Rising Tide

Testifying before the House Banking Committee , last week. Federal Reserve Board Chairman William McChesney Martin Jr. described the problem of controlling the vigorous U.S. economy in terms that even a schoolboy could understand. The Federal Reserve Board, said Martin, is in the position of the ancient Danish King Canute, who demonstrated his human limitations by giving orders to the tides. Yet Martin made it clear that even if the U.S. economy is too strong for the Fed, some attempt must be made to control or at least temper its insatiable appetite for money. Said Martin: The Fed's tight-money policy will continue. The main danger is still inflation, and higher interest rates are "a very cheap price to pay" to check it.

As Martin spoke, the U.S. Treasury once again demonstrated how tight the tight-money market is getting. To refinance $24 billion worth of maturing securities bearing coupons ranging between 1 1/2% and 3 1/4%, the Treasury had to offer investors a choice of three separate issues, one at 3 3/8%, the other two at 4%, with an option permitting buyers of one four-year issue to cash in their notes two years hence if rates meanwhile have gone still higher. The new interest rates were the highest in 24 years, but as a Treasury official said, "the lowest at which we could sell these securities."

Despite high interest and tight money, the tides of U.S. prosperity washed still higher. Business capital expenditures for the first half were up 8%. Steadily rising personal income went up again in June to an annual rate of $344 billion, $17 billion over last June. Department-store sales were running a good 5% ahead of a year ago, while corporation-earnings reports for the second quarter were generally good (see below).

Here and there appeared signs of a hesitation that could not help pleasing the Fed's Martin, who recommends reduced spending and increased savings as a check on inflation, even if it understandably fails to delight businessmen. Auto sales were not rising to Detroit's high expectations (though production rose last week), and gasoline sales were running behind seasonal expectations. The hoped-for upturn in home-building starts has failed to materialize.

Yet there is little on the horizon to indicate any real slackening in the economic tide. In a report issued this week, the Twentieth Century Fund declared that U.S. productive power has grown at such a spectacular rate over the last half-century that the American economy has assumed entirely new dimensions. "The U.S. has not merely climbed to a new plateau but is ascending heights whose upper limit is not yet measurable, and at an accelerated rate of speed. Our long-term trend is unmistakably upward."

This file is automatically generated by a robot program, so reader's discretion is required.