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W, P. 8, HARDING,
Ex·OP'P'ICIO M&M811ftS
WlLLIAM G. McADOO
SECRift:RY 9\l"THI TREASURY
'
&ou...a
PAUL H. WARBURii, YMII - · - ·
F!i~DE,!\15 A. DELANO
A~~~ !f811LLER
C:HARLU 11. HAMLIN
CKAlRIIAJI
JOHN SKELTON WILLIAMS
II. PARKER WILLIS, SICRITART
SIIIRIIAN P. ALLEN, AliT. SICRITARY
FEDERAL RESERVE BOARD
COMPTROLLIIt:'or lMi CURRENCY
Q. Q 1:. !,.
AJ(D FISCAl. Alliii .. T
WASHINGTON
ADDR&S8 REPLY TO
FEDERAl. RESERVIE IIOARD
February Z7J 1918.
My dear Mr. Secretary:
I wish to thank you for your courtesy in sending n:.e Senator CWen' s
letter
da~ed
staterr~nts
February 22nd 1 in which he corrments at lamgth upon the
rradQ in my letter to you of February 20th.
I was inforn:.ed last Saturday morning 1 the 23rd instant, by Mr.
Delano that Mr. Musher has told him that Senator ONen had written you
a thirteen
fying a
~age l~tter
i~sire
in
re~ly
to min&.
I shall refrain from grati-
to reply to the anirradversions contained in Senator
Owen's letter for. the rgaocn that Mr.
~sher
has an application pending
befoN thfl BCJard and I deem it improper to engage in a controversy with
him even though
Be~~tor ~ven
be the medium of corr.rrunication.
My letter of. Febru.ary 60th was subrr.:.\.tted forrr.ally to the Board. before it was deliver.ed to you a.nd :rerei,red its unqualif:i.eii approval..
I
~~ntion
this not that J. seek to evade reRponsibility for it 1 which I dis-
tinctly
avnw~
but. n.eroly to bring out the fact that I did not undev-taka
Senator- CwQn a.ll,;.rles to rrany rratters in his letter vlfhich are ontirely beyond the juriso.ict.ion o! the Federal Rese-.:-ve Board} wb.ose functiona
in the rr.a.tter of gold exports, subject to the
apprnva.~. 3.f
the Secr.etn.ry
of the Treasury 1 are to zrake such ruling in the rratter of licenses f 01·
gold shipments applied for "as it rray deenl proper 1 and if ;ill j.Ji.§. opir49n..
X-768
- 2-
the exportation be compatible .vith the public interest., to permit said
exportation to be n:a.de_, othe'milise to refuse
it~'
You will observe from
this quotation from the President 1s order that the Board is to be govenlits QQinion and not by the views of applicants.
ed by
In order that you rray be more fully informed as to the Board's
system for the licensing of gold ex:ports 1 I attach hereto a letter from
Mr. H. P. W:l.llis,. Secretary of the Board., describing it.
I attach also
a letter from Mr. Willis with respect to the application of the Pompeian
Company for perrr,ission to receive a payment of $1.,250_,000 gold in London
for shipment to Spain} and you will notice that this letter from Mr.Willis
refers also to another application from the Pompeian Company of which
no mention has been
~ade
by Senator Owen.
This application was dated
December 22nd and asked that the exportation be permitted as of July lst.,
1918., if in the rreantirr.e the company should find itself unable to liqui-
date its indebtedness by purchasing exchange at approximately the normal
rate; in other words., a six months' option was requested.
On yesterday., f ollcming a conversat:i.on over the telephone with Mr.
Delano on the previous day 1 the Board received a written
fr~ro
co~~unication
lv'JUsher asking for a hearing as he desired to present sorr..e new
Hr.
facts in relation to his application,
By direction of the Board I re-
plied that he should submit a written statement or brief and that after
he had submHted this brief the Board would. give him an
o~oportunity
comj.ng before it in order to rrake an oral staten:ent relating to the
brief.
Very truly yours .•
Hon.
w.
G. McAdoo,
Secretary of the Treasury.
of
X-768-a
c 0 p,y
UNITED STATES SENATE
February 22, 1918.
My dear Mr.
Se~retary:.
r_. have
your very courteous 1.etter of February 20th, advising·
me that upon the facts stated therein by
Go~ernor
Harding you do not
think the gold shipment requested by the fompeian Company should be
pe!'"IIlitted;
that ttthe interests o:f the
~Wmpeian
Oompany and Mr. Musher
must be considered from the standpoint of the public interest only".
Certainly I.agree with you that the interests of the Pompeian Oompany
must be considered from the standpoint of the public interest.
ize how far
yo~
must of necessity rely upon the Roard in this
I: real~tter.
am glad to see, however, that you make the reservation
t~t
the matter is based "upon the facts therein stated".
L have for that
r
your view in
reason very carefully read Governor Harding's letter to ascertain what
these facts
~;;~.re,
and what the argument is, and in this connection I wish
to make the following obser'Vt1tions which I s2lould be glad to have you
transmit to the Federal Reserve Board with the request that it be laid
before the whole Board. as I am informed that the action of the Board
in the matter of the Pompeian Company's request was based upon the de-
cision of the Gold Export Committee ar>.i not upon the decision of the
whole Board.
The protection of the expanding obligations of the United
States at home requires safeguarding our gold, and the gold embargo was
justified as a general proposition on that ground alone, but an exception,
in my judgment, was justified in the case of the Pompeian Company because,
X-768-a
first~ it would probab~y save the United States f300,000, which'' otherwise
might be transferred to
Spain~
unless the dollar discount in Spain were
otherwise adjusted. If it is adjusted that will .suffice to protect the
petitioning Company.
The United States cannot afford to let its mer-.
chanter suffer severe losses when. withou.t substantial expense •· it can
protect them., for the whole is
e~ual
to the sum of its parts, and
~r-
ieats success depends upon the success of its individual business men.
We are a collection of units, and these units in the aggregate.make the
power and dignity of the United Stti.tes. When a Government is willing
to ignore the right of its citizens to protection, that Government goes
into a deserved a.nd unescapable decay.
That is not the
generc;~.l
poli:cy
of the United States. The reverse is true.
Governor Harding's letter deals with the exceptions in this
instance. and argues agea.inst permitting it on the ground that it might
affect others. My answer to that is that Governor Harding is u:nable to
cite
~t
u
single instance except this one, a.nd again. if ·.there were several
would still be justified on the ground that the Act and the embargo
occurred long ca.fter the commitment was nade by.-the
Company.
Pompej,.~n
Governor Harding feels justified in reprouching the
Po~peian
Com-
pany for not having shipped gold before the gold embargo was established,
apparently forgetting the r~ot that if this had been done it would be of
precisely the same effect as granting the present
p~ayer.
Moreover, there
is a good re.t+son, which Governor Harding ignores, why the Pompeia.n Company
did not do this, and that is, tbat when this Company bought its oil in
1916 for delivery in l9l7, and contracted its sale at an established price
based thereon, our
became
do~ar
was at a premium, and when the purchase price
due in Spain the American dollar had gone from a premium down to
X-768-a
- 3 .•
.
151, discount,
;ip.volving ~;~. tremendous loss- to the innocent_ merchant.
.
To
pay for the oil when payment became due in Spain, after the dollar had
gone from
premium to a discount, was to suffer a
::1atur~;~..lJ.y
Company
fense
<::1.
~.o
desired to a·1oid..
se~rere
loss, which this
'I'bis should not be treated as an of-
the Government of the United S·ca.tes.
It was an innocent actP
an act b'2t-sed upon good business judgment.
The Pompeian Company endeavored to safeguard its interests by
establishing a temporary credit in Spain, but that is a credit upon which
it may be called at any moment, and which has cost the Company, I am informed, $4,000 a month to maintain.
The Federal Reserve Board in its letter to you recognizes the
importance of restoring the dollar to par.
!~remind
you of my letter to
you on October 30t 1917, caJ.ling attention to this matter and to its importe~.nce.
I was glad to oongratulate you upon establishing par
with Argentina l l exchange
~
ex~.;hange
credits. ;r am informed that the London County
and Westminster Bank, and the Anglo-South American Bank, together with the
London
e~.nd Mid).e~.nd
City Bank, and the Credit Lyonnaise"o:f' France, have
tablished branches in
es-
established credits there, and thereby can
Spe~.in;
furnish the favored merchants of Great B.rita:i.n and }"ranee with !imited
amounts to safeguard them from
loss~
I am advised that the Adm.i.nistration has been endeavoring to
promote the placing of French credits in Spain to offset the exchange
differentit~.l~
so
the~.t
the principle is conceded,
I., thought that when we pas:.:;ed t.he Federal Reserre A:;t it wou}.d
serve to safeguard 0ur American co::rrrne.r·ce abroad in such matters.
amended the Act to
e~.uthorize
the Federal Reserve Board t? requ:'tre
V'Cen we
ltedt~rBJ.
X-768--a
- 4 -
.reserve banks to fulfill this function, I hoped for results.
but feel that
s~tuated
·~he
Federal Reserve bank of New York, which is the one best
to serve in this matter, is so controlled by the New York City
banks who profit from handling
ba:r;.k
~.o
f~reign
exchange that we may not expect that
fulfill the fvnction which we dosired 1 e·-ren under coopu1sion, as
the last amendment to the Federal Reserve Act coutemplated.
1 remind you, was passed at the request of the Federal
realized
But I cannot
th~t
This aoenc!ment,
Rese~1e
Board, which
these banks would not voluntarily discharge the function we
desired of them.
President Wilson has realized the importance of this matter
and in his speech of July 10, 1916, at Detroit, in commenting upon the
business men of America, said:
''1 have alwt.Lys believed, .ahd 1 think you have a.lways believed,
that there is ~ore business genius in the United States than
anywhere else in tHe world, and yet America has apparently been
afraid to touch: or meddle with the great process of international
excha.nge."
On February 3, 1918, the President said:.
'~e have left it until very recently to foreign corporations to
conduct the greater part of banking business in bills of exchange.
We have seemed to hold off from handling the very machinery by
which we are to serve the rest of the world by our commerce and
our industry.
And now that the rest of the world is impaired in
its economic efficiency, it is necessary that we should put our~
selves at the service of trade and finance in all parts of the
world."
Again on September 25, 1916, the President said:
''Not until the recent legislation of·· Congress, known as the Federal
Reserve Act, were the Feder~l banks of this country given the
proper equipment through which they could assist American commerce.
not only in our own country, but in any part of the world where
they chanced to set up branch institutions. Bl·itish banks had
been serving British mercht.Lnts all o~er the worldj German banks
had been serving Germ~n merchants all over the world; and no natio~l bank of the United Stt.Ltes h~d been serving American interests a.nywhere in the world except in the United States. n
X-768-a
- 5 ...
Mr.
Secrett~.ry;
the President thought, I am sure* that American
banks, after the last amendment was passed, would be required to serve the
merchants of America everywhere in the world, and evidently he
app:x·o~
it, and I am justified in the belief that the President commended the
Government of the United
serving the merchants,
Sta~es
t~.nd
in providing these instrumentalities for
commended the policy of serving the merchants
throughout the world•
I have been a little surprised at the great irritation of Governor
Harding against Mr•
l~eher•
because
Mr~
Musher exercised his right as an
AmeriCdn citizen to try to create pUblic sentiment;
self.
You do this
your~
The President of the United States does this• and you are both fulw
ly justified;
and so is Mr• Musher justified in trying to create senti ...
ment which will give relief to all merchants by bringing the American dollar to par.
!.congratulated youlwhen you attempted to bring the dollar to par
in Argentina, and this is all that Mr• Musher is seeking in Spain·
he be charged with
~
crime tor trying to have the
publi~
Must
and our own Hon•
orable Federal Reserve Board realize the importance of a policy which you
yourself approve!
I deeply regret to feel that the numerous comments upon
Mr~ Musher 1 s activities disclose a sense of great personal irrttation
ag~inst
him·
I was rather chagrined myself to see a conspicuous advertise-
ment by the Pompeian Company in a local paper referring to my interest in
this matter; because my interest related to all of the people of the United
St~tes
• and not to the Pompeian Compg.ny ... only to the Company as repre-
senting
Americ~n
•commerce
upon which American prestige
~nd
American fi-
nance depend.
Governor Harding says the Board concluded that granting the re-
X-76a;..a..
.. 6 que,st ,of the Pompeian Company for the transfer of gold to safeguard this
Company from a heavy loss ''would not be cbmpatib1e with the public interest",
and thi::i.t Mr. S.trauss of Seligman & Company, sitting with the Board as your .
represen~tive
in passing·upon applications for licenses for
gold, concurred.
expo~ts
of
Precisely why it would not be compatible ought to be
clearly pointed out.
In justification of this conclusion, however, Governor Harding
immediately
ch~::~.rges
Mr. Musher with carrying on a propaganda and attempting
to influence public opinion, with a view to persuading the Government officers to consider this mi::l.tter.
He
~::~.lso
points out that "there never was
a time during the year 1917 up to September lOth, when the Pompeian Company. could not, !o, ~ absence
~
!. satisfactory, exchange
.!!!2., have
withdrawn.gold and shipped it to Spain for its own account''•
course, the identical condition
compl~::~.ined
This is, of
of.
Governor Harding must know that during that time the insurance
on gold for shipment amounted to between Tfo and 101o;
that the express
charges were about 2~, and American gold at the depreciation of Spain
against either France or Sterling in gold was 31o, making from 121o·to 151.
exchange rate, even on actual shipments.
In other words, the Pompeian
Company was justified in waiting for more favorable terms.
Governor Harding states as a fact that Mr. Musher "took· the position that he was entitled to receive the service he desired at his own
terms from banks or exchi::Lnge houses." Mr. Musher, however, vigorously
denies that he took
~::~.ny
such absurd attitude.
This, however, has nothing
to do with the Cc:t.Se, as the merit of the case is quite apart; from this
charge of folly made against the plaintiff.
L~::~.m
rather surprised to see that Governor Harding makes a point
X-768-a
'
- 7 -
.
that the Pompeian Company did not ti:l.ke into account the cost of shipping
the gold to London in making the tra!lsfer, sil'lce it is perfectly obvious
that the gold being in J.. ondon is accompJ.iehed by the indebtedness of
Great Brit~in to the United st~tes.
The gold g?es to London from Africa,
and it is not required to be shipped from the United States to London.
Our extensirm of nonFJtant credits is the only thing which prevents gold
coming now to the United States from London, and we are constantly accumulating gold credits tjere.
The assumption that the Britjsh Government WQuld have refused the
United States its consent to this transfer to Spain is obviously without
force, and I am surprised -tha·i:. Goyernor Harding would make such an argument,
the gold being our gold e.nd subject to our transfer frum London at our will,
and moreover.
a~~eat
Br:i.tc:dn is looking to us daily fCDr support in its gold
llld.rket, and is in no position wbatever to dictate to the United States.
We
can controJ. London in this xr.atter with ea.se <md with justice.
The next reason given by Governor Harding for refusing this re-
quest is ao f)J.lows:
That the B.oard has taken t:':le position not to permit exports of
gold "in
c~ses
where exchange is available and where the only benefit to
accrue is a saving to the shipper.''
In
o~r.er
~~~dfoon,
words, he repeats a conclusion which he has reached
but does not give the ·reason for denying the Pompeian Com-
pany's request based upon
~
and the making of the rule.
commitment previous to the passage of the law
But exchange is not available except at a
ruinouso rate, and the shipper can plead l l post facto.
X-768-a
- 8 I call your attention to the fact that Canada is
sbi~ping
gold to the
United States to protect her exchange which is only three or four per cent
against her, although she needs gold as greatly as we do and very much more
so, showing a difference of conceptios between a Government anxious to protect its
tion
merch~nts
and therefore its own national power, and
administra-
does not seem to realize the importance of this principle.
t~t
The next reason.for refusal is that the
culated
e~.n
litere~.ture
Pompei~n
Company has cir-
and ''sought to convey an impression which, if widely
accepted, would work to the injury of:our
!. distinct source .2£ comfort .l2_
financi~l
~enemy·"
charge follow, it being pointed out
thc;~.t
situation and would be
The specifications of this
the Pompeian Company has charged
that our credit bale:mce for 1917 was about $3,000,000,000; that notwithstdnding this, the
Americe~.n
eign countries, and that. the
exchange had been permitted to decline in forAmerice~.n
dollar has not been stabilized and
is worth abroe~.d only e~.bout 75~,of.its face value.
Is this supposed to be a secret?
The Department of Commerce sent me these tables some time since.
The Secretary of Statac,, Mr .. Lansing, made the statement to the House Committee on Appropriations, that the American dollar v.as at such a discount,
not only in Europe but in South American countries, and that neither the
Federal Reserve Board nor the Secretary of the Treasury could satisfactorily explain the
reaso~·
.I think he is mistaken in this latter statement
because the reason is perfectly obvious.
To impute unpatriotic purposes to Mr. Musher for stating what is
a notorious fact ill his plea for improvement of the parity of the dollar,
which would give the
Americ~n
is a just
It would be just
http://fraser.stlouisfed.org/
/ Reserve Bank of St. Louis
Federal
e~.rgument.
consumer more for his money, I do not think
e~.s
reasonable to charge that it is
X-76Sa
- 9 ...
worii~g in Germany's interest to perrriit the A~erican dollar to rerrain at a
heavy discount, thus preventing the Anerican dollar from buying a dollarts
worth throughout the world 1 for this actually
~eakens
Anarica in a most
serious manner, and would certainly be a condort to the enemy in dindnishing
the value of appropriations made by America in the conduct of thia war.
I have no sympathy with the practice, in dealing with public
questions 1 of involving personalities or to use the ar.guroentum
~
hominem,
which can only divert the mind from a just conclusion.
Governor Harding states that Arrarican ·exchange and the American
dollar are at a
prendu~
of about 2% as compared with the British pound
sterling, about 10% as compared with the French Franc 1 15% as compared with
the Italian Lira, 75% as co~pared to the Russian Ruble.
The financial position of the United States can not
be. measured by these countries, whose
position
.
in~the
an~
nust not
world as to credit
no longer corr,pares with Arr.erica 1 their own gold having a lax,-ge paper issue
a~inst
it which fully justifies a nuch greater depreciation than that which
is narred ..
Moreover 1 it is our loans directly from our Treasury to these
count~ies
that is putting the American dollar at so serious a disadvantage.
I approve these loans cordially and gladly, but, while these countries pay
4% for the money they borrow from us, our people are paying 25% on the goods
we buy from their creditors who are thus put in a position of injuring us on
a huge scale, a condition we can correct at once.
I
a~in
call your attention to the fact that this can be
reme~ied
by an adjustn:.ent of international credits; by insisting that these countries
which have an international trade balance shall make an adjustment with us
so as to par the
Americ~n
dollar, and I should be glad to see a par ot the
X-768a
.. 10 -·
British pound sterling and the French franc with the American dollar.
I belie~e that the Arr.erican Government, with the cooperation of
Great Britain and France 1 cansto;p_ this injur.y to. the Arr.erica.n dollar and
that we should do it, and do it :i,:r:unediately.
Governor Harding poipts ·out very wisely that "without involving
the shipn:.ent of an ounce of gold you have been able to rr:ake arrangements
with the Indian Governffient which enable An.erican importers to purchase rupee
exchange at moderate
rates~
and you have more recently concluded an arrange-
rumt with Argenti.which has had the effect of bring].ng exchange on.that
country down to apoint where the pren::i:um represents pract:i.cally whe.t would.
be the cost of shippi.ng gold n.
I am g:ratified to know that the Board hopes and believes that your
negotiations with Sp3.in wiJ.l be succ:essful 1 but his letter discloses that
negotiations have been in progrees a whole year without successful conclusion.
Governor Harding observes that the object of the gold
as the Board understands,; is to. prevent gol.d. getting into
embargo~
:/".
§.~~hands
through neutral countries •. This may. apply very well to Holland, Denrrark,
Noxway 1 and S1.veden.
It does .not appJ.y, however .. to Spain,, and Spain has
accounted for the gold she has received from the Unite!i. States in 1ilie increase of the gole'. holdings o:! the Bc<.nk of Stain •.
In concluding his letter) Governor Harding again says that he
does not feel the. Board. has authority to l3.cense expurtations of gold 1:m.less compatible with the _public
int.<:~rest;
that individual exceptions would
retard the progress of the negotiations which have been undertaken.
X-768a
- 11 -
The transfer of a million and a quarter of gold to Spain could not possibly
affect the internat:i.onal negotiations except favorably, and the exception
referredto is not an exception at all - it is the recognition of the principle that neither the country nor Congress 1 nor the order of· the President
should be administered !2A post facto.
Mr. Secretary 1 I have analyzed Governor Harding's letter because
! desired to ascertain what his reasons really are.
that justifies this
denial~
He has given no reason
but has merely asserted that it would not be
compatible with public interests 1 and that Mr. Strauss agrees with him.
The only real argMment that I can see is the suggestion by Governor Harding
that granting the :request of the
Pom~eian
Compap.y would retard the negotia-
tions between the United States, France and Spain.
Why?
Governor Harding
does not disclose and it is quite obvious this suggestion is without force.
To
pe~t
citizens of the United States to suffer vary severe
losses by administering a law
error.
~
post facto I think is an administrative
I believe our Government ought to protect its citizens in their
just rights, and that if there be any doubt in the case, the benefit of
the doubt ought to be given to the citiien1 and not against him, and that
he ought not to be prejudiced in his
rights~
discreet in urging his cause too stremums}.y.
even if he were thought inMost :r:r.en thinking themselves
in jeopardy would be strenuous in trying to save themselves.
I hope the Adrrdnistration will not by an
~ ~~
facto interpreta-
tion of the embargo rule cause so large a loss to the 300 innocent stockholders of this Company.
Great Britain through the Bank of England 1 whose directors ara
exclusively merchants 1 Great Britain through the Government itself 1 goes
......
X-7688:
- 12 -
to great pains to protect the British ILe-rchants throughout the
this has rrade Great Britain powerful in
Gernany~ as~
Fr.ance~
you
know~
corr~erce
world~
and
and finance.
poJ.icy~ and Great Br:i.tai,
has followed the sar£>e
Gernany and Spain ar3 now deliberately naking elaborate preparati:rms
for the protect.ion of their rr.e.rchants after the war.
This should be our policy.
I think~ in conclusion) that a careful analysis of the facts stated
in Governor Hard.ing 1 s letter does not iustify a refusal of the petition of
the Pompeian Corr.pany.
place it
un~er
e~b~rgo
the
the spirit of ilhe
Corr~pany
'.rhe facts :i.nvnlved in the case of this
~?£.post
do not
rule if that rule and the law are interpreted in
f£l.ct;o_ provision of the ConstitutS.on.
I gr"}atly regret to find. myself at variance with Governor Harding's
conclusion because it has always been my desire to actively cooperate with
the FederaQ Reserve Board and to hold up its hands.
I
h~pe
that the Board
will reconsider this matter and give the relief unless they accorr.plish the
result othexw·ise by the transfer of credits to
Spain~
as seems to be comte:o:-
plated.
If this is done it will give relief not only to the Pompeian Corr.pany 1
which stands
0'1
the
~-
E9._st facto ba.sj,s 1 but will give relief and more favor-
able terms to those who may now desire to import
con..rr,od~.ties
Ve~y respectfully~
ROBERT L • Oh'EN •
Hon. Wm. G. McAdoo J
Secretary of the T!·easury ~
Washington, D. G.
:{rom Spain.
@FedFRASER