How does this 50 year old shower valve work?
In one hole, and if the seat is open, out the other.
If it doesn't seal well even though you have replace the 'washer' at the end of the stem, a seat grinder will smooth the seat out.  Go find a 75 year old plumber, he will have one.
An alternative valve stem packing was a rope like material - the neoprene washers you added are a substantial upgrade. 
I haven't re-seated and repacked one of these in at least 15 years but your assembly looks good.