Full text of Economic Review (Federal Reserve Bank of San Francisco) : June 1953

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MONTHLY REVIEW
TWELFTH

FEDERAL

RESERVE

DISTRICT

Fe d e r a l R e s e r v e B a n k

JU N E 1953

of

S a n Fr a n c i s c o

REVIEW OF BUSINESS CONDITIONS
record rate of business and industrial activity
established in the latter half of last year and the first
quarter of the current year extended into April and May.
Most national indicators of economic activity have re­
mained at or near their first quarter highs after allow­
ance for seasonal trends. The Federal Reserve index of
industrial production stood at 241 percent of the 193539 average in both April and May, off only two points
from the postwar high reached in March. In the durable
goods industries, continued expansion in automobile pro­
duction and sustained output of industrial and defense
equipment offset a moderate reduction in the rate of
activity in the major field of household durables. Output
of nondurables was generally maintained at a level slight­
ly below the record March rate.

T

h e

Consumers increase their rate of spending

Significantly, the record outpouring of goods from the
nation’s expanded industrial plant has been largely taken
off the market by ultimate users. The high volume of
purchases by the various segments of the economy has
prevented any widespread backing up of goods in dis­
tributive or manufacturing channels, although inventory
holdings, which have come in for considerable scrutiny
recently, increased rather sharply in April. It appears on
the basis of incomplete data that there was some further
growth in May. In general, however, inventories of busi­
ness firms remain in a favorable relationship to the volume
of current sales, and stock-sales ratios in some lines actu­
ally declined during the first quarter. Business demand
for durable producers goods continues at the very high
rate evident in the earlier months of the year. On a season­
ally adjusted basis consumer purchases at retail, after a
moderate decline in April advanced in May to a level ap­
proximating the high volume at the close of last year.
Federal Government purchases increased appreciably in
the second quarter for the first time in a year. Such out­
lays have been a major supporting element in the mainte­
nance of a high level of production, especially in the dur­
able goods sector.
The strong character of consumer demand reflects con­
tinued growth in disposable personal income and a mod­
erate rise in the proportion of their income spent by con­
sumers. In addition, consumers have continued to expand




their short-term debt at nearly the same high rate as in
the last eight months of 1952. If the proportion of current
income spent by consumers should continue to rise, this
would tend to offset any deflationary tendencies arising
from possible declines in Government or business spend­
ing.
On the surface, developments during the first five
months of this year seem to indicate that the current in­
ventory situation contains little danger. Present ratios
between stocks and sales are generally not out of line
with those typical of various lines of activity. In absolute
terms, however, inventories are at or near an all-time
record, as is economic activity in general. It should also
be pointed out that much of the inventory accumulation
so far this year has been concentrated in automobiles and
other durable goods, including a substantial increase in
building materials at the retail level. In each of these areas
demand is no longer so intense that a rising level of out­
put can be maintained with certainty, as was the case in
earlier postwar years. Should consumer preference shift
rapidly among different types of goods or should sales
decline generally, the current level of inventories could
quickly become burdensome, particularly in those lines
suffering most from changes in spending.
Dem and for credit faces tight money market

Interest rates have continued to rise as a heavy demand
for funds for this time of year by the Treasury coincided
with a sustained high demand for business, commercial,
and real estate loans. Total loans of weekly reporting
member banks increased some $550 million from January
1 through the week ended June 17, a marked contrast to
the gain of only $125 million in the same period a year
earlier. Contributing to this increase were a continued
growth in loans to consumers for the purchase of automo-

Also in This Issue

Surplus Control and Agricultural
Price P olicy............................

.

75

Pacific Coast Industrial
Expansion— 1947-1951

.

82

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.

.

74

FEDERAL RESERVE B A N K OF SA N FRANCISCO

biles and houses and a less than seasonal contraction in
business loans. Some easing of the money market started
in the latter half of May as a result of Treasury operations
and Reserve System purchases of Treasury bills. On June
24, the Board of Governors of the Federal Reserve Sys­
tem announced that member bank reserve requirements
would be reduced effective in early July in anticipation of
expanding seasonal credit requirements of the economy
coupled with a large volume of Treasury financing.
Prices generally stable

The over-all level of commodity prices remained vir­
tually unchanged from March to June, as an adequate
supply of goods was available to meet the rise in spending.
Prices of farm products continued to slip, and in June
were not quite 10 percent below their level a year ago.
Cattle prices, after having firmed considerably in May,
fell off again in June when feeder cattle prices dropped
30 percent. Wholesale food prices advanced less only
fractionally from March to June while nonfarm com­
modities remained generally stable.
District business activity moves up despite
weakness in particular segments

The level of total business activity in the Twelfth Dis­
trict, as reflected in the number of persons engaged in
nonfarm activity, continued to rise in April and the move­
ment carried into May. Rising seasonal activity in outdoor
and food processing lines contributed to the upswing.
These gains were smaller than usual in April and May
because weather in the first quarter had permitted an
early expansion in some seasonal lines. Further over-all
gains are expected in the food processing and some other
industries since peak rates of production will not be
reached until later in the year.
Aside from typical seasonal advances, high and rising
employment has characterized most District industries
in recent months. Output of durable product lines in­
creased further in April and May reflecting underlying
strength in the demand for District products. District
automobile assembly, largely concentrated in California,
has expanded rapidly so far this year. Automobile as­
sembly plants employed 32,000 workers in April, 41 per­
cent more than a year ago. Other major durable goods
industries, particularly machinery, electronic equipment,
instruments, and fabricated metal products, are continu­
ing to advance, although the pace is slower than in either
1951 or 1952. Growth in the electronics and instrument
fields reduces the need for purchase of these items from
areas outside the District. At present, the aircraft indus­
try and other defense producers absorb most of the Dis­
trict’s output of electronic devices.
W eak spots appear in some District defense
and related industries

Although most District industries have exhibited
over-all strength, some weak spots have developed re­
cently in particular industries and areas of the District.
Most significant, perhaps, has been the general decline in




June 1953

the level of employment in defense and related activities.
Aircraft producers in April trimmed their workforce for
the first time since the outbreak of the war in Korea. In
conjunction with what is known of defense production
plans, this small decline would seem to indicate that the
industry has about completed its expansion plans, and
any further gains will be relatively minor. The buildup
in aircraft production has been a major expansionary
force in the District since June 1950.
Government employment has also receded from the
peak reached in the closing months of 1952. The elimina­
tion of several special agencies administering the stabili­
zation program, layoffs in some regular agencies, and job
reductions at military and naval establishments have con­
tributed to a slower tempo of government activity in the
District.
Efforts to restrain if not reduce Government spending
have resulted in a slowing up of construction for the Fed­
eral Government. This development results from the re­
view program announced last February which suspended
starts of new Federal construction projects pending de­
termination of the present need for various facilities. How
much of the current cutback in this type of Federal activ­
ity is only a postponement of these projects and how much
represents a permanent reduction is not clear. However,
this slowdown, combined with the completion of construc­
tion contracts let much earlier in the defense build-up pro­
gram, will mean a slower rate of activity in the near future.
Additional weaknesses in the economic situation in the
District have appeared in recent months or have contin­
ued from earlier periods. In Oregon and to a lesser extent
in Washington, April employment in lumber and logging
operations was running somewhat below the same month
last year despite a generally high level of lumber output.
Pulp and paper mills, some of which halted operations at
least temporarily in April, have faced slower markets and
have reverted to a shorter work week. District metal
mines are also operating at a somewhat slower pace. The
slump in lead and zinc prices that took place during 1952
has tended to curtail some mining operations. This has
been offset to a degree by the favorable market position
of copper. The rise in copper prices since the end of price
control has induced greater activity in some mines, par­
ticularly in Utah and Arizona.
District construction authorizations maintain rapid pace

The value of new construction authorizations in the
Twelfth District for the first four months of the current
year reached a new record for this period of the year.
Total building authorized in all urban areas of the Dis­
trict through April of this year approached $650 million
compared with $475 million in the same period last year,
a gain of about 35 percent. The largest relative gains oc­
curred in nonresidential building, for which the value of
some types of construction was more than double the
amount authorized during the same period last year. Resi­
dential construction, accounting for about 60 percent of
total building, also rose to record levels for this period

M O N T H L Y REVIEW

June 1953

of the year, both in terms of value and in the number of
dwelling units authorized.
Nonresidential construction authorizations in the first
four months of the year totaled more than $190 million,
up 60 percent from the same period a year ago. This large
increase reflected primarily a sharp rise in projects under­
taken by state and local governmental units and a signifi­
cant gain in commercial building. In the residential field,
a number of factors have operated to bring building au­
thorizations to a new high in the first four months of the
year. Population has continued to expand rapidly in the
District, and record levels of employment have served to
keep incomes growing. Both factors have contributed to
a continued active demand for new housing facilities.
Lumber production high despite uncertainty
and market weakness
District lumber producers, spurred by a high level of
construction activity nationally and mild and open winter
weather, have increased production of lumber to a level
substantially ahead of a year ago. Production in the West­
ern pine region in the first four months of the year was
up more than 20 percent over the comparable period in
1952, redwood production expanded about 9 percent, and
in the Douglas fir region output increased 6 percent. New
orders received were also above a year ago during this
same period in all three regions and exceeded production
by a fair margin in both the Douglas fir and redwood
regions. In the Western pine region the increase in pro­
duction was almost twice the rise in new orders. Ship­
ments generally have risen in line with production. The

75

higher levels of mill inventories represent an accumula­
tion that took place in the latter half of 1952. Lumber
distributors trimmed their inventories and adopted a
hand-to-mouth buying policy after mid-1952 with some
resulting accumulation of stocks at the mills in the pro­
ducing regions of the District. At the end of April, as com­
pared with a year ago, stocks on hand were up 13 percent
in Douglas fir, 9 percent in redwood, and 7 percent in
Western pine. Although the level of inventories this year
has dampened somewhat the industry's enthusiasm, in­
ventories generally are lower than in some earlier post­
war years and are substantially below levels typical of the
pre-World W ar II period.
Prices have remained relatively firm for most District
lumber products and are generally above last year at this
time. However, price weakness for Douglas fir, the major
products of the District lumber industry, has been evident
since last September and October. The price of No. 1
common 2 x 4’s slipped almost 4 percent from September
to April of this year. This price weakness reflects the high
level of production, the somewhat higher level of stocks
than last year, and added competition from Canadian
Douglas fir producers. Canadian producers have in­
creased their shipments to eastern United States markets
following the loss of markets for their lumber in the
United Kingdom because of the continuing dollar short­
age. Although these shipments have been small compared
with total Douglas fir production in the United States,
they have added to a market already well supplied.
Douglas fir prices firmed in the latter half of May, how­
ever, as seasonal buying picked up in Eastern markets.

SURPLUS CONTROL AN D AGRICULTURAL PRICE POLICY
will happen to the market for farm products in
the years ahead and how to dispose of agricultural
“ surpluses” accumulated or threatened are two of the
most important problems facing American agriculture.1
Surplus stocks of cotton, wheat, corn, dairy products, and
beef exist, and supplies of other commodities are piling
up. Serious lack of storage facilities for corn and wheat
is developing. Investments in agricultural commodities
by the Commodity Credit Corporation, the Government
agency charged with carrying out agricultural price-sup­
porting activities, climbed to $3.8 billion on May 31,
1953 from $1.5 billion a year earlier. Furthermore, with
continued high level production of cotton, wheat, and
corn in prospect, additional investment by the Commodity
Credit Corporation to a total outstanding of perhaps $4.5
billion by June 1954 has been forecast. In terms of dollars
this would exceed the level of all previous CCC support
price activity.
Domestic demand for the products of agriculture is
generally considered good. Foreign demand for many

W

h a t

* A realistic definition of “ surplus” must include some reference, implied or
otherwise, to the price of the commodity. A surplus is often defined as
that quantity of a commodity which cannot be sold at “ fair” and “ reason­
able” prices. The United States Department of Agriculture has not defined
a surplus as such, but a definition is implied in the concept of “ parity.”
A n y quantities which cannot be sold at parity prices or at specified percentages of parity prices have been considered in surplus.




domestically produced farm crops is, however, much
below the levels of recent years. These reductions abroad
in demand for United States products reflect much im­
proved foreign supply situations, greater use of accumu­
lated stocks, less United States economic aid, and tighter
import controls in foreign countries. Also, larger quan­
tities of competing commodities are available and at more
attractive prices.
Problems of agricultural surpluses are not new. They
have plagued American farmers for at least 30 years, and
over this period many different control devices have been
employed. Results of these schemes are controversial and
questionable, but it is generally agreed that the droughts
of 1934 and 1936, W orld W ar II, and the Korean con­
flict materially simplified the problems of surplus disposal
and contributed to successes claimed by advocates of
Government price support to agriculture.
United States agricultural policy is being questioned
These various considerations are focusing attention
upon announced policies of the Federal Government to­
ward agriculture. Several questions, such as those which
follow, are being brought to the foreground. Are price and
income problems arising from agricultural surpluses short
run and temporary in nature or must farmers of the

76

FEDERAL RESERVE B A N K OF S A N F R A N C ISC O

United States expect to continue facing these problems
over a long period ? In the face of falling prices and in­
comes in agriculture, should support price activities be
intensified and increased or should there be shifts to­
ward freer operation of market pricing forces? If sup­
port price operations are to be continued, will it be pos­
sible to establish support prices at levels which will not
encourage production in excess of all reqi?rrements ? If
farm prices continue to be supported as at present and
if conditions of surplus persist and grow, will not prob­
lems of storage, spoilage, and Governmentally-financed
loss assume major proportions in the absence of wide­
spread drought or war? Do there exist more effective
and heretofore unexplored means of solving problems
of surplus production? These questions are concerned
with the future and no attempt will be made here to pro­
vide definitive answers. Before attempting to look ahead,
however, it may be wise for agriculture to ask questions
concerned with the past, to analyze its present position,
and to review the course by which it has arrived at that
position.
Ma/or ob¡ect¡ves of United States agricultural policy
An appropriate question is “ What have been the major
objectives of United States agricultural policy ?” Since
1920, nearly every major agricultural program or policy,
proposed or placed in effect, was designed to achieve one
or more of three major objectives.
One of the major objectives sought by agricultural
policy makers has stemmed from a desire to provide
farmers of the nation with certain minimum safeguards
in the event of general or localized conditions of agricul­
tural emergency or of economic depression. Even indi­
viduals who are staunchly opposed to artificial support of
agricultural prices during periods of business prosperity
recognize that agricultural production is subject to the
ravages of weather, insect damage, and other forces of
nature. They admit the occurrence of localized conditions
of disaster such as exist at present in the drought of Texas
and other parts of the Southwest and believe that funds
and facilities should be available for relief in these circum­
stances. Also, it is recognized that during periods of busi­
ness recession agriculture, like most of the economy, is
seriously affected. In depression, farm prices fall rapidly
while costs of production remain relatively high. Some
advocates of depression relief and aid to agriculture be­
lieve it is morally improper to allow farmers to suffer
severely from conditions brought on by economic forces
over which they had no control. Others support this
policy because they desire to maintain the Jeffersonian
ideal of an agriculture of small family farms. These indi­
viduals fear the accumulation of small farms by large
farming interests during periods of economic adversity.
Another major objective of some farmers and agricul­
tural policy-makers has been the establishment of condi­
tions of “ orderly marketing” and the close correlation of
production and available supply with the existing demand.




June 1953

It is often contended among agriculturalists that “ bottle­
necks” in the marketing machinery and disorderly, dis­
organized marketing of farm products are principal
sources of price and income disparity in agriculture.
These are the causes, it is held, of alternate short-run
periods of glut and shortage which have characterized
the marketing of many agricultural commodities. Some
of the arguments for more orderly marketing are sup­
ported by many economists and marketing men who agree
that avoidance of gluts and scarcities in the market favor­
ably aifects total net returns to growers. They feel that
for many fruits and vegetables the immediate effects of
market congestion of a particular commodity are lower
prices to producers without corresponding drops in prices
to consumers, reduced movement into trade channels
which follows from fear of further price reductions, in­
ventory losses, and loss of interest on the part of dealers
in promoting the product.
On the other hand, it has been found that price stability
and a dependable, even flow of the commodity often intro­
duce a certain degree of confidence into the market. Under
these circumstances, inventories are likely to be main­
tained at a higher level, marketing charges may be lower
since it is not necessary for dealers to collect a premium to
cover a high degree of risk, and dealers, including re­
tailers, may attempt to increase sales of thrt ' nmodity
through week-end sales and other prome
~ ts.
These advantages, it is claimed, lead to a g
of sales.
M
The third goal or objective has been foremost in .he
minds of both proponents and opponents„of ag 'cultural
price supports and has dominated America's iarm policy
for many years. It is the goal of equality or parity of agri­
culture with other sectors of the economy in regard to
price and income. T o supporters of this objective, “ equal­
ity” and support of agricultural prices and incomes at
high levels represent justice. These individuals have
adopted the view that the position of agriculture in regard
to income and prices is disadvantageous and unequal not
only during depression times or on a short-time emer­
gency basis but at all other times as well. Incomes and
prices in agriculture are regarded as chronically low and
it is argued that it is in the best interests of national wel­
fare and national defense as well as agriculture itself to
establish and maintain high levels of prosperity in agri­
culture.
The first and third objectives are both concerned with
relative levels of farm income and prices. However, in the
third, a fixed and high relationship of agricultural pricer,
as a minimum, is assumed for periods of prosperity as y'
as depression. In seeking the first objective, farmers^ciy c
anticipated legislation which would ensure aid and relief
only during periods of disaster or general and severe de­
pression. The second objective is concerned with insta­
bility of farm prices and incomes occasioned by alternate
short-time periods of glut and shortage in the market.
How have these objectives become goals of our national
agriculture and how have Congress and others attempted

June 1953

to implement them or place them into action? A short
historical review will provide some insight into these
questions and establish better bases for considering the
roles these goals are likely to play in future development
of agricultural policy.

The Goal of Minimum Safeguards in the Event
of Depression
In the general business depressions of 1921 and the
early 30’s, farmers and farm leaders observed a consist­
ent pattern of events. Prices of agricultural commodities
were the first to fall and they fell to a relatively greater
extent than prices of manufactured goods, particularly
fabricated metal products. In contrast to many industries
where production was reduced greatly and prices were
maintained at relatively high levels, agriculture main­
tained or expanded its production and watched its prices
fall away. This left the typical farmer in a position where
the prices he received in sales of farm products were far
out of line with prices paid for items used in production
and in the home. Net farm income, therefore, suffered
even more than farm prices. As a result, farm buildings
and fences as well as farm land were neglected. Repay­
ments on indebtedness could not be made and foreclosures
were con .»on.
■p
:.•

developments came a feeling among many
'Permanent legislation should be enacted pro:>uards that would “ cushion” the effect upon
agi ¿cùituxe of deep and prolonged depressions. To this
end, many specific proposals have been advanced.
In 1935, the Resettlement Administration, later known
as the Farm Security Administration and currently
labeled the Farmers’ Home Administration, was estab­
lished and was an outgrowth of various Government
activities started in 1933 to aid low-income farm families.
Such activity included rehabilitation loans, debt adjust­
ment, tenant-purchase loans, outright grants, and estab­
lishment of migratory labor camps. The Resettlement
Administration carried on this work after 1935 and ex­
panded it. However, many farmers and farm groups have
been dissatisfied with the lack of legislative assurance that
such facilities and benefits would be available to them on
a broad scale whenever depression conditions made them
applicable. Consequently, many proposals have been ad­
vanced for minimum-income guarantees to agriculture
and for establishing machinery designed to begin pumpuig dollars of income into the farm economy whenever
editions of depression reached a certain degree of inu.as, ty. However, most agricultural policies and pro­
grams which were adopted, although incorporating some
measures to protect agriculture from effects of depression,
were designed primarily to raise or maintain agricultural
prices relative to other prices irrespective of general busi­
ness conditions or to reduce the general short-time insta­
bility of agricultural prices.




77

M O N T H L Y R E V IE W

The Goal of Orderly Marketing
Agriculture attempts a cure through cooperation

Farmers and the United States Department of Agri­
culture have attempted to achieve price and income sta­
bility through various means, including voluntary cooper­
ation and farmer ownership or control of the marketing
machinery. The drive for establishment of cooperative
marketing sociations reached a crescendo in the early
1920’s following the summer of 1921 when American
agriculture found itself in a more unfavorable position,
pricewise, than any which had existed in the memory of
men then living. During this period the American Farm
Bureau Federation began its campaign for legislation.
The Grange and the Farmers’ Union took on new life and
other organizations gained strength. In this setting, a
drive led by Aaron Sapiro and supported by some of the
farm organizations was launched for the establishment of
strong, centralized cooperatives for the handling and
marketing of the nation’s major farm crops such as wheat,
livestock, cotton, and tobacco. In these cooperative ven­
tures and in a great variety of later experiments in co­
operation on a voluntary basis, farmers attempted to con­
trol the marketing of farm commodities and to correlate
the flow to market with the market demands for the com­
modity.
The goal of “orderly marketing ” requires Government aid

A majority of these voluntary programs failed or were
ineffective in controlling supply. One of the principal
difficulties encountered was the existence of a few “ non­
cooperators” who, although willing to share in the bene­
fits of controlled marketing, were unwilling to carry their
proportionate share of the necessary burden. To the indi­
vidual farmer, controlled marketing meant delegating to
a central organization authority to determine timing of
sales. At times, it meant restricting the flow to market or
reduction of quantities of the commodity available for
marketing if stable prices were to be achieved and demor­
alization of the market prevented. Success of a voluntary
control program provided a monetary advantage to an
individual of being on the “ outside,” since as a noncooper­
ator he shared none of the costs of the program and was
free to ship and sell at will. Since there were no coercive
“ teeth” in these programs, many farmers decided to
trade the title of “ good cooperator” for additional in­
come. It soon became apparent that some degree of police
power was necessary for success of such programs. It
appeared inequitable to allow the will of a majority to
be thwarted by the self-interest of a few, and thereupon,
farm leaders began to seek Governmental aid. With the
onslaught of another depression in the 30’s, Congress
turned a sympathetic ear toward these demands of agri­
culture.
Aid to agriculture during the 1930’s, other than farm
credit reforms, differed markedly for major storable and
nonstorable commodities. For storable farm products
such as wheat, corn, and cotton, outright production con­
trol supplemented by Government loan and storage pro­

78

FEDERAL RESERVE B A N K OF S A N F R A N C ISCO

grams emerged. The goal of orderly marketing was re­
ferred to in the Congressional declarations of policy con­
tained in the statutes authorizing such activities, but in
actual operation the drive for equality of price and income
with other sectors of the economy became dominant.
For perishable commodities such as fruits, vegetables,
and milk, Government aid took the forms of Government
purchases, export subsidies, and state and Federal mar­
keting agreement and order programs. Essentially, mar­
keting agreements and orders are self-help programs
established along lines of a cooperative marketing organi­
zation but backed up by Governmental police power to
force a dissident minority to conform with the decisions
and rules of a majority. To the present, the goal of orderly
marketing has remained an important element of market­
ing agreement and order programs. Marketing agree­
ments and orders will be described in more detail in a
later issue of the Review.

The Goal of Equality or Parity for Agriculture
The view that, inherently, agricultural prices and in­
comes are chronically depressed, gained many supporters
during the 1920’s when agricultural prices and purchas­
ing power of many farm products remained depressed
below prewar levels for nearly ten years. Basic to this
condition were the war-stimulated strides in American
production and the sluggish nature of export markets for
farm commodities. Problems of “ surplus” arose. Huge
supplies of wheat became a particularly acute headache to
Midwest farmers. In the fall of 1921, George Peek, later
head of the first Agricultural Adjustment Administration
and Hugh Johnson, who became well-known in later
years as administrator of the National Recovery Admin­
istration, privately proposed a plan for maintaining do­
mestic prices of wheat at levels in keeping with those of
nonfarm commodities while selling exportable surpluses
at lower world market prices. These men hit upon the
slogan “ Equality for Agriculture” which in later years,
after going through an evolutionary process of refinement
and definition, became known as the “ Parity Principle.”
Throughout the 1920’s, plans and programs were form­
ulated for wheat and other crops which would effectuate
the basic ideas of Peek and Johnson. Many were consid­
ered by Congress but none became law. These included
the Export Debenture Plan and others. Neither farmers
nor legislators seemed ready at that time to turn either in
the direction of large-scale Government-financed storage
programs or in the direction of acreage and production
control of surplus commodities. The emphasis still was
upon reducing marketing costs through farmer control
of marketing facilities and upon increasing total returns
to farmers through differentiation of foreign and do­
mestic markets. Issues were confused to some extent, but
farmers were interested primarily in increasing the level
of farm prices and to this end they continued to exert
pressure in Washington. In 1929, Congress yielded to
this pressure and passed the Agricultural Marketing Act
of 1929 which established the Federal Farm Board.




June 1953

Operation of the Federal Farm Board

The Agricultural Marketing Act of 1929 contained the
following declaration of policy :
“. . . It is hereby declared to be the policy of Congress to
promote the effective merchandising of agricultural com­
modities in interstate and foreign commerce so that the in­
dustry of agriculture will be placed on a basis of economic
equality with other industries, and to that end to protect,
control, and stabilize the currents of interstate and foreign
commerce in the marketing of agricultural commodities and
their food products.”

The Federal Farm Board was provided with a fund of
$500 million to implement this policy. In 1929, appropri­
ation of such a sum for use by an administrative agency
was unprecedented and caused widespread consternation.
But from this point: forward the Federal Government
continued to champion “ equality of agriculture” in its
active farm programs and its Congressional declarations
of policy. Stabilization operations in 1929, however, were
rated second in importance to measures for building up
effective cooperative marketing associations. It was hoped
that levels of agricultural income and prices would rise
relative to those in other sectors of the economy as a result
of improving marketing conditions and regulating the
flow to market (orderly marketing) of agricultural com­
modities.
In actual operation, however, the stabilization and price
support features of Federal Farm Board activities quickly
overshadowed all other activities of that organization.
Loans were made primarily to cooperatives on cotton and
wheat. It was not long before the Board began to make
outright purchases of wheat at the loan value. The Board
foresaw difficulty and urged growers to reduce produc­
tion, but the Act had provided no machinery for control­
ling production. Prices of wheat broke through the loan
value early in 1930, and in March 1931 the Board an­
nounced it would make no further purchases. Stabiliza­
tion operations designed to cope with alternate periods of
short-time gluts and shortages and with “ bottlenecks” in
the marketing machinery had failed to withstand the pres­
sure of a general shrinkage in domestic as well as foreign
demand. The Board added fuel to the fire by dumping its
stocks of wheat and cotton at the very depth of the de­
pression. It had been argued that these stocks were “ hang­
ing over the market.” The total loss incurred by the Board
is estimated to have been between $300 and $400 million.
The Thirties brought experiments with production control

After witnessing experiences of the Federal Farm
Board, it was logical for advocates of controlled marketing
to turn toward outright control of production together
with large-scale Government purchase, loan, and storage
operations. Accordingly, in 1933 a whole front of new
programs was launched. Essentially, the new policy de­
clared that it was the intent of Congress to balance pro­
duction and consumption of agricultural commodities
through production control and thereby to raise farm
prices to a level that would re-establish relationships be­

June 1953

M O N T H L Y R E V IE W

tween farm and nonfarm prices that existed in the period
1910-14. Direct participation of Government, it was
thought, would overcome the weakness so apparent in
voluntary control programs, while control of production
would provide assurance that the Farm Board debacle
would not be repeated. The balancing of production or
available supply with short-period fluctuations in con­
sumption or demand, however, is quite a different prob­
lem from that of correlating supply and demand under
conditions of a general and prolonged falling away of de­
mand. Differences between these two situations were not
generally recognized at that time and, possibly, are not
recognized even today.
Attempts to balance existing demand and available
supply through control of production may be both pos­
sible and practicable for the short run. This is probably
not the case during prolonged periods of declining de­
mand or depression. Under these circumstances demand
usually falls much faster than supply can be reduced, par­
ticularly in agriculture, and, to achieve a balance, severe
downward adjustments of supply are required. Further­
more, until the advent of World War II, few associated
the relatively low level of income per person in agriculture
with a large number of small, uneconomic producing units
and with a relatively large number of farm persons per
producing unit. These conditions, which result in ineffi­
cient utilization of manpower with consequent low per
capita income, are to be found in many sections of the
country and particularly in some parts of the South. It
was about that time too that a few individuals began to
explain the relatively low levels of some farm prices by
pointing out that such conditions are indicative of im­
proper allocation of productive resources within the econ­
omy. To these analysts, existence of chronically low prices
and incomes in any industry means that some productive
resources, including workers, employed in that industry
should be encouraged to transfer to some other industry
where such conditions do not exist. The essential point is
that unless some of these basic factors of maladjustment
in agriculture and the economy are present, conditions of
surplus and low income in agriculture should not be re­
garded as long run and chronic in nature, as commonly
assumed, but short run and temporary.
The Agricultural Adjustment Act of 7933

The first A A A program of 1933 provided benefit pay­
ments to farmers who signed contracts calling for reduced
production and acreage of particular commodities. The
Secretary of Agriculture agreed to pay a rental on the land
which was not replanted to products considered in sur­
plus. In addition, payments were made to farmers for
nonsurplus commodities grown on the land under agree­
ment. In order to finance the benefit payments, a process­
ing tax was imposed on the first processor of surplus com­
modities undergoing downward production adjustments.
The tax equaled the difference between the farm price
and the “ parity price.,, Although procedures set forth for
calculation of parity price have varied considerably since




79

1933, it has been defined essentially as that price which
will give the commodity the same command over things
farmers buy (purchasing power) as it had during the base
period 1910-14.
The Act did not have the effects hoped for. Production
did not decline materially and prices did not rise much
since the voluntary arrangements of the Act did not lead
to sufficient farmer participation. Monetary inducements
of the Act were not sufficiently great to deter farmers
from attempting to maintain net income and counter­
balance price reductions by increasing the number of units
produced and sold. However, some success in the drive
for parity prices was achieved by 1937, largely as a result
of increases in rates of consumption and the severe effects
of widespread drought.
Agricultural Policy Acts of 1936 and 7938

In January 1936, a decision of the courts invalidated
the whole A A A program of 1933. Later, the Soil Con­
servation and Domestic Allotment Act of 1936 was
passed. In this Act, the two basic objectives of an eco­
nomic balance between agriculture and industry and the
reduction of agricultural price instability were main­
tained. Now, however, the vehicle of production control
was soil conservation. It happened that most of the sur­
plus commodities were also soil-depleting commodities.
Therefore, payments for the substitution of soil-building
commodities for soil-depleting crops were designed to
reduce production of wheat and other surplus crops.
Upon experiencing another sharp drop in farm prices
in 1937, farmers became dissatisfied with the ineffective­
ness of the Soil Conservation and Domestic Allotment
Act. Consequently, another statute — the Agricultural
Adjustment Act of 1938 — was passed. This Act pro­
vided for (1 ) encouragement of soil conservation and
good farm management; (2 ) nonrecourse loans to farm­
ers,1 acreage allotments, marketing quotas, and, for some
commodities, outright parity payments; (3 ) marketing
agreements and orders; (4 ) diversion of surplus com­
modities to new and noncompetitive uses; and (5 ) crop
insurance for wheat. Although it has been drastically
amended since, this Act is currently in effect.
The Commodify Credit Corporation

Meanwhile, as it became apparent that efforts of the
Federal Farm Board at stabilization had failed, the “ ever
normal granary” idea became popular with those inter­
ested in storage as a device for handling farm surpluses.
The Commodity Credit Corporation was organized in
1933, five months after the Federal Farm Board was abol­
ished. Like its predecessor, the CCC was established to
stabilize prices against fluctuations in demand as well as
supply by operation of an extensive storage program.
However, unlike the Federal Farm Board, the CCC was
authorized to purchase farm products and make loans to
1 These are loans secured by commodities with the provision that if the
price falls below the loan value the Government will take over the product
and bear any loss involved.

80

FEDERAL RESERVE B A N K OF S A N FRA N C ISCO

farmers and agricultural organizations for the avowed
purpose of raising the general level of farm prices over
a period of years.
Prior to 1938, there was only limited use of loans and
purchases for the purpose of raising the general level of
prices. The Agricultural Adjustment Act of 1938, how­
ever, brought into the foreground the use of loans for this
purpose and crystallized it into law. For the first time,
price supports were made mandatory rather than discre­
tionary and the emphasis of farm policy shifted away
from merely “ cushioning” against severe decline to priceraising and to achievement of “ equality.” Powers of the
CCC were circumscribed by the 1938 Act in specifying
the range of 52 to 75 percent of parity within which loans
were mandatory, under certain conditions, for wheat,
cotton, and corn. The conditions specified were (1 ) that
the production of the commodity was in excess of a “ nor­
mal year’s domestic consumption and exports” ; (2 ) that
producers had not disapproved a marketing quota; and
(3 ) that prices were below specified levels during the
marketing year. The Act of 1938 also permitted but did
not require price supports on agricultural commodities
other than wheat, corn, and cotton.
In 1941 Congress went further. It took determination
of loan rates away from the CCC and directed the Corpo­
ration to make loans available at 85 percent of parity on
all “ basic” commodities (cotton, corn, wheat, rice, to­
bacco, and peanuts) during the years 1941 to 1946, inclu­
sive. Later, the figure was raised to 90 percent and then
to 95 percent and even higher in certain instances. Dur­
ing this period the original objectives of the CCC, storage
and price support, were set aside in favor of a new one.
This new objective, made necessary by global war, was
encouragement of all-out production. Acreage allotments
now became goals and price supports were used to provide
monetary incentives for expansion of acreage and adop­
tion of improved practices of production.

June 1953

Federal Farm Board. As it developed, however, these
stocks proved of great value to the war effort, and farm
policy makers learned that agricultural policy should take
account of the possibility of war as well as other emer­
gencies.
Recent legislation and price support operations

The high level of wartime price supports, designed to
stimulate production and guard against a postwar defla­
tionary break, expired on December 31, 1948. Those
interested in continuing price support to agriculture
began well in advance of that time to consider the need
for permanent peacetime legislation. Two basically dif­
ferent price support philosophies emerged and each phil­
osophy was advanced by a strong group of supporters.
There were (1 ) those who would use loan, storage, and
other price support activities indefinitely to maintain an
already high level of agricultural prices and (2 ) those
who would enact permanent price support legislation de­
signed to stabilize relatively short-time farm price fluc­
tuations and to provide only emergency benefits to agri­
culture. Few policy makers advocated complete depend­
ence on the action of an unregulated market.
Out of subsequent legislative deliberations came a com­
promise between the two views set forth above in the form
of the Agricultural Act of 1948. The 1948 Act provided
for price support of basic farm commodities at 90 percent
of parity until June 30, 1950. After this date, a flexible
sliding scale price support program was to go into effect
to provide support of a “ normal” supply of each basic
commodity at 75 percent of parity.1 Supplies increasingly
greater than normal were to be supported at decreasing
percentages of parity. Supplies less than normal were to
be supported on a sliding-scale basis above 75 percent of
parity. This Act provided, also, for certain adjustments
in the parity formula which would keep parity prices of
individual farm products adjusted to changing demand
and price relationships and which would go into effect
The CCC increased its loan and price support activities
gradually with the long-time features of the bill.
in 1937 as directed by law, but by as early as 1938 it had
The point of view embodied in the flexible support pro­
begun to experience difficulties for three main reasons.
These were (1 ) a series of large crops, (2 ) the legisla­ visions of this law was that there would be restored to the
tive determination of loan rates in terms of parity, and market a substantial part of its traditional function of
(3 ) the leveling out of the general price level for a few guiding the farmer as to what to grow and how much of
years after the “ recession” in 1937. After 1938, stocks of each product. However, proponents of high and fixed
cotton and corn held by the CCC grew large even though price support levels succeeded in forestalling use of flex­
marketing quotas were in effect on cotton in 1938 and ible provisions with passage of the Agricultural Act of
1939. This meant that loan rates had been set above price 1949 and with enactment of an amendment in 1952. Con­
levels justified by the supply and demand situation. By siderations of national defense and emergencies such as
the fall of 1941 the equivalent of a full crop of cotton, half drought which, logically, should have a place in such de­
a crop of wheat, and a quarter crop of corn had accumu­ liberations were powerful arguments favoring continu­
lated in storage, and by that time some of the cotton stocks ation of high price supports. The 1949 Act became effec­
were seven years old. Grain storage facilities were over­ tive January 1, 1950, but some of its flexible sliding-scale
burdened, and embargoes on further shipments for stor­ provisions were not to become effective until 1954. It also
age had to be applied at several terminal markets. At this *The definition of “ normal supply” varies by commodity. I t is defined in
the Agricultural Act of 1949, as amended, as the estimated domestic con­
time— 1941— the CCC had almost $1*4 billion in pur­
sumption for the preceding marketing year plus estimated exports for the
marketing year for which determination of normal supply is being made
chases on hand and loans outstanding. If war had not
plus from 10 to 30 percent (depending upon the commodity) of such con­
sumption
and exports as a carry-over allowance. For some commodities,
broken out in 1939 and spread to the United States in
cotton for example, the consumption estimate used also applies to the
marketing
year for which normal supply is being determined.
1941, the CCC might have experienced the fate of the




June 1953

M O N T H L Y R E V IE W

raised considerably the average level of support provided
in the 1948 Act and directed the Department of Agricul­
ture to use the “ old” or “ new” parity formula, which­
ever was higher, until 1954. An amendment enacted dur­
ing 1952 makes application of the parity formula which
yields the highest parity prices mandatory for basic com­
modities through 1955 and requires support of basic com­
modities at 90 percent of parity through 1954. Certain
designated nonbasic farm commodities, according to the
1949 Act, must be supported in the range of 60 to 90 per­
cent of parity. Some other commodities may be supported
at a maximum of 90 percent of parity.
Some of the effects of these high-level price supports
began to emerge in 1948. Larger United States crops
were produced that year. At the same time, some weaken­
ing in foreign demand occurred because of large crops
abroad, and a mild business recession weakened domestic
demand. In order to maintain prices of grain at support
levels as directed, the Commodity Credit Corporation was
forced to accumulate large stocks of wheat and corn.
Acreage allotments were established for 1950 crops of
corn and wheat while both acreage allotments and mar­
keting quotas were established for cotton. Quotas on to­
bacco have been in effect right along. However, war— the
Korean conflict— again transformed burdensome sur­
pluses into needed reserves.
Acreage allotments and marketing quotas

To provide some control of supply and to adjust it to
expected market demand, the Agricultural Adjustment
Act of 1938 authorized acreage allotments and marketing
quotas. Both these features remain in the law as part of
the nation’s price support machinery. Acreage allotments
as a device are broadly similar to the acreage controls
of the original 1933 Act. They are designed to provide
a supply of certain commodities sufficient to meet the
needs of normal domestic consumption and export plus a
reserve for contingencies. In wartime, acreage allotments
are used to encourage production. They become goals.
When surpluses appear, they serve as inducements to
downward adjustment of production. Ordinarily, allot­
ments are distributed to states and sometimes to counties
and individual farmers. Compliance with acreage allot­
ments is voluntary, but they are used as a basis for deter­
mining eligibility for parity payments or commodity loans.
Marketing quotas have been used when actual or
threatened surpluses are sufficiently great to warrant
measures designed to protect prices of basic commodities
against collapse and when storage stocks held by the CCC
become excessive. Before being put into effect, marketing
quotas must be approved by producers voting in a refer­
endum. If approved, they then become compulsory and
penalties are imposed on quantities marketed in excess of
individual farm quotas. Under present legislation, if
marketing quotas are disapproved the mandatory level
of support becomes 50 percent of parity rather than 90
percent.




81

Acreage allotments and marketing quotas on the 1954
crop of wheat have been announced and a similar an­
nouncement is expected for the 1954 cotton crop. For a
third time storage stocks of the CCC are building up to
record proportions as foreign demand for farm commodi­
ties falls off and the United States production continues
to increase.

Which Way Future Agricultural Price Policy?
At this point, certain questions posed earlier in the
article return for consideration. While definitive answers
still do not appear, some observations may be made.
Under existing law, mandatory support of basic com­
modities at 90 percent of parity will expire in 1954. This
circumstance together with the appearance of surpluses
and evidence of falling farm prices is serving to focus,
once more, Congressional and public attention on United
States price support policy for agriculture. In forthcom­
ing discussions, issues in farm policy are likely to center
in (1 ) the function of Government in lending price and in­
come support to agriculture and (2 ) the level of support.
Methods used by the Department of Agriculture in bol­
stering farm prices are well established, but the question
of how and where to dispose of surplus commodities held
in Government storehouses is likely to receive consider­
able discussion. Even now, many of the older issues are
beginning to be revived and the three objectives— (1 )
minimum price and income safeguards in event of depres­
sion, (2 ) orderly marketing and reduction of marketing
charges, and (3 ) maintenance of a parity relationship
between farm and nonfarm prices— are receiving new
consideration.
The record indicates that these objectives may not be
entirely consistent with one another. For instance, at­
tempts to keep farm prices artificially high may lead to
bulging warehouses, disorderly marketing, guarantees of
much higher than “ minimum” levels of income and price
to farmers, and imposition of severe production and mar­
keting controls. This suggests that the overriding objec­
tive of farm policies and farm programs has been higher
prices or higher incomes as such. If farm prices are sup­
ported at levels higher than those which the market would
establish, it seems clear that control of production, mar­
keting, or utilization, or control of all of these, will have
to be instituted in order to keep prices at the support
levels. In addition, it appears that attempts through stor­
age operations to raise prices over a period of years or
to support prices above levels justified by market forces
may lead to difficulties and heavy financial loss in the
absence of very favorable circumstances.
Fairly widespread expectations of substantial revisions
in the policy of high level price supports to agriculture
appear to exist. As evidence of this, farmers are being
encouraged to make greater efforts to solve their own
problems. Informal advisory bodies for recommendations
to the Secretary of Agriculture have been established.

82

June 1953

FEDERAL RESERVE B A N K OF S A N FRA NC ISCO

The devices of marketing agreement and marketing order
programs are coming into greater prominence. In these
programs, industry committees formulate problem-solv­
ing activities financed by the industry itself and act in
an advisory capacity to Department of Agriculture offi­
cials. These developments may presage the use of Gov­
ernment price support machinery only in emergency situ­
ations or under conditions of disaster. Available evidence
suggests, however, that agricultural policy, like most
other policies of Government, develops slowly over a rela­

tively long period. Although wars and depression have
at times speeded and at other times retarded development
of policies and programs, agriculture has progressed
steadily in the direction of greater dependence upon Gov­
ernment price support activities. With falling farm prices
in evidence, the goal of maintaining farm prices at high
levels of parity continues to have many strong supporters.
If, within the near future, there is a shift in policy away
from this goal, it is not likely to be as great a shift as many
expect or would like to see.

PACIFIC COAST INDUSTRIAL EXPANSION— 1947-1951
a n y

measures of economic activity indicate that ex­

pansion in the Twelfth District has been more rapid
M
than in the nation since the end of W orld W ar II. In pop­
ulation, employment, income, construction, and trade,
District rates of gain have surpassed those registered on
the national level. Since the start of the Korean conflict,
the increase of employment, the rate of defense contract
awards, and the growth of many other economic sectors
have exceeded the national average. A comparison of the
Bureau of the Census Annual Survey of Manufacturers
for 1951 with the Census of Manufactures for 1947 adds
further evidence of the more rapid industrial growth in
the Twelfth District.
Data from the Census of Manufactures offer a measure
of the net value contributed by industry to the flow of
goods and services. Value added by manufacture is de­
rived by subtracting from the total sales of each firm
the cost of raw materials, other products purchased, and
utilities and services purchased from others. If prices re­
main constant, year-to-year changes in the value added
figures would show changes in physical output of the indi­
vidual firm or industry. Prices do change, however, and
these changes, as well as changes in physical output, affect
increases or decreases in value added from year to year.
Thus the comparison of 1947 and 1951 value added data
reflects more than changes in physical output. Since the
data are presented only for broad industry groups, it is
not possible to make precise corrections for price changes.
A rough approximation, however, indicates that about
one-third of the increase that occurred in value added by
Twelfth District manufacturing in 1951 compared with
1947 probably represents price increases. Since about the
same general price factors apply to the data for the United
States as for the Twelfth District, the value added data
furnish a measure of the relative growth of manufactur­
ing in the two areas. They confirm the evidence supplied
by other indicators of the relative rates of industrial
growth in the Twelfth District and in the nation.
Data in sufficient detail to permit comparisons with
the nation are available only for the Pacific Coast states.
This group of states accounts for 94 percent of Twelfth
District manufacturing and encompasses all of the major
types of factory production carried on in the District. In
addition to depicting the more rapid growth in the Dis­
trict, the data also point up some interesting shifts in the




importance of individual industries and emphasize the
significant contribution in certain lines that Pacific Coast
manufacturing makes to national industrial output.
Pacific Coast manufacturing up sharply
between 1947 and 1951

Between 1947 and 1949 the Pacific Coast manufactur­
ing industries grew at a slightly more rapid rate than in
the country as a whole. The pickup in business in early
1950, supplemented by the defense boom starting in the
second half of that year, caused a sharp spurt in Pacific
Coast manufacturing. The 1951 value added by manufac­
ture totaled more than $8.4 billion, 52 percent above the
1947 level. Nationally the gain was roughly one-third
smaller, 37 percent. Because of the more rapid rise of
Pacific Coast manufacturing, the area accounted for 8.3
percent of the national manufacturing output compared
with 7.4 percent in 1947.
Defense contracts were the leading factor in the rapid
post-Korea expansion on the Pacific Coast. The Pacific
Coast states received 17.4 percent of all prime military
orders placed between June 1950 and December 1951 and
experienced a large increase in activity at military estab­
lishments. In addition, defense activity induced another
influx of population into the Twelfth District and also
increased income here as well as in the nation. These fac­
tors led to growth in various manufacturing industries
on the Pacific Coast not directly related to the defense
effort. Meanwhile the influence of the basic element in
Pacific Coast manufacturing development, the marked
V

a lu e

A

dded

b y

M

a jo r

I

n d u str y

G

rou p

, P

a c if ic

C

oast

.(Percent change, 1947-49)

Percent
Industry group
change
A L L I N D U S T R I E S , T O T A L .........................................................................
51.9
Food and kindred products ................................................................................
20.8
Textile mill products ............................................................................................ — 18.8
Apparel and related products ...........................................................................
41.7
58.1
Lumber and products (except furniture) ...................................................
Furniture and fixtures ..........................................................................................
12.5
Paper and allied p r o d u c ts.....................................................................................
66.4
Printing and publishing industries ...............................................................
26.2
Chemicals and allied products .........................................................................
73.6
Petroleum and coal products ............... ...........................................................
33.3
Stone, clay, and glass p r o d u c ts .........................................................................
54.1
Primary metals industries ..................................................................................
102.5
Fabricated metal products ..................................................................................
49.5
Machinery (except electrical) .........................................................................
58.0
Electrical machinery ..............................................................................................
67.2
Transportation equipment ..................................................................................
92.8
Instruments and related p r o d u c ts....................................................................
82.1

Source: United States Department of Commerce, Bureau of the Census,
1951 Annual Survey of Manufactures, Pacific and Mountain States.

June 1953

M O N T H L Y R E V IE W

growth in population resulting from W orld War II, con­
tinued to operate, though somewhat overshadowed after
Korea by the effects of the defense program. Many Pa­
cific Coast industries, including steel, apparel, petroleum,
lumber, machinery, and paper, needed to make substan­
tial capital investments or at least greater use of existing
facilities to meet the expanded civilian demand in the Dis­
trict and in their market areas outside this District. Fur­
thermore, a few industries in which the introduction of
new products was especially important, such as chemicals
and electronics, had shown substantial growth before
Korea. The defense effort intensified expansion in many
Pacific Coast industries. In some cases the stimulus came
directly through added demand from the military, and
in others indirectly through an expansion of civilian in­
come and demand.
Durable goods industries show greatest
growth in the District

With the exception of the chemical and paper indus­
tries, all those District industries with better than aver­
age increases in output between 1947 and 1951 produce
durable goods. The defense program and its intense de­
mands for aluminum, aircraft, electronics, instruments,
and machinery have determined to a large extent the dis­
tribution of gains in manufacturing. The metals industry
felt the impact of a 40 percent increase in the nation’s
aluminum capacity, fostered by defense needs for an ade­
quate supply of this metal. The District steel industry,
on the other hand, has been considerably less affected by
the defense program. Some steel capacity has been direct­
ed to satisfying needs of prime and subcontractors, but
most of the 40 percent expansion in steel capacity and
output represents an attempt to fill the gap that existed
and still exists to some extent between District steel con­
sumption and output. The transportation equipment in­
dustry on the Pacific Coast is composed largely of air­
craft production and, to a much smaller degree, of ship­
building and automobile assembly. Events after Korea
have contributed to some shipbuilding and repair activi­
ties, but a very large proportion of the gain in transpor­
tation equipment arises from a doubling of aircraft pro­
duction. Output of electronics equipment has also ex­
panded markedly and constitutes the basis of most of the
gain in electrical machinery. Production of instruments
and non-electrical machinery has also been stimulated by
the defense program.
The expansion of chemical and paper output, though re­
flecting some defense demand, has resulted mainly from
other influences. New synthetics and fertilizers have
played a prominent role in expanding output in the chem­
ical industry, and in many cases these products have little
direct relationship to the defense effort. Paper produc­
tion tends to follow the course of consumer spending on
nondurables. Growth both within the District and out­
side has broadened the demand for the District’s output
of paper considerably. In 1951 Government orders took
a greater portion of the paper industry’s output than in
1947, but most of the gain came from civilian demand.




83

P a c i f i c C o a s t i n d u s t r i e s l e a d n a t i o n in r a t e o f g r o w t h

As a result of population growth in the District, many
industries were expanding more rapidly in the District
than nationally before 1950. The impact of Korea re­
sulted in a speed-up of this process. In response to these
forces the Pacific Coast outpaced the nation in the expan­
sion of most industries between 1947 and 1951. The
effects were particularly pronounced in the primary
metals, transportation equipment, instruments, and ap­
parel. Military demand caused more intense use of air­
craft facilities, a major portion of which exists on the
Pacific Coast. Aluminum consumption and stockpiling
rose sharply to meet defense needs and provided another
source of increased activity. Chart 1 illustrates these de­
velopments and points out the more rapid growth in a
number of other industries as well.
In a few industries, the national and Pacific Coast per­
centage increases between 1947 and 1951 were nearly
equal. Electrical machinery, receiving a very large part
of its impetus from electronics, expanded almost as rapid­
ly in the nation as on the Pacific Coast. Electronic com­
munication equipment for military and civilian use has
several areas of concentration which include Los Angeles,
Chicago, Boston, New York, northern New Jersey, Phila­
delphia, and Indianapolis. Television production facili­
ties tend to be concentrated in eastern and midwestern
states, and the tremendous expansion of this industry
since 1947 has had a sharper effect on industrial growth
in those areas. Petroleum production on the Pacific Coast
has been restrained because local crude supplies are less
plentiful relative to demand than in the mid-continent pro­
ducing areas. The gains in printing and food production
exceed the national average by narrow margins only.
The rise in output of stone, clay, and glass products
between 1947 and 1951 fell somewhat short of the na­
tional gain. Development of glass fibres and greater de­
mand for pottery had somewhat larger effects in other
areas than in this District. Furniture production on the
Pacific Coast had less than half the rise of that nationally.
Since hardwood supplies, the larger production facilities,
and the necessary skills are found mainly in the East and
Midwest, these factors have tended to favor producers
located in those areas. One California manufacturer of
a popular household durable found, for example, that he
could buy cabinets more cheaply in the Midwest even
after paying freight than he could have them produced
locally.
Industries shift in importance

In 1947 the food industry led all Pacific Coast indus­
tries in value added by manufacture, but by 1951 it had
dropped to second place. The expansion of home build­
ing, nationally as well as in the District, led to a rapid
rise in lumber output which placed that industry in first
place by 1951. In terms of value added, the transportation
equipment industry continued in third place. In terms of
employment, however, the transportation equipment in­
dustry is first while food and lumber tie for second. Dif-

84

ferences in price structures, degree of processing, and
capital intensity, that is, the ratio between capital and
labor, all affect the relationship of employment to value
added, resulting in different rankings depending on the
measure that is used. Charts 2 and 3 illustrate these dif­
ferences in a number of industries. Industries with high
capital intensities, such as chemicals, primary metals,
paper, petroleum, and fabricated metals, tend to have a
lower ranking in terms of employment than they have
when ranked by value added. The aircraft industry em­
ploys considerable capital equipment but the production
technique calls for a high proportion of labor, particularly
in the early stages of developing a particular model.
More interesting than the shift in first position have
been changes among Pacific Coast industries further
down the scale. The chemical industry moved from
seventh to fourth place between 1947 and 1951, and the
primary metals industry from eighth to fifth. The elec­
trical machinery industry, though still ranking low on
the scale, also moved up in importance. The fabricated
metals industry and the machinery industries each slipped
slightly because of the more rapid expansion of chemicals
and primary metals.
The three leading industries account for 47 percent of
the value added by manufacturing on the Pacific Coast.
This indicates the degree of concentration of industrial
output in a few industries. The next three industries—
chemicals, primary metals, and machinery— account for
18.5 percent; and the three lowest industries— furniture
and fixtures, instruments, and textiles— account for less
than 3 percent.




June 1953

FEDERAL RESERVE B A N K OF S A N FR A N C ISCO

C

m e

C

o ast

a s

1951
Industry group

1947

1951

A L L IN D U S T R IE S , T O T A L
Food and kindred p ro d u c ts ..........
Textile mill products........................

7 .4
1 2 .3
0 .9
4 .6
3 4 .8
8 .7
8 .8
7 .7
5 .7
1 0 .8
7 .7
4 .5
6 .9
4 .2
3 .0

8 .3
1 2 .7
0 .7
6 .2
3 9 .0
7 .5
1 0 .1
7 .8
6 .5
1 0 .8
7.7
5 .4
7.1
4 .6
3 .4
1 2.7
3 .6

Furniture and fixtures . . .
Paper and allied products
Chemicals and allied products .
Petroleum and coal products . .
Stone, clay, and glass products
Fabricated metal products . . .
Machinery (except electrical)
Electrical machinery .................
Instruments and related products

11.0
3 .0

So u rce: United States Department of Commerce, Bureau of the Census,
1951 Annual Survey of Manufactures, Pacific and Mountain States.

Pacific Coast structure varies from national pattern

In 1951 the machinery industry, in terms of value
added, was the most important nationally. Food takes sec­
ond place in the country as a whole as well as on the Pacific
Coast, and primary metals and transportation equipment
take third place. Nationally, the lumber industry ranks
eleventh compared with first for the Pacific states. Since
the Pacific Coast lumber industry produces about 40 per­
cent of the national lumber supply, this difference is not
surprising.
Manufacturing in the nation as a whole tends to be less
concentrated by industry than on the Pacific Coast. The
four leading national industries account for less than
40 percent of the value compared with 47 percent for the
three leaders on the Pacific Coast. If enough decimals are
used to break the third-place tie nationally, the three lead­

h a r t

1

V A L U E A D D E D BY MAJOR INDUSTRY GROUP, PA CIFIC COAST A N D U N ITED STATES
(Percent change, 1947-1951)

June 1953

M O N T H L Y R E V IE W

85

C hart 2
VA LU E ADD E D A N D EM PLOYM EN T IN M A N U FA C TU RIN G , PACIFIC COAST. 1947
(Percentage distribution)

Source: United States Department of Commerce, Bureau of the Census, 1951 Annual Survey oj Manufacturers, Pacific and Mountain States.

ers produce about 30 percent. It is to be expected that the
Pacific Coast, which contains as large a national resource
as its lumber and specializes in processed foods because
of the prolific yields of its agriculture, will show heavy
concentration. In the national picture, however, the spe­
cialization of one area is toned down by the dominance
of particular industries in other areas. Following the three
leaders, the rank of individual Pacific Coast industries
and the proportion they contribute to total value added
in that region do not vary significantly from the national
standings in many cases.
Contribution of Pacific Coast industries to national output

The table on page 84 illustrates the percentage of na­
tional output accounted for by Pacific Coast industries in
1947 and 1951. The growing importance of most Pacific
Coast industries in national output is apparent from the
rise in their share of the value added for the United States.
It is also interesting to note the dispersion of the percent­
ages for 1951. Five Pacific Coast industries contributed
more than 10 percent of the national value added in their




respective lines. Except for these five industries, the Pa­
cific Coast tends to contribute a moderate, and in a few
cases a minor, proportion of national production. This
reflects the historically earlier and more intense develop­
ment of manufacturing in some other parts of the nation.
It also points up the specialization of the Pacific Coast in
those industries in which it has a resource or location
advantage. Nevertheless, many of the Pacific Coast in­
dustries which account for small shares of United States
output have grown more rapidly than have the same lines
nationally. As population in the West continues to grow
more rapidly than in the nation, as land in other areas be­
comes scarcer, and as rising transportation costs make
dispersion of manufacturing more profitable, the Pacific
Coast shares of industrial output in many lines will tend
to rise.
Barriers to growth do exist, however, and should not
be overlooked in a desire to have the same share of na­
tional manufacturing output in every line as we have of
population or income. Resources and skills necessary to
some industries may be more abundant in other parts of

C hart 3
V ALU E A D D E D A N D EM PLOYM ENT IN M AN U FA C TU RIN G . PA CIFIC COAST, 1951
(Percentage distribution)

36

FEDERAL RESERVE B A N K OF S A N FRANC ISCO

the country. For example, the Pacific Coast steel indus­
try is limited in its growth, at present, by the greater
availability of iron ore in the East and Midwest. A few
industries may operate successfully only if they are very
close to a market even larger than that offered by the
Pacific Coast. The absence of a substantial textile indus­
try on the Pacific Coast, despite a large cotton crop, re­

June 1953

flects the greater concentration of apparel manufacturing,
which is the immediate market for textiles, along the
Eastern seaboard in close proximity to the bulk of na­
tional population. Considerations of this type will con­
tinue to give the Pacific Coast an advantage in some cases
and a disadvantage in others. Progress in any individual
industry should be judged against this background.

RED U CTION IN M EM BER B A N K RESERVE REQUIREM ENTS

On June 24 the Board of Governors of the Federal Reserve Sys­
tem issued to the press the following statement concerning re­
duced reserve requirements on net demand deposits of all member
banks:
“ The Board of Governors has reduced reserve requirements on
net demand deposits of all member banks as follows:
“Effective July 1— from 14 percent to 13 percent at country
banks.
“Effective July 9— from 20 percent to 19 percent at reserve city
banks, and from 24 percent to 22 percent at central reserve city
banks.
“The present and the new requirements on demand deposits are
as follows:
All
member
banks

Central
reserve
city
banks

Reserve
city
banks

Coun­
try
banks

Present requirements:
Percentage ................. .
Amount1 ........................ .

17,229

24
5,981

20
6,886

14
4,362

New requirements:
Percentage ................. .
Amount1 ..................... .

22
16,073

5,482

19
6,541

13
4,050

(in millions of dollars)

1 Estimates are based on net demand deposits as of the last half of M ay,
and do not include requirements against time deposits.




“This step was taken in pursuance of Federal Reserve policy,
designed to make available the reserve funds necessary to meet
the essential needs of the economy and to help maintain stability
of the dollar. The reduction, releasing an estimated $1,156,000,000
of reserves, was made in anticipation of the exceptionally heavy
demands on bank reserves which will develop in the near future
when seasonal requirements of the economy will expand and
Treasury financing in large volume is inescapable. The action is
intended to provide assurance that these needs will be met with­
out undue strain on the economy and is in conformity with Sys­
tem policy of contributing to the objective of sustaining economic
equilibrium at high levels of production and employment.”
N o te: REVISED B A N K DEBIT SERIES

The Bank Debits Index which appears in the table on page 87
has been revised from 1942 to the present. It now reflects debits
to demand deposits of individuals, partnerships and corporations,
and states and political subdivisions instead of debits to total de­
posits (except interbank deposits), including demand, time, and
United States Government deposits. While the new series on bank
debits to demand deposits was extended back only to 1942, the
evidence indicates that were the figures revised prior to 1942,
there would be little, if any, change in the index. The effect of the
revision on the index is slight with the exception of World W ar
II years. In most years, debits to time and Government deposits
comprised only a small percentage of total debits. From 1942-45
the exclusion of debits to Government and time deposits from the
bank debits series lowered the index from 1 to 4 percentage points,
reflecting the wartime influence of Government transactions.

June 1953

87

M O N T H L Y R E V IE W

BUSINESS INDEXES—TWELFTH DISTRICT1
(1947-49 average = 100)
Year
and
month
1929
1931
1933
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1952
April
M ay
June
July
August
September
October
November
December

1953
January
February
March
April

Total
Waterborne
Car­
nonagri- Total
Retail
Dep*t
foreign
cultural mf’g loadings store
food
trade8» 8
sales
Wheat Electric employ­ employ­ (num­
prices
ment4 ber)2 (value)2 3. 5
power
Lead8 Copper8 flour*
ment
Exports Imports

Industrial production (physical volume)3
Petroleum8
Lumber Crude Refined Cement

165
100
72

71
83
93
98
91
98
100
103
103
112
116

54
36
27
33
58
56
45
56
61
81
96
79
63
65
81
96
104
100
112
128
124

107
108
107
107
107
107
107
107
108

114
114
116
116
122
122
117
118
114

120
129
126
125
131
131
142
133
126

95
89
87

107
108
109
108

115
117
123
122

105
131
126
132

97
51
41
54
70
74
58
72
79
93
93
90
90
72
85
97
104
99
112
114
107

87
57
52
62
64
71
75
67
67
69
74
85
93
97
94
100
101
99
98
106
107

110
94
117
108
106
109
116
105
99
116
117
120
120

78
55
50
56
61
65
64
63
63
68

86

96
114
92
93
108
109
114
100
90
78
70
94
105
101
109
89
86

105
49
17
37
64
88

58
80
94
107
123
125
112
90
71
106
101
93
115
115
112

29
29
26
30
34
38
36
40
43
49
60
76
82
78
78
90
101
108
119
136
144

90
86

75
87
81
84
81
91
87
87
88

98
101
112
108
113
98
88
86

95
96

102

101
96
95
99
102
99
103
110
114

‘ *47
54
60
51
55
63
83
121
164
158
122
104
100
102
98
105
119
127

77
81
72
77
82
95
102
99
105
100
101
106
100
94
97
100
101

30
25
18
24
28
30
28
31
33
40
49
59
65
72
91
99
104
98
105
109
114

68

52

ÌÓ Ó

66

64
50
42
48
48
50
48
47
47
52
63
69
68
70
80
96
103
100
100
113
115

190
138
110
135
131
170
164
163
132

124
80
72
109
116
119
87
95
101

* 89
129
85
91
186
171

57
81
98
121
137
157
200

86

81
78
80
85
78

117
116
112
106
105
112
115
116
111

87
84
90
103
99
96
97
96

141
147
150
150
153
145
146
141
138

112
112
113
114
114
114
115
116
116

126
125
126
127
129
128
130
130
130

106
98
108
66
101
108
98
102
100

106
118
114
110
116
114
118
128
119

116
115
115
114
114
114
113
114
115

185
207
187
144
153
142
145
135
148

143
143
182
187
293
253
319
194
232

77
85
85r
83

109
113
116
114

99
92
96
96

141
154
142
165

118
118
118
118

131
133
134
134

94
102
121
131

116
117
112
110

114
112
113
113

151
158

195
187
336

68

88

BANKING AND CREDIT STATISTICS—TWELFTH DISTRICT
(amounts in millions of dollars)
Year
and
month
1929
1931
1933
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1952
M ay
June
July
August
September
October
November
December

1953
January
February
March
April
M ay

Condition items of all member banks7
Bank
rates on
U.S.
Total
short-term
Loans
Demand
business
time
deposits
and
Gov’t
loans9
discounts securities adjusted8 deposits
2,239
1,898
1,486
1,537
1,682
1,871
1,869
1,967
2,130
2,451
2,170
2,106
2,254
2,663
4,068
5,358
6,032
5,925
7,105
7,907
8,844

495
547
720
1,275
1,334
1,270
1,323
1,450
1,482
1,738
3,630
6,235
8,263
10,450
8,426
7,247
6,366
7,016
6,392
6,533
6,627

1,234
984
951
1,389
1,791
1,740
1,781
1,983
2,390
2,893
4,356
5,998
6,950
8,203
8,821
8,922
8,655
8,536
9,244
9,940
10,504

1,790
1,727
1,609
2,064
2,101
2,187
2,221
2,267
2,360
2,425
2,609
3,226
4,144
5,211
5,797
6,006
6,087
6,255
6,256
6,720
7,522

7,921
8,062
8,114
8,270
8,444
8,605
8,805
8,844

6,238
6,258
6,507
6,469
6,473
6,765
6,808
6,627

9,306
9,501
9,643
9,679
9,908
10,125
10,281
10,504

6,985
7,083
7,143
7,197
7,249
7,336
7,331
7,498

8,816
8,8.38
8,983
9,054
9,092

6,633
6,474
6.299
6,173
6,020

10,390
9,911
9,937
10,011
9,843

7,490
7,551
7,560
7,597
7,627

Member bank reserves and related items10
Reserve
bank

credit11
_

34
21
2
2
6
1
3
2
2
4
107
214
98
76
9
302
17
13
39
21
7

0
- 154
- 110
- 163
- 227
90
- 240
- 192
- 148
- 596
-1,980
-3,751
-3,534
-3,743
-1,607
- 510
+ 472
- 930
-1,141
-1,582
-1,912

+
—
+
+
—
+
+

52
211
45
213
230
236
72
299

-

174
97
208
126
153
294
29
240

+
+

138
83
220
16
12

-

263
119
147
278
195

+

—
+
+
—

+
+
+

+
+
+
+

—

’ 3.2Ó’
3.35
3.66
3.95

3.95
3.96
3.95

4.01

Coin and
Commercial Treasury
currency in
operations12 operations12 circulation11

+
+
+
+

+

+
23
+ 154
+ 150
+ 219
+ 454
+ 157
+ 276
+ 245
+ 420
+1,000
+2,826
+4,486
+4,483
+4,682
+1,329
+ 698
- 482
+ 378
+1,198
+1,988
+2,265
b
h
h
+
+
+
+

185
190
288
163
213
267
79
422
136
13
240
240
314

_

+
+
+

+
+
+
+
+
+
+
+

_
_
_
_
+
+
+
+
+
+
+
+
+

_
+
+
+

Bank debits
Index
31 cities8* 18
Reserves

(1947-49=.
100)2

6
48
18
14
38
3
20
31
96
227
643
708
789
545
326
206
209
65
14
189
132

175
147
185
287
479
549
565
584
754
930
1,232
1,462
1,706
2,033
2,094
2,202
2,420
1,924
2,026
2,269
2,514

42
28
18
25
30
32
29
30
32
39
48a
60a
66a
72a
86a
95a
103a
102a
115a
132a
140a

49
29
7
49
4
32
34
12

2,347
2,209
2,333
2,535
2,363
2,527
2,616
2,514

128a
145a
135a
134 a
144 a
146a
141a
157a

77
22
18
11
22

2,565
2,491
2,394
2,378
2,463

146a
150a
164a
153a
150a

1 Adjusted for seasonal variation, except where indicated. Except for department store statistics, all indexes are based upon data from outside sources as
follows: lumber, various lumber trade associations; petroleum, cement, copper, and lead, U.S. Bureau of Mines; wheat flour, U.S. Bureau of the Censuselectric power, Federal Power Commission; n onagri cultural and manufacturing employment, U.S. Bureau of Labor Statistics and cooperating state agencies’
retail food prices, U.S. Bureau of Labor Statistics; carloadings, various railroads and railroad associations; and foreign trade, U.S. Bureau of the Census’
2 Daily average.
3 N ot adjusted for seasonal variation.
4 Excludes fish, fruit, and vegetable canning.
« Los Angeles, San Francisco and
Seattle indexes combined.
6 Commercial cargo only, in physical volume, for Los Angeles, San Francisco, San Diego, Oregon, and Washington customs
districts; starting with July 1950, “ special category” exports are excluded because of security reasons.
7 Annual figures are as of end of year monthly
figures as of last Wednesday in month or, where applicable, as of call report date.
8 Demand deposits, excluding interbank and U.S. G ov’t deposits less
cash items in process of collection. Monthly data partly estimated.
9 Average rates on loans made in five major cities during the first 15 days of the month
w End of year and end of month figures.
11 Changes from end of previous month or year.
« Minus sign indicates flow of funds out of the District
in the case of commercial operations, and excess of receipts over disbursements in the case of Treasury operations.
18 Debits to total deposit accounts
prior to 1942, debits to demand deposit accounts from 1942 on, excluding interbank deposits.
a— New revised series. See N O T E on page 86.
r__ revised