The gross national product of the USA exceeded 500 billion dollars during 1960, a figure which is almost double that recorded in the year 1949 taken as a starting point (Table 1). Between the two extreme years specified above, the geometric mean progression of gross national product at current prices was 6.3% per year. Eliminating the effect of expansion due to the simultaneous increase in prices, there remains an increase in real terms of more than 50% between 1949 and 1960, corresponding to an average rate of development equal to approximately 3.8% per year. National income at current prices grew in the same time interval from 216 to 418 billion, i.e. to a lesser extent than gross product, due to the greater incidence of indirect tax burdens and the
Although all components of output have shown steady progress over the long term, government spending has increased relatively more as a result of both increased consumption and increased investment interventions by the public sector (federal government, local authorities, public insurance, social security and state enterprises). The share of gross product destined for private consumption grew continuously from one year to the next throughout the period, but its progression was by no means constant, alternating more or less marked pauses with vigorous developments. Also in relation to this, investments, which include stocks of raw materials and products, have recorded significant fluctuations, marking regressions and progress alternately.
The respective evolution of consumption and investments have separately and jointly contributed to the formation of recurrent cycles of economic expansion and depression that have characterized the conjuncture of the USA from 1949 onwards. During this period at least three depressive phases can be distinguished, in the years 1953-54, 1957-58 and 1960-61, in addition to the original one which began in 1948 and lasted until 1949. The phases of decline in economic activity were alternated with phases expansionary in the intervening years, during which the trend of industrial production recorded more or less significant increases. However, the pace of these increases has dropped considerably in recent years and the production momentum has rapidly faded to the point of leading to a new recession which,
The decline in the pace of development of the American economy became evident in the second half of the period under review, when the process of economic development was accompanied, from 1955 onwards, by more inflationary pressures. In reality, with the exception of the significant rise in prices caused by the Korean cycle, it is precisely in the years closest to us that the increase in prices has become more marked, consolidating itself through the alternating phases that have in the meantime distinguished economic activity..
The rise in prices was especially large in 1956 and 1957, even if its explanation is to be found in the strong recovery that took place in the immediately preceding year. In fact, in 1955, the expansion of production, supported by the rapid increase in consumer credit, led to a high accumulation of profits in some industrial sectors, which in turn gave rise to agreed wage increases over long periods of time. The expansionist wave of 1955 also hit the capital goods sector, causing an excess of demand from the manufacturing companies and therefore an increase in the prices of those goods, as well as tax-related building constructions of the same goods or derivatives.
From these premises should have resulted in the increases in the costs of the goods produced and therefore in the prices that subsequently intervened, when the especially rosy prospects formulated in 1955 failed to prove the facts. On the other hand, the pauses in production or regression which subsequently occurred did not have significant effects on the price level, in the sense that it remained stable or rather showed no tendency to absorb the excesses already recorded. Indeed, prices have continued to rise even when production has stagnated or decreased and unemployed labor has been on the rise.
The reasons for the anomalous or inelastic behavior in the presence of a state of underemployment of labor resources and production capacities are to be linked to the concentration of inflationary outbreaks in some strategic sectors (services, steel and machinery, building construction and the public sector) and to the diffusion from these to other sectors in ways and ways that have shown themselves to be incoercible to the restraint exercised by the monetary authorities. Furthermore, the dominant position that some large industries occupy in their respective operating sectors has often allowed price changes independent of the trend in market demand.
The resulting inflationary impulses cannot therefore be explained either in terms of a global monetary demand that is excessive in relation to the supply of goods and services, or of an autonomous push of wages, that is, of production costs. Rather, they originated from excess demand in some sectors and spread to the rest of the economy through the mechanism of costs. And it is precisely in the multiplicity of causal confluences, which has deep roots that also concern the psychological and institutional attitudes of that country, that the determining factor of the insensitivity of prices and wages to the demand for goods and services must be sought; a fact which arises as a characteristic aspect of the modern American industrial system and which manifests itself more in the sense of decrease than increase. When the composition of demand changes rapidly (and the weight of these changes is already relevant in a mass consumption economy like the American one) the price of products tends to increase on average, given that the price fluctuations for more materials widely demanded are not balanced by the reduction of those that are offered in excess of demand. The same is true of wages: remuneration in most industries tends to be the same as that paid by rapidly expanding industries. With the consequence that the majority of industries experience an increase in costs. This, in turn, only reinforces the
The instability revealed by the American economy was therefore the major factor in inflationary recourses and the slowdown in production development, and has now drawn nourishment from the fluctuations in the demand for durable consumer goods (including dwellings) in response to consumer preferences and credit availability for these purposes; now from the fluctuations in state spending and in the amount of orders passed to private industries; and finally in the instability of investment spending in relation to the previously mentioned circumstances and the psychological influences that those same circumstances have exercised on the initiatives of entrepreneurs.
The negative influence of the factors previously noted on the economic trend of the USA in recent years appears all the more remarkable if this is compared with the events that have distinguished the economic situation of European countries and those of the Common Market in particular. While in the past the development of the American cycle had almost automatic repercussions for the European economy by imposing a relative uniformity of situations and trends, it is a fact that the diversification of the economic situation in the USA and in Europe has been accentuating over the last few years up to mark diametrically opposite orientations. As long as economic activity in Europe remained linked to American aid in various forms and the strong dependence on imports from the USA, then practically the only supplier country, the analogy of the movements could be considered as a logically consequent phenomenon; in reality the effect of the American cycle tended to be reflected in Europe in economic fluctuations in the same direction, but of greater magnitude. However, this double link evidently loosened as soon as the productive conditions of the European industrialized countries were able to be restored and improved, and the orientation of funds for foreign aid on the American side found the way of the underdeveloped countries. From this point of view, 1960 represents the critical year in which the aforementioned differences became more acute, having been complicated by financial phenomena of undoubted importance. While the USA, after the rapid recovery at the beginning ofmore pronounced boom of this postwar period.
The tightening of American costs and prices has led to think of a decline in the competitive capacity of the USA in comparison with the industrialized countries of Europe. In reality, such a diagnosis, derived from the observation of the deterioration of the balance of payments in recent years, is not confirmed by a closer examination of the facts. And even if in 1958-59 the USA perhaps felt for the first time the effects of the greater economic potential reached by European countries (especially in certain sectors, such as materials and electrical systems, agricultural machinery and particularly cars), it cannot be said that such conditions place the largest industrial country in a condition of permanent inferiority vis-à-vis the rest of the world.
If we look at the data relating to foreign payments for the entire period from 1949 to 1960 (Table 1), there is a constant export surplus over American imports of private goods and services. However, considering the payments as a whole, some years show a negative balance that fluctuates from a minimum of 0.8 billion dollars in the three-year period 1952-1954 to a maximum of 2.5 billion in 1959, a figure slightly higher than that of the war year 1950. The country’s debt position vis-à-vis abroad is therefore solely due to the considerable expenses that the USA sustain abroad for the maintenance of troops for the defense of the Western world and for economic aid to underdeveloped countries.
In 1950 the USA experienced a major decline in commodity exports along with an expansion of imports. Consequently, the balance of goods and services decreased from 6.2 to 1.9 billion. Among other things, the combination of increased imports and decreased exports during the 1950s resulted mainly from the outbreak of hostilities in Korea and the parallel speculative movement that accelerated the pace of supplying American industries abroad. On the other hand, American exports, although subject to cyclical upsurge around the world, remained low due to widespread trade and currency controls on dollar purchases. On the other hand, the general devaluation of currencies in late 1949 had depressive effects on American exports,
The overall situation of foreign payments continued to be negative in the following years until 1956. The balance of goods and services, although it remained positive and above the level of 1950, was somewhat lower than in the immediate years. postwar period. Throughout the period the substantial increase in imports of services was evidently a limiting factor. In fact, military spending abroad rose from an average of 0.5 billion in the postwar years to over z billion, growing continuously. It is true that state spending abroad declined in those years, but private investment in other countries remained around the initial level. As a final result, the outflow of gold was relatively modest compared to the net payment deficit (1.5 billion), since the creditor countries preferred to accumulate dollars in the American banking system. In 1957, the overall balance of payments (excluding only the monetary movements which represent the final point with which the surplus or deficit of the total payments – goods, services and capital – is to be paid) recorded the only surplus of the whole period due to an exceptionally high level of exports. The high flow of goods and services exported in that year (concentrated in the first half) was motivated by the services and capital – comes to be paid) recorded the only surplus of the whole period due to an exceptionally high level of exports. The high flow of goods and services exported in that year (concentrated in the first half) was motivated by the services and capital – comes to be paid) recorded the only surplus of the whole period due to an exceptionally high level of exports. The high flow of goods and services exported in that year (concentrated in the first half) was motivated by the boom investments that affected the economy of the major Western countries, and the Suez crisis, which forced European countries to resort to the USA for supplies of crude oil and derivatives as well as other fundamental raw materials. In the following period from 1958 to 1960, the overall balance returned to deficit, recording a continuous series of deficits which, due to their unit size, were not matched in the previous years until 1947. The deficit position resulted from a significant worsening of the current account. closed with a surplus of 5.5 billion in 1957, in balance the following year, and, finally, with a deficit of 2.5 billion in 1959, both as a result of a reduction in exported surpluses (from 6.1 to 3, 3 and 0.9 in order) and a deficit in the services balance (which went from 0.3 in 1958 to 1.0 in the following two years). And this in the presence of a sustained and always high flow of payments abroad for state loans and private investments. In fact, these, having been maintained even in the expansionary phase of 1959, which led to a notable increase in imports, determined for the first time in this postwar period a deficit in the goods and services account, and an imbalance in the overall payments with foreign countries. order of 3.8 billion.
Contrary to what occurred in 1958 and 1959, the deficit recorded in 1960 is essentially explained by a significant outflow of American capital to foreign countries, caused by the relative rise in interest rates in Europe and by fears of a revaluation. of the dollar and a revaluation of the mark. Indeed, the current account balance recorded in the US balance improved significantly during 1960, from an amount of −96 million to 3.8 billion.
One aspect of the balance of payments events also deserves to be mentioned here. In other words, since the dollar is a reserve currency, that is, a currency held by other countries as an international means of payment, its offer depends exclusively on the situation and the evolution of the total payments to and from abroad by the US. However, the adequacy of this offer is measured in relation to the commercial and financial needs of international exchanges. While until 1958 the problem of international payments manifested itself only in the sense of a relative scarcity of the dollar, starting from that year the growing negative imbalance in the net payments of the USA, in one with the widening of the sphere of convertibility of the major European currencies, led to a dollar inflation which has progressively unbalanced the exchange rate of this currency up to the lower margins that the European monetary authorities are committed to defending. Moreover, the gradual accumulation of dollars in the official reserves of European countries has led to the preference to hold a part of these reserves directly in gold rather than in dollars (also fearful that the existing fixed ratio, equal to 34.8 dollars per troy ounce could be altered). The additional demand for gold thus spilled over into the USA causing an outflow of gold metal which in 1960 alone reached 1.7 billion dollars, after it had been 2.8 in 1958 and 1.0 in 1959 (excluding transactions with the International Monetary Fund). This has had a deflationary impact on the
The antinomy between needs of an external nature, linked to a reduction in the flow of capital abroad through an increase in interest rates, and needs of an internal nature, requiring a low level of interest rates and conditions of credit facility to favor the recovery of production and the productive investment process, it has made monetary maneuver more difficult, already in itself ineffective due to the considerable size of that market and the relatively small section of the market in which this maneuver takes place. Despite the fact that from 1951 onwards, following specific agreements made with the Treasury, the Federal Reserve system is no longer obliged to support the price of government bonds, however, operational possibilities remained limited in the absence of appropriate coordination between fiscal and monetary policy. However, it cannot be said that monetary policy, centered on changes in the official discount rate, on the compulsory reserves of banks and on the conduct of operations on the open market, has not had the desired effects, especially in the restrictive and moderating sense of the phases of high economy. Particularly in the sectors of mortgage financing and stock exchange operations, for which selective credit checks exist, the effects were certainly considerable, even if the relative measures did not always appear timely. focused on changes in the official discount rate, on the compulsory reserves of banks and on the conduct of operations on the open market, did not have the desired effects, especially in the restrictive and moderating sense of high economic times. Particularly in the sectors of mortgage financing and stock exchange operations, for which selective credit checks exist, the effects were certainly considerable, even if the relative measures did not always appear timely.
From an operational point of view, the area of intervention of the monetary authorities on the securities market has recently been extended to the intermediate areas of the market, while in the past the “bills only” thesis had prevailed, which involved a limitation of purchase and sale operations. conducted only on 3-month treasury bills.
With the advent of the new democratic administration, the problems of foreign payments and the defense of the dollar have been placed on a high level of priority. The directives that the new administration intends to follow, and which result from the president’s programmatic speeches and from the documents published so far, aim to safeguard the parity of the dollar by favoring its convertibility at the price established at least by the holding monetary authorities; to isolate the US money market by granting increased interest rates to foreign depositors as well as tax exemptions to holders of government bonds; to alleviate the burden of American aid to underdeveloped countries by distributing the burden on European countries to an extent appropriate to their respective contributory capacities; in the end, to remove the conditions that structurally alter the balance of payments, and to eliminate the discrimination still existing by some countries against American imports. From the point of view of political instrumentation, the major emphasis seems to be placed in the next few years on the fiscal maneuver which more closely, although less flexibly, affects the consistency of private income and the incentives for investment by businesses.
In the tab. 2 shows the main categories of institutions that make up the American financial system. The table also excludes the 12 Federal Reserve banks operating in as many districts into which the American territory is divided and the systems of special institutions that are part of the state administration (agricultural and land credit institutions, as well as those of insurance and credit guarantee)..
At the end of 1959 there were 13,474 commercial banks, having decreased from 1950 onwards due to mergers or incorporations of old ones into new institutions. The large number of banking institutions finds its reason in the hesitations that constrain the extension of banking activity, which, as a rule, in all states of the Union, is limited to the province and, at most, to the state in which banks have their main offices. Hence the particular dynamism that distinguishes the banking institutions of the USA. The comparative examination of the data reproduced in tab. 2 makes it possible to detect the decline in importance registered by commercial banks in the period under review. In terms of assets held, the volume of credit and bank investments increased from 169 to 253 billion from the end of 1950 to the end of 1959. Correspondingly, the proportion of bank assets to the total fell from 63 to 55%. At the same time, all the other categories of institutions, which go by the name of institutional investors, have seen their financial influence increase: in particular, life insurance companies with a total of assets invested in the order of 114 billion, against 60 owned at the end of 1950. In a relative sense, building credit institutions (saving and loan associations) recorded the most notable increase. The restrictive maneuvers introduced by the Federal Reserve to curb the excessive development of credit by banking institutions are no stranger to this different evolution of American financial institutions. The development of the monetary supply was in fact relatively contained from 1950 to 1960. The volume of means of payment, consisting of bank and government notes and sight deposits, rose from 117 to 143 billion in the ten years indicated above., that is, to a lesser extent than the increase recorded in income and national product. This means that in terms of income, the speed of circulation of these vehicles has increased, partly as a reaction to the restrictions imposed, partly as a manifestation of savers’ preferences for monetary possession. From this point of view, the much greater development marked by bank savings appears symptomatic, which together with the growing collection of institutions outside the banks referred to above, constitutes the unequivocal sign of a shift in public preferences. For their part, the banks have provided for the growing demand for credit, despite the restrictive measures of the central bank, by mobilizing their portfolios of government bonds, the amount of which has often varied from one year to another, alternating phases of accumulation. in liquidation phases. As a result, the volume of existing bank investments in favor of public authorities grew by only 16%, having gone from 97 to 113 billion, largely represented by loans to local authorities. On the contrary, loans to the economy more than doubled in the same time interval, having marked an almost constant progression in the direction of the increase except for 1957. The evolution of bank credit in the context of the overall financing of corporate investments private appears in tab. 3. Given the high level of retained profits and depreciation, which together cover 63% of total investments, made in the years 1949 to 1960, the contribution of external sources appears relatively lower, and among these the credits allowed by banks they constitute a rather small part. Their trend, however, appears to be related to the cyclical fluctuations of investments in stocks, both presenting variations in at least the same direction, albeit of different magnitudes. The provision of funds on the capital market was the single most important source of funding by American companies throughout the period under review (approximately one fifth of the total). It took place especially in the form of bond issues as a result of the greater weight that transport and electricity companies, and generally those of public utility, have had in overall issues. Furthermore, the issuance of fixed income securities has been favored by the tax advantages it brings to issuers compared to equity securities. Taking into account the rise in prices and interest rates, this form of financing proved to be the most convenient in the long run. The relatively limited supply of shares, in the presence of inflationary developments, led to a concentration of demand from private and institutional savers on existing securities, prompting large increases in stock market prices. If the 1953 average price is equal to 100, the stock index was 63 in 1949. In 1954 it had more than doubled and by the beginning of 1956 it had already tripled. In 1957, the year of recession, stock prices marked a slight decline, but they started to rise again in the following two years, particularly in 1959. In 1960 there was a further slight retreat of the index, which stabilized at a level of 239, equal to 3.8 times the average of 1949.
The conditions of relative scarcity of credit that prevailed throughout the period have brought up the entire structure of interest rates, in particular those of the long and medium term, which are less affected by the fluctuations inherent in the cyclical trend and to the interventions of the monetary authorities. In correspondence with the rise in market rates, the official discount rate moved from a level of 1.50% to 4.0 and 3.0 on the average of the last two years. However, the largest fluctuations from one period to the next occurred in the sector of short-term values and in particular in the three-month treasury bills. Due to legal concerns, which prevent the US Treasury from placing securities with a maturity of less than 5 years at a rate greater than 4, 25% (limit which was established in 1917 and which still remains, despite presidential initiatives aimed at removing it), the situation of the money market has tensed several times, with significant swings in interest rates, the Treasury having been forced to issue short-term securities to meet the redemption of maturing securities and their own treasury needs. Consequently, the average maturity of the public debt is somewhat reduced, having fallen from 5 years and 4 months in 1953 to 4 years and 7 months at the end of 1960. Overall, the public debt has grown less than the other parameters with which it is usual to compare it. (national income, expansion of bank credits): from 257.2 billion at the end of 1949 to 290.6 billion at December 1960. But its distribution by categories of holders has changed considerably.