parent company.
As shown in the chart, there is a close a s
sociation between the industries of acquiring
and acquired firms. During 1950-1967, a c
quiring firms in each industry tended to con
centrate acquisitions in lines that were the
sam e as or complementary to existing primary
products. O ne exception is in Cleveland,
where firms in the nonelectrical m achinery
industry represented the largest proportion
of firms acquired by firms in the transportation

JANUARY 1969

PE RC ENT D I S T R I B U T I O N of M E R G E R S by I N D U S T R Y
S e le c te d

F o u rth D is tr ic t C it ie s —

1 9 5 0 -1 9 6 7
Industry o f a c q u ir e d

I n d u s t r y of a c q u i r i n g

firms

CLEVELAND
M a c h in e r y , e x c e p t e le c t r ic a l ( 2 2 % )
T r a n s p o r t a t io n

e q u ip m e n t (1 9 % )

E le c t r ic a l m a c h in e r y (1 4 % )
C h e m ic a ls a n d
F a b r ic a t e d

a llie d

p r o d u c t s (1 3 % )

m e t a l p r o d u c t s (1 1 % )

P IT T S B U R G H
P r im a r y m e ta l in d u s t r ie s
C h e m ic a ls a n d

a llie d

(3 2 % )

p ro d u c ts (16 % )

F a b r ic a t e d

m e ta l p r o d u c t s (9 % )

M a c h in e r y ,

e x c e p t e le c t r ic a l (7 % )

In s t r u m e n t s a n d

r e la t e d

p ro d u c t s (7% )

C IN C IN N A T I
C h e m ic a ls
P r in t in g

and

L e a th e r a n d

a llie d

p ro d u c ts (3 2 % )

p u b lis h in g

(1 7 % )

le a t h e r p r o d u c t s (1 4 % )

M a c h in e r y , e x c e p t e le c t r ic a l (1 3 % )
Lum ber

and

£ 3

Machinery,

f l i

Electrical

w ood

p ro d u c ts (8 % )

except electrical

Food
1

machi nery

B W Tr ans port at i on equi pment
(— —1 O t h e r
( L . l F a b r i c a t e d me t a l p r o d u c t s

L lJ

HHi

1—

Chemicals

NOTE:

Data

and

allied

products

and

P ri mary
Stone,

kindred
me t a l

clay,

products
products

j——
Pet r ol eum and related i ndustri es
illllU L u m b e r a n d w o o d p r o d u c t s
1 Rubber

and

PV.-..1

Instruments and related
Pr i nt i ng and p ub l i s hi n g

t—

Paper

industries

and gl ass

products

and allied pr oducts

L— | T e x t i l e mi l l p r o d u c t s
I— I L e a t h e r a n d l e a t h e r p r o d u c t s

plastic products

i n p a r e n t h e s e s a r e p e r c e n t of t o t a l a c q u i s i t i o n s a c c o u n t e d f o r b y e a c h i n d u s t r y .

S o u r c e s of dat a:

Federal Trade C om mission and

F e d e r a l R e s e r v e B a n k of C l e v e l a n d

equipment industry. However, the exception
is partly explained by the large number of
acquisitions by one firm in the transportation
equipment industry in Cleveland (the firm
acquired several electronics producers). In
Cleveland, from as few as 29 percent (non
electrical machinery) to as many as 56 per
cent (chemicals) of the firms acquired were
in the sam e industry as that of the acquiring

from 25 percent (chemicals) to 75 percent
(nonelectrical machinery); and in Cincinnati,
from 38 percent (chemicals) to 100 percent
(leather). Finally, as the chart indicates, firms
in durable goods production tended to con

firms; in Pittsburgh, the relevant range was

to be more diversified in their acquisitions.

centrate acquisitions among other durable
goods producers. On the other hand, firms
in a number of nondurable goods industries
(for example, the chem icals industry) tended

Fourth Federal Reserve District