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1952, compared with an increase in gross average weekly earnings of approximately $5. (See appendix table B–16.)

Price and wage control. Early in 1952, the Office of Price Stabilization adopted a policy of suspending price controls in those areas where market conditions permitted. Among the commodities affected by this suspension of ceilings were fats and oils, hides and skins, leather, shoes, cotton, wool, synthetic fibers, textile fabrics, most clothing items, soft floor coverings, and radios and television sets. In addition, Congress in renewing the Defense Production Act in mid-1952 exempted fruits and vegetables from price control. At the present time, ceilings apply to about 70 percent of the wholesale price index, compared with over 90 percent early last year, and about 50 percent of the consumers' price index, compared with about 65 percent when price control was established. About one-quarter of the portion of the consumers' price index under control, however, involves commodities for which, under the law, ceilings automatically rise if farm parity prices rise.

Exceptional price ceiling increases were made in 1952: in the case of steel after the strike; in the case of copper after the foreign price of copper rose from 27/2 to 36/2 cents a pound when the agreement with the Chilean Government was not renewed; and in the case of aluminum to increase supplies. Otherwise, requests for price increases to offset cost increases were approved or rejected in accordance with OPS' regular relief standards. The increases granted were mainly in defense-related areas where, in the absence of controls, it seems clear that prices would have gone even higher.

Since the establishment of the Wage Stabilization Board, approximately 121,000 applications have been submitted by employers wishing to alter, in one respect or another, the compensation of their employees. Until the Wage Stabilization Board became inoperative on December 6, as a result of the resignation of the industry members, this tripartite Board had examined and acted on 109,000 of these cases, of which 83.3 percent were approved, while 16.7 percent were modified or denied.

The result of wage stabilization—which is not, and cannot be, an absolute and enduring wage freeze—is shown by some comparisons of wage movements. During 1950, adjusted for shifts in employment, average hourly earnings of production and related workers in manufacturing, as calculated by the Wage Stabilization Board, rose at an average rate of 0.7 percent a month. During the second half of 1950, following the Korean outbreak but prior to the start of the wage stabilization program, the rate of increase was even higher-0.9 percent a month. From the date of the establishment of the program in January 1951 until November 1952, average hourly earnings advanced at the rate of only 0.4 percent a month.

One outcome of the steel case, which was settled after a prolonged strike, was that in renewing the Defense Production Act the Congress replaced the original Wage Stabilization Board with a statutory board having more limited authority. Under the revised Act, the disputes function

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was separated from the wage stabilization authority. More recently, the Wage Stabilization Board, in acting on a request by the coal industry for an increase of $1.90 a day, which had been agreed to by the union and the operators, approved only $1.50 a day. After a thorough review of the case, the President directed the Economic Stabilization Agency to approve the original agreement. This decision was made because it was felt that no steps should be taken at that time which might lead to an industry-wide work stoppage, or that might make it impossible to turn over a going stabilization program to the incoming administration. Following this, the Chairman of the Wage Stabilization Board and the industry members resigned. Because of difficulties in securing new industry members, the Economic Stabilization Administrator designated the four public members to serve as a Wage Stabilization Committee. Thus, efforts to reduce the backlog of 12,000 cases can continue.

Bank credit and money supply. It had been thought early in 1952 that the banking system might have to supply a considerable amount of new money to the Government to finance a substantial cash deficit. There was also reason to believe that the volume of private borrowing from commercial banks would level off, partly because of restraints on civilian production. However, private borrowing once again, as in the preceding year, was the principal agent of expansion of bank credit and the money supply.

Commercial bank loans increased more than 6.5 billion dollars or about 12 percent during 1952, compared with 5.5 billion or 11 percent during 1951. Consumer loans accounted for a much higher percent of the rise in 1952. Commercial bank holdings of U. S. Government securities, which had de

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Table 1. Factors changing the volume of the privately held money supply 1

1

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Net change in privately held deposits

and currency

+7.1

+9.1

-2.2

+11.3

+8.8

-1.1

+9.9

1 Includes State and local government deposits.
: Estimates based on incomplete data; second half by Council of Economic Advisers.

Includes commercial banks, mutual savings banks, Federal Reserve banks, and the Postal Savings
System.
A decrease in Treasury deposits is denoted by a positive figure, and an increase by a negative figure.
In the case of other specific factors, the reverse is true.

Less than 50 million dollars. see appendix table B-29 for aggregate money supply and its components. NOTE.- Detail will not necessarily add to totals because of rounding. Signs preceding figures in columns Indicate effect on the money supply.

Source: Board of Governors of the Federal Reserve System (except as notod).

creased 0.5 billion dollars or less than 1 percent in 1951, rose by 2 billion or 3 percent in 1952, and in both years investments in corporate securities and State and local government issues expanded about 1 billion dollars or 7 percent. (See appendix table B–28.)

In both 1951 and 1952, an expansion of Federal Reserve bank credit was one of the factors which supplied commercial banks with reserves. During 1952, borrowing by member banks provided the greater amount of reserves from this source, while in the previous year the net increase in Federal Reserve bank holdings of U. S. Government securities was more important. The average of Federal Reserve discounts in 1952 was more than one and one-half times greater than in 1951, but Federal Reserve holdings of Government obligations averaged about the same. (See chart 12.)

The privately held money supply (including the bank deposits of State and local governments) expanded almost 9 billion dollars or about 5

percent in 1952, nearly as much as in the previous year. The principal factor in the rise last year was the growth in bank loans, with the increase in investments next in importance. The agents which tended to expand the

CHART 12

BANK LOANS AND INVESTMENTS

Total bank loans rose at about the same rote in 1952 as in 1951.
Investments exponded more rapidly than a year earlier, primarily
because of increased holdings of U. S. Government securities.
BILLIONS OF DOLLARS

BILLIONS OF DOLLARS
150

TOTAL

(ALL COMMERCIAL BANKS) 125

125

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150

100

75

50

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JFMAMJJA SONDJEMAM J J A S O N DJF MAM J J A S O N D
1950
1951

1952
END OF MONTH

SOURCES BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM AND

COUNCIL OF ECONOMIC ADVISERS.

money held in the non-Government sector of the economy were only partly offset by the higher level of Treasury deposits, and by other factors. Also, in 1952, a large part of the growth in the private money supply was in time deposits, about 4.2 billion dollars compared with slightly more than 2 billion in 1951. Demand deposits and currency, the active portion of the money supply, increased in substantially smaller volume in 1952 than in 1951.

Credit policy. During 1952, the credit controls which had been imposed under authority of the Defense Production Act were terminated or suspended. These actions, whether on the initiative of the administrative agencies concerned or in compliance with new legislation, reflected the moderate character of consumer demand relative to supply, the increasing availability of many scarce materials for civilian production, and the growing belief that the return of serious inflationary pressures had at least been postponed

In May, the voluntary program of credit restraint was placed on a standby basis, and the regulations applying to consumer instalment credit were suspended. In June, the terms of residential mortgage loans were eased. Then, at midyear, in renewing the Defense Production Act the Congress withdrew or extensively limited the power to use these controls. The new legislation provided that, in the future, voluntary campaigns to restrain credit could no longer be organized under the authority of the Act. It also withdrew authority to place controls on instalment credit or other forms of consumer borrowing, and restricted the power to impose significant restrictions on residential mortgage credit to periods when the seasonally adjusted annual rate of housing starts, based on the activity of the preceding 3 months, exceeds 1.2 million units.

In accordance with the last provision, mortgage credit restrictions, with minor exceptions, were removed in September, since the adjusted index of new starts during June-August fell below the stipulated rate. The restrictions on loans for commercial construction were lifted at the same time.

During 1952, the Federal Reserve System, through purchases of Government securities in the open market, partly offset the drain on bank reserves resulting from a growth of currency in circulation. Additional bank reserves required to support expansion of bank deposits resulting from increases in bank credit were obtained by banks through borrowing from the Federal Reserve Banks. No change was made in the Federal Reserve Banks' discount rates during the year.

Materials policies. In addition to the effects of price, wage, and credit policies during the year, an important contribution to stability was made by materials allocations and controls. These measures, primarily directed to the facilitation of essential production, have helped to expand our total economic strength, the most fundamental approach in the longer run to overcoming inflation. These measures have also assisted in the stabilization of scarce commodity prices by limiting the effective demand for such

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