FEDERAL RESERVE BANK OF CHICAGO ANNUAL REPORT 1956

To the Member Banks of the Seventh Federal Reserve District:

I am pleased to submit to you this Forty-second Annual Report of the Federal Reserve Bank of Chicago, covering the operations during the year 1956. In addi­ tion to the summary of Bank operations the Report includes a detailed review of the basic economic structures of two District cities— Indianapolis and Milwaukee. This is the third in a series of studies of the distinguishing characteristics of Seventh District “areas” to appear in the Annual Report. Clifford S. Young retired on February 28, after 35 years of devoted service to the Bank. He started here in 1921 as an Assistant Examiner, subsequently served as Assistant Federal Reserve Agent, as Secretary, as Vice President, and as President of the Bank from 1941 until his retirement. “Hap” Young’s knowledge of Midwest banks and bankers, together with his warm personal qualities, made countless friends and represented a most important asset for the Federal Reserve Bank of Chicago and the Federal Reserve System. December 31 saw the retirement of Assistant Vice President Mark A. Lies, a “charter employee” who had served the Bank since the day it opened for business in 1914 and in recent years was the capable manager of our bank building. Mr. Lies also left us with the respect and affection of a host of friends. Carl E. Allen, who had been a Class “C” Director and Deputy Chairman of the Board, succeeded Mr. Young as President of the Bank on October 1. J. Stuart Russell was then appointed Deputy Chairman of the Board, and Robert P. Briggs, Executive Vice President of Consumers Power Company, Jackson, Michigan, was appointed a Class “C” Director to succeed Mr. Allen in the latter capacity. J. Thomas Smith, President of the Detroit Harvester Company, was appointed Director of the Branch to fill a vacancy on the Board. C. V. Patterson, Executive Vice President of the Upjohn Company, Kalamazoo, Michigan, was appointed Director of the Detroit Branch to succeed William M. Day, President, Michigan Bell Telephone Company. The past year set many records in the economic life of our country. As a result the volume of business handled by many departments of the Bank was larger than ever before. On behalf of our Directors, Officers and Staff, I extend our deep appreciation to you our stockholders for your understanding cooperation and assistance.

Very truly yours, (L President carl E. allen took office as President of the Federal Reserve Bank of Chicago on October 1, 1956. Prior to that time Mr. Allen had served as Director and Deputy Chairman of the Board of the Chi­ cago Bank and since 1950 had been President of Campbell, Wyant and Cannon Foundry Company of Muskegon, Michigan. A long career in commercial banking preceded his service as a Midwest industrialist. From 1926 to 1950, Mr. Allen was associated with the National City Bank of New York where he served as a Vice Presi­ dent from 1940 to 1950. When announcing selection of the new chief executive officer of the Bank, Bert R. Prall, Chairman of the Board, said, “In selecting Mr. Allen we have a man who can give the Federal Reserve Bank the kind of leadership this great area needs. The Chicago District is the largest in point of population, has more banks than any other District, and leads all others in many of the basic industries of our economy. He has a broad commercial banking experience, is an out­ standing industrialist, and being 51 years of age will give continuity to management.” Mr. Allen was born in Carbondale, Illinois, is a graduate of Phillips Academy, Andover, Massachusetts, and of Dartmouth Col­ lege. He is married and has four children. FEDERAL RESERVE BANK OF CHICAGO

Chairman and Federal Reserve Agent Deputy Chairman Bert R. Prall J. Stuart Russell Chicago, Illinois Farm Editor Des Moines Register and Tribune Des Moines, Iowa

Robert P. Briggs Walter J. Cummings W illiam J. Grede Executive Vice President Chairman of the Board President Consumers Power Company Continental Illinois National Bank G rede Foundries, Inc. Jackson, Michigan and Trust Company of Chicago Milwaukee, Wisconsin Chicago, Illinois

William A. Hanley Walter E. Hawkinson Vivian W. Johnson Director Vice President in Charge of Finance President Eli Lilly and Company and Secretary First National Bank Indianapolis, Indiana Allis-Chalmers Mfg. Co. C edar Falls, Iowa Milwaukee, Wisconsin

Nugent R. Oberwortmann President The North Shore National Bank of Chicago Chicago, Illinois

MEMBER OF FEDERAL ADVISORY COUNCIL

Homer J. Livingston President The First National Bank of Chicago Chicago, Illinois

MEMBERS OF INDUSTRIAL ADVISORY COMMITTEE

C. Harvey Bradley John W. Evers Walter Harnischfeger Chairman of the Advisory Board President President W. J. Holliday & Company Commonwealth Edison Company Harnischfeger Corporation Division of Jones and Laughlin Chicago, Illinois Milwaukee, Wisconsin Steel Corporation Indianapolis, Indiana

Edward M. Kerwin James L. Palmer Senior Vice President President E. J. Brach and Sons Marshall Field & Company Chicago, Illinois Chicago, Illinois

DETROIT BRANCH DIRECTORS

Chairm an Ira A. Moore John A. Hannah Howard P. Parshall Chairman of the Board President President Peoples National Bank of Grand Rapids Michigan State University Bank of the Commonwealth Grand Rapids, Michigan - East Lansing, Michigan Detroit, Michigan

C. V. Patterson Raymond T. Perring Ernest W. Potter Executive Vice President President President Upjohn Company The Detroit Bank and Trust Company Citizens Commercial & Savings Bank Kalamazoo, Michigan Detroit, Michigan Flint, M ichigan

J. Thomas Smith President Detroit Harvester Company Detroit, Michigan FEDERAL RESERVE BANK OF CHICAGO

OFFICERS CARL E. ALLEN ERNEST C. HARRIS President First Vice President

NEIL B. DAW ES, Vice President and Secretary GEORGE W. MITCHELL, Vice President

WILFORD R. DIERCKS, Vice President HAROLD J. NEWMAN, Vice President

ARTHUR M. GUSTAVSON, Vice President ARTHUR L. OLSON, Vice President

PAUL C. HODGE, Vice President, RUSSEL A. SWANEY, Vice President General Counsel and Assistant Secretary WILLIAM W. TURNER, Vice President CLARENCE T. LAIBLY, Vice President

LAURENCE H. JONES, Cashier

ERNEST T. BAUGHMAN, ROBERT C. HOLLAND, Assistant Vice President Assistant Vice President

PHIL C. CARROLL, Assistant Vice President BRUCE L. SMYTH, Assistant Vice President

EDWARD A. HEATH, Assistant Vice President C. PAUL VAN ZANTE, and Assistant Secretary Assistant Vice President

HUGH J. HELMER, Assistant Vice President H. FRED W ILSO N , Assistant Vice President

CARL E. BIERBAUER, Assistant Cashier WILLIAM O. HUME, Assistant Cashier

E D W A R D D. BRISTOW , Assistant Cashier H ARRY S. SCHULTZ, Assistant Cashier

LE ROY A. DAVIS, Assistant Cashier ELMER F. SHIREY, Assistant Cashier

LE ROY W. DAWSON, Assistant Cashier ROBERT E. SORG, Assistant Cashier

FRED H. G R IM M , Assistant Cashier JOSEPH J. SRP, JR., Assistant Cashier

VICTOR A. HANSEN, Assistant Cashier GEORGE T. TUCKER, Assistant Cashier

JOHN J. ENDRES, General Auditor CHARLES J. SCANLON, Chief Examiner

FRED A. DONS, Assistant General Auditor LELAND M. ROSS, Assistant Chief Examiner

WILLIAM C. GALLAGHER, Assistant Counsel

DETROIT BRANCH

RUSSEL A. SWANEY, Vice President PAUL F. CAREY, Assistant Cashier

RICHARD W. BLOOMFIELD, ARTHUR J. WIEGANDT, Assistant Cashier Assistant Vice President GORDON W. LAMPHERE, HAROLD L. DIEHL, Cashier Assistant General Counsel FEDERAL RESERVE BANK OF CHICAGO

ANNUAL REPORT

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■ j ! •, Indianapolis Milwaukee big town, boom town old firms and new investment page 7 page 22 Big, thriving economies page 6

Activities in 1956 Assets and liabilities 41 Earnings and expenses 46 Operations: volume, personnel, membership 48 Big, thriving economies

ne way to better understand the workings try. A city’s well-being, therefore, depends mainly of the dynamic and complex American economy is to on the external markets for the products in which examine differing regional and local economic con­ it specializes and on the effectiveness with which its ditions and trends. For nonfarm activities, the basic producers compete for these markets. For example, molecules in the economic fabric are metropolitan payrolls, employment, retail sales and bank deposits areas— cities and their environs. Thus the way to in most eastern Michigan cities are closely related study differences in molecular structure in the Mid­ to the sales of their principal “export” products— west is to appraise the economic specialization which motor vehicles and parts. differs considerably from one city to another and An appraisal of a city’s economic structure re­ imparts to each a distinctive set of economic char­ quires not only an examination of the present and acteristics. prospective demand for its exports, but also an What makes for prosperity, stability and growth analysis of investment in the community and how it in a metropolitan area? To some extent, a city’s way is financed— whether from the savings of local citi­ of making its living is a circular process. People zens and businesses, through local financial institu­ “take in each other’s washing”—that is, a fair pro­ tions, or in the national capital markets. For portion of the workers in every community earn their economic activities on current account— “exporting” keep by producing goods and services for each other. and serving local needs— while the main, are not the This kind of local specialization has existed in cities only things indicative of a city’s resources and pros­ for centuries. However, ours is an interdependent pects. The extent and tempo of construction activity national, not local, economy. No modern city pro­ —capital formation—whether new plant and equip­ duces within its own borders all the building ma­ ment, housing or public construction, are other criti­ terials, clothing, home appliances, automobiles, ma­ cal indicators for the future. chinery and equipment its citizens want to buy. In A community’s ability to maintain and improve highly developed countries, the advanced state of its competitive position as an “exporter,” for ex­ technology permits cities and regions to specialize in ample, depends in part on the condition of its phys­ the production of the things which they can make ical plant and what is happening to this plant. While most efficiently. it makes little difference if the capital formation in To buy the “imported” goods and services its an area is financed from local or national savings, residents need, a community must produce goods the net savings position of the community— on and services which it can sell outside its own bor­ balance whether it is acquiring more financial assets ders. In other words, it must “export,” and in sub­ and capital goods than it is using up— reflects the stantial volume, if its citizens are to enjoy the great accretions to or sapping of its long-term financial variety of goods which go to make up a high standard strength. of living. And since a large proportion of sales within Though an analysis of an urban economy is in­ a city are to individuals and firms deriving their complete without a careful scrutiny of the local earnings from “export” activities, enterprises which investment and savings process, our stories of In­ primarily serve the local market, like trade and serv­ dianapolis and Milwaukee highlight the current eco­ ice establishments, depend for their success ultimately nomic picture with particular emphasis on the on the community’s “exporters.” “export” industries. This is for two reasons. First, Moreover, with infrequent exceptions, the activities any thorough-going appraisal of the capital situa­ that comprise a city’s “taking in its own washing” are tion requires far more information on how much a similar from place to place. Services rendered by community saves and how it uses its savings than is laundries, lawyers and doctors, bakeries and a va­ yet at hand. Second, the “export” activities rather riety of retail establishments are roughly propor­ than the local ones are what give an area its dis­ tionate in different cities in the same part of the coun­ tinctive structure and flavor.

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B I G TOWN, BOOM TOWN

ndiana’s boom town, during the last decade, has been Indianapolis. This is rather a new experience for the community. Through most of its history In­ dianapolis has had the leisurely rate of growth typical of the regional trade, transportation and government center it has been, rather than the onrushing expan­ L*1, ‘i» , ' » * Q.u » |jr* Bjfl sion found in Midwestern cities which became fac­ !»■ tory towns in their early days. IWNL - • * j ' ' Forty years after Indianapolis made its first ap­ pearance in Census records—in 1840, with 2,962 inhabitants—its population had reached the 75,000 mark. It was the eighteenth largest city in the north­ eastern quarter of the country, but its economic make-up was more like that of southern cities of similar size than that of its neighbors to the north. In that year— 1880— close to two-thirds of Indian­ apolis’ 28,000 working people were employed in trade, transportation, government and service indus­ a percentage increase one-fourth greater than nation­ tries. In other northern cities, the proportion was wide. Manufacturing employment meantime more little more than half. Manufacturing was about one- than doubled—a rate of increase nearly half again as fourth less important in Indianapolis than elsewhere rapid as that for the country as a whole. Indianapolis in the region. Moreover, the city’s major manufac­ today is a very different place from Indianapolis pre­ turing industries were mainly small ones serving its war, rapidly growing, highly industrialized and hav­ immediate hinterland by processing farm products ing shed many of its earlier provincial characteristics. and supplying building materials. Manufacture of The city’s economic renaissance has had various metals and metal products, which was even then aspects. For example, not long ago Indianapolis was growing rapidly in cities like Cleveland, Pittsburgh dominated by locally owned businesses. Today, it is and Chicago was negligible. predominantly an area of branch plants of national After the turn of the century, Indianapolis made corporations—three-fifths of the area’s “export” earn­ its bid for industrial pre-eminence. For a time, it ings from manufacturing originate in these branch looked as though Indianapolis would become a ma­ plants. The branch sector of the local economy is jor, or even the main, automobile center. This was the one which has expanded most, as more and more accompanied by rapid population growth—40 per firms have found Indianapolis to be a good place to cent in each of the first two decades of the century. locate new or expanded operations. This is typical of But the promise faded before Detroit’s performance, most cities showing recent growth, for national firms and the city’s growth slowed down. In the Twenties, have been decentralizing at a rapid rate. However, Indianapolis barely held its own in manufacturing, Indianapolis has experienced more branch expan­ and during this decade its population increase was sion and more merging of local firms into national appreciably less than in other cities in the same size ones than almost any other big city. class. The following decade, of course, was hardly Yet another, change has been in the character of one of economic growth, and very little population the area’s labor force. Historically, the area’s indus­ increase occurred either here or nationwide. tries have been characterized by their needs for rel­ World War II changed all this. From 1939 to atively unskilled labor. In large part, this is because 1956, the value of Marion County’s factory output one of its great advantages has been its proximity to increased from 140 to 940 million dollars. This was the country’s huge pool of underemployed workers

Federal Reserve Bank of Chicago 7 in the rural South. For many of these people Indian­ seventh of the area’s total “export” earnings, from apolis is but one step on the way north to their first manufacturing and nonmanufacturing activities alike. factory jobs. Thus the community has long been well There is reason to believe that there was much less located for industry using untrained help. Today concentration in the past, if only because nonmanu­ these people work in highly automatic, and in some facturing “export” earners were relatively more im­ cases automated, plants which pay high wages for portant. modest skills. All this has continued, but in addi­ tion, Indianapolis now boasts one of the largest con­ The economy's dimensions centrations of engineering and research talent in the Marion County’s nonfarm population is over Midwest. This is a result of the war-stimulated loca­ 610,000, nearly half again as much as a generation tion of defense-related establishments, which have ago. In 1956, there were on the average about further expanded since 1945. Today, Indianapolis 313,000 people at work in the county’s business and probably has a higher ratio of engineers to produc­ government establishments, a fair number of whom tion workers than almost any other Midwestern in­ resided outside the county. They produced goods and dustrial city. services worth 1.9 billion dollars. This was the com­ Associated with these developments has been a munity’s contribution to the country’s output—that loss of diversity in the local economy. This seems is, the value of the goods and services it turned out paradoxical, for at first glance Indianapolis with so less the cost of raw materials and energy “imported” many businesses of so many types looks like one of from outside the area and incorporated in the fin­ the country’s more diversified cities. But the variety ished product. About half of this value was added in of industry is more apparent than real. The five manufacturing industries and half in trade, transpor­ largest industries account for half of the “export” tation, finances, government and so on. Close to earnings generated by manufacturing. These are in­ three-fifths of the value added occurred in producing dustries narrowly defined—so-called “3-digit” indus­ for “export,” that is, in producing goods and services tries like drugs and medicines or aircraft and sold outside the borders of Marion County or to parts. Moreover, defense activities account for one- people living outside the county. Not all of this value added represents earnings available to the area’s businesses and residents, for the Indianapolis economy is characterized by a rather high proportion of both branch establishments earning profits for dividend payment or retention by per cent of U.S. totals 0.8 national corporations and commuters who live out­ side the county but earn wages and salaries within it. Funds which the community spent for its consump­ tion, the additions to its capital plant, and its con­ tribution via taxes to the costs of running the state and Federal governments totaled about 1.7 billion dollars. This total was spent— to buy the locally produced goods and services consumed locally or used in capital forma­ tion ...... about 800 million dollars to pay for the “imported” goods and services consumed locally or used in capital forma­ tion ...... about 600 million dollars to pay state and Federal taxes . . . about 350 million dollars Indianapolis had a small apparent deficit in its “bal­

population nonfarm total manufacturing value added ance of payments” with the rest of the world. This labor force nonfarm employment by output-value manufacture was offset by a significant inflow of new money from added outside financial institutions and businesses to help finance a quarter billion dollars’ worth of new capital formation—factories, stores, homes, public facilities Marion County compared with the nation, 1956 and the like.

8 Annual Report, 1956 The analogy with foreign trade can be carried this may give a misleading impression as to what further. If Marion County were an independent na­ makes the community “tick.” As the table shows, tion with its own currency and all the other perqui­ consumer goods yield pride of place economically, sites of sovereignty, it could, as we have seen, if not visually, to producer durables. supply not quite half its needs from its own resources. To pay for the necessary “imports,” it would have Millions for turbines to earn “foreign exchange”— dollars—by selling “abroad.” In effect, the community does this. Who Most important economically, most conspicuous then are the “exchange” earners, the sources of “ex­ visually and in many respects newest physically of port” earnings? What are their prospects for growth all the area’s enterprises is the Allison Division of and stability? General Motors. Allison’s Marion County plants and In broad outlines, Indianapolis’ sources of “ex­ its divisional headquarters employ over 15,000 peo­ port” earnings are similar to those of most Midwest ple— almost 5 per cent of the area’s labor force. cities. With the exception of Madison, Wisconsin, Popularly, Allison is synonomous with aircraft virtually every Midwest city of metropolitan area engines, principally for the nation’s defense. This size (50,000 or more population) obtains at least popular image is a valid one, and with a vengeance. three-fourths of its “export” earnings from manu­ During World War II, Allison had upwards of 20,000 facturing. In Indianapolis, manufacturing’s share is people at work producing reciprocating aircraft en- close to four-fifths. As in most other cities in the region, durable goods manufacture—mostly metals and things made of metal— prevails, accounting for more than two-thirds of manufacturing “exports.” Where the "export" earnings Again, Indianapolis is characteristic in that it depends come from — Indianapolis heavily on farm-oriented industry, that is, processing farm products and supplying farmers with machinery, Per cent of total fertilizer and so on, and on production tied to the M anufacturing: ...... 78 automobile industry. Together, farm-related and Producer durables...... 35 auto-related manufacturing yield about 30 per cent aircraft and parts...... 10 of manufacturing “export” earnings and almost a trucks, buses and parts ...... 8 fourth of all “export” earnings. o t h e r...... 17 Despite the similarities in broad outline, Indian­ Consumer durables...... 20 autos and parts...... 8 apolis is rather unusual in a number of particulars. other ...... 12 Virtually alone among sizable Midwest cities, it is Consumer soft goods ...... 17 important in chemicals and aircraft, each of which drugs and medicines...... 9 industries accounts for more than a tenth of “ex­ food products ...... 5 port” earnings. Partly as a consequence, the area other ...... 3 Other manufacturing ...... 6 depends more on both soft goods and military de­ Nonm anufacturing: ...... 22 mand than most of its large neighbors. Here, then, Utilities (including transportation)...... 7 are the differences in detail which explain the com­ T r a d e ...... 5 munity’s recent performance and future outlook. G ove rn m en t...... 7 Many of the city’s newer and more conspicuous Finance, services, etc...... 4 plants house consumer goods manufacturers, and

Federal Reserve Bank of Chicago 9 Population growth million dollar program of expansion of its gas tur­ in Marion County, Indiana bine engine development facilities in Indianapolis. This is all General Motors money; it is far and away thousands 7 0 0 r the country’s largest expenditure of private funds for an aircraft research and development center. Although its aircraft engine volume continues to grow, this is hardly all that Allison does in Indian­ 1956 6 0 0 apolis. In fact, some of the other operations— mostly nonmilitary— are growing even more rapidly. These include the production of heavy transmissions for 1950 trucks, buses and off-the-road vehicles, other trans­ missions for light and medium tanks and ordnance vehicles, heavy duty bearings, and parts for GM’s 1940 Electromotive Division. Allison’s importance to In­ dianapolis is emphasized by its growth rate. Allison’s' 1930 output is of things likely to be in heavy demand over the long pull, and its investment in development work indicates that it is not likely to be threatened by technological change. There are other local representatives of the air­

3 0 0 craft industry. In this group is Indiana Gear works, a producer of gears for aircraft engines and airframes and, most important, transmissions for helicopters. Somewhat larger is the South Wind Division of the Stewart-Warner Corporation, most of whose produc­ tion consists of stainless steel alloy heat exchangers for jet aircraft. Stewart-Warner employs about 1,200 people locally and makes automobile and domestic heaters as well. The growth element, however, is the aircraft business.

A varied three hundred The 17 per cent of “export” earnings derived from 0 “other producer durables” is accounted for by about 300 large and small firms producing metals and metal products which are primarily capital goods. Their products cover a wide range, but in the main are gines for the military. Since then, it has produced machines of various types and machine parts. Since close to 30,000 gas turbine engines, having delivered they serve so many industries with so many different its first turbo-jet engine to the Air Force in early products, the prospects for this segment of Indian­ 1945 and its first turbo-prop engine in 1952. Allison apolis’ economy cannot be readily characterized. But continues in the front rank of American military the larger firms will serve as examples. aircraft engine producers and now is gaining new The Link-Belt Company’s two Indianapolis plants stature (and, more important, volume) as the pro­ make it the area’s foremost machinery producer. ducer of the engines to power the Lockheed Electra, With close to 4,000 employees, it is the community’s America’s first turbo-prop commercial airliner. The sixth largest “exchange” earner. Link-Belt is a far- Electra has been ordered by a number of the nation’s flung firm, headquartered in Chicago, which since major air lines and will be serving American cities 1875 has made equipment for moving materials and in another two years. transmitting power mechanically. Over a third of its To achieve this position, Allison has been long on operations, as measured by employment, are concen­ research and development work. Perhaps a third of trated in Indianapolis. The Ewart plant, larger of the Allison’s employees are in the engineering depart­ two, produces power transmission chains and ments, and the Division is now engaged in a 75 sprockets and houses much of the company’s research

10 Annual Report, 1956 activities. The Dodge plant manufactures anti-fric­ producers, both older and locally owned firms, are tion ball and roller bearings. Link-Belt products are the Insley Manufacturing Company, which makes ex­ sold to every major industry in the country, and con­ cavators, cranes and concrete-handling equipment, sequently the firm’s operations tend to mirror na­ and Hetherington and Berner, Inc., which makes as­ tional trends in manufacturing industry. A sign of the phalt paving machinery and does some structural steel firm’s optimism about its local operations is given fabrication and erection as well. This industry to by the fact that it is currently making a substantial some extent shows the way in which a big city grows addition to the Ewart plant’s capacity, which entails of its own momentum, for its needs for specialized building an entirely new foundry. Ih 1957 construc­ services and supplies— especially from foundries and tion of a new plant will begin on a new site, to machine shops—virtually require location in or near replace the Dodge plant with a much larger facility. a major industrial center. Another firm, with similar prospects and similar Other large firms among the varied 300 capital products, is the Diamond Chain Company which em­ goods manufacturers which have been growing and ploys 1,500 persons. It produces roller chain and anticipate continued growth in Indianapolis produce sprockets of all sizes, items which are sold to every such diverse things as saws and saw blades, cylinders manufacturing industry in the country for all kinds for industrial gases and all types of centrifugal, ver­ of industrial uses. Sales of roller chain, unlike other tical turbine and hydrofoil pumps. durables with more specialized uses, over the years have exhibited a striking correlation with gross na­ Motor vehicles — two industries tional product. Diamond Chain, incidentally, is one One reason that Indianapolis’ apparent vulnerability of many old local companies which have recently to the automotive industry’s ups and downs is some­ become parts of national corporations. In this case, what misleading is that about half its output of things the 65-year old firm was bought out by American which go into finished motor vehicles is for trucks Steel Foundries in December 1950. and buses as distinct from passenger cars. The two Another phase of the machinery business well rep­ types of vehicles face rather different demand situa­ resented in Indianapolis is the construction equip­ tions. In the postwar period their sales have often ment industry, which employs about 2,000 locally. fluctuated in different directions and always in dif­ This is an industry which has fared very well indeed ferent degree. in view of the record levels of heavy construction So Indianapolis really has two motor vehicle in­ activity of recent years, levels which are expected to dustries. They are of equal importance right now, be exceeded in the near future, especially as the new though the balance is shortly to be tipped in favor Federal highway program gains impetus. The largest firm here is the J. D. Adams Division of the Le Tour- Value added by manufacture in Marion County neau-Westinghouse Com­ pany. Motor graders are million dollars P « cent < * “ S total Adams’ principal prod­ ucts; loaders and portable concrete mixers round out the line. Adams, too, is an older local firm recently merged into a national company. It appears to have particularly good prospects, even for the construction machinery business, and it has done relatively well in the past even in depressed periods, perhaps because of its large foreign business. Two oth­ SOURCES: 1919-54, Census of Manufactures, Department of Commerce; 1956 estimated by Federal Reserve Bank of Chicago. er construction machinery

Federal Reserve Bank of Chicago 11 Bricks, mortar and machines— ing outlays declined while business plant and equipment expenditures rose for the country as a 250 million dollars' worth whole. Nationwide, the major types of capital for­ mation accounted for these percentages of the total in the years shown: In the past two years, Indianapolis’ businesses, citi­ zens and public agencies have been spending about 250 million dollars a year to renew and expand the 1929 1939 1948 1955 community’s homes, business establishments and H o u s in g ...... 21 21 20 24 public facilities. This total includes both new con­ Private plant and equipment. . . . 63 48 68 57 struction and new equipment going into houses, Public plant and equipment*. . .. 16 31 12 19 apartments, factories, stores, office buildings, utility Total amount (billions)...... $17.3 $13.0 $42.2 $69.5 plant, schools, roads, sewers, hospitals and so on. In other words, the community is devoting about 1 ‘ Excluding military equipment out of every 7 available dollars to real capital for­ mation. This is a high rate, but to be expected in a Recently the construction of new housing has been rapidly growing economy. The country as a whole the biggest single item in the investment total in In­ is devoting about the same proportion of its re­ dianapolis. Over 6,000 new homes have been built sources to comparable types of capital formation. in Marion County in each of the last few years. Capital formation is a highly variable thing. It Investment in new housing, including the costs of varies over time, rising when business expectations converting raw land into developed lots, has been are optimistic, mortgage money easy and community running at the rate of 100 million dollars a year. The facilities inadequate, and falling under opposite con­ varied investments which lumped together comprise ditions. It varies from place to place, depending on business plant and equipment expenditures total an area’s rate of economic and population growth about 115 million dollars annually, more than half and the possibilities for profitably exploiting local of which is accounted for by manufacturing indus­ resources by heavy applications of new investment. tries. Finally, new community facilities and equip­ The types of capital formation vary in relative im­ ment purchased or built by both public agencies and portance, too— for example, during 1956 new hous- private nonprofit organizations, such as hospital and church groups, amount to about 40 million dollars a year. Few owners of new long-lived physical facilities or Where the information comes from equipment finance their capital expenditures entirely These estimates, and their counterparts for earlier years, out of current income. They draw upon their own cannot be found in any published material. They are based accumulated savings and, more important, by resort to in part on regularly published figures, such as the 1954 Census of Manufactures, the F. W. Dodge construction contract financial institutions and capital markets, the savings awards series, local data on building permits and permit valu­ which other people and firms are currently accumu­ ations, and the Union Title Company's monthly series on mort­ lating. An important distinction for a particular gage recordings by lender. This material has been supple­ community is the extent to which its own savings mented by information secured from company reports and finance local investment and the extent to which cap­ prospectuses and from numerous interviews with capital-form­ ing companies and lenders, to name |ust the principal sources. ital funds flow in from elsewhere. All American The figures presented here are rough estimates of what has cities “export” some capital to other areas, when been going on in Indianapolis for the past two years. local firms expand their branch operations and local

of the passenger car sector. Each produces about 90 engines and castings for the engines, most of which million dollars’ worth of “exchange” earnings— a bit go into Harvester’s own new trucks assembled at over 8 per cent of the total. Fort Wayne and Springfield, Ohio. All the truck International Harvester’s truck engine plant, em­ engines which the company manufactures are made ploying close to 4,000, ranks first in Indianapolis’ here. This operation, then, is geographically well capital goods-type motor vehicle industry. The bulk situated with respect to the product’s destination. A of Harvester’s output here consists of gasoline truck sizable proportion of the local labor force consists

12 Annual Report, 1956 residents buy life insurance and equities of national Most business plant and equipment expenditures companies, for example. Indianapolis is no excep­ are financed from outside sources—probably over tion, but as a rapidly growing community, it has been four-fifths of the total. This is for two reasons. First, able to find uses for most of its savings right in the Indianapolis is by and large a branch plant city, and area. On a net basis, the inflow of capital has been the funds for new or expanded branch plants come substantial recently. from the national corporations’ financial resources. A little less than two-thirds of all investment in In effect, this means the country’s central capital new housing comes from the area’s own savings. markets. Second, even local companies secure most First, down payments on new homes by and large of their funds for expansion by borrowing in nation­ are provided by the home buyers’ savings, in the wide markets. Thus, new shopping centers ordinarily form of either financial holdings or equity in an are financed by loans from insurance companies, and older house sold when the new one is purchased. large utility company bond issues are sold to large Somewhat over half of the remainder, which is pro­ syndicates of underwriters who resell the bonds to vided by mortgage loans, comes from Marion County investors all over the country. A relatively small lenders, mostly banks and savings and loan asso­ amount of expansion money comes from long-term ciations. The rest is supplied by outside lenders, borrowing placed with local investors. principally the larger national life insurance com­ Funds for new community facilities come from lo­ panies. cal sources to a greater extend than do business plant This is a relatively large amount of outside financ­ and equipment funds, but even here outside sources ing, considering the number of large financial insti­ predominate. About 25 million of the 40 million tutions in Indianapolis. However, quite a few of the dollar total represents outside financing. Much of the big local lenders specialize in mortgages on existing outside share is simply Federal and state government properties, while national life insurance companies financing of their own new facilities in the area. In typically invest in FHA and VA guaranteed and in­ addition, Marion County local governments have sured mortgages on new homes. Thus, in 1955, recently sold significant volumes of bonds to na­ local lenders recorded nonfarm mortgages of 20,000 tional underwriters, particularly for schools, sewers dollars or less totaling close to 100 million dollars. and the city’s new airport buildings. Sale of bonds to Less than 40 million dollars of this total was for new local investors and capital outlays financed from home construction or purchase, it is estimated. current revenues make up the locally raised share.

Capital formation in Indianapolis, 1955-56 (amounts are annual rates in millions of dollars)

Purpose Ow ner Character H o u s in g ...... 1 0 0 - H om eow ners...... 100 New construction — housing.... 100 Manufacturing ...... 65 other...... 75 Trade, finance, etc...... 35 Equipm ent...... 80 Private industry...... 115 Utilities — water, electric, gas, telephone, etc...... 20 : Government facilities — roads, Public a g e n c ie s...... 30 schools, airports, etc...... 25 Private schools, churches, hospitals, etc...... 1 0 - Nonprofit institutions...... 10 Total ...... 255 255 255

of foundry workers, for the plant contains a very General Motors’ second major representative in large automatic foundry. International Harvester ac­ Indianapolis is the Chevrolet Division’s largest truck counts for about a third of the country’s output of body and cab manufacturing facility, employing nearly large heavy-duty motor trucks. It is an expanding 3,000 locally. The plant makes bodies for Chevrolet market over-all, for these trucks are used extensively and GMC trucks up to 2Vi tons in size and ships in road building and construction and by the Federal partly assembled components to the Division’s as­ Government, and foreign demand is heavy. sembly plants located all over the country. Thus it,

Federal Reserve Bank of Chicago 13 I

Ansted Corporation

as from the location of large new branch plants in # the Indianapolis area. For example, the Chrysler Corporation about four years ago began operations in a very large (sixteen acres under one roof) brand new plant on the eastern edge of the city. The plant produces Chrysler’s PowerFlite automatic transmissions and, together with an even newer and somewhat larger plant at Kokomo, provides the corporation’s entire supply of automatic transmissions. Chrysler’s current Indian­ apolis employment is approximately 2,500. During 1957, another large new plant will go into operation too, exploits Indianapolis’ very central location. on the city’s eastern edge, this one built by the Ford Chevrolet has been in Indianapolis since 1930, when Motor Company to supply steering gear units for it purchased the old Martin-Parry Body Plant. In the company’s cars and trucks and to produce cold 1935, the old plant was replaced by a new one, which headed items like bolts, nuts, washers and studs. was further expanded in 1946, 1949 and 1953. Ford expects to employ about 3,000 people here. Other important firms mainly in the truck business Similar considerations led both Chrysler and Ford in Indianapolis include the Marmon-Herrington to locate in Indianapolis. Both required a location Company and Ansted Corporation. Marmon-Her­ central to their assembly plants. This requirement rington builds All-Wheel-Drive Ford trucks for cus­ conceivably could be met by any number of places tom uses, large school bus chassis and other special­ in eastern Illinois, central Indiana and western Ohio. ized commercial vehicles. It has a substantial military But along with good sites and the absence of serious business, which is understandable, since during and disadvantages, Indianapolis had an ample actual and before World War II it was one of the country’s potential supply of labor suitable for automotive largest producers of military vehicles. The Ansted plants. Corporation makes metal stampings and assemblies Well over 5,000 people work in other Indianapolis for both automotive and household appliance uses, plants primarily serving the passenger car business, but mostly for original equipment automotive manu­ but not directly part of the major auto companies. facturers, principally commercial vehicle builders. The area’s two large foundry firms produce almost entirely for the automobile industry and employ close The family car — down and up again to 2,000. American Foundry Company’s two plants In the automobile industry’s earlier days, a num­ make rough castings of motor blocks and transmis­ ber of the car makers in the field were Indianapolis sion cases for all Chrysler divisions; the National firms, and for a while Indianapolis was a serious Malleable and Steel Castings Company plant (branch contender with Detroit. But for some time now, cars of a Cleveland firm) produces all kinds of malleable made in Indianapolis have been prized mainly by iron castings for a variety of auto manufacturers. antiquarian members of “Horseless Carriage Clubs.” For both, the location is central to their customers Although there are no cars today “made in Indian­ and getting more so. Other important automotive apolis,” there are large numbers of new car parts and suppliers include: the U. S. Rubber Company’s local components “made in Indianapolis,” and this has plant which makes inner tubes and tubeless tires as been a growing business, perhaps the community’s well as bicycle tires and tubes; the Richardson Com­ most rapidly expanding one. The growth has come pany, which makes cases for automotive storage bat­ not so much from expansion by existing producers teries; the Mouldings Division of Thompson Industries

14 Annual Report, 1956 women. Most of the new and expanded plants in the locally owned firms now subsidiaries of companies Indianapolis area use male labor primarily. While headquartered elsewhere), companies which make in the past there were many job opportunities for bright trim parts for automobiles and appliance manu­ women in the city’s important nonmanufacturing facturers as well; and the Schwitzer Corporation which establishments—trade and government offices, for makes a wide range of products for manufacturers instance— the rapid rise in population might have of gasoline and diesel internal combustion engines thrown the female job-female labor force relation­ for cars, trucks and off-highway vehicles. ship out of balance. Western Electric helps to round Although his car is an American’s first love and out things. most conspicuous purchase aside from his house, The RCA Victor Division of the Radio Corpora­ sales of other types of consumer hard goods in total tion of America, with well over 6,000 employees, exceed by a wide margin outlays for buying new represents an entirely different type of consumer hard cars and accessories. In Indianapolis, too, firms goods. Perhaps the most striking product of RCA whose main business is producing durable goods in Indianapolis is phonograph records, for this is used principally by consumers are a more important the world’s largest phonograph record plant, handling source of “exchange” earnings in the aggregate than the overwhelming bulk of RCA’s record business the automotive plants. In this field, there are a rel­ and turning out records under 200 different labels atively small number of producers, but they are big for almost all major record companies. Records, ones, including the area’s second, third and tenth however, account for a relatively small part of the largest factory employers. plant’s total output. The major product is finished black and white television sets. Indianapolis produces Ringing phones and class rings about half of RCA’s total TV assemblies, most of Communications industries sell services, not the rest being made nearby in Bloomington. The goods, but they could not provide the services with­ second most important product line consists of elec­ out durable equipment. In this sense, the new tele­ tron tubes, a hundred different types of which are phone sets in many American homes are products usually being made at any one time. RCA, too, is of Indianapolis’ largest manufacturer of consumer an important employer of women, and over the long durables. For all the Bell System’s telephone sets pull this should be an expanding source of job op­ are made in Indianapolis by the Western Electric portunities for them. Company, the Bell System’s equipment supplier. P. R. Mallory and Company, a locally head­ They are produced in what is far and away the area’s quartered firm, is yet another large employer classed largest new plant, which employs in the neighbor­ as a producer of “communications equipment.” The hood of 7,500 people. This is an entirely new indus­ actual products of its five local plants are a variety of trial “find” for the community, since previously radio parts, welding materials and multi-purpose elec­ Western Electric had no local operations. And given trical contacts. The neat distinction between pro­ the nature of the Indianapolis economy, with so ducer and consumer durables used in this discussion many major producers exposed to variations in is, in fact, entirely too neat, for some firms serve sales due to either general business trends or the in­ both types of markets and Mallory is one of them. herent volatility of the demand for particular prod­ Among other things, it sells to the electronics indus­ ucts, it is a fortunate “find.” This is because the de­ try, to air-conditioning manufacturers and to auto­ mand for telephone sets is unusually stable over the mobile producers, and it does Government research business cycle, while rising over the long pull. Yet and development work. While over-all the company’s another advantage for the community lies in the fact business is growing, the diversity of its products is that most of Western Electric’s shop employees are such that there is some advantage in dispersed loca-

Federal Reserve Bank of Chicago 15 Major "exchange" earners in Indianapolis tions, and employment locally appears likely to sta­ Local Branch firm t p lan tt bilize at current levels. Aircraft and parts Among the other kinds of consumer hard goods ‘Allison Division, made in volume in Indianapolis are residential heating General Motors Corporation 1 and air-conditioning equipment, manufactured by the South Wind Division, Stewart-Warner Corporation 16 Bryant Division of the Carrier Corporation and some Indiana G ear Works, Inc. 24 smaller companies, aluminum windows and high Trucks, buses and parts school jewelry. This last product, a type seldom as­ International Harvester Co. 6 sociated with a major industrial center, is made by Chevrolet-lndianapolis Division, the Herff-Jones Company, the country’s second larg­ General Motors Corporation 9 est jewelry manufacturer, with over 500 employees. Marmon-Herrington Co., Inc. 31 Ansted Corporation 41

Growth and stability for fair Other producer durables Link Belt Com pany 7 By and large, Indianapolis’ story up to this point P. R. M allory & Co., Inc. 11 has been one of hard goods producers exposed to Diamond Chain Co., Inc. 14 fluctuating demand, of new branch plants and of ‘Bridgeport Brass Company 17 Adams Division, mergers of old local firms into national corporations. Le Tourneau-Westinghouse Co. 19 The area’s second most important “exchange” earner Atkins Saw Division, has exhibited none of these characteristics in its 80- Borg-Warner Corporation 22 year history. It was and is a locally headquartered, Linde Air Products Co., Division of Union Carbide & largely locally owned international corporation with Carbon Corp. 23 an extraordinary record of stability and growth. The Bryant Division, firm of course is Eli Lilly and Company, the country’s Carrier Corporation 27 number one manufacturer and developer of pharma­ Marmon-Herrington Co., Inc. 31 Insley Manufacturing Co. 32 ceutical products. Lilly is truly world-renowned for ‘ Peerless Pump Division, many pharmaceutical firsts, among them its manu­ Food Machinery & Chemical Corp. 34 facture of insulin and more recently in connection Hetherington & Berner 43 with the Salk vaccine. During the 1955 and 1956 Autos and parts nationwide polio immunization programs, Lilly sup­ ‘Chrysler Corporation 10 plied approximately 70 per cent of the total number U. S. Rubber Company 13 of doses supplied by all Manufacturers. About four- American Foundry Co. 15 South Wind Division, fifths of Lilly’s manufacturing operations are in its Stewart-Warner Corporation 16 Indianapolis plants, and together with its local sub­ Schwitzer Corporation 18 sidiaries it employs in the neighborhood of 6,000 National Malleable & Steel persons here. Castings Co. 25 The Richardson Co. 26 An indication of Lilly’s stability is found in its Mouldings Division, experience during the 1930’s, when the company Thompson Industries 29 operated at 80-85 per cent of capacity and increased Zenite Metal Corporation 37 its total sales in every year save one. Nor does it pay Other consumer durables the lower wages which frequently are the price of ‘ Western Electric Com pany Inc. 2 stable employment. Quite the contrary, for average RCA Victor Division, annual earnings per employee are probably higher Radio Corporation of America 3 P. R. Mallory & Co., Inc. 11 at Lilly’s than at any other large firm in the area. U. S. Rubber Company 13 An indication of growth is found in the sales rec­ South Wind Division, ord of the four large Midwestern producers (includ­ Stewart-Warner Corporation 16 ing Lilly) who together form the heart of the Bryant Division, Carrier Corporation 27 pharmaceutical industry. In 1940, their combined Mouldings Division, sales totaled less than 100 million dollars. In 1955, Thompson Industries 29 the total exceeded 400 million dollars. There is every fin assigning numbers, the companies on the map are ranked indication that the industry’s growth will continue or according to the size of the firm's operations in Indianapolis. even accelerate, for as a nation we are devoting an "Local firms" are those headquartered in Indianapolis; "branch plants" are branches of firms whose headquarters increasing share of our rising national income to med­ are located elsewhere. ical care, in part because many medical problems ^Indicates firm locating in Indianapolis since 1939. Note: Some firms are listed more than once; this occurs when the firm's major operations in Indianapolis fall in more than one category.

16 Annual Report, 1956 ^ firms with under 1,000 employees

firms with 1,000 to 2,499 employees

firms with over 2,500 employees

Uncircled numbers indicate branch plants of firms whose main operation is located elsewhere on the map.

Local Branch Local Branch firm f p la n tf firm f p lan tf

Other consumer durables (cont.) Other consumer soft goods Herff-Jones Company 33 Indianapolis Glove Co. 38 Zenite Metal Corporation 37 The Best Foods, Inc. 42 Ansted Corporation 41 Other manufacturing Drugs and medicines Fairmont Glass Works, Inc. 28 Eli Lilly & Com pany 4 Inland Container Corporation 30 Pitman-Moore Division, Standard Brands, Inc. 39 Allied Laboratories, Inc. 35 National Starch Products, Inc. 40 Bemis Brothers Bag Co. 44 Food products Paper Package Co. 45 Kingan Division, American Can Co. 47 Hygrade Food Products 8 Stark & Wetzel, Inc. 20 Nonmanufacturing Stokely-Van Camp, Inc. 21 *U.S. Army Finance Center, Om ar Bakeries Inc. 36 Fort Benjamin Harrison 5 Continental Baking Co. 46 *U.S. Naval Ordnance Plant 12 Telephone equipment4 The auto industry4

Indianapolis' share today output record nationwide Indianapolis' share today output record nationwide per cent, 1947-49-100 per cent,1947-49-KX)

300 300

20C

100

1947

•telephone and telegraph equipment •motor vehicles and equipment

have yielded to research and in part because citizens, A third major food “exporter” is Stokely-Van businesses (through fringe benefits) and governments Camp, Inc., which has its main offices in Indian­ alike seem to place a higher priority than ever before apolis and one cannery which packs mainly non- on medical care. Perhaps because Lilly is already so seasonal items prepared from dry ingredients, like large locally, much of its growth will accrue to its pork and beans (Stokely-Van Camp, incidentally, is new branch plants outside the area. A second, but the country’s largest packer of pork and beans). much smaller, manufacturer of pharmaceuticals in Food producers the country over tend to offer rel­ Indianapolis, the Pitman-Moore Division of Allied atively stable employment over the years, and these Laboratories, however, is apt to grow rapidly in In­ firms are no exception. The food producers, par­ dianapolis. ticularly Stokely’s, are to some extent responsible The second largest segment of the area’s soft for the presence in Indianapolis of a number of con­ goods industries comprises the food manufacturers tainer manufacturers. As many as 500 people are who contribute about 60 million dollars annually in employed making glass bottles and jars, cans, and “export” earnings. About half of the industry’s “ex­ corrugated paper shipping containers for local food ports” and two-fifths of its employment are provided manufacturers. In all, local container producers em­ by meat packing. Almost all of this—4,500 employ­ ploy well over 2,000 persons. ees—occurs in two large plants, Kingan (since 1952 a division of Hygrade Food Products) and Stark & Services, not goods Wetzel, Inc., a locally owned firm. A community’s factories, farms or mines earn “ex­ change” for it by selling goods to customers located elsewhere. Not so its other “exporters,” for their stock in trade is service—transportation services, distribution services, government services, financial services and a variety of others. Even though Indian­ apolis is now primarily an industrial community, its “exported” services still produce earnings of close to a quarter of a billion dollars annually. By and large, Indianapolis’ service “exports” are in connection with one or more of three functions p r o t a m i n e , VACCINE z i n c u performed by the community’s nonmanufacturing en­ v'-'.‘J*0us r.reparAtiOn o' | 1LETIN v,'u s e s types 1. 2. * * * .! • *QU4l proportion#). I terprises. One function is to provide the area’s factory . INSULIN, L int) r'J k,,lr:e>' o itu<# | O ^ I N E ZINC iNSllU ^aiaei'.yesc k.n “exporters” with services that are essential to their "■A LILLY operations. Transportation services, electric power, •'hukc Carefully __j water, gas and telephone service are in a very real ^Co.,Indmrupolil,u5 sense ingredients of the finished manufactured goods sold outside the metropolitan area. Thus much of the efforts of the area’s 6,400 railroad workers, Eli Lilly & Com pany 5,700 trucking workers and 9,200 utility employees

18 Annual Report, 1956 Aircraft engines* The pharmaceutical industry*

output record nationwide Indianapolis' share today output record nationwide percent 1947-49-100 / 566 551 370640 per cent, 1947-49-100

...... 1947 49 '51 * 3 *55 1947 '49

aircraft engines and parts •drugs and medicines

contributes to the value of manufactured “exports.” to local customers. Two of the area’s large Federal A second function the city performs is to be a Government establishments are also distinctive types regional trading and financial center. For example, of “export” earners. Any large city is likely to have well over a third of the sales of the area’s 1,200 a substantial body of Federal employees working in wholesale establishments are to customers outside a variety of common agencies, such as the Post Office. Marion County. Indianapolis’ larger department Indianapolis has 6,000 such Federal workers. But in stores are well known and well stocked and do an addition, it has two military installations, the only extensive business with nonresidents, perhaps larger ones of their kind in the country. One is the U. S. (as a proportion of total sales) than any other de­ Naval Ordnance Plant, with over 2,500 employees partment stores in the Midwest. The city’s important (a third of them engineers) doing research and de­ banks have networks of correspondent relationships velopment work and production engineering on avi­ with country banks throughout central and southern ation fire control equipment. The plant is housed Indiana and in neighboring states. in the old Norden bombsight factory, a completely A third function is to be the state’s capital city. air-conditioned plant built in 1941 and taken over The state government in its various Indianapolis by the Navy in 1945. The plant is designed for the activities, including the Indiana University profes­ most precise of precision work, is replete with test­ sional schools located here, employs over 5,000 peo­ ing chambers and laboratories, and conducts a full ple, and their wages and salaries make up close to a three-year apprenticeship program to develop the tenth of the area’s nonmanufacturing “export” earn­ high degree of skills needed. It is a major factor in ings. In addition, it seems that all capital cities at­ the research and development orientation which now tract headquarters of all types of statewide, regional typifies much of Indianapolis’ economic activity. or even national organizations. Indianapolis is the The second and newer military installation is the headquarters of companies and associations ranging Army’s Fort Benjamin Harrison which includes the from Indiana Bell to the American Legion and the Army Finance Center and two important service United Brotherhood of Carpenters. It is also home schools. The Finance Center handles the bulk of the town for 40 insurance companies, nearly all of whom Army’s financial mechanics, including the writing of do a regional as distinct from a national business. In most of its checks. All told, there are nearly 5,500 these varied head offices, upwards of 10,000 people civilian employees at the Fort. work in part to service customers and members in "The joys of a free economy" other communities. Some of the city’s service “exports” do not fit Any community’s future hinges on the answers to under any of these headings. For example, the Citi­ a few strategic questions. For instance, will its major zens Gas and Coke Utility as a by-product of its gas employers grow over the long pull? That can be service normally supplies approximately 12 per cent reworded: in a changing world, will local firms con­ of the nation’s foundry coke requirements. In 1955, tinue to produce the goods and services people else­ coke revenues amounted to nearly 12 million dol­ where want, at costs low enough to compete? lars. These revenues are largely “export” earnings, Another issue is how much new activity the com­ used in this case to reduce long-run gas service costs munity can attract. A third is how vulnerable local

Federal Reserve Bank of Chicago 19 Major "exchange" earners in Milwaukee

Local Branch Local Branch firm ! plan tf firm f p lant! Electric generating, transmission Other producer durables and distribution apparatus A. O. Smith Corporation 2 Allis-Chalmers Manufacturing Co. 1 *AC Spark Plug Division, Allen-Bradley Company 4 General Motors Corporation 6 Cutler-Hammer, Inc. 5 Briggs & Stratton Corp. 8 Louis Allis Com pany 12 International Harvester Co. 9 Industrial Controller Division, Nordberg Manufacturing Co. 14 Square D Company 18 firms with under 1,000 employees Globe-Union Inc. 15 Line Material Company, Kearney & Trecker Corp. 19 Division of McGraw Edison Company 29 The Heil Com pany 21 firms with 2,500 employees or over Construction and mining machinery; *X-Ray Department, structural metal products General Electric Co. 22 Uncircled numbers indicate branch plants of firms Wisconsin Motor Corp. 25 Allis-Chalmers Manufacturing Co. 1 whose main operation is located elsewhere on the map. Waukesha Motor Company 26 International Harvester Co. 9 .CAPITOL PR Harnischfeger Corporation 11 George J. Meyer Manufacturing Co. 42 Pressed Steel Tank Co. Bucyrus-Erie Company 13 44 Nordberg Manufacturing Co. 14 Cleaver-Brooks Company 58 Chain Belt Com pany 17 Geuder, Paeschke & Frey Co. 61 Perfex Corporation The Heil Company 21 72 .CENTER ST. Koehring Company 33 Wagner Iron Works 81 The Vilter Manufacturing Co. Inland Steel Products Co. 38 86 Trackson Company 56 Autos and parts Unit Crane & Shovel Corp. 70 T. L. Smith Company 75 A. O. Smith Corporation 2 Wisconsin Bridge & Iron Co. 94 American Motors Corporation 7 WISCONSIN AVI Stolper Steel Products Corp. 98 Other consumer durables Castings, forgings and other metals Allen-Bradley Company 4 Ladish Company 3 Cutler-Hammer, Inc. 5 Babcock & Wilcox Co. 35 GREENFIELD AVE Briggs & Stratton Corp. 8 Grede Foundries, Inc. 46 Globe-Union Inc. 15 Ampco Metal, Inc. 55 The Heil Com pany 21 C .» » W RR Crucible Steel Casting Co., Division John Oster Manufacturing Co. 28 of Consolidated Foundries, Inc. 0/C7 Harley-Davidson Motor Co. W ehr Steel Com pany 64 30 Outboard Marine & Manufacturing Maynard Electrical Steel Casting Co. 68 Co. .A NOMA Waukesha Works, 31 *Hotpoint Company, International Harvester Co. 71/ 1 Division of General Electric Co. Investment Casting Division, 37 Badger Meter Manufacturing Co. 40 Howard Foundry Co. 76 Johnson Service Co. 41 Interstate Drop Forge Co. 85 Milwaukee Gas Specialty Co. 45 Waukesha Foundry Co. 87 Motor Castings Co. 88 A P Controls Division, LAYTON AVE Controls Company of America Sivyer Steel Casting Co. 89 53 Unit Drop Forge Co., Geuder, Paeschke & Frey Co. 61 Master Lock Co. 63 Division of Fuller Manufacturing Co 93 Foundry Division, Mueller Climatrol, Division of Worthington Corp. Appleton Electric Co. 96 65 Universal-Rundle Corp. 84 General industrial machinery Allis-Chalmers Manufacturing Co. 1 Beer and malt Local Branch Local Branch firm f plantf firm f plantf The Falk Corporation 16 Jos. Schlitz Brewing Co. 10 Other, manufacturing and Other, manufacturing and Chain Belt Com pany 17 Miller Brewing Co. 20 LeRoi Division, r manufacturing nonmanufacturing (continued) Pabst Brewing Co. 23 Milwaukee Solvay Coke Co. Westinghouse Air Brake Co. 50 Blatz Brewing Company, . .rfhwestern Mutual Life Insurance Co. 24 A. Geo. Schulz Co. Blackhawk Manufacturing Co. 69 Division of Schenley Industries, Inc. 39 Simplex Shoe Manufacturing Co. 74 The Oilgear Company 73 Froedtert Corporation 97 Milprint, Incorporated 34 Cornell Paperboard Products Co. 36 Wisconsin Cuneo Press, Inc. Phoenix Hosiery Company 78 Food products Nunn-Bush Shoe Company 43 "Hn assigning numbers, the companies on the map are ranked •American Can Company. 47 A. F. Gallun & Sons Corp. 80 according to the size of the firm's operations in Milwaukee. Cudahy Brothers Company 27 Albert Trostel & Sons Co. 48 Pfister & Vogel Tanning Com pany 82 Local firms" are those headquartered in Milwaukee; "branch Plankinton Packing Co., Rhea Manufacturing Co. 49 Junior House, Inc. 83 plants" are branches of firms whose headquarters are located Division of Swift & Co. 32 elsewhere. •Continental Can Co., Inc. 52 Gugler Lithographic Co. 90 Robert A. Johnston Co. 51 •Indicates firm locating in Milwaukee since 1939. Herbst Shoe Manufacturing Co. 91 Omar Bakeries Pittsburgh Plate Glass Co. 59 Note: Some firms are listed more than once; this occurs when 54 Downing Box Company 95 Oswald Jaeger Baking Co. Weyenberg Shoe Manufacturing Co. 60 the firm's major operations in Milwaukee fall in more than 79 United States Glue Division, one category. Red Star Yeast & Products Co. 92 Eagle Knitting Mills, Inc. 62 Peter Cooper Corporation 99 General industrial machinery The heavy electrical equipment industry*

Milwaukee's share today output record nationwide Milwaukee's share today output record nationwide per cent,1947-49*100 per cent,1947-49-100

300

200

00

electric generating, transmission, distribution and industrial apparatus

and mining are likely to do very well, the Milwau­ waukee area ranks fourth in the United States as a kee economy is not apt to benefit in direct propor­ producer of castings and forgings— after Chicago, tion to the increase in volume, for a number of the Cleveland and Detroit, all much larger places. Alone companies in these industries are likely to provide it accounts for about a tenth of the country’s output much of the increased production in plants located of forgings. The area also produces about 5 per cent elsewhere. Unquestionably there will be, if present of the varied forms of “general industrial machinery.” plans hold good, a significant increase in employ­ This large leftover group of capital goods manu­ ment locally, but by and large there will be little facturers includes the community’s third and sixth plant expansion. This is partly because capacity, by largest employers whose combined employment here dint of recent expansion of facilities, is more than is over 10,000. One is the Ladish Company in adequate. Cudahy, which produces drop forgings and pipe fit­ tings. The other is the Milwaukee facilities of the The other quarter AC Spark Plug Division of General Motors. It pro­ duces not spark plugs or other automotive products Fully one-fourth of the community’s “export” earnings comes from the output of other types of cap­ —those are made in Flint—but bombing navigation­ ital goods. “Other types” cover products that serve a al and guided missile devices. AC thus is the area’s wide range of industries. For the most part, they one important producer for the military. It has op­ are not finished products, but items which go into erated in Milwaukee since 1948 in Air Force owned finished products as they are or after further machin­ facilities. Right now, however, a new 5 million dollar ing. The two biggest groupings are, first, castings plant is under construction in what has been hereto­ and forgings, and second, what is known in official fore Milwaukee County’s only “empty quarter”— Government statistics as “general industrial machin­ Oak Creek Township, south of the County Airport. ery and equipment,” a category which ranges from exhaust fans to escalators and includes all types of things not designed for specific industries. The Mil­

The Heil Company

30 Annual Report, 1956 Engines (nonautomobile)* The construction machinery industry4

Mtlwaukees share today output record nationwide Milwaukee's share today output record nationwide per cent, 1947-49*100 per cent, 1947-49*100

300

200

100

947 49 1947 49» * » %

*diesel and internal combustion engines, excluding Construction and mining machinery most auto and aircraft engines

Another capital goods producer whose customers try, producing for a variety of industries and cus­ cover the industrial spectrum is the Falk Corpora­ tomers. In Milwaukee, automotive production— tion, an old Milwaukee company which makes gears chassis frames, control arms and parts— makes up and gear accessories and flexible couplings. well over half the total. Most important of the re­ Other important capital goods producers, their maining items, all capital goods, are what the com­ approximate employment and their major products pany designates “Tubular Products,” that is, welded include (an asterisk indicates that the firm is a Mil­ pipe of large diameter for oil and gas transmission waukee company): lines and oil well casing. Still other products are pressure vessels for the petroleum, paper and chem­

Kearney and Trecker Corporation. 2,200 metal working machinery ical industries, heat exchangers, and welding equip­ Wisconsin Motor Corporation. . . . 1,700 engines for farm equipment ment. Basically, the outlook for all these products and industrial uses is good; however, the firm is highly sensitive to the Babcock and Wilcox Co ...... 1,200 steel tubing, welding fittings *George J. Meyer Mfg. Co ...... 950 bottling machinery vicissitudes of the industries served and of particular *Grede Foundries, Inc...... 950 iron and steel castings customers, since individual customers each tend to *Pressed Steel Tank Co ...... 900 pressure tanks and cylinders account for large portions of the output of the vari­ LeRoi Div., Westinghouse A ir Brake C o ...... 750 industrial engines and com­ ous lines. The company is a heavy user of steel, pressors and the present and prospective short supply in Mil­ *Ampco Metal, Inc...... 650 copper and brass castings and extrusions waukee and Chicago of some of the steel items it Crucible Steel Castings Co., Div. consumes may be a distinctly limiting factor on local of Consolidated Foundries, Inc. 600 steel castings growth. Thus, for example, A. O. Smith two years *Wehr Steel Co ...... 50 0 steel castings ago built a new frame plant in Granite City, Illinois, *Maynard Electrical Steel Casting C o ...... 50 0 steel castings in part to be near a locally ample steel supply. *Blackhawk Manufacturing Co. . . 500 hydraulic jacks, pumps and In recent years, the share of the “independents” rams *Perfex Corporation ...... 500 heat transfer products

Inescapably— the automobile Although auto-related output is a considerably smaller share of total activity in the Milwaukee area than almost anyplace else in the Midwest, nonetheless it is the community’s most important consumer dur- able goods industry. Almost all of the nearly 100 million dollars in “export” earnings derived from • passenger car activities is accounted for by the oper­ ations of two companies, the area’s second and seventh largest employers. The number two spot is occupied by the A. O. Smith Corporation, with 8,700 employees. A. O. Smith, a Milwaukee company dating back to the 1870’s, has nine other plants elsewhere in the coun­

Federal Reserve Bank of Chicago 31 The foundry industry* Forgings* Milwaukee's share today output record nationwide output record nationwide per cen^1947-49*100 percent, 1947-49-100

*iron and steel foundries 'steel forgings

in the automobile industry has declined and been Products which are incorporated in new or re­ quite vulnerable to variations in volume. This has modeled houses—a fourth of the consumer hard markedly affected employment and activity at the goods sector—include such things as furnaces, shut­ American Motors Corporation plant in Milwaukee, off devices for gas furnaces and other gas appliances, which produces a very substantial portion of the controls for heating and refrigeration, plumbing fix­ bodies for American Motors cars, including all tures and water meters. Some of the firms—all of bodies, except station wagons, for the Rambler, the these have between 400 and 1,000 employees— in­ corporation’s basic volume car. The Rambler has clude the Mueller Climatrol Division of Worthington been doing well and is expected to do better, and Corporation, the Milwaukee Gas Specialty Company, there is some hope that the firm’s Milwaukee em­ the A P Controls Division of the Controls Corpora­ ployment will be more stable than it has been, at tion of America, the Universal-Rundle Corporation around 3,500. American Motors also has a plastics and the Badger Meter Manufacturing Company. factory making appliance parts, and its central auto­ There are three large firms producing items which motive parts depot is in Milwaukee. assist housewives or homeowners in their chores. Two are appliance makers, the John Oster Manu­ For housewives and homeowners facturing Company and the Milwaukee plant of General Electric’s Hotpoint Company. Oster’s main Milwaukee does not hold a ranking position as products are small household appliances, such as a center for the manufacture of consumer hard goods blenders, food mixers, meat grinders and so on. In as a class. Nonetheless, consumer durables account addition, the company makes portable electric tools, for a tenth of the area’s “export” earnings, for there barber and beauty supplies and miscellaneous un­ are a dozen large firms in the business in the com­ branded durables. Oster relies for growth in part on munity, a few of them leading producers of special the constant introduction of new products, for small types of consumer durables. The area’s output can appliances tend to have low saturation points. It has be divided into hard goods which go into the build­ been a very successful competitor in a highly com­ ing or remodeling of houses, those used in everyday petitive industry and has grown substantially in Mil­ household operation, and those which are more or waukee recently. For example, employment rose less recreational in nature. from 1,000 to about 1,500 in the past three years, and plant capacity rose significantly, too. Hotpoint, with 1,100 employees, produces dish­ washers, electric water heaters, kitchen waste dis­ posers and modular kitchens in Milwaukee. Like GE’s x-ray operation here, Hotpoint is a postwar immigrant to the area. The types of appliances pro­ duced locally are among those with the greatest growth potential over the next decade. The Briggs & Stratton Corporation is the largest

A. O. Smith Corporation Milwaukee firm which can be classed as a producer

32 Annual Report, 1956 of consumer hard goods, with over 4,200 employ­ engines, in both consumer goods (like garden trac­ ees. During the past five years, Briggs & Stratton’s tors) and industrial equipment, have expanded. To growth has been truly phenomenal, and in this peri­ handle the increase, Briggs & Stratton in 1954 and od it has been the area’s most rapidly expanding 1955 built a new 10 million dollar plant in Wauwa­ enterprise by a wide margin. The reason: power tosa, thereby nearly doubling its factory floor space. lawn mowers. Briggs & Stratton is the world’s largest Milwaukee’s one large representative in the elec­ manufacturer of single cylinder, four-cycle, air-cooled tronics field is Globe-Union, Inc., which has 2,500 gasoline engines and of automotive locks, switches employees in four Milwaukee plants. Globe-Union and related equipment, which, however, account for makes some automotive storage batteries here, but only about 15 per cent of sales. The company’s its main output consists of mechanical and ceramic engines have a wide range of uses and markets, but electronic parts and subassemblies for radio and TV reliable sources estimate that three-fourths of the makers and producers of all sorts of electronic equip­ units (equaling two-thirds of the dollar volume) are ment for industry. For the electronics industry, it sold to power lawn mower manufacturers, most of is an old firm and is a pioneer in all sorts of new whom are supplied by Briggs & Stratton. developments for a rapidly changing industry. For Power lawn mowers have been avidly accepted example, it originated the technique of “printing” by consumers. In 1947, fewer than 400,000 were complete electronic circuits and is today the largest sold; in 1954, 1,350,000 were sold. By 1955, sales producer of packaged circuits. reached 2.1 million units and in 1956 probably passed the two and three-quarter million mark. More­ On land and sea: pleasure over, the market is far from saturated, and the newer Industries which provide goods and services to rotary-type mowers are apt to need more frequent occupy Americans’ leisure time have done very well replacement. In addition, other uses of the firm’s recently. Milwaukee has two big producers of hard goods for recreational use, on dry land and on water. The earthbound one is the Harley-Davidson Motor Company, the country’s sole manufacturer of motorcycles, with over 1,300 employees. Harley-

Harley-Davidson Motor Co.

Federal Reserve Bank of Chicago 33 Davidson makes a full range of types and models of all Wisconsin, beer compared to champagne, beer motorcycles, for sports, police and commercial use, worthy of blue ribbons, beer made with famous but the sports field is much the most important. Waukesha water, to mention just those most renown­ Right now, Harley-Davidson is doing well with both ed outside the metropolitan area. Milwaukee is still sports and police models and in the face of con­ the nation’s beer-making capital, accounting for one- siderable competition from foreign producers whose tenth of the country’s production of beer and malt costs are about one-fourth lower. The company has and housing four huge breweries and a number of met this competition in part because it has built a smaller ones and some major independent malt pro­ strong dealer organization over the years and in part ducers. The three largest— Schlitz, Miller and Pabst because its models are designed and engineered — produce three of the only four brands having more in keeping with the preferences of American truly nationwide distribution. The fourth largest customers. Its optimism about the future is tempered brewery, Blatz, produces one of the country’s very by awareness of the unusual degree of sensitivity of largest selling regionally distributed beers. All told, sports motorcycle sales to the business cycle. the breweries, the malt plants and the container The Outboard Marine and Manufacturing Com­ plants producing for the beer companies employ 11,- pany of Waukegan employs about 1,300 in Milwau­ 000 people. However, beer is hardly one of the area’s kee, producing Evinrude outboard motors. Outboard brighter spots, as far as growth is concerned, and boating has been among the most rapidly growing for two reasons: the beer business nationwide is not of American recreational activities, and inevitably a growing and brewing is decentralizing. Beer sales well-known name like Evinrude has done well. In have been stable in total for some while and have 1954, the Milwaukee plant was doubled in size; in been declining per capita. The industry as a whole 1956, it was increased by an additional three-fourths. has the capacity to produce nearly half again as much as it now does. The soft goods' seventh Decentralized brewing apparently pays; that is, The area’s softer segment is largely composed of the economies of avoiding long distance transpor­ “export” production of things to eat, drink and wear. tation of a product whose weight is mostly water It is dominated by what outsiders, no doubt mis­ offset difficulties in quality control and the enormous takenly, often think even more representative of costs of new capacity. Take Schlitz, for example, Milwaukee than the Braves— that is, beer. As every­ the world’s number one producer with 1955 sales one knows, the local brews include beer that made of nearly six million barrels. It has spent about 100 the city famous, beer that is first in Milwaukee and million dollars on expansion—outside Milwaukee— in the last decade, and this value added In manufacture US.prlvate Investment past fall announced plans billion dollars billion dollars to build a new 20 million 2 ° ------50 dollar, one million barrel capacity brewery in Tam­ pa, Florida. The Milwau­ kee area ten years ago accounted for over 13 per cent of total beer output, compared with slightly less than 10 per cent now. And beer has lost out, as a consequence, in its share of the community’s ex­ panding economy. Ten years ago it made up near­ ly 12 per cent of the value of the area’s factory out­ put; now it comprises less than 7 per cent. In short, Factory output in Milwaukee area swings with beer is no longer the dy­ U.S. private investment outlays namic expander it was in

34 Annual Report, 1956 bygone days. The huge Milwaukee's port— area from which export cargo originated— 1955 investment in existing fa­ cilities means that the in­ dustry will continue to yield a considerable—and stable— income to the area, however. The shoe and shoe leath­ er industry is another old Milwaukee standby which has declined considerably in importance over the years, partly because some of the bigger firms have grown slowly and partly because some of the firms have gone out of business or migrated elsewhere. In the past decade, employ­ ment and output in the industry in the area have dropped by one-fourth. In 1947, the industry had nearly 5 per cent of factory considerable service sector merely to satisfy its own output; now its share is less than 2 per cent. Al­ everyday needs. By catering to these needs, in the though Milwaukee is now a far less important center course of a year the stores, utilities, financial insti­ of the industry than it once was, it still has a number tutions and the like in almost any big city derive of large tanners— Albert Trostel & Sons, A. F. Gal- total earnings— that is, wages and salaries and prof­ lun, Pfister & Vogel— and some nationally known its—in excess of 1,000 dollars per person residing shoe manufacturers—Nunn-Bush, Weyenberg, Sim­ in the area. In Milwaukee’s case, this amounts to plex, Herbst, to name the larger ones. There is some well over a billion dollars. evidence that the downturn has stopped and that However, a more important reason for the rela­ local shoe and leather producers will be able to tively small proportion of the community’s income compete successfully and hold their own. coming from these intangible “exports” is simply Two good-sized meat packing firms are also im­ the fact that the area is geographically poorly situ­ portant “exchange” earners in the consumer goods ated to act as a regional distribution center. The sectors. The Cudahy Brothers Company, a local area’s geographic disadvantages are twofold. First, firm, and the Plankinton Packing Company, a sub­ unlike Indianapolis or most other cities, it is not in sidiary of Swift & Company, are both full-line pack­ the center of a roughly circular-shaped hinterland, ers who serve the local market but also “export” for Lake Michigan occupies the eastern half of the heavily. Their combined employment totals nearly circle. Thus, Milwaukee trading firms can do busi­ 3,000. Other soft goods “exporters” include candy ness only to the north, south and west. But then they makers and a number of clothing manufacturers face a second disadvantage, for Milwaukee is rela­ who have done well enough, despite Milwaukee’s tively close to rival and well-developed trading high wage economy, to resist the blandishments of centers— most notably Chicago to the south, but also the South. Madison to the west and Green Bay to the north. In short, within a few miles of downtown Milwau­ Intangible "exports" kee, probably less than forty, local trade firms find Although in absolute terms nonmanufacturing in­ it difficult to compete in cost and service with their dustries are substantial in Milwaukee—they employ rivals in nearby metropolitan centers. about 280 thousand people—“exported” services This is the result. The Milwaukee area, three- provide an exceptionally small proportion of the fourths again as large as Indianapolis in population, community’s earnings. In part this is because an ur­ employs only one-third more people in wholesale ban community of Milwaukee’s size requires a very trade and only 40 per cent more in retail trade.

Federal Reserve Bank of Chicago 35 Milwaukeeans' incomes fords what is probably the most detailed snapshot of an individual community’s income yet available in the United States. More relevantly for this Re­ The basic figures for this study of Milwaukee’s port, it provides some detail on income from small economy, that is, the estimates of the community’s business and professional activities— the weakest earnings and their disposition, were pieced together element in the underlying data— and points up some from a wide variety of sources—Government sta­ interesting contrasts between the Milwaukee area tistics, company reports, personal interviews with and the country as a whole. officers of the principal “exchange” earners, to name Access to the tax returns for the purposes of this a few. The resulting estimates are necessarily very study was granted by Wisconsin’s Commissioner of rough indeed. In part to cross-check these estimates, Taxation, Mr. H. W. Harder, following a request a sample culled from the 435,000 individual income by the Board of Governors of the Federal Reserve tax returns for the year 1955 filed by Milwaukee System. The actual sampling was made in Milwau­ County residents under Wisconsin’s state income kee, with the assistance and cooperation of Mr. tax laws was examined by the Federal Reserve Bank Merrill Sawyer, Assessor of Incomes for the Mil­ of Chicago last summer and fall. This survey af- waukee district, Mr. B. N. Schwellenbach, Deputy Assessor of Incomes, and their staff. Summaries of The sources of personal income, 1955 the tabulations are avail­ Milwaukee County United States able on request to the Re­ Persons with adjusted Personal search Department. All persons gross income: nonfarm One contrast between money filing under over Milwaukee County and the tax returns $ 1 0 ,0 0 0 $ 1 0 ,0 0 0 income1 (per cent of total) rest of the country is in Wages and salaries ...... 8 5 91 5 3 8 0 sources of income. In Mil­ Interest and dividends...... 4 2 12 7 waukee County, about 85 Rent ...... 2 2 1 2 per cent of the gross in­ Unincorporated businesses and professions...... 7 4 21 11 come of more than 1.9 bil­ * Capital gains ...... 2 10 1 lion dollars reported for O t h e r ...... 1 1 3 — tax purposes came from Total...... 100 100 100 100 wages and salaries. For the United States in 1955, 1 U.S. data exclude capital gains and nontaxable transfer payments. * Less than 0.5 per cent. wages and salaries pro-

The 1954 Census of Business (really a census of geographic in origin. In wholesaling, much of the trade firms) provides interesting comparisons of the difference per capita is accounted for by the small two areas: volume of wholesale sales of farm products by Mil­ waukee firms. In fact, Indianapolis wholesalers sell­ Sales Payrolls Milwaukee Indianapolis Milwaukee Indianapolis ing and brokering farm products had 1954 sales (million dollars) almost three and a half times as large as their Mil­ Wholesale 1,900* 1,885 106 84 Retail 1,267 827 148 106 waukee counterparts. In retailing most of the per Selected services 175 113 50 37 capita difference is in the sales of “general merchan­ *Partly estimated, for Waukesha County. dise stores,” which are just those most likely to sell In all these measures, Milwaukee falls below Indi­ to people from outside the metropolitan area. anapolis when reduced to a per capita basis. This Moreover, even aside from trade the Milwaukee is not because incomes are lower here; quite the metropolitan area has few large service enterprises contrary, for Milwaukee is an area of very high which have an important impact on the community’s wage rates and large amounts of property income. “export” earnings, in contrast to places like Madison The reason lies in Milwaukee’s lesser prowess as a and Indianapolis. Among the few such establish­ regional distribution center, a factor which is largely ments are the Northwestern Mutual Life Insurance

36 Annual Report, 1956 vided a smaller proportion— about 80 per cent— A considerable gap separates the estimates of the of nonfarm money income. Non-wage and salary community’s earnings used to appraise the area’s sources were less important in Milwaukee even economy and estimated gross income for tax pur­ though capital gains, which were unusually large in poses derived from the income tax return sample. 1955, are included in the Milwaukee figures as tax­ The community’s earnings, in the sense of this Re­ able income but excluded from national personal port, are essentially equal to the value it adds to income statistics. However, it is readily understand­ goods and services used locally and “exported.” But able, since Milwaukee is primarily a manufacturing value added in production of goods and services in­ center with many high wage employees and high cludes a lot that is not personal income taxable salaried supervisory and executive personnel. More­ under Wisconsin law. For one thing, it includes the over, the service sector is relatively small in the area, value of the plant and equipment “used up” in the and it is this sector in which unincorporated enter­ course of a year—depreciation. Second, Milwaukee’s prises often predominate. Thus the share of total economy has a large corporate sector. Actual pay­ personal income contributed by unincorporated busi­ ments by local corporations to resident stockholders, nesses and professional activities is relatively small creditors and employees constitute taxable personal here. income, but undistributed profits, corporate income What kinds of business produce the 135 million taxes, and dividends and interest paid to nonresidents dollars of business and professional income? The do not. Third, not all personal income is or need returns sampled permit a breakdown into a number be reported for tax purposes—for example, com­ of broad categories. From this breakdown, it is clear pensation for injuries or incomes below the minimum that small business in Milwaukee is important in the requirements for filing tax returns. Roughly, a rec­ local, not the “export,” sector. onciliation should look like this:

Per cent of Total value added, business and professional billion income dollars Industry Milwaukee and Waukesha Counties...... 3.3

Construction ...... 8 Less: 1. depreciation ...... 4 Manufacturing ...... 5 2. the corporate sector...... 5 Wholesale trade ...... 8 3. income not taxable or not Retail trade ...... 25 reported for tax purposes...... 3 Finance ...... 8 Equals: Services, including professional...... 40 estimated adjusted gross income O t h e r...... 6 for tax purposes, Milwaukee and 100 Waukesha Counties...... 2.1

Company, the Milwaukee Road shops, the Braves sidered part of the manufacturing sector of the and the city’s outstanding port facilities. The North­ Milwaukee economy. western Mutual, which has about 1,700 employees The Braves’ contribution to the community’s “ex­ in the area, is the nation’s sixth largest insurance port” earnings is a real one. The ball games have company in terms of assets, which were nearly 3lA attracted substantial numbers of cash customers for billion dollars at the beginning of 1956. It is by a the area’s retailers, restaurants, hotels and the like. very considerable margin the Midwest’s largest life Less tangibly, for many Americans, a city without insurance company and does well in sales in the a major league team is “bush,” one with a con­ upper Midwest. The Milwaukee Road’s shops, em­ tender is an exciting place to live. And attitudes ploying 2,300, are the principal shops for the entire toward a city’s desirability as a place to live have system, doing all the railroad’s heavy repair work a surprisingly powerful impact on marginal decisions and building much of its rolling stock— a rather about location of industry. unusual feature since most rail carriers purchase Milwaukee’s port facilities are among the best on rolling stock from outside manufacturers. In a sense, the Great Lakes. They contribute to “export” earn­ therefore, the “export” earnings which can be at­ ings in a number of ways. For one thing, the port tributed to the shops should more properly be con­ enhances the competitive position of local manufac-

Federal Reserve Bank of Chicago 3 7 What about taxes? differences among communities in the same state may well be greater than among states considered as a whole. Within any one state, the state government Anywhere in the United States, similarly situated may account for say half the burdens and benefits citizens and businesses generally pay the same Fed­ occasioned by state-local fiscal systems. Differences eral taxes and benefit from the same Federal serv­ among individual communities— limited to the other ices. But it is possible, and indeed common, for state half of state-local activities— must be weighed on a and local government taxes and services to create case-by-case basis. distinctive economic environments. Local prefer­ The figures in the table are rough ones, based on ences, geography, the extent of urbanization, the rate necessarily fragmentary sources. Another caution is of population growth, the income base of the com­ that there is no practical way to compare the quality munity, even its ethnic composition all can give rise and quantity of public services provided except by to substantial differences in the scope of government, contrasting dollar amounts of expenditure. Bearing in public agency costs and in revenue measures used. this in mind, the most striking thing about the table These variations in local choice and in local limita­ is that the differences are as small as they are. For tions and advantages work through the 48 state and example,, excluding outlays on roads and streets, over 100,000 local governments that operate in the public agency expenditures per capita are roughly United States. Whatever the extent of differences in similar in the five states. In most categories of both local fiscal systems, local economies require high revenue and expenditure, Iowa, Michigan and Wis­ standards of public services to meet competitive in­ consin are on the high side, while Illinois and Indiana dustry’s needs for water, sewers and transport fa­ tend to be low. cilities, to train the future labor force, and to provide The high level of property taxes frequently com­ the amenities which make communities “a good mented upon in Wisconsin reflects the fact that local place to live.” governments do more jobs than in other states, Differences in state and local government serv­ financed to a greater extent from local revenue ices and costs are economically significant only sources. The state’s income taxes on individuals and among locations with reasonably comparable access corporations raise money that elsewhere in the Mid­ to markets and raw materials. The accompanying west is produced by sales taxes. To some extent, table, therefore, compares the five neighboring states the effect of business taxes, including corporate in­ in the Seventh Federal Reserve District, on a per come taxes, is similar to that of sales taxes, in that capita basis. This is a state-by-state comparison, and such taxes are treated, in part at least, as costs of

turers by lowering transport costs for both finished The port and the Seaway, moreover, are impor­ products and raw materials. It similarly improves tant influences for future growth. By 1960, the port the competitive position of local distributors of goods of Milwaukee should be handling over 500,000 tons which can be “imported” from other parts of the of new general cargo moving via the Seaway (10-12 country or from overseas by water. As a matter of per cent of the total increased Seaway volume), five fact, the St. Lawrence Seaway and associated de­ times its present volume of overseas commerce, velopments may over the years greatly strengthen which in turn represents a fifty-fold increase since Milwaukee wholesalers, who have better access to World War II. Milwaukee can expect to become imported consumer goods, because of the nature of one of a handful of major ocean shipping terminals the port facilities, than many of their competitors on the Great Lakes. Major improvements in the elsewhere in the Midwest. Third, the port facilities facilities at competitive ports, notably Chicago, will themselves provide “export” services, since part of help rather than detract from Milwaukee. This is the port’s business consists of commodities originat­ because of the nature of the general cargo shipping ing or terminating their travels not in Milwaukee business; that is, the more profitable ports of call but in the hinterland. For example, about one-third there are, the greater the inducement to schedule of the coal and petroleum handled in the port is additional sailings to an area. Thus virtually all for interior destinations. Milwaukee’s port handles Chicago-bound overseas shipping calls at Milwaukee. significant quantities of pig iron originating in the Furthermore, Milwaukee is rapidly improving its East and destined for points all over the Midwest. port facilities. Even now, they are outstanding—for

3 8 Annual Report, 1956 doing business and are reflected in prices. The dif­ structing and maintaining roads differ significantly ference is that to the extent business taxes are passed from place to place. Also, the scope of public ac­ on, they are passed on to out-of-state consumers as tivities differs. For example, Indianapolis, alone well as Wisconsin residents. In Indiana, taxes and ex­ among the country’s larger cities, is served by a pri­ penditures per capita are as low as or lower than vate water company. In this instance, private outlays in most neighboring states. But service requirements substitute for charges and expenditures of a govern­ may not be the same. For example, the costs of con­ mental unit.

State and local government per capita

Illinois Indiana Iow a Michigan Wisconsin

Total revenue1 ...... $200 $175 $230 $225 $245 Applies to the states and all local From Federal Government ...... 10 10 25 15 15 units of government and their related agencies and independent authorities. Taxes on: Proceeds of borrowing are excluded. sales2 ...... 43 25 35 54 10 -General and special sales taxes (ex­ business3 ...... 10 10 5 15 30 cept on motor fuel), gross receipts individuals4 ...... 2 10 10 1 30 taxes and net profits from operation of state liquor stores. property ...... 75 65 85 65 85 •'^Corporation income taxe s and li­ Charges and taxes for use of public censes and fees required of specified services and facilities5 ...... 40 45 50 50 65 businesses and occupations. Excludes motor vehicle and operators' licenses. Other ...... 20 10 20 25 10 ^Individual income, death and gift and benefits ta x e s. Total expenditures5 ...... 210 190 235 225 250 5Motor fuel taxes, motor vehicle and operators' licenses, road and bridge Roads and streets...... 35 35 60 30 55 tolls, special assessments, sales of Water, sanitation and publicly owned utility enterprises, commercial earnings of educational other utilities ...... 10 10 15 20 20 institutions, service charges and pro­ ceeds of the sale of products. S c h o o ls ...... 75 75 85 75 70 Health and welfare...... 35 35 35 40 45 (■Applies to the states and a ll local units of government and their related Police and fire...... 15 10 10 15 15 agencies and independent authorities. O t h e r ...... 40 25 30 45 45 Debt repayment is excluded.

SOURCE: The foregoing revenue and expenditure data are approximate current annual rates. Used as bases for the estimates were official state reports on local finances and U. S. Census sources, chiefly the special stu d y. States and Local Government Revenue in 1953, and the 1955 compendia of the finances of state govern­ ments and of cities over 25,000. In some states, reports on property tax levies and on school and highway expenditures were used in filling out the benchmark data and bringing them down to date.

example, Milwaukee is the only Lake Michigan port ican people for more and better of the material which has cranes to handle the really heavy-lift cargo “good things in life,” and the growth in the popu­ — and worth perhaps 25 million dollars in, terms of lation have all been underestimated. Most assuredly, replacement costs. An 8 million dollar improvement there is nothing to indicate that the economy is now program is well advanced, and the city is spending recession-proof; business and government are far a further 3 million dollars for a harbor arterial high­ from being able to completely smooth out all fluc­ way and viaduct. tuations in the tempo of over-all activity. But just as assuredly, the country can avoid disasters like the How long can it go on? 1930’s. The signs are that the underlying forces of The “it” in the subhead question refers to the population, of technology, of business and consumer nation’s rapid growth. For Milwaukee’s future, this attitudes will make for continued growth in many of course is the key question. Inevitably, after years directions. So while Milwaukee’s economy may get of expansion, skeptics question where and when it jolts from time to time, the long-run framework is will end, while others envisage a new era of un­ favorable for a capital goods economy. ending prosperity. Bitter experience has imparted The next question then is, will Milwaukee get its caution, and thus repeatedly in the past decade most share? To an unusual extent, the answer lies in the observers have prophesied the worst—mistakenly. The community’s own hands. For Milwaukee’s natural ability of the American economy to absorb declines advantages are so substantial that it will “get its in particular sectors, the intense desire of the Amer­ share” readily enough if it continues to compete

Federal Reserve Bank of Chicago 3 9 However, some of these unfavorable factors are but one side of a coin with a highly favorable ob­ How Milwaukee makes its way verse. Take wage rates. They are high in the area, Current and what is more, Milwaukee’s capital goods tend rate to be products with a very high labor content. This (m illio n s) The community's earnings — implies that the community constantly faces the from "e xp o rt" activities...... 1,975 danger of pricing itself out of its markets. The trou­ from local activities...... 1,275 ble with this argument, though, is to find the rival t o ta l...... 3,250 centers where lower paid labor produces capital less: portion not available to the community. ... 120 goods of comparable quality. Milwaukee is a high (profits earned by local branches of outside firms, wages and salaries earned by com­ wage town simply because it boasts an incomparable muters who live in other counties) plus: funds from outside the community...... 190 collection of skills. To recruit the skilled labor capa­ (profits earned by outside branches of local ble of producing competitive capital goods, a man­ firms, transfer payments from state and U. S. Governments) ufacturer anywhere else in the country probably The community's available funds...... 3,320 would have to pay wage rates as high, and he would spent for — purchase of local production...... 1,275 not have so large a pool of skilled labor right at "imports" for final use...... 1,100 hand. Take materials availability. Steel may be short payment for state and U. S. Government in Milwaukee right now, but steel capacity in the services (via taxes)...... 600 Chicago region is being expanded somewhat more capital su rp lu s...... 345 (funds spent by local firms for capital for* percentagewise than in the rest of the country. More­ motion elsewhere and net additions to lo­ cally owned financial assets) over, the excellent port facilities— and the Seaway in years to come—lower shipping costs on incom­ ing raw materials as well as outgoing manufactured products. Milwaukee’s problems are largely those of ma­ energetically and to maintain the area’s excellent turity. Maturity, for big cities, is not synonymous physical and civic tone. Potential rivals for Milwau­ with stagnation, however, for a mature metropolis kee’s prestige and position as a capital goods center has all sorts of inherent advantages. Provided it would have to duplicate features which Milwaukee produces things which the rest of the country and already possesses, notably its large supply of highly world will want over the long pull and provided skilled labor and the resourcefulness of its business­ its business and community leaders are alert to the men. Moreover, both workers and entrepreneurs are need for continuous renewal of the area’s facilities, firmly attached to Milwaukee as a place to live and maturity can be synonymous with continued forward momentum, with success. Milwaukee emphatically do business. Despite well-known alleged disadvan­ tages, the area is hardly one of footloose labor and possesses these qualifications for success. migrating businesses. The disadvantages are worth noting. For one thing, the area will grow only if firms now here expand locally. Because of its location and because it is a high wage community, Milwaukee, unlike Jobs in the Milwaukee area*

Indianapolis, is not apt to become a city of new 1 9 5 6 branch plants, at least not an important center for (thousands) big mass-production industries with modest require­ T o t a l...... 487 Machinery ...... 88 ments for very highly skilled labor, like autos and Other metal products and metals...... 60 electronics. Not all the major firms now here will Other manufacturing...... 59 do much expanding locally. In some cases, this is C onstruction...... 30 because decentralization is clearly advantageous and Transportation and utilities...... 32 the firms are already very large in the area. In others, Wholesale trade ...... 26 it is because the firms have considerable excess ca­ Retail trade ...... 76 pacity right now. In still others, high wage rates, Government ...... 35 Business and personal services...... 81 tight labor markets and materials availability are "Milwaukee and Waukesha Counties nonfarm employment. factors—although it should be noted that these are signs of a boom town, not of a depressed community.

40 Annual Report, 1956 FEDERAL RESERVE BANK OF CHICAGO Activities in 1956

D usiness spending on plant and equipment was a major factor in the continued growth of economic ac­ tivity during 1956. The expanded demand for funds to finance such outlays, together with the Federal Reserve’s efforts to restrain inflation, held the spotlight as interest rates rose to their highest levels in over twenty years.

Assets and liabilities

The Federal Reserve Bank of Chicago ranks high change in the Bank’s holdings is illustrated in the among the nation’s financial institutions in total as­ chart which shows movements in the portfolio of sets. Only the Metropolitan and Prudential life in­ Governments for the twelve Reserve Banks com­ surance companies, the Bank of America and the bined. Transactions are not executed by the individ­ Chicago Bank’s sister institution, the Federal Reserve ual Federal Reserve Banks, but rather by the Open Bank of New York, top it in size. In fact, less than Market Account, acting on behalf of the System as a dozen years ago the New York and Chicago Re­ a whole. Since each Reserve Bank is assigned a speci­ serve Banks held first and second places, respectively, fied percentage of the total, the holdings of the Chi­ in total resources. cago Bank mirror those of the entire System. For most private institutions, asset growth is one Government securities, as the Bank’s major asset, measure of success in competing for customers. Re­ provide 94 per cent of its current earnings. Changes serve Bank assets, on the other hand, do not reflect in the volume of its holdings and the composition of the rewards of competitive effort by a particular in­ the portfolio, however, are not determined by profit stitution. Since they are a portion of the security considerations. Rather, security transactions arc behind the entire nation’s supply of money and credit, undertaken as a part of the System’s primary respon­ year-to-year changes in the assets of central banks sibilities—to provide for the nation’s seasonal re­ largely mirror fluctuations in the economy’s over-all quirements of currency and credit and to promote money and credit needs. The magnitude of a particu­ economic growth and stable prices. lar Reserve Bank’s total assets is related mainly to Purchases and sales of Governments for the Open the financial, commercial and industrial activity in its Market Account are the major means by which the District, combined with the effects of international System increases or decreases the capacity of com­ and interdistrict flows of funds and System operations mercial banks to extend credit. Although the manner directed toward influencing the quantity of money in which this operation adds to or shrinks the poten­ and credit. tial supply of credit is not widely understood, in essence it works quite simply through its effects on U. S. G overnm ent securities the reserves of the commercial banking system. Total assets of the Federal Reserve Bank of Chi­ All banks are legally required to maintain some cago amounted to 9,152 million dollars at the end proportion of their customers’ deposits as reserves. of 1956, only 63 million, or less than 1 per cent, Member banks keep these reserves on deposit with higher than a year earlier. Holdings of U. S. Govern­ their Reserve Banks. Nonmembers hold them in vari­ ment securities, the Bank’s principal asset, amounted ous forms, frequently as balances with correspondent to 4,294 million dollars on December 31, registering banks. Since such reserves are for the most part non­ a gain of only 40 million over the previous twelve earning assets, most banks try to keep their reserve months. Yet, through the year, holdings of these se­ balances from exceeding the minimum required by curities fluctuated considerably, reaching a low of law and will endeavor to put any additional reserves 4,048 million dollars in May and subsequently to profitable use. The System can increase or reduce increasing to their year-end level. The pattern of reserves by its open market operations. When more

Federal Reserve Bank of Chicago 41 reserves are made available, the banks will normally reserve base at a level which will satisfy the econo­ turn them into loans or investments. When reserve my’s seasonal and growth needs but which will limit balances are drawn down, on the other hand, the the nation’s credit potential to an amount which is banks may have to borrow or liquidate loans or in­ felt to be commensurate with a sustainable pace of vestments to restore their reserves to required levels. business activity. The Federal Reserve transacts its security opera­ The major swings in the Reserve Banks’ holdings tions in much the same way as does any ordinary of U. S. Government securities reflect the seasonal investor. It buys or sells through recognized Govern­ ups and downs in the nation’s demand for bank ment securities dealers at the market price. When it credit and currency. The first few months of the year, sells an issue from its portfolio, it receives payment for example, are generally marked by a decline on in the normal manner, by check drawn on a com­ the part of both private and public borrowers in their mercial bank. This check, however, does not get re­ need for bank loans. Following the peak fall and deposited in another commercial bank as it would if Christmas activity, inventories and accounts receiva­ the seller of the security were a private party. Rather, ble in many firms are reduced, this being balanced the reserve account of the bank on which the check by a reduction in bank borrowing. The period from was drawn is charged, but there is no offsetting credit February through June, moreover, is one in which to another bank’s deposit at its Reserve Bank. Hence, U. S. Treasury receipts exceed outlays, debt incurred the total reserves of the banking system are reduced. by it in the lean July-December period is then repaid. A purchase by the Federal Reserve System, on the During the first half of the year, therefore, the other hand, increases bank reserves. Payment is made System normally absorbs reserves released by the sea­ by check drawn on a Reserve Bank. When the check sonal downswing in activity by selling securities from is deposited in a commercial bank by the seller of the its portfolio. During the first four months of 1956, security, that bank forwards the check for deposit to the System Open Market Account, including Govern­ its reserve account. This results in an increase in the ments held under repurchase contracts, was reduced reserves in the banking system which will support a by 1.4 billion dollars, and the Chicago Bank’s share correspondingly larger volume of deposits. of the System holdings dropped by approximately Thus, through its open market operations the Sys­ 200 million. tem can, after taking account of other factors influ­ By summer, however, needs for credit begin to encing bank reserves at any particular time, absorb grow. Businessmen start to prepare for the rush sea­ or release funds in amounts sufficient to keep the son by laying in additional raw materials and in­ creasing their stocks of finished merchandise. To finance this increase in current assets, many firms must seek loans from their banks. Farm loans also rise toward year end, and the U. S. Government is billion dollars back in the market as a borrower to cover its second- 25.0“ half deficit. The bulk of seasonal demands, however, is con­ centrated in the last three months of the year. Open market purchases normally provide the reserves need­ ed to support this expansion phase. Last year the System acquired 1.2 billion dollars during this peri­ od, and Chicago’s share rose by 178 million. Although the general pattern of open market op­ erations is dominated by the nation’s seasonal credit and currency requirements, the amounts purchased or sold by the System in a particular period may

dec jan feb mar apr may june july oug sept oct ,nov dec vary, depending on the condition of business and the Federal Reserve’s desire to stimulate or restrain cred­

monthly averages of daily figures it expansion. At a time when the country’s capacity to produce goods and services is being fully utilized and demand for additional products is putting up­ Federal Reserve System holdings ward pressure on prices, the Federal Reserve, in its of U. S. G overnm ent securities, 1956 efforts to restrain credit-based spending, may pur-

42 Annual Report, 1956 Assets December 31, 1956 December 31, 1955 Gold certificates: Redemption fund for Federal Reserve notes . . 160,999,965 155,100,115 Other holdings ...... 3,606,373,286 3,657,306,860 Total gold certificates...... 3,767,373,251 3,812,406,975 Federal Reserve notes of other b a n k s ...... 29,609,000 32,502,000 Other c a s h ...... 48,569,212 50,521,408 Total cash ...... 3,845,551,463 3,895,430,384

Discounts and advances: Member banks ...... 5.500.000 3.200.000 O t h e r ...... 3.500.000 140,000 Total discounts and a d v a n c e s ...... 9,000,000 3.340.000

U.S. Government securities...... 4.293.692.000 4.254.459.000 Total loans and securities...... 4.302.692.000 4.257.799.000

Uncollected cash it e m s ...... 951,921,004 900,963,709 Bank premises...... 5,881,978 6,071,276 Other a sse ts ...... 45,723,306 29,090,920 Total assets ...... 9,151,769,751 9,089,355,291

Liabilities Federal Reserve notes in circulation...... 5,273,438,900 5,190,330,150

Deposits: • Member bank— reserve a c c o u n t s ...... 3,063,567,034 2,987,409,714 U.S. Treasurer— general a c c o u n t ...... 69,236,427 40,009,268 F o r e i g n ...... 41,440,000 54,040,000 O t h e r ...... 22,803,534 16,540,033 Total d e p o s i t s ...... 3,197,046,995 3,097,999,015 Deferred availability cash i t e m s ...... 507,453,042 640,400,521 Other lia b ilit ie s ...... 3,196,867 2,480,427 Total l i a b i l i t i e s ...... 8,981,135,804 8,931,210,113

Capital accounts Capital paid i n ...... 44,407,750 40,487,300 5 Surplus (Section 7 ) ...... 110,421,051 101,893,599 Surplus (Section 1 3 b ) ...... 1,429,384 1,429,384 Other capital accounts...... 14,375,762 14,334,895 Total liabilities and capital accounts . 9,151,769,751 9,089,355,291

Federal Reserve Bank of Chicago 4 3 chase fewer Governments than would be called for Although a member bank can always meet an to provide banks with reserves adequate to satisfy all emergency reserve deficit by recourse to the discount credit demands. On the other hand, when there is window, the System attempts to influence the total slack in the economy—when machinery and workers volume of borrowing in line with its over-all credit are unemployed—the System attempts to stimulate objectives by adjusting the rates at which it will lend spending by making credit more readily available. to its members. The Chicago Reserve Bank, roughly in accord with similar action in other Reserve Dis­ Discounts and advances tricts, boosted its rate from 2 Vi to 23A per cent in Discounts and advances to member banks totaled April and raised it another quarter percentage point 5.5 million dollars on December 31. This year-end in August. figure, however, does not reflect the amount of ac­ Despite these rate increases, member banks used tivity at the Bank’s discount window during the year. the discount window more in 1956 than in 1955. The Most direct credits extended to member banks are peak volume of borrowing by banks in this District in the form of short-term advances on U. S. Govern­ occurred in the week of March 28, just prior to the ment security collateral. Such advances, although in­ Illinois personal property tax assessment date, when itiated at the request of the borrowing bank, generally discounts and advances reached a weekly average reflect pressures resulting from System credit policy. total of 462 million dollars. Fluctuations in this total Borrowing at the Federal Reserve directly adds to throughout the past year are indicated in the accom­ a bank’s reserves, while repayment of such loans re­ panying chart. The average amount of short-term duces the bank’s deposit at its Reserve Bank. Banks reserve credit extended to members for the year as can borrow to tide themselves over while gradually a whole reached 219 million dollars per day, com­ making basic adjustments in assets to unexpected pared with 129 million in 1955. deposit losses. Moreover, they can obtain needed reserves quickly in periods of temporary pressures Member bank reserve accounts whether caused by shifts in deposits or the initial The total of member bank reserve accounts, the uneven impact of Federal Reserve open market sales. crucial determinant of the volume of bank credit,

million dollars

Members increased reliance on Chicago Bank's discount window in 1956

44 Annual Report, 1956 reached 3.1 billion dollars on Decemher 31, 1956, Deposit movements are closely related to ... an increase of 3 per cent over the year-ago figure. These balances rank second only to Federal Reserve billion dollars currency outstanding as a liability of the Federal Re­ serve Bank of Chicago. Individual banks, of course, find it necessary to constantly adjust their reserve balances, since the dis­ tribution of the reserves and deposits of the 6,500 member banks in the nation is continually shifting with the tremendous stream of check payments made by consumers, business, agriculture and government. Most transactions are settled merely by the transfer fluctuations in reserves adjusted for changes of reserve funds from the account of one bank to in reserve requirements. Actual reserves that of another. Such shifts affect the nation’s credit (dotted line) are misleading... potential only when transfers are between classes of billion dollars banks with differing required reserve ratios. But there are several ways by which the aggregate reserves of all member banks are increased or de­ creased. One of these is the purchase or sale of in­ vestments by the Reserve Banks, as discussed above. These open market operations, however, over and above amounts needed to take care of normal eco­ nomic growth, are usually designed to smooth out 14 - the effects of a number of other factors affecting re­ serves to the extent consistent with over-all policy aims. These factors are independent of System action. since the "expansion power" of a Among them are fluctuations in the volume of cur­ reserve dollar varies as the level rency in use by the public, gold exports or imports, of requirements changes. changes in the Treasury’s account with the Reserve Banks and gyrations in the amount of checks delayed in process of collection— the float. Some of these fluctuations have a seasonal pattern while others show substantial movements over very short periods of time; most of them are predictable with varying de­ grees of accuracy; and all of them enter into the decisions of the managers of the Open Market Ac­ count in planning their operations so as to prevent 1950 1951 1952 1953 1954 1955 1956 the resulting reserve changes from causing instability in the money and capital markets. Aside from influencing the volume of credit by Thus, a given volume of reserves will not always altering the volume of reserve balances, the System support the same level of bank deposits. The accom­ can change the percentage of deposits that member panying chart illustrates the movements in deposits banks must hold as reserves with their Reserve Bank. and reserves over the past seven years. The lower A decrease in reserve requirements, for example, re­ section indicates the way in which the “expansion leases for use funds which previously were part of power” of a dollar in reserves changes when require­ a bank’s “required” balances, thus allowing member ments are altered. The lower the requirements, the banks to expand further their loans or investments more powerful is each reserve dollar and the smaller with the same level of reserves. On the other hand, the volume of reserves necessary to support the na­ a boost in the required ratio usually necessitates tion’s deposit total. member banks adding to the funds deposited in their Today, reserves must total at least 20 per cent of reserve accounts. This may entail a reduction in their demand deposits at Central Reserve City banks, 18 earning assets and consequently a decline in the vol­ and 12 per cent respectively at Reserve City and ume of credit-created deposits. Country banks plus, for all members, 5 per cent

Federal Reserve Bank of Chicago 45 of time deposits. Were these requirements in effect Conversely, in the last week of December and early throughout the entire 1950-56 period, the amount of January, the demand for “pocket” money declines reserves in the banking system needed to support the and coins and bills are returned to the commercial same volume of deposits would have differed signifi­ banks, which in turn “sell” the money to their Re­ cantly. The heavy line indicates the trend in reserves serve Banks where it is credited to their reserve bal­ had requirements been constant at present levels. It ances. This return flood of currency accompanies the is this line, therefore, rather than actual reserves (the post-New Year slackening in the demand for credit. dotted line), which traces the path of the nation’s A large portion of System purchases of securities deposit expansion potential through this period. late in the year and sales early in the year is under­ taken to offset the effects on bank reserves of these Federal Reserve notes in circulation currency outflows and inflows which would otherwise Federal Reserve notes constitute the bulk of the accentuate the swings in money pressures. amount of “pocket” currency in use by the public. This currency, together with the checking accounts Federal Reserve "float" in commercial banks, comprises the nation’s money Superimposed on the major seasonal swings caused supply. The outstanding notes of the Federal Re­ by credit needs and currency movements are short­ serve Bank of Chicago— its largest liability account term gyrations in other factors affecting bank re­ — amounted to 5,273 million dollars at the end of serves. Chief among these is the variation in the 1956, slightly higher than a year earlier. The volume amount of Federal Reserve credit received by mem­ of these notes, however, varied from a low of 5,028 ber banks automatically as a product of the System’s million to a high of 5,297 million late in the year. vast check clearing operations. The difference be­ Federal Reserve notes are issued and retired in tween the asset account, uncollected cash items order to satisfy the public’s demand for paper money. (checks which the Reserve Banks have not yet col­ There are substantial seasonal swings in the use of lected), and the liability account, deferred avail­ currency which correspond roughly to the peak peri­ ability cash items (checks received from members ods of business activity. For example, in the month but not yet credited to their reserve accounts), is following Thanksgiving, coin and paper money in the “float.” It normally rises with the increase in circulation in the entire country normally increase checks written about the tenth of the month and about 500 to 600 million dollars to accommodate then declines, a similar pattern being repeated each the splurge in holiday spending. month. The volume of float varied by about 500 mil­ Where does this money come from? Member lion dollars for all twelve Reserve Banks within the banks have to “buy” both currency and coin from average month during 1956. Open market operations their Reserve Banks, paying for it by charging their are the major instrument used in an effort to smooth reserve accounts. Thus, reserves are reduced by the out these wide intra-monthly fluctuations and offset full amount of the currency drain. This drain on bank the disturbing effects of substantial additions to or reserves reduces the banks’ ability to extend credit deductions from reserves which have no particular at the very time demand for credit is greatest. relation to credit needs.

Earnings and expenses

The earnings of the Chicago Federal Reserve Bank increase in the rates on all exchange issues and the reflect the intense credit demands and inflationary higher yield on Treasury bills account for the major pressures that have characterized the past two years. part of the gain. In 1956, the average yield on the The bulge in credit needs, together with monetary Bank’s holdings of Governments was 2.41 per cent, restraint, resulted in rising interest rates during 1956. for an increase of .74 percentage points. Interest received on holdings of U. S. Government Interest on discounts and advances also increased securities rose sharply in 1956 and amounted to 99 substantially. The pressures on member bank reserve million dollars. This represented an increase of 30 positions resulted in a sharp increase in the use of million or 43 per cent above the 1955 receipts. The the Chicago Reserve Bank’s discount window. In Bank’s average holdings of U. S. securities dropped 1 1956, the volume of such borrowings exceeded the per cent from the level of the previbus year. The 1955 figure by 70 per cent. This expanded activity,

4 6 Annual Report, 1956 FEDERAL RESERVE BANK OF C H ICA G O

COMPARATIVE STATEMENT OF EARNINGS AND EXPENSES

Current earnings: 1 9 5 6 1 9 5 5 Discounts and a d v a n c e s ...... 5,942,710 2,507,344 U.S. Government s e c u r itie s ...... 99,442,889 69,427,125 All o t h e r ...... 32,478 156,690 Total current e a r n in g s ...... 105,418,077 72,091,159

Current expenses:

S a l a r i e s ...... 12,148,873 11,518,747 Retirement contributions...... 1,085,475 1,086,488 Postage and expressage ...... 2,249,258 2,165,054 Provision and maintenance of facilities . . . 2,148,548 2,101,606 Assessment for expenses of Board of Governors . 749,600 585,600 Cost of Federal Reserve c u r r e n c y ...... 961,660 810,535 All o t h e r ...... 1,625,351 1,513,675 Total ...... 20,968,765 19,781,705 Less reimbursement for certain fiscal agency and other expenses . . . 3,319,761 3,381,061 Current net e x p e n s e s ...... 17,649,004 16,400,644

Current net e a r n i n g s ...... 87,769,073 55,690,515

Additions to current net earnings: Profits on sales of U.S. Government securities (net) 43,529 7 All o t h e r ...... 44,821 9,047 Total a d d i t i o n s ...... 88,350 9,054

Deductions from current net earnings: Reserves for c o n tin g e n c ie s...... 41,017 44,972 All o t h e r ...... 2,361 20,907 Total deductions...... 43,378 65,879 Net e a r n in g s ...... 87,814,045 55,633,690

Paid U.S. Treasury (interest on F. R. notes) .... 76,747,423 47,949,746 D i v i d e n d s ...... 2,539,170 2,356,233 Transferred to Surplus (Section 7 ) ...... 8,527,452 5,327,711

S u rp lu s A ccount (Section 7)

Surplus January 1 ...... 101,893,599 96,565,888 Transferred to Surplus— as a b o v e ...... 8,527,452 5,327,711

Surplus December 31 ...... 110,421,051 101,893,599

"•'•it#

Federal Reserve Bank of Chicago 4 7 together with two increases in the discount rate cline in the reimbursement for fiscal agency and other charged member banks, more than doubled receipts expenses in 1956 is the result of improved operating from this source. procedures instituted during the year. Current expenses of the Chicago Federal Reserve It has been the practice, in recent years, for the Bank also rose but by a smaller proportion than did Federal Reserve Banks to return the bulk of their current earnings. Expenses during 1956 totaled 21 net earnings to the U. S. Treasury. This procedure million dollars compared with 20 million the pre­ is in keeping with the intent of Congress when the vious year. System was set up and reflects the public interest Salaries accounted for the major part of the in­ in which Federal Reserve functions are undertaken. crease in outlay. These expenditures, which make up Since 1947, this payment has been accomplished by about 60 per cent of current expenses, rose by 600 means of an interest charge on outstanding Federal thousand dollars in 1956, or 6 per cent. This re­ Reserve notes of each Bank, levied by the Board of flected, in large part, the general increases granted Governors and paid to the Treasury. In 1956, the in 1955 and 1956 to Bank employees in keeping with Chicago Bank’s payment to the Treasury was 77 the rising wage scales in the area. The number of million, equal to 90 per cent of the Bank’s net earn­ employees in the Chicago office during 1956 aver­ ings after payment of dividends. aged 2,344, 2 per cent less than in the preceding year. Each year since 1916, the Federal Reserve Bank The Detroit Branch had an average of 512 persons of Chicago has paid dividends on its capital stock on its payroll, for a gain of 5 per cent over the 1955 held by the member banks of the Seventh Federal number. Reserve District. By terms of the Federal Reserve One of the several “fringe” benefits provided Chi­ Act, the annual dividend is cumulative and is set at cago Reserve Bank personnel is a retirement system 6 per cent of the paid-in capital stock. In 1956, such to which both the employees and the Bank contrib­ dividend payments aggregated over 2Vi million dol­ ute. In 1956, the employees’ contribution of 693 lars. They were made to more than a thousand mem­ thousand dollars was more than matched by the 826 ber banks in the five Midwest states included in whole thousand paid in by the Bank. Added to this were or in part in the Seventh District. Bank outlays of 259 thousand for its share of the After all payments to the U. S. Treasury and divi­ social security payments and for supplemental group dends to member banks were effected, the remaining insurance benefits. earnings— 8 Vi million— were transferred to surplus as There are a number of services that Federal Re­ required by Section 7 of the Federal Reserve Act. serve Banks perform for the U. S. Treasury and for This transfer brought the total surplus (Section 7) which the Reserve Banks are reimbursed. The de­ of the Bank to 110 million dollars.

Volume of operations

The record level of business activity in 1956 was checks collected was more than offset by a rise in reflected in the larger volume of transactions in those commercial items. The drop in U. S. items handled departments in the Federal Reserve Bank of Chi­ reflects changes in operating procedures rather than cago which provide the major day-to-day services to a decline in volume of checks issued. In terms of the Seventh District member banks. The Bank’s check number of pieces handled, over-all activity rose by clearing function and its role as the source of all new 6 per cent. coin and paper money and storehouse for excess In order to process the more than a half billion currency are the largest of these services provided items that the Bank collected during the year, the to members in terms of the work force required. check-processing machinery ran three shifts a day Over 40 per cent of Chicago Reserve Bank em­ for six days a week. The task of receiving, sorting ployees are engaged in carrying out these functions. and rerouting the checks that come into the Bank from member banks and Government agencies in Collections Illinois, Indiana, Iowa, Michigan and Wisconsin The Bank’s Chicago and Detroit offices again points reaches a tremendous magnitude. The average handled an increasing volume of checks during 1956. item processed in the Bank goes through two sorts A decline in the dollar amount of Government before it is ready to be sent out for collection.

48 Annual Report, 1956 ■■■M M H^HnnM nM HffimHHNBmHHiM HHi

FEDERAL RESERVE BANK OF C H ICA G O

Collections made through the Federal Reserve Bank

1956 Per cent change from 1955 Detroit Detroit Chicago Branch Total Chicago Branch Total

Dollar volume (millions) Commercial bank checks. . . . 144,414 34,574 178,988 7 12 8 Government checks1...... 12,003 2,080 14,083 - 10 - 13 - 11 Other ite m s...... 1,038 320 1,358 - 14 - 8 - 13

Pieces (millions) Commercial bank checks. . . . 369 86 455 8 10 8 Government checks1 ...... 107 17 124 - 2 4 - 1 * Other items...... 1 1 8 10 9 ‘ Less than $500,000. l Including Postal Money Orders.

Cash department operations

1956 Per cent change from 1955 Detroit Detroit Chicago Branch Total Chicago Branch Total

Dollar volume (millions) * Currency paid to banks.... 3,865 1,339 5,204 7 5 Coin paid to banks...... 146 27 173 4 1 4 Coin wrapped...... 98 18 116 5 20 7 Unfit currency withdrawn from circulation...... 741 259 1,000 5 6 5

Pieces (millions) Currency paid to banks. . . . 643 208 851 5 2 4 Coin paid to banks...... 1,506 297 1,803 7 - 4 5 Coin wrapped...... 1,093 199 1,292 10 15 10 Unfit currency withdrawn from circulation...... 181 61 242 1 11 3 ‘ Less than 0.5 per cent.

Safekeeping of securities

1956 Per cent change from 1955 Detroit Detroit Chicago Branch Total Chicago Branch Total

Dollar volume (millions) Securities received...... 8,606 3,296 11,902 - 3 17 2 Securities released...... 8,382 3,168 11,550 - 14 15 - 8 Coupons detached...... 153 20 173 7 9 8 Securities held as of December 31 ...... 5,539 1,149 6,688 5 13 6

Pieces (thousands) Securities received...... 286 59 345 - 7 - 2 2 - 10 Securities released...... 315 79 394 2 - 3 1 Coupons detached...... 1,508 240 1,748 3 4 4 Securities held as of December 3 1 ...... 1,312 383 1,694 - 2 - 5 - 3

Federal Reserve Bank of Chicago 4 9 In addition to processing checks received by Sev­ to member banks for the service of keeping them enth District member banks and U. S. offices in the supplied with coin and currency. For members out­ area, the Chicago Reserve Bank also receives for side those cities in which a Reserve Bank head office collection checks drawn on Seventh District banks or branch is located, the Reserve Bank pays the cost that were deposited in out-of-District banks. Sim­ of both incoming and outgoing currency shipments. ilarly, checks deposited in Midwest banks drawn on There is naturally a large seasonal increase in the institutions outside this area are forwarded by the demand for currency in the last few months of the Chicago Bank to the Reserve Bank in whose terri­ year. In December, a few days before Christmas, tory the paying bank is located. the volume of Seventh District Federal Reserve notes outstanding reaches a peak. This year, the amount Cash operations in circulation hit an all-time high of 5,297 million A large increase in operations in 1956 was also dollars on December 21. registered in the number of pieces and dollar amount of coin and paper money handled by the Chicago Safekeeping of securities Bank’s Cash Department. This too, no doubt, reflects While the value of Government securities held in the increasing level of economic activity. safekeeping for member banks dropped considerably For the District as a whole, the amount of coin and in 1955, it increased slightly this year. The 7 billion currency paid to member banks totaled 5 billion in the vaults at the Chicago and Detroit offices repre­ dollars, a gain of 5 per cent. Unfit currency with­ sented about 60 per cent of the securities owned by drawn from circulation showed a similar rise. In all Seventh District member banks. 1956, one billion dollars in currency received by The number of transactions in securities held in the Bank was in too poor condition to be paid out. safekeeping for the accounts of member banks de­ The Federal Reserve Bank does not make a charge clined from the previous year. The dollar amount of

Services to the Treasury Department

1956 Per cent change from 1955 Detroit Detroit Chicago Branch Total Chicago Branch Total

Handling of marketable securities Dollar volume (millions) New issues at par value...... 10,712 1,887 12,599 - 10 - 4 3 - 17 Redemptions at maturity value...... 10,786 1,825 12,611 - 2 - 2 1 - 5 Exchanges and transfers...... 17,049 4,728 21,777 9 - 19 1

Pieces (thousands) New issues at par value...... 190 22 212 6 4 5 Redemptions at maturity value...... 256 31 287 - 15 - 10 - 14 Exchanges and transfers...... 356 41 397 7 15 8

Handling of savings bonds Dollar volume (millions) New issues at maturity valu e...... 1,128 404 1,532 - 16 - 8 - 14 Redemptions at redemption value*...... 1,293 354 1,647 22 12 20

Pieces (thousands) New issues...... 11,148 6,598 17,746 4 2 3 Redemptions* ...... 10,753 6,343 17,096 0 3 1

Handling of Federal tax receipts 1 Dollar volume (millions)...... 4,249 1,272 5,521 10 Number (thousands)...... 1,170 280 1,450 7

^Includes Armed Forces Leave Bonds. 1 Until April 1, 1956, all Federal tax receipts were processed at the Chicago office.

5 0 Annual Report, 1956 securities received, however, increased for the Dis­ For savings bonds, the amount of redemptions in­ trict as a whole for the second consecutive year, the creased and new bonds sold declined. This was due in result of a 17 per cent rise at the Detroit Branch. large part to the hikes both in interest rates paid on savings by banks and savings and loan associations Fiscal Agency services and in the yield of marketable securities. With the The value of new securities issued and obligations return on savings bonds remaining stable, savers and redeemed by the Federal Reserve Bank of Chicago investors have turned increasingly toward other sav­ dropped in 1956, reflecting mainly a 40 per cent ing media. In 1956, the amount redeemed by the decline in the amount of Treasury issues, excluding Chicago Bank exceeded new sales by 100 million, the weekly roll-over of bills, that were held by pri­ compared with a 400 million excess of sales last vate investors and refinanced in the past year. Acting year. as fiscal agent for the Government, the Federal Re­ The figures presented in the accompanying table serve Bank of Chicago issued 13 billion dollars of indicate that large bond holders account for an in­ marketable Treasury securities, redeemed the same creasingly large part of the redemptions in 1956 and amount and exchanged and transferred 22 billion. a smaller part of the sales. The number of bonds re­ While the number of pieces of marketable securities deemed changed little although the dollar value in­ issued gained, dollar volume declined; in the case of creased sharply. For new issues, the number of pieces obligations redeemed, the number of pieces dropped rose 3 per cent while, in dollar terms, sales declined relatively more than did the value of such securities. by 14 per cent.

Changes in personnel

The following appointments were announced at Promotions during the year included: the Federal Reserve Bank of Chicago and the Detroit Paul C. Hodge, to Vice President, General Branch in 1956: Counsel and Assistant Secretary. Robert C. Holland, to Assistant Vice Presi­ Carl E. Allen, formerly Deputy Chairman dent. of the Board of Directors, took office as President on October 1, succeeding C. S. Paul F. Carey, to Assistant Cashier (De­ troit). Young who retired. Victor A. Hansen, to Assistant Cashier. J. Stuart Russell, Farm Editor of the Des Moines Register and Tribune and a Director Robert E. Sorg, to Assistant Cashier. of the Bank was appointed to succeed Mr. William C. Gallagher, to Assistant Counsel. Allen as Deputy Chairman of the Board. Three officers retired during the year: Robert P. Briggs, Executive Vice President C. S. Young, President of the Consumers Power Company of Jack- son, Michigan, was appointed Director, suc­ Orville C. Barton, Assistant General Coun­ sel and Assistant Secretary. ceeding Mr. Allen in that capacity. Mark A. Lies, Assistant Vice President. C. V. Patterson, Executive Vice President of Eight employees with service records of over 30 the Upjohn Company of Kalamazoo, Michi­ years retired: gan, was appointed Director (Detroit), Dorothy L. Anderson Helen E. Howard succeeding William M. Day, Vice President Ernest H. Anderson Richard E. Kleeman and General Manager, Michigan Bell Tele­ Ragnald Blackstad Ole L. Opager phone Company of Detroit. Helen Franklin Roy A. Wickett J. Thomas Smith, President of the Detroit The Bank is grateful for the contributions made Harvester Company, was appointed Direc- by these loyal officers and employees through their tor (Detroit), filling a vacancy on the Board. many years of faithful service.

Federal Reserve Bank of Chicago 51 Changes in membership

On December 31, 1956, there were 1,024 member banks in the Seventh Federal Reserve District. During the year nine state and national banks were admitted to membership, six banks—all in Michigan —were consolidated with other members, one was voluntarily liquidated, and three withdrew from member­ ship. Of the new members, five are state banks and four are national banks:

State banks National banks Decatur, Illinois Chicago, Illinois Northtown Bank of Decatur Mid-America National Bank of Chicago Bentonville, Indiana Taylorville, Illinois Bentonville State Bank First National Bank of Taylorville Albion, Michigan Cedar Rapids, Iowa The Bank of Albion City National Bank of Cedar Rapids Detroit, Michigan Royal Oak, Michigan The Michigan Bank National Bank of Royal Oak Warren, Michigan Warren Bank

Of these nine banks, seven were newly organized and two were existing state banks which joined the System.

5 2 Annual Report, 1956 Requests for additional copies of this report should be addressed to: Research Department Federal Reserve Bank of Chicago Box 834 Chicago 90, Illinois FEDERAL RESERVE BANK OF CHICAGO