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Denver, Colorado,
January 4, 1917.

Dear Warburg:

Yours of the 20th came While I was in t

mountains. Unfor-

tunately I caught cold While there -thich settle

n my left antrum so

I have been going to the doctor's twice a day Bi

returning for a

very unpleasant ilri8atinc-; treatment,

have had an

avalanche of letters from the off

cood de

About the Bank of England
Board has taken fins

s '

be sa


to consent to the


informed of our policy and

this is

where we don't act for ourselve,

es- the othe

.nks as well. It would not, however,

factory to have too definite an agreement as

be con.

of seeing those boys

t matter, particularly as

one of those class
alone b


1 am delighted that tne


everything that

no en

of the mail slide.

Of course




letters to write longhand end
off to school, so I have le.

well as

to specific trans-

As a practice, anker, you know that banking business cannot

ad in that



the necessity for comIliiete information

the Board can be fully

met without

anything quite so

formal as a regulation to definitely control spocific business conducted
from Washington.

There will be no difficulty about this, however, for

there is no desire, nor has there ever been, to be otherwise than


with the Board in all of these matters
It has never been in my mind that we should conduct extensive
transactions with the Bank of England at the present time.

I am only


To Mr.


January 4, 1917.

stating personal vieww, but this is about as I felt.

The first thing

ask each Reserve Bank to name.a limit for its par-

,o do would be

ticipation wider present conditions.

We would then name a limit for
t first appear

40 Our own rhare and 1 have no doubt that the tot
at present

to you and possibly to many to be larger
that we would consider to be the ultimate

it for normal

under present conditione, except in emergen ies.

Having th

rate onl-

it is quite probable that thefirs

tified, but
limit fixed,

a nominal

extant, the plan being to buy

ose occasions Where the

market really broke, and the

at which we would buy

exchange would be the b

uld get as to the gold

t in

would not advocate any


point under present condi


operations except at levels

ange below the rates at Which gold
h today would probably be not

could be imported without

above 4.76.



above view w

Irchases of bills largely to those of American

we were able
origin, such as


our exports of

financed by long

c modified if as I expect is possible,

lls drawn and accepted in London by4acceptors covering

grain, cotton, copper and other goods Which are

The portfolio consisting of these bills could be

larger than those of purely foreign dirtgba.

Now of course you know that I am pleased at the action of the
Board in approving of this appointment,


I am sure you are equally aware

of the shock it gave me to learn of the announcement.

The matter is being.

dealt with from New York so I will not refer to it here further than to
Federal Reserve Bank of St. Louis

to you privately that had I been in New York and on the job When this


To - ar

January 4, 1917.


: ppened, --certainly would have resigned at once, but I am not aoing

to allow this to interfere with the larger consideration, Which is coneludin; the wart< which you and I really undertook in partnership and

which is of vastly more importance to me than any personal consideration.


-Just the same it was a pretty stiff blow tha

ve taken





rom the closest

without a stiff counter for a mtnute, eve

riends and



There was no

any understanding at all in re

erence just before I

As I stated a


had no olan beyond an

sailed and to the members of

the character of ar-

investigation of cond'

and When they should be

rangements Which we should

ng about

You are all dead

Now for the rest of your letter.

rstood as was possible for language

This was as c

to maae it and followina

o the governors, a committee was

aopointedA of which Kaino

and Which was to work up a re-

port on tin

bject for submission to the governors and to the Reserve

This wa


The Bank of England plan. was the

I moan that two

one which you ano

had originally discussed, by whic

roars ago, or mor

we had considered carefully the desirability of as-

sociating the Rose

e Banks wit,. the great

central bans of


This had, of course, always been in my mind as it had been in yours,

but I left for Europe under the firm conviciana that no such arrangement
would be possible with the Bane. of England or Banc of France on account of

their hide-bound traditions and particularly on account of their unap

(at least according to


information) of both Cunliffe and


To - Ur.

January 4, 1917.


Pal lain.

It was, in fact, in my mind that the only way to deal with our

ae , aa


aa a


business in London and Paris would be through our own representative

'hero and I was considerably surprised on purs

ig my inquiries in

!ir3, London and Paris to learn that negotiations we d be welcomed by both


and upon terms

so favorable that th

could not be ignored.
the censorship made

The difficultyof communicatio

oractically Impossible for me

vey word of


nation to the

office during my stay abroad,

ing the Embassy pouch, which

I was aware was a very rein

d nriviloge and one that I did

not care to employ except in eme


There was neve

to you/nor any-

body as a result o


will see that it

contemplate in form any transactions

as personally so convinced of the

during the period

ngement now rather than later that I

of concl


I will read my nemoranda, you

d still would'urge without reservation aCting at once and not

not misue. and me in this or ia aay other matter in regard
to the ma

the bank in New York.

and during the last

1 have had no secrets

from the

week or so I have had occasion to bitterly

repent the complete and unreserved frananess with which 1 have always dealt

with these matters, just as though we were one family.
Don't for a minute think that I am so stupid as not to realize that
the Reserve Banks aro not

.tlases and that we will be quite unable to cope

with the exchange situation maler present abnormal conditions; that is


.5 .


January 4, 1917.


elementary and really

kindergarten stuff.

the advantage growing out of this

As I have repeatedly urged,

arrangement lies in the friendly feelinE

that will develop as a basis of future operatio

and abnormal

when the war is over

conditions begin to readjust to no


I regard arrangements of this character as nece

and Germany and as one of

the most Lm

can take for the country's
vantage, and I have

that the Eeserve Systeu

protection and for our o

no feeling

about possibl

f that sort.

plications or financial loss



sit d



it for discussion

e for a good chat.

ing its investments after the View

You speak


Don't lets you and

your letter.

me get into any di
when we can

You really must

nce your judgment, as I am sure

not let this counsel of timidi

has done to some exten

political com-

j at all as yet.


We have over




000 cash reserve and over .100,000,000

45 000,000 inves

about ;;60,000


so leng


he Mew York bank should run along right

invested. It can afford to carry

that amount

oaded up with long tine government bends, as some

of the other banks are and should not be, and 1

present time

Ibehind/notes and only

think receding at the

from the strong position we have taken in

market would be very poor policy indeed.

the acceptance

Don't for a minute think that

this acceotance businees is here to stay as yet. The Whole volume of

bills in



bank and trade


cannot exceed'.200,000,000

The normal volume in London in peace times is about


-A have not

scratched the surface

yet and

for the

Reserve Ban



. Viarburg.

January 4, 1917.

to permit our acceptance. rate to follow the call money rats, which

is the way it would be interpreted, would be a terrible exhibition of
weakness that I would certainly regret. My anxiety about a broad

open market for bills is nil; that will come with a rush just as soon
as the volume develops, and any day that we withdrew from the market

so that rates ran up a bit, you would see t
United States.

You don't realize I am a

distributed in very large volume to interi
brokers and the reason thy the New

bills se
id that now bil
banks by the I

_s don't buy t

11 over the

are being

in greater

volume is because they stiok,t

vastly prefer to see

Now about those renown

them all converted into regul

, but you know as well

as I that it cannot be
to use the machinery that is

ns are abnormal, we have

ible a.

under abnormal condi-

tions.. Suppose there are

venty-five millions of those renewal

bills in the market, whi

ly would claim as 'finance paper".

You real

that out of 4

the Eng/ish

olume of say 42,500,000,000 of bills in

t in normal times, about ;1,000:000,000 are estimated to

be bills of app


is character, such for instance as bills drawn

by first rate Ne

ork institutions and firms with the orivilege of 1, 2

and 3 renewals an(

°cured by deposit of New Yora City revenue bills, or

stock exchange collateral loans, or even in some cases commercial paper.
Such bills are drawn on London from all over the world and in the case of
those drawn in New York in the spring of the year When exchange is generally

high in anticipation of the flood. of cotton bills, they are always reaarded
in London as ,rime bills and are free:; taken by the Bank of England When
bearing two good English obligations.



January 4, /917.

To - Mr. Warburg.

The Governor of the Bank of France and M. Robino, the head of

their discount department, told me that the same was true of the American

fiaance bills in Paris. Those bills are not even drawn directly for
exports. Why, therefore, should we balk at a

of bills of this character in these unusual tiu

ume of say ;AO,000,000

when every effort must

be made te finance our commerce.

You say that 1 and the Federal Reserve Bank

ew Yore ought to -

have a definite policy and keep

led of it.

the record, which briefly i

At the time I sailed for Europe

the only bills of that charac
couple of million, issued

holdings of bills o
informed you t

nk you overlook


had purchased were possibly a

own credit and at that time our total

d eight, nine or ten million.

awn that we woeildiAleal directly with

him in any bill p

commit ourselves .to do more than

say that ti

in point of fact, all of our purchases

of the

ills were made

.h brokers and most of the bills were sold in

ket through bro rs without reaching us. The Brom credit and the

first onbright credit
been a

re the only ones of thig character which had then
before I sailed Mr. Kent of the Bankers Trust Co.

offered us some of the Bonbright bills - i think less than half a million and I told him that he overlooked my caution that we would not deal directly
with the bankers wno were handling these credits, and advised them to pursue

Brown's policy, so that the bills would find a normal market. Of all of this
I think you are advised, except possibly this last occurrence: Which was the

day before I sailed.



Mr. Warburg.

January 4, 1917.

Since that time, While I have kept fairly closely Informed of
what the Bank was doing, I have not been getting the daily reports of

transactions that you get, but periodically I do get a list of What the
bank holds and two or three times have been sent an analysis of the account, showing how many of the bills were issued under renewal credits.

Considering the vastness of the problem of financing our exports, the
high character of the acceptors, the thoroughly legitimate character of

this business and the care Which has been exercised to keep the total
holdings o the !New TorX bank and of the Whole system at a moderate figure,

I must say that I have no criticism to make of the policy they have pursned.
There was a large purchase of bills at the time of the money bulge, but
that struck me as being an admirable policy.and-one which wepust always
pUrsua in similar situations. What i do object to and always have objected
to is the policy of the New York bank i In buying their own bills instead of
letting them go to the market through brokers. but i really cannot feel

that these credits are in

any way nsound, at any rate in the present volume,

nor that our policy has been over liberal in buyinn. them.
You know as well as I do that thYilvidence of distrust to Which I

referred was not distrust of our judgment, whicn it strikes me becomes ap;

parent whenever anything like an emergency, frac),48 the one in December,
develops. You also know that there is not the slightest desire on the part
of New York to run the Whole system.

What part of it we have boon running

has been at a personal sacrifice of earnings, of our own position in our
own market and, frequently, of our own feelings and self respect, and until
this recent development about renewal bills I had felt that we were pursuing

a policy of liberality and disinterestedness Which was more particularly to



January 4, 1917.

Er. Warburg.

the advantage of the Whole system than 1o ourselves, and Which was very

greatly in the interest of the kind Of progress which you and your associates want the System to make.
How can there be any more frans and constant exchange of views

than has taken place between you and me ever

The most difficult questions whic

cc WO g0

, to harness to-

e have had to 3e, those

which involved your own political views ab. t the war, we ha,: stood up
squarely and faced without reservatio

feeling, even on these finance

n eace_ other an

,hout hard

si .ss has prevailed

between us - the same in the B

r and, so far as I am

concerned, they will continue

ot justified and when

it is not justified yo
Don't you think yours
to your own feelings, which

it is sort of a one sided

part of this difficulty is due
tances may thoroughly justify, that
dhile the war continues emd that

bconsciously affect your riess a littlp?
you say in your letter is absolutely true and hits the

enough to le

you are

nail right on th


had been in New York a lot of things might

not have happened ust as they have. The intimacy of our relations and

Our ability to de
your Board

fra1y with each other was a bond between our office and

ooking over the past, I think has solved many a difficult

and puzzling situation.

Concluding this part of my letter, let me saf that we must both
agree to avoid on the one hand an attempt to run the Reserve Bank of New
York from ;SIshington and on the other hand, an attempt to run the whole system
from New York.

This you and I will always be able to avoid by discussion and



January 4, 1917.

To - Mr. Warburg.

exchange of views.

Unfortunately, the others, either in you


or Possibly in the New York office, don't seem to get that fact ai
squarely in mind as you and i have.

for the past year
I notice their earnt
are just about equal to ours. It is dUe to thre things: One is the unolutely unjustified
fair-distribution of our purchases,
Now as to Chicago.

investment account in long time Uni ' States bonds

third is a

narrow policy in avoiding the

selling Federal Reserve notes.

I would not refer to this a

t that I want to point out to

you what you may have lost sigh
or bank has been

a minute and that is that the New

sm from the start. 1 could point
e Banks, such as the way the

to similar situati
exchange accounts

on't think that i biamo those fel-

lows as much as th

y are all huaan, they are all trained
they all thine that they have got to

In moneyosta

wine*. 'I frankly thine that your energetic criticism of some of

our n fermances in New

rk are much less


than they would be

if di. ted at some o i.e other banks. We have got a greater responsie others, but we have a closer relationship with you
than any of the others, and what you want to accomplish in our establish-

ment can be brought about across the table very easily, :bile with some of

the others dligerent rethods may be justified.
I really hope you study those suggestions about the amendments

that I recently sent. The most serious consideration of all will/the
charge of inflation and my best suggestion is to prepare for that in advance, have all the figures ready for the congressional committees and



. Warburg.


January 4, 1917.

be sure and point out that the change .in reserve reluiremonts will not

reduce reserves, but will only change their character.

I agree with you

that somo of the amendments have some dangers in them but think they can

be avoided with cdre.
Now I know perfectly well that yen are t'

York that yo- have been laid In With th 'grippe
that you could

are good, and spend a woe




Grenade Mr. McAdoo to


hheld from
annoying a

ler coming

enough to


he Board can approve.

The only thin

I feel that I

the ban( has been the last - that is to
ails of my unfortunate relations with him.

o now to recall'lag told him in the ban

a stearn


what you say about Starek, but

of course know none

. amuses

eautifna hotel

ndum about the new greenback plan


I am intere

if you say

o the e with you; it would do us both good.

and try and send it t
it through, or at


I do wish

is balm; and the accommodations

T will nrepare a separate



c*s..h to go down to

outside of Phoenix, Ariz. wher

say t:

id gone south.

get out here so that w could have

the word, I will arrange later thi.

have eve

d and I hear from New


one day that there was

the road and that he appeared to be foolish

sh it back, but that it was

goin,; to roll over him just

as sure as he did not get around and help push it on,

but if he showed the

right spirit and the comptrollers office was reorganized so

that we had

cherge of examinations ultimately, we would naturally want a good man in

and ho

Jould be the natural choice. but his behavior was convincing

me that be was a poor examiner and an'impossible

associate unless he

changed his course, he need never anticipate having any permanent connection



To - Mr. Warburg.

January 4, 1917.

It loOlcs as though the roller had rolled.

Now i don't need to sa:i that there is nothing personal in this

letter. It is the same old process of grinding new bearings that at
first are a little rough and don't fit. The best solution of most of
them will be for me to get back on the job..
have had a nilmber of letters from yo
and these have been promptly destroyed exce


a recent one

:lhich I had to keep until I hear from you

reply to recent
I will tear- it up as soon as I get your reply. Please d st
Hon. Paul Y. Warburg,
Federal Reserve Board,
%ashington, D. C.

B. S. - CC.


''ut amendments
mments, but



Denver, Colorado,
January 5, 1917.

'ear Warburg:

seem to have difficulty in agreeing

this greenback plan.

I enclose a memorandum similar to the others, c. enting on the last one
you sent me, which I really don't like at all.
I view it will be to make the Reserve
out ;453,000,000 of gold to redee


us-nts for paying

amount of gr

cks and to

000,000 of National Bank notes

make them the instruments for
with a 5% reserve for the r
and the United States notes.


effect of the plan as

he balance of the greenbacks

not affect the consolidation of


the currency, it fai

rve Banks, either

pense of the opera


the ex-

amine overloaded with long time

government bonds,

loss thereon, and I am sorry to

say that I do not

s face this question squarely and

ask COe

not t

o make a
it at all..
The Reserve Bath


d sound disposition of the matter, or

i c..

t underst -

awn too many long time government bonds already
:le complacency with Which the Board views that


Hon. Paul M. 7:arburg,
Federal Reserve Board,
ashington, D. 0'.

sincerely yours,


Denver, Colorado,

January 9, 1917.

Dear Warburg:

you commenting on

The various memoranda which I recently

the proposed amendments to the Federal Reserve
prenared rather hastily

as reply to g

were, as you know,

been delayed for

over a wee-i: by my absence in the mountains.

go over them o co more and

It has not been possible

received by the following

I want to supplement what ye



ion ti the four following matters?

Han the B

Bunks in r
ttuni one


oral Reserve 3ank, and particularly


small co
in roe

country which are distant more



ell take advantage of the proposed change

e reeeirements without the

reserves, a

money a

f them must be prepared with sufficient till

times to


possibility of loss by reason of in-

emergency demands at timenhen railroad cola-

errupted or slow. Two occurrences will illustrate

this point: At the time of the threatened railroad strike I am informed
that the banks in the TeNas District whic were then engaged in preparations
to move the cotton crops, becaee uneasy about possible interruption of railroad communication and at once began to stock up small bills. If such a

situation developed at a time when from motives of economy they had permitted

their till money to

run down to the minimum in

commliance with this revised



Junuary 9, 1917.

. -;atrburg.

reserve requirement much eebarrassment aieht have resulted, had railroad

communications actually been interrupted even for a Short period.


development tooe a little different form in Col ado. Lout of the small
country banks surrounding Denver keep their n
Denver banks.

ipal reserve accounts with

The eashier of tee bank at Estes

ek, data is a State bane,

aseed me this summer when the striee

whether I did net think

it would be prudent for him to bring up from Denver

rency because he feared that hi
shipments of currency from

respondents in this territory.


075,000 throuehout a

orreneondent mieht be unable to get

teat to supply all of its

sibly :A25,000 of

of this


, which ordinarily has deposits of

ths of the year, runs up tes clo-

posits to about e2
the Park and late

rev supply of cur-

the When visitors are crowding

t be prepared to pay bace in cash poor people who are leaving. Developments

1 o. ina,V many diaferent forma in different sections

and a

ifferent seasons, which leads to the second seeeestion of means of


this situation
each of the

oral Reserve Districts where distances mieht make

te nieht be made to carry a supply of aederal Reserve

metes in escrow at points Where there are either assay offices or 'mints, or
possibly where the Federal eserve Bank would be reeresented by a director
Who is an officer of an important national bank. Ue suegestion would be to

establish these reservoirs wherever possible under the joint control of the
Superintendent of an assay office or mint a

a director of a Reserve .202/k,

and if ueoessar a third nominee Who would act as a local agency board for
the Reserve :lank of the district whose functions would nernally be dormant,


To - Mr, earburg.

January 9, 1917.

but in time of emergency become active.

They would have no duties to

perform but would nevertheless be the nucleus for u little organization

in tine of trouble. To illustrate, in our dies
each a fund in Buffalo under the joint control

et we might establish
Mr. 14040 and possibly

the local reeking officer of the Treesury Departs t in the Custom service
or even in the Internal Revenee semi
another distant

point, there is h United States assae office where t
be associated with some respons

serve beek of Sen Francisco
could be done at Los Angeles.

mint as well as

rintendent would

at that city, the Federal Ileing no Seattle director; the same
district there is a well organized

Unt could be assoc

rectors. Tae seperintendent of the
Lit 11, President of the Denver

national Bane and

.sas City iieserve aank, and in addi-

tion Mr. la1one

or Denver director. After inquiry, 1

believe, s


made at Helena, Boise City and Salt Laze

ve no doubt that every Federal aesorve District can be furnished

ilities for es

,be Jailing

depots of currency under this plan, so that

es would fee 'omelet° assurance of being able to get @applies on
,z ee4

e4. emergeacy.

In many oases currercy could be delivered

even by automobile If railroad communicationems interrupted. This suggestion is somewhat in conformity with the recent unaninous recomeendation of
the governors that a system of agencies for Reserve Banes be authevized as
much more ocammeical and just as effective as the present provision for
branches. The expense for the safe custody of notes and compensation would

be negligible in comparison with the expense of a branch. I regard the Above

suegestion us an essential part of the plan for readjusting reserve require-


January 9, 1917,

To - Er. 4arburg.

The third point relates to the effect upon the reserve position
of meMber banes in cities hore Pederal Reserve banks are established.

They are so readily accessible to Reserve banks that they will have no

fear of being unable to get supplies of currenc

or all conditions
reserves and a con-

and It opens the door to a possible reduction in

ine with the total re-

stant expansion of loans at these point c.rre
duction of reserve requirements at those centers

feature of the plan unless it is

feel is a dangerous

her the new plan be -Which the

The fourth point to c

only required reserve is that



the 40fierve Jank, may not Gener.

to 'conduct their business on a narrou

ally develop a tendency

stant shipment Of currency, in


eargin of till moue

banks and member banks. The

triton consists of the amouOt of op-

tional rea

- be ear

y lead country banks to trim their cash as

optional rase


ld be =coon

an increased volnee of currency shipments,

possible and


. 909

, either in emit or with eserve banks.


Since writing you in regard to the amended plan, i notice that the
conference of governors has wade a unanimous recommendatioa to the effect

that any plan proposed for the retirement of greenhaeks should be smote-

plished by issues of Federal Reserve notes. Further thought on this subject
(!onvinces me that it eould be a serious mistaee to adopt the plan proposed
and one Which unfortunately could net be reendied by

later legislation

without an admission to Congress that the first plan was a mistake. I think


Jartuare 9, 1917.

To - Mr. earburee

most of tho areerents have alreade been covered in re; other two memorandums.

1 ae convinced that the net result of the proposed plan would

be to put the entire trust fund or sold into c

lation and to retire

the balance of greenbacks by an issue of bond

tired notes having only

a 0.% reserve.
amoum NO. 906 R4DUCTION OF Gal

When I wrote you on this subject I had in ml

capital and deposits before

On looking over the

Reserve Banes now have deposi

all eserve Banes are

figures as to

ors of reserve deposits had been

find that practioally all of the
ng tea times the paid in capital;
the outlooe for °ermines due to

chase and to the inevitable

the larger volume

increase in hold

ads, as well as gradually incteasing

interest rates,

ban it has been at any time. 1Wen if
I doubt if on careful consideration the

Board es, d feel wiiling to authorize re-payments in any specific case.
Furt n ere, the amender", t is inconsistent with the proposed °Ilene() in

al a

h would result in a very large increase ti deposits
on further consideration, 1 eould regret to see

this amendment passed. It must be borne in mind thet if opportunity is af-

forded to a lot of small country banes to tees advantage of permissive

provisions of the statute, they are almost certain to do it from selfish
motives and the amendment would be adontod at a time when they are all come

plaining about reductions in earnings due to the establishment of the
Reserve System.

The pressure on the Board might be severe and embarrassing,


January 9, 1917.

- Mr. earburgs

amid be avoided if the Board was not in position to exercise any

discretion in the matter.

My -former memorandum failed to make clear the argument respect-

selling at about 101-1/2, notwithstanding

s are selling
circulation p lieges, are
difference of 1 n the return.

Consequently, an increase in intere

in this count

ing prices of government bonds. At the pre

at ear and the conversion 3's, Which have

tend to brin government bonds

time th

Which would

at basis in

line with other investment so

a,geeater decline in

the 3's Which have no cireula

4 in the 2's which have.

a special value in the

This differential of 1-1/2;

in favor of the 3's mieeet
possibly 5;1 at a gpess,

obliested to buy at leas

the Res Nres in the
one arala

changed into a differential of

2's. With the Federal ileeerve Banns
of 2's per annum at par,

miabt see

te position of being obliged to write off

million every year in their investment accounts This would

all be cured if scretion s vested in the Secretary of the Treasury to
t on the conversion 3's whioh mould eonform reasonably
fix a rate of in
to the investment

is at Which government 3's without the circulation

privilege were selling.
This danger would, of course, be reduced - possibly eliminated if amendment No. 912 is passed so that Reserve Banks need not buy the minim=
of 425,000,000 a year, in which case the unforturnte effect of the two amend-

ments would be to entirely nuilfy all provisions of the Pederal Reserve Act
for prompt retirement of National Bank notes.


To - Lir.Warburg.

january 9, 2917.

These amendments providing for prot retirement of National Bank

no esmay prove to be dangerous so far as they are mandatory, but most

advantageous if they are discretionary. lo one can tell what develonments

are in store for us as a result of the war
it prudent to ask for greater discretion in d
than to ask congress to pass amendments
On the Reserve Banks in this time of

hope the Board may consider

with this subject, rather
impose heavy obligations


The Board does not som

with the great MSBS of geld
muoh of Which is abraded below t

section of the count
dividual Who has

held a

lation, particularly in the 'Lest,
t of tolerance. The banks in this
e position of an unfortunate in,
in Change, -He cannot do aey-

thing with it unl

bor. Inqui

()sod any amendment for dealing

r4 it off on some unsuspecting neigh-

of oDenver disclosed the fact that they

derable e
ea ;;;600.00 On

gold coin Which they wished to ship

gold certificates and discovered that it would
unt of abraelon, and thej abandoned doing so.

I an i 1zod that t
Some mont:

situation Is much more acute on the 2acific Coast.
onferenee with Mr, ,aleurn, Assistant Secretary of the

Treanury, he informed me that he had already recommended the enactment of
law Which would provide that for a limited periodof time the govern-

ment would receive and recoin all of this abraded coinage and absorb the
abrasion loss rather than have the matter dealt with directly by the Treas-

ury Department, might it not be wise to provide for the surrender of this
abraded coinage through the Reserve Beaks, giving say one year in Which it



2o - x. arbure.

January 9, 1917.

might be assembled, as under such a plan the Reserve Banes could pay

for the coin by issues of Pederal Reserve notes, and t have no doubt it
would add from $50,000,000 to 400,000.000 to t

ir gold holdings.


The present law provides that not less t


the total

amount of gold certificates in circulist of denominations
of $56 and loss. This limits the discretion of the

Treasury to such an extent that

tary of the

id 410 sold ce tificates can be


withdrawn from circulation.

ard will determine to recommend

to Congress that this law be

vest discretion either in

the Secretary of the

ral Reserve Board, or both, to

readjust these den

t ultimately the greater part

of the small den

can be entirely withdrawn, but never-

theless leave auth

can be resumed again if the result

of sold In bent reserves.

should b

r facilitating transfers between Reserve eanes I hope the Board


Congress to au






riee issues of , o1J. certificates in denominations


Certain of the tax provisions of the Federal-eeserve Act require that
taxes paid to the sovernment shall be added to the trust fund of gold held
for retirement of greenbaeks. If the groenbace amendmeet Is passed, it will
leave the Federal Reserve Act without

any provision for disposition of

these taxes, unless, fo course, it might be held that they ee back to the
Reserve Banks as a credit in the greenback operation, therek reducing the
amount of government bonds provided to be isseed, it leave the law in an




To -

January, 9, 1917.

uncertain condition and i tae the liberty of making the following suggestions on this point:
The provision for retirement of groenizi

as we-1 as the general

enlargement of the note issuing fenctions of th

leserve Bames, relieves

the government of a very considerable nresent

nae and if the plan is

successful, the burden of oxnense to

be very large. I fully appreciate

danger of a control resting in

Reserve banks will

to avoid any
desire of t'le
a result of their power to

eithhold necessary appropri
customed to rely. Could not th

oh leeserve Banes might be act be mat by an amendment providing

as to cover the cost of le-

that an appropriation
sues of Federal e


Reserve bailee notes, that the

amount of each a

carried in the Department as a sepa-

rate ace aunt, as.

Reserve banes to be repaid by the
S now levied against -emery° Banes by




and of all profits hereafter to be paid to the government. In


nii properly word

the f

Which are t

the Reset

the plan foray: aperopriation would conform to
Congress ehile temporarily making an advance to

nevertheless saving at once a present exnenee and ul-

timately mill even recover the anount of the advance.

The more expense that is loaded upon the Reserve 3s, the greater
111 be the tendency to expand their loans. i notice that the gederal Reserve Bank of Dallas has increased its force from 28 emeloyes at the close

of 1016 to 72 at the present time. The Federal Reserve l3an:6: of New York a
year ago had about 60 employes and at present about 175. The 151&43 is true


To - r..1arburg.

January 9, 1917.

of every other Reserve 13an and results largely from the increase in

,he oollection departments Which produce no net revenue.

This amend-

ment is in the direction of a conservative oolic by the Reserve 3anks.
A more oomPrehensive plan and in some

much more attractive

from the government's standpoint, would be to

amount to uhich wad be charged all



the Treasurer open an

:e of retirement of
greenbacks, issues of Federal Reserve notes and int
t on bonds. issued
for retirement of greenbacks.

the e-,4=

count might be

collected from the Reserve 13'

;sited all taxes

its paid to the government and

such tax as was imposed on bo

to retire greenbacks and on bonds

held as security for Fed

notes. Under this plan the tax

to retir

imposed on bonds is


might be considerably less

than proposed and

e plan could b

batted to Congress as carrying its

own evidence that

1 of the cost

these operations would eventually be

conclusion let
into r ependence Of so L


or being so i.

a urge the necessity of considering the
of the proposed amendments. their relation to

ant that it might be inadvisable to attempt to
some of them unless the others were assured of


Very sincerely yours,
Hon. Paul M. ' arburg,
Federal Reserve Bank,
Washington, D. C.


January 12, 1917.

Dear Mr. Warbur:
Governor Harding has written to Li.. Jay suggesting

that the Federal Reserve Bank of New Yore should establish
relations with the Bank of Spain and that we "look particularly
into the Argentine situation" to determine whether it whuld be

desirable for this bank to effect an arrangement with the Banco
de la Nacion of Buenos Ayres.
In conformity with this suggestion, I am writing to

ask you, inasmuch as you visited the Argentine last year, if you

not advise as to the method of procedure and the proper

pe:rson to address, together with any other suggestions concern-

ing our entering into reciprocal relations With the Banco de la

Awaiting your suggestions which I could then bring to
the attention of o'ar directors on Tuesday next,

I remain,

Very truly yours,

eputy Governor.

Hon. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.



Denver, Colorado,
January 26, 11WIT!r5


Dear Warburg:

ourse 1 had read Dr.


Many thanks for yours of t

Riesser's book, but your quotation, which

boars out what my last letter stated

memory, simply

at we are re


two very different things.
I hope that Jay got the Annual Report in your
and I am also encouraged by

in good time
at the amendment

program will make some pro
The Committee on a

cry courteously asked

to breach the

of our close personal re-

.Lations, and I have wr

the matter

the subject.


be important

will cowe out hare to see me; it will

t one heart to heart talk.

for us t

ish suggestions, - as you know, I

bout the Argon
burst-up the


the same as

- A.*

If he considers

Dutch Exchange difficulty and would gladly do
and Spain.

I am writing the office about the

former, but

o the latter, don't you think that some of these im-

porters who

having so much trouble should be told to

up with the S.

ish Ambassador, as the Reserve Banks would gladly enter-

take the


tain a suggestion from the Bank of Spain similar to the one arranged with

the Bank of

the Netherlands.

I will get a letter off tomorrow to

the of-

fice which will put things in train.
You don't expect me to tell you what I wrote Lawson, but I really


To - Mr. -.arburg.

January 26, 1917.

think it was unkind of him to violate a confidence the way he did by
dragging your name Into it.

You know, of couxse, what a close friend

of mina he must be; send him

out to Denver and

i11 come home.

Jay is better I am sure from the way he wii

s me and Curtis is

on his way out here to make me a visit of a few d

and I will be

mightly. glad to see him.

It looks as though your can.-

th Vpraerlip


enewal credits,. but then you

I will take it out of his hide

wilds, gives us unlimited sup-

know as I do that he is one o
Port and is entitled to criticise.
Answering your 1


ust seen Dr. Sewall

tells me that I am

He says that I can work

toward returning in
so denends on how,

reservation that my ability to do

lave entirely


me v. bit



ho doctor is cnite willing to see
with Vanderlip after the worst .of the

on is over wil be a good thing, and is altogether most en-


I am really ot hopeful of getting back in June, but have not

aaid to

to my asso

es as

it would be unwise to make any very defi-

nite statem
I was glad to get a letter from Ers. Warburg this morning, telling

me the home news, expressing her usual

behavior, but best

dissatisfaction with you and your

of all telling me that I am missed now and then over

there in Washington.

'lease give her my love and my best to you as always.
Faithfully yours,


The last Governors' conference resulted in the appointment of

To - Mr. Warburg.

January 26, 1917.

seventeen committees, or thereabouts, largely composed of the sane

4o all want to accomnlish the same objects and I propose that you

soften the blow to your colleagues and indicate

t no objection will

arise if an informal working sub-committee of the c.nfereneo, call it if
you please, a program committee, be authorized to
requiring committee development.

Hon. Paul M. Warburg,
Federal eserve Board,
Washington, D. C.

1 with these subjects


Denver, Colorado,
January 27, 1917.



I don't often exhibit plain, vnvarnished cu

sity, but I have
ent, announcing

just received a copy of the Comptrolle
Mr. Malburn's appointment as Chief of Charles Starek, removed 1



ner in our Die



have the mighty fallen,

or, for my information_ ,ihy

You may, if you desire, s

friends of your Board t
never have been tak
cannot imagine my d
With best re

_Ion. Pa

M. Warburg,

rve Board
federal .


entially to come of my good
ed before, I

certainly would

romptly to get well.
red by all at the office.



Denver, Colorado,
February 15, 1917.

I am just back from Arizona and on general principles the doctor

has told me to take a day or two in bed, as the change of altitude - nearl;,
a he does not want
a bi
a mAle - sometimes disturbs one's circu
me to run aloe; risk. I will be rather

ow in catching

with mail on

that account, but want to write you a

t two matters

ng to do with

amendments, in the meantime deferring reply to your

oral Reserve Act,


In the proposed amen


the effect of the languag


any attorney

or counsel

rohibitions, etc., as any

of a member bank in the
other officer of

erious mistake because the busi-

This strikes me a

counoel as it is by its officers
not be subject to the restrictions

ness of the bank is not

by its

and bank's counsel or



pply td the

hind that

it will have
ploy counties

particularly impresses me
f Trust Companies.

attorneys and counsel in

is the unfortunate effect

The big trust companies em-

connection not only with their bank

rticularly their trust business. Such Trust Companies such

business, but

as t'e Guarant

directors who actually conduct its business.



Bankers, Farmers Loan, Central, etc., have counsel in a

great ms,rny states and these counsel are freouently men of large affairs
who have business relations with the

Trust Companies that

The effect of the prohibition as the

amendment now reads will be simpl; to

deprive the Trust Companies

that may

they represent.

join the Federal Reserve

System of

freedom in employing counsel which they should enjoy without restriction.



February 15, 1917.

To - Mr. Warburg.

I hope the Board can arrange to have this changed in this respect as I
do not think

the counsel or attorney of a bank should be subject to


same limitatioas that apply to the officers of a bank and I doubt if the
Board itself, upon consideration, would insist upon this View.
matter has


bill which you send me

to do with the


the pr

paragraph (e.) and I too e the libe

about it as soon as I discovered it

sten in regard

but it also incl

nt not

s a clause to the

appearing in


mended by the Reserve Board,

the February

It is a most extra-


assume was added

eserve Board attempt to exercise

ordinary provision an
it, I'doubt if the effe

other than to force

T a: sure is not wha

resignations, vich

Board is after.

he appointment

espondent is one thing end

is quite another.


provision in order to

the Reserve Board

would really
only to make

days of grace

Bank to appoint cor-

respondents in foreign

the bus


of telegraphingvernor Harding

the Board may r

effect that

printed in

c. 14.



conduct of


requiring a Reserve Bank not

appointment but actually to do business, which is ridiculous

and absurd. I eel vere sure
could possibly have


that neither you nor any of your associates

this proposal, which would seem to be directed

against the New York Reserve bank, and I am wondering whether your influence
cannot be

exerted to

its elimination.

Let me also endorse

the criticism of the Advisor; counsel -

poaers of an assistant Federal Reserve agent should
80 that


are only

that the

not be circumscribed

exercised when the Reserve Agent is absent; that is


February 15, 1917.

To ..18.r. ':iarburg.

a very

indefinite term. It could be made to apply to the lunch hour

or even to absence from one's desk, or it might be on the other hand con-

strued only to apply to abgbnces

formerly granted

by the Board. No such

/imitation should appear in a statute and the best evidence I can give you
of that is the attitude of banks general

powers of attorney and

by-laws which

unsel towards


end rights to o

porations to act in the absence of sup

ceotien banks have learned as a re


cers of cor-

jar officers.

hink without ex-

they must

t of experience


oue powers can only

base any dealings with the
be exercised in the absen

leer, because there is never

oroof available to determ

cc exists and the burden of
who are dealing with an of-

obtaining proof sh
ficer of the bank who is

ng 9axiy such indefinite powers..

your associates are going to

I an delighted t

and convince congress of the wisdom of

stick it out on the n
s been-pooposed


with Ge


the least


and convince i
nese, as



he country on the verge of a possible wai

the Reserve Board can do is
emen that

banking situation.

Best re
Faithfully yours,

Peders1 Reserve Board,

.ashington, D. 0.


to hammer away and try

this is a necessary measure

give us a normal

Aon. Paul 11. Warburg,

try and

for prepar-


Denver, Colorado,
February 21, 1917.

Dear Warburg:

Yours of January 30th should have been armoured before, but I
know you understood ray neglect of


jug my absenve.

You will be surprised to know that while mi5.\ arizona trip did me

a lot of good, nevertheless I was obliged to go to

my return and have only now gotten abou again.
as I

can gather from Dr. Sewall, wa
I got a little bro


high altitude ran my

two little leaks, whio

al cold

i ng

of imorovement rathe



ther dis-

of Phoenix

started one or


made indicates

han the reverse



th by absolute quiet.

nation as he


. .ened, so far

back on the train,

e up so that I

blood p

Id only



the low altitude


tells me that such e

my lungs, but


expected but

which started me coughing and

to this

immediately on


it is evidence

it means a stronger circulation in
solute rest.


think he is still

fact, gained


W t you tell Mrs.
a discreet

yet f

elated very muon

I lost no weight

this summer.

.rburg that I expect

to write

swer to her letter just

by the

her in a few days

received, which I


About the Stakek: episode, it was


good of you to write me

quite frankly and I think I am justified in asking you to Whisper to

of your

associates at

that time-honored

the proper opportunity that I am refraining

expression - "I told you so".

letter of resignation to the Bank, but I
for me.


do not

a few

from using

He has written a very nice
think that he has any love


February 21, 1917.

To - Hon. Paul M. Warburg.

The Ilalburn appointment is a dandy.

are all rejoicing and let

me say that the same feeling pervades the whole New York banking atmosphere.
lets worry about it.

As to our correspondence about bills, don

icy in

If I were back home you and I could agree 'upon a

guess no harm will be done in the

meantime because

no time, and I

tters seem to be Whip-

ery much control for

ping along in such a way that none of
the time being.

Where we made the mistake



advancing them too soon,

ere I think the open market

without good cause.

ablisbed last December, is probabl-,

rate, which you call the private

determining the policy of the

at about the right level

I just about the present time,

bank, I would have "s

and would then have made some

or say around the fi

-,11 advance.


era would distinguish between the


the Net'York bank, with its immense reserve, as compared with


with its holdi

issue, wi V those banks
tied up too

f 0127,000,000 of gold behind its


h are not in a strong position and which have
unliquid stuff.

I am proud that we have sold all of our government bonds,


the One year notes, and that our decks are clear; in fact, the New York bank
is in such shape that we could liquidate and convert everything into cash
inside of 90 days, except the one year notes.

i believe


bank's policy

has been correct and that you in the bottom of your heart feel more confidence in that institution than in all


others put together.



- Hon. Paul M. Warburg.

Thank you for your memorandum.

February 21, 1917.

I agree that some of the Banks

might have been justified in reducing, but New York has done really most

of the reducing, has all along been the strongest and, with one exception,
has had the smallest earnings.
Aiken has written me of his d ci

-I am writing him a strong personal let

not to com

today which st

him, but I fear not. If it does, 1 wil telegraph you
have a talk with the officers
and see if

o New York.

ma, influence

ask you to

tianal pressure

wont bring him around.

Best regards to you

posted as to what is oi

Hon. Paul M. .4E1:IF&
Federal Reserve Board,

dashington, D. Q.


rk too hard and keep me


Denver, Colorado,
February 23, 1917.

Dear Warburg:

No thanks for sending me that effusion of Mr. C. D. Gurley's.
1 glanced through it and passed it into the

nized the style Which is distinctive, as
addressed me about one or two matters


; in fact, recog-

.is fellow

much the

same ye

y has already

1. as my address

to my friend Cuss Herrington, Who is a prominent lawyer
ent of t

the Colorado Fuel & Iron C


counsel for


from the office that the

was amazed and tro

get which, had reported the

Senate Committee, or the Ho
proposed amendment i


o menber bank


serves after a reduction of
the Reserve Banks and

2% in the amount requir

11; in

the amount to be carried


known, the wildest spe.
and whee

of the

we are li

shoal:, be stre

greatest expansion ever

r known, both in stocks and commodities,

ning cur iteserve foundation, Congress is

proposing to
When I

d things like this, as well as Senator Thomas's proposal

to issue 500 0

000 of greenbacks, and a few other similar episodes, I begin

to get sick of

whole game and thoroughly understand your discouragement.

The country wont blow up if you take two or three weeks off and come out
here to see me.

I think it will do you good; it certainly would do me a

lot of eood and I wish you would try and do it.

If you say so, I will find some nice, warm place down in Arizona
where we can meet and play golf.



Denver, Colorado,
February 23, 1917.

Dear Warburg:

A-letter just received from mothcr advises me that

e expects

to visit Washington for a short time, with my sister J , and asks
me whether it is possible for
r them to get
seats in the Senate and Ho
public galleries, as you
know, are rather promiscu

can arrange it for

and I am writ

o call you up

house sometime.

hone you don't mi

bit of bother.
ely yours,

Hon. Paul
Pederal Rose



. C.

her to say I am sure you
the Treasury or at your


Denver, Colorado,
February 23, 1917.

Pear Warburg:

A 4.etter just received from moth-.r advises me that

to visit Washington for a short time, with loxy sister J

me whether it is possible for


e expects
and asks

r them to get

public galleries, as you

seats in the Senate and Ho
know, are rather promiscu

her to say I am sure you

can arrange it for

the Treasury or at your

Aouse sometime.

I hone you doAtt mi

bit of bother.
ely yours,

Hon. Paul
i.'ederal Rose
Washington, A.


Denver, Colorado,

February 26, 1917.

Dear WaTburg:

Thanks for your nice letter of

the 20th. I hope the Bank of

France matter does not develop another fias
Please give me credit for the


he Bank of England
have exercised

traint Whic

in my correspondence on this subject.

I am still putting on fat anf fee ing first rate

it looks

Thanks for your advices about

chance for them at this

ugh there was

f course, it is extended

on call of the President.
I could not

t the suggest


amendment in Paragraph (e)

of Section 14, about

, had originated with the

too 4

Reserve Board; it was

':ther extraordinary.

It is a terrible

deprivation for me to

hose matters of foreign correspondents

are being considered,

re they can be worked out satisfactorily,

willin, as I feel you should be,

if yd your associa




when we come t.

lly worked out.


am all against conducting

these negotia-

d way, with a lot left to the inngination, particularly


I am

South America.


correspondence with

bank on that subject now and feel sure that we all
make progress and will do so as soon as

negotiations is


the subject to have.ill arrangements carefully


and scientif



desiring to

well considered basis for our

thoroughly understood among

The suggestion

agree in



to have joint control by

the Reserve Agent and the



To - Hon- Paul M Warburg.


bank is an excellent

February 26, 1917.

Unfortunately, the amendments you send me

appear to suggest that the Board will appoint an Assistant Federal Reserve
Agent, but nevertheless hold the Reserve Agent responsible for the perlrmance of his duties, his honesty, etc., etc.

dinary plan.

The Federal Reserve Agent

is own assistant




This is a'most extraor-

if he is to be responsible for him, ati,if the Board se z
Should be responsible and protect
one given by the Reserve Agent.
educated in matters of this

Jay's jab under such

Congressional co

to hold Mr.

tins Starek.

See what

Certainly you

ard, when they make such appoint-


y too well all the difficulties that

you encounter in dea

ress and the apparent necessity for

compromises a

I am


1 to

the other

merits as that one.

banking sippo

tees should be

by this amendment.

hazards imposed upon

so completel


. lar to the

nstance in appo

would not want


a bond =

one as su;gest

Board did in the firs


the 41( by

s him, they


Where I think the Board could vastly

s position, as I have repeatedly written you, is not to rely



own arguments and representations,

but to

get 600d

behind them in advocating these amendments.
d that LIr. Thralls is behind the movement to authorize

exchange charges.

The thole

business is

sickening and I can only send you

sympathy but I fear little encouragement and no help.

amendment through and 1 don't care much about the other points.
Another letter from Aiken has given me an excuse to wire him again,
also to write him.


believe if

you would send him a wire, telling him



To - Hon. Paul Li. Warburg.

February 26, 1917.

to pack his bag and come out here to see me, or even to meet me say

in Chicago, that I could do the trick with him. Upon receipt of this

letter, if you feel like giving the matter another push, send him a

wire to the effect that you don't think it
well to make his
decision fine, in so important a matter thout first
king with ma
and to try and arrange to get out he
then I will do
fishing and
believe I can land the fish.
Best regards to you and

Hen. Paul U. Warburg,
Federal eserve Bank,
Washington, D. C.


Denver, Colorado,
rch 4, 1917.

Thanks for yours of the 27th and

the family. Mother already knows Mrs.

glad to have a visit together, but in

looking after

burg and 1 kno they will be

busy days do

let the


family be a burden or impose on you.

rankly, i feel

have given up hope

all this wor

doublv sorry that you have

terrible discouragement t


or nothing. It must be a

fellows Who a

n the ground and ear-

these things; lets hope

ticularly to you Wh

that better days are co
I was glad to le
de France matter.
the de

action taken by the Board in the Bancluc


ke a good deal of correspondence to get
s worked out and I

ils of those a



terribly sorry to

Cann (who is the best posted man in the office in New York

on foreign

ving us and we are now certainly forced to go

outside for a
I judge

w man.

your postscript that from being a luke warm Republican

you have become a red hot

Democrat, whereas I

have become a lukewarm Mugwamo.

work, with a lot
that recent

Things go along with me as usual -- a lit

of fresh air every


born a red hot Republican



I have

AV best to you, old man;


Faithfully yours,

Hon. Paul M. .:arburg,
Federal Reserve Board,

recovered from

get discouraged.


Denver, Colorado,
',larch 6, 1917.

Dear Warburg:

It is mighty good of you

to find time

to drop me a line

now and then, for I know how buoy you

hope things

let up.
I am glad to be wrong abou

he Federal Rese

d not tell

amendment; the copies sent me read both ways but

t influence

which was the last one.


the onus on the other

Board as he is a great

11 help.

A good I

and it really is important;

finally abandoned he

re, possibly I could land him.

if I could only get



of France memorandum.

not want to butt i
it had

the princip

as to

the va

I did

program in New York and wrote to ask

been stibmitted or not, but have

Board info

I have not

not yet heard.


have preferred to discuss this with the

ly but at some length, so as to get their views of
underlying the scheme and, particularly, your views
ous provisions for safeguarding our

sonally, I think they are as complete as

would like to have your own in


detail, if you

interests. Per-

can be made

but I

can find time to drop

me a line.

Many thanks for looking after the folks
best to you.

from home and my


Denver, Colorado,
March 6, 1917.

Dear ,,arburg:

I have just been studying the statement of March 3d, showing


three hundred seventeen and a half minions
serve Agents, Which makes the total of t

What an astounding resu



whole System

rot Aioir,

our associates at the Metropol
Springs, that "the pump"


wonderful protection
I am led to



the coals by
om White Sulphur

It is going to

which I asked them to
followed up.

Did the Board's

notes could not count as

original ruling that this
originate from opinion



was it simply a bookkeeping formula

developed by the Board


aecompliah our


years' work

am sure we both realize.

submit from the office


less than

of two and a hal

and how little you and I realized When we were hauled an

be a

by Federal Re-

If the latter, may it not still be

ects by changing bookkeeping methods?


ot be justified if there is any doubt, except

in an emergenc

but we may have such an emergency and I am wondering

whether the ea

t has been so thoroughly canvassed as to lead your asso-

elates to a ft


We are running on 83% reserve
tucked away.


New York, with $140,000,000 of gold

I feel very strongly that we


build our investment ac-

count up to abt less than $50,000,000, which is justified by our position


To - Hon. Paul M Warburg.

March 8, 1917.

and Which will protect our net earnings against the depletion caused
by vigorous prosecution of our Campaign to acc

e gold by issues of

7ederal Reserve notes. We awe about be and a q.

or millions in back

difidends and are taday earning only at the rate o

out 4600,000 a

year, Which is less than our current d'
I have arranged to meet Aiken in
advise you of what transpires.
Best regards,

Hon. Paul M. Ahairg



-.7ashington, D. C.


Denver, Colorado,
liarch 8, 1917.

Dear '/...x..12.4rg:

For some weeks oast I have been studying over the question of

our possible banking relations in the Arg

being one matter in

narticularly interested, and I presum:

Please consider



The powers of the R
countries are




:3711 t

are just now
gross made.

to see

letter as a Preliminary inqui:y ln...eer to develop

chiefly your own views, you
the ground with the

e Reserve

Which the members oP

that 1 know

set ou in su

of the Awderal Reserve

transactions in mid and

the United States Gave
that Reserve Banks ma



f the 3anco


conferences on

da liacion Argentina.

rve Banks to c 11

ections (a),



t a business



and (e) of Section 14

a) and (b) simply relate to
chase and sale of short obligations of
ection (e) I construe as meanirk;

owing described


in foreign

ndents and agents.
amn mutual checking accounts with such correspondents

se, sell and collect caemercial bills of exchange hays days to run, exclusive of days of grace, which bear
two obli6ations and are payable in those foreign countries.




Purchase and sell in those foreign countries bills of exchange
of the sane character which are payable in other foreign
countries or in the United States.

2hese four powers, with the addition of the power to deal in gold
abroad, comprise the total of our functions and 1 understand that the purpose


March 8, 1917.

To - Hon. Paul M. Warburg.

of the law was to enable the Reserve Banks to accumulate fends in foreign countries when exchanges were in our favor, invest them there in
prime bills so that they might be profitably employed, and then When the

counts In order to

exchanges became adverse, 'liquidate the bills
furnish exchange to the market and mode



The evidence

of the statute is almost conclusive in

is regard beca

foreign banking us ordinarily understo

covers a wide f ld of activities

other than those above listed,a


-e ceiving


as you realize,
in foreign countries

4(4.- e

nancial and travlors
securities, fidug shipments of goods, dealcredits, executing orders 7//,/palt
tug in securities, eta., etc
on Which. interest is allow

Before writi

get an expression of your
be proposed and in orde

os Aires, I am anxious to

s to the scope of the arrangement to
me want to roughly outline mu own views,

fiebjeot to modiflcati

We should

an understanding that accounts are to be

id, with a careful definition of the basis upon which the


Sold is to be

t with, as in the case of our proposals in London and



auld agree to hold gold in pension for each other.

3rd. We should arrange for cable transfer transactions.

4th. We ehould arrange for the purchase of bills for our account
which are payable in the Argentine, and make purchases in New York for

account of our Argentine corresnondent, mutually guaranteeing the payment

of the bills at maturity.


To - Hon. Paul M. Warburg.

LT:arch 3, 1917.

5th. We should arrange to handle collection items for each

6th. We should have an emergency arrangement which would permit
the Banco de la Nacion Argentina to purchase

able in this country (and a similar a
aumstances caused the exchanges betwee

le long bills, payat revert
whenever air-

he two eountrie to become so

disturbed, for an reason, that our own ember banks wer unable to take
all of the dollar bills drawn
entine and vi
ersa, such bills
in both cases, of course,
7th. 10 should als


tain)isve an arrangement

e endorsed.

ossibly (on thi point I an a little uncerpurchase

similar long bills drawn in

sterling and payable

As to the first f
sixth I have a good de

bills as a /egular
we wil

there can be no debate. As to the

ty. If we undertake to purchase long
discount rates to arrive, etc., I fear

Ire our own member banks out of busineas in that country.

National Ci


tiwTng branches there at great expense and without

hope of eubst

ial profit for some years. A Boston member bank is about

to do the same

ing. You are aware that the purchase of American bills

is mma and for

long time will be, the most profitable business that

they are able to conduct. We have such tremendous advantages over these

member banks that I fear our entrance into the field will greatly discourage
and retard, if not absolutely block, the development of a foreign banking
system by American banks generally.

).ar principal advantages are:


To - Ran. Paea U. arburg.

Larch 8, 1917.

The onoiious prestige enjoyed be a so-called Pederal or
Goverment Bank over any private bank, no matter hew
strond the latter may be.

Our ability to avoid all 'expense of a local organization

by employing correspondents as against the very heavy
exhause of branches established by other American banks.

rve System
The enormous resonrces or th
on which MD interest is
, as agains he heavy interest charges of mambo anks.

4. The more intimate relatio ip and cooperat
et Governof our arran outs, which
ment Departments is supp
naturally are not at the disposal of m
banks (uite
so generally or
To illustrate my poi

one or two branches

Hens bill buying banks in

in Argentina depends upon

bills. This is the net, so
gather in American paeer. If

that country for the a
to speak, Which they

we establish intimate fela
would at once secure t

correspondent having no less than
operation end, presumably, with our

153 branches and agen

aney and lower

the excles

Of the Ame v

I thi
foreign bills
American instit

h the Banco do la Nacion Argentina, we

we wpuld sweep in all of this business to
e branches with Which we were competing.

robably every bank in the Argentine Republic which handles

new established intimate working relations with varione
and a great volume of bills is now coming through

these ohannels, on which American banks are making profits to the extent

that if we succeeded in gathering up such bills, we would by so much render ou
own members' foreign business unprofitable.

There are, however, two possibilities Which mdeht make a close

working bill arrangement advisable, or necessary.

me is that the Banco


To - Hon. Paul M. Warburg.

March 8, 1917.

de la Nacion Argentina, either by reason of legal restrictions or as a
matter of policy, has not and will not establish connections of this character with any American bane except a Pederal Reserve Beak; and the

other is as described in paragraph 6. above, where conditions caused a
suspension of the normal flow of bills as when

r broke out, in which

case we could sten in to relieve the co

The first possibility is mentio

, because that

eituation that existed in London with ti Bank of En
matter of policy, would not ude

tions such a


exactly the
Which, as a
i propose with

any other than a Federal Res

I also want to ask

or two other matters.

:o what extent do you think

cial safeguards, either by

Jay of treaty or othe

gentine or other South

American countries, which

not apply to our more advanced European
experiences in Mexico. I do not

We mus

consider that Argynti

zil or Uruguay are necessarily comn-

stability. idevertheless, believe you

Lexie() as to

pa cab

will agree
must be reco

h me that 4 re are


in South America which

ed and gnarded against.

Another ueetion is ia regard to the gold status of the Banco de la
Nacion Argenti

As I understand their statement, they have a liabilities

of approximately 4600,000,000

currency and an4

hold about 428,000,000 or

4t.10,000,000 In their general gold reserve. To What extent do you think

that our arrangement would require special safeguard in that particular?

As to point 7.


described, i am in considerable uncertainty.

As you know, thronhout the ,-ast many bills, ia fact the great bulk of



'larch 8, 1917.

To - Hon. Paul M. Warburg.

all the bills drawn, are still drawn on London in sterling, although to
some extent, when the exchanges are favorable, these bills may be transmitted through New York, in order to get New York credit. the New York

buyer remitting them to London for London credit.

The volume of these

transactione is definitely determined by the

xchange figured in

difficult operations to conduct. because it is almost saossiblo to quat close rates,
connection with the transit time. Just

these are

with all of the nneertainties cf the nal s and with the
confronting us of sudden sha


sibility always

ertheless, in

normal times it might be qd

us to be able to accumulate

sterling through an arrang

or, and i would like to have

an exnression of your

ity of proposing it.

you discuss this when


From the above you

vte* that we should not
which we now enjoy, e

se of the word,


alliance with t
agree with the v


ther that I an stiil strongly of the
cannot under the limited powers
commercial banking business in the or-

-- .gh any of our foreign agencies, net to

rcial credits absolutely precludes that.

have the
Excluding c


etal banking, do you now feel that we should mane an
Banco do la Nacion Argentina and to what extent to you

s I have expressed as to the scope of that arrangement?

I await your reply with a good deal of interest.
Faithfully yours,

Paul M. Warburg,

Federal Reserve Board,
Washington, D. C.



Denver, Colorado,
March 19, 1917.

Dear Warburg:

letter of March 12th

I am more than grateful to you for your ni.


the family comfortable

and for what you and Mrs. Warburg have done to

and enjoy their visit in


en me of


tality which is characteristic of the

your hospi-

given me a

burg family

great deal of pleasure, as it ha
o write you about two or throe

This is a slack mail
things, but quite in confidence:

osed relations with the Bank

I realize your o

eting and dealing with those

of France and the Ba

on are going to be agreeably dis-

oeople personally,

deration lies in the fact that if'we

appointed, but the

se two banks, we can do no business what-


don't make

r in London or Paris probably for a long time.

ever ei

ould we get the

lent and

would be no

Through no other

°lute security that is offered by this arrangesary to abandon the whole scheme as impracticable.

m confident that you are going to do much better at


the special session of Congress, but I do wish the Board would invite the
cooperation and support of bankers and of the Reserve Bank Managers themselvet

It will not only impress Congress, but I am confident that it will make
excellent feeling



the management of the Reserve banks themselves, which

is surely a desirable purpose.

Sometimes I wonder whether I am

not a German.

i suppose you know

that my mother's family were Germans and it may be on that account that I


To- Hon. P. M. Warburg.

March 19, 1917.

have an insatiable hanker to do a job thoroughly and not by piece-work.

It seems to me that we are simply flirting with this great matter and not
dealing with it decisively and thoroughly.

kept hammering at them


at the bank to press negotiations with McAdoo in

er that we might con-

trol all importedi6old at the New York bank and in

rder that we may convert

a good part of our reserve fund into st

are so well ac-

quainted with this matter that I do

ed to explain


it seems to me that the whole s

in its relations with the wor

and Acsay Office practice

ite policy adopted upon which we


Reserve Bank of New York if

oan store some go

fice r the Sub-Treasury.

Mr. Jay wrote rathe

I thought

that matter and if you bave op-



easons, but

banks should be made the sub-

ject of a great deal of study and a
can all count.


cretary that so far as I am personally


do eve

my power, to the extent of returning to

New Yo

odations are made to whatever extent they re-

quire t

oat possible time, so that we can return some of

the many

I do n


accumulating gold.

have shown us


the past.

grasp your references to the way our policy works
As you say, the operation of the exchanges should

increase the amount of our gold holdings and corresnondingly increase the
note issue, if the law was all right end if our currency lams were right,
but, unfortunately, the first tendency is/to increase our holdings of gold

but all other kinds of currency, and our ability to convert that into gold
at the present time is the direct consequence of the heavy gold imports.



To - Hon. P. M.

laarch 19, 1917.


Don't lets any of us fool ourselves by thinking that we have yet gotten
control of the movement of gold -- we are a long way from it and the amount
of gold we have accumulated behind our notes has
reason of these imports and by the Reserve Banks

y been possible by
u effect paying a premium

for it by issuing their notes, that is to say new
desired by member banks, without charge,

is that are always

r ereas or


the banks have

to pay shipping charges from Washi
You and I must not be bl

al underlying facts in this

Je are the bonen

ual conditions, and we as yet

have no control and won't get it un
About the inves


you and I fear


000 of gold in

behind its not

are ame

serve ins

think we


s general reserve and $154,000,000

000,000 to our gold, and if the note provisions


guarantee to add $100,000,000 more to our reso that by say Juno 1st the New York bnrk would

nimum $450,000,000 and maximum $550,000,000, or even

Our reserve would be 90% or more of all of our liabilities.

condition so strong as


The bank now holds in

as at the special session, I figure it

of two m....

have a gold re


little over $1


n New York.

and its reserve last week was over

8. If 101trve
will ad

ribly sorry to disagree with


own associate

round figures $220

he law is right.



at present and with the possibility of these

to our strength, there is no excuse for our not earning

our dividends and we would be derelict to our duty if we failed to do so.

Furthermore, it would not weaken the bank to buy say $15,000,000 more of
short bills which can now be used for security of Federal Reserve notes,



The supply Of bills in the market is now

so as to protect our gold.

sufficient so that we could accumulate them gradually without material
change in rates, and it would have the added advantage of giving us more

freedom to Inc& expense in our note issue and would replace
which we lose by a very much larger sum of ace n.
And i hope you are not feeling disturbed a
of any emergency situation.






ted gold.

11 at the prospect
tomorrow, it would

not make a flurry.

agree with him upon a policy

you could have a quiet talk wit


of building up our investment

bonds is, of course, conservative

All that you say about -ove


hung up with too large an

and true; the Reserve

hereafter our annual commitment to

I hope

investment in gove


buy governments wil

e so handled t

will enable t
which yo

to b

our awn gove


the gov.

Was ent's


Apply the doctrine

in connection with foreign securities

'aent and make our

investors be

the ones to take

and let us do the clearing and handle the



we will get them at prices which
verted and resold.


ntleMen have p

to thos

y ways if

be helpful in

Let me suggest and urge tha

t result from bond sales, then we will be doing

the banking bus floss and the government will be doing the financial business
on the basis that you and I have so frequently discussed.,

My visit to Chicago was exceedingly satisfactory in every respect,

excent as to Aiken's ?lams.

We had a fine visit, lunch with McDougal and

McKay and had a little chat with Broderick.
be in Chicago, joined us for dinner.

Later Palmer, Who happened to



,o - Hon. P. M. Warburg.


Karch 19, 1917.

going into detail, some of Which Aiken gave me in per-

serial confidence, I

think the


like to come to New York; in an emergency, such

instance as my in-

ability to return, I think he might do so as a ma
see his way to do so with the
comparatively near future.

He would

situation is about as follows;

er of duty.

Re cannot

prospect of my being ble to return in

etire after a

If I should

spell at Now York, I still think it


-0 for Aiken

t be possible

to come over and work with me t

nod of months, and then

mg place.

if led


But I doubt if he

sacrifices of a

to come over


ban a

ficiently serious

in making certain very

business character, so as

and take

This does

pride stands in the


not mean


ergency would not be an!-

rame there to j

ify his pulling out and


all of his domestib
act, id did me good for I am feeling

at any-time since I came out here.

I am also continuing to put

on wsi



The expce of the last month or




accuracy of the


has I


statement I made

to you

sometime ago -- that there would never be any difficulty in developing
a nation wide market for bills and at very acceptable rates, whenever
the Reserve Banks withdrew; they are being purchased by banks all over the




On the other hand, this is just the

disarranged and when bankers the world

about remitting bills

to London; in



time when commerce is

aVe feeling uneasiness

feeling uneasiness about remitt-



To - Hon. P. M.

March 19, 1917.


ing cash items to London, for us to make our inducements as strong as

possible to have this business directed to this
r7.advertise our rates as being the lowest in the

in the world, and make the New York market so att
will come willy nilly.

For once in this

tter ta


tive that the business
the old man's ad-

in the present situation which
the loss of some of this business
take in maintaining r
Best regards

Was hi




eserve Board,
D. C.

tronger police

again many t

both buying
There is much

ile our English competitors to
really think we are making a misare

quite a



the market a lit-

, if possible.

bills and holding the rates a

we should

as being the steadiest

vice and Encourage those fellows in New York to get
tie more actively and to develop a

I think


s for your letter.

Denver, Colorado,
March 27, 1917.

Dear Warburg:

Replying to yours of the 19th concerning the Banco de in Nacion
Argentina, I am anxious that we Should agree on the one or two important

points you make and regret that it is impossible fertue to discuss matters personally instead of attemnting to deal with them by correspondence.

As to item 4, your general observation as to the purposes to be
accomplished by foreign relations to be established by Federal Reserve
;Lanka is quite my own view.

The objects are undoubtedly:-

To facilitate gold transactions.

To steady exchanges so as to avoid sudden
and heavy geld movements.

Pacilities for this are Chiefly needed in London, to a somewhat
less extent in France and Germany, and possibly in South America at times.

Where I differ from you, however, is in your application of these rides
to such a country as 'Argentina. If we are to accomplish


in these

two respects in the Argentine, it must be by employing our funds in the
purchase of Argentine exchange When it is depressed, Which will necessitate
the accumulation of considerable balances there.

Othereise we will have

nothing to work on When exchange turns, and the account will be no more

than a complimentary relationship Which will be of no value to anybody.

If, however, you desire the account to be of value, we must, according to

your theory, leave idle

balances without interest with the Banco de in

Nacion Argentina, but according to mu theory, if we are to really do the
business in a large enough way to amount to anything, we would be justified


employing such balances in buying good bills, provided our correspondent


To - Mon. Paul M. Warburg.

would guarantee them.

March 26, 1917.

As a practical matter, our account with the Banco

de la Nacion Argentina would accomplish nothing, either in the matter of
gold transactions or


stabilizing exchange, unless it was an account of

some proportions, provided, of course, we were not purchasing commercial
bills on this country, to which I will refer later.
On the whole, I can see no object whatever in opening an account

in the Argentine =loss we are prepared to

do an amount of

business there

commensurate in vo/uae and importance with the volume of trade between the
two countries and with our asairations to be a factor in the exchange and

gold markets. A nominal and complimentara account might, in fact, give
rise to dissatisfaction, loading as it would to expectations of considerable
business which would never materialize.

What you say, however, about the history of Argentine is exactly
what I have written to my associates in New York and

in an earlier letter

to you.

Their gold reserves are nominal compared to their liabilities.

Their extravagances and their less stable nolitical institutions must be
taken into consideration.

I would be quite willing, in the case of Ar-

gmatina, in faot rather more than less well satisfied, to

have an arrange-

ment of this Rind based upon a treaty, along the lines suggested ba you

and Professor John Bassett Mom, should that be the
Reserve Board.

desire of the Federal

Therefore, in conclusion as to item 4, my belief is that

if we are to open an account in Argentina, it should be of sufficient proportions to to aocomplis)1 the objects of the Federal Reserve Act, and such an

account in


order not to be

dormant, should include in its scope an arrange-

for the purchase of local bills so that we might employ sufficient


To - Hon. Paul M. Warburg.

Aarch 27, 1917.

funds te exert some influence upon exchange and gold movements, when

As to No. 6, I am quite unable to grasp your own views after

reading your letter. Let me refer to the various points Iv number:
A conditional arrangement for the purchase of bills drawn on

this country, such as was contemplated in the letter I drafted, would
cover the situation described by your letter and would net do an injury
to our member banks, and this is particularly true of the Argentine where,
as yo e say, comnetition for American bills is now rapidly developing and

where the necessity for our appearing in the market is probably lesa than
anyWhere also in South Amerioi:--May you net have been misled when you

say there is no market for dollar drafts in South America? A year ago I
was informed that bills wore coming forward to New York on bids of rates

made to SoUth American banks, within a 1/4 or 1/2 of l of our New York

rate. What i suggested bet this point was to make careful inquiry among
New York bankers to get their point of view in New York (and possibly

Boston) so that We would not be working in the dark or at cross purposes.
I was led to make that suggestion because we wore organized to assist and
cooperate so as to promote the extension of the business of American banks

into foreign countries and I fear that the development of competition
rather tha:1 cooperation might injure them. How could we make rates there

at Which bills could be actually accumulated, without either competing or

making a present of a profit to our agent? They will be just as keen to
make profits on this business as will the National City Bank, and, unless

To - Han. Paul M. Warburg.

Liaroh 27, 1917.

WO MaK0 a strong effort to publicly control the rates in the Argentine

for U. 3. bills by an aggressive campaign, I do not see how any good will
oe accomplished. In other words, our rate would either be competitive or

it woul: not. To be competitive, we woulu necessarily buy bills in some
quantity and so make our rate effective, and then we would certainly hear
from our own members.

Your letter refers entirel-, to the business of one or two
rican banks.

I had in mind not only the business now being done or

contemplated through American branches, but also the business of those
American banns that are now 4aolinis through correspondents in the Argen-

tine and gradually working up a valuable business. No ono can avoid the
conclusion, after locating over the bills now coming to New York, that
American institutions are doing an important and growing business there

through the German and other South American banks, Which might be disnirbed b our anpearance in the market.

Our objection to acceptors handling their own bills can hardly,
any rate for the present, extend to bunks which have agencies or branches

foreign countrieC so long as those banks market their bills, once they
-,7eacn this country and are accepted. That is a common enough Practice every-

:here and can hardly be otherwise with us just now because an institution
like the National City sank Which is blazing the way abroad must naturally

make the market for its own bills at the point where they orijnate.


objection to this practice really exists in this country after the bill is
accepted rather than in the foreign market Where the bill is drawn.


National City Bank in fact has been distributing its own bills through the

To - Hon. Paul M. Warburg.

Jarch 27, 1917.

City Comnany and is not particularly liable to this charge. As there
will soon be two or more branches of American banks in Buenos Aires, the

situation will be materially improved, unless 1. am very much mistaken.
4. What you say about drafts coming to New York with only one

foreign name is not quite the case, oven at present:- unless conditions
have changed since i was in New York. Most of the bills that we get al-

ready bear the obligation of the Argentine drawer and the obligation of at
least one barer in the Argentine, together with the endorsement of one
American bank which is acting as the correspondent of the

Argentine bank.

is about all the endorsements that foreign bills can be expected to

accumulate before reaching the point of acceptance. A typical case in

England to illustrate this would be about as follows; Take a bill drawn
in Calcutta by an Indian exporter on such a firm as Predorick Huth & Co.,
London, covering export of jute. The bill would be drawn by the exporter

to his own order and the first endorsement would be the exporter's, with
immediately below that an

exemplification endorsement in English.


next endorsement would be by say the Hong Kong & Shanghai Bank which had

purchased the bill and which gparanteed the exemplification.

The Hong aong

Bank would obtain the acceptance of Huth in London and would immediately

sell the bill, say to the National Discount Company. The National Discount

Company, in the rare case of its discounting the bill with the Bank of

England, would furnish its obligation in a general letter. 1 have soon a
great mane bills in London of just this character and they are almost identical with these which are now being received in New York which would bear

the following obligations, aa:, on a hide bill:


Hon. 7)=1 M. lOrburg.

tiarch 27, 1917.

The Argentine Hide exporter as drawer and endorsor.
The 3ritish Bank of South America.
The American acceptor (which mi,ht be a bank or hide
rho endorsement of the euaranty Trust Co. or Bank
of New York.
The broker as to st tutor:, liability.


Were this bill drawn on the National City Bank

and purchased by its

-ency in .3uenos Aires, we would lose the endorsement of the South American
Bank. Nor do I see how that could be controlled by our endeavoring to buy

bills through the eanco de la Nacion Argentina, melees we wider-bid the

National City Ban: for bills of this character, througe the Banco de la
Naoion Argentina, and

that is just what we

ought to avoid at the present

stage of development, as I view it.
If your observations in South America convince you that it is
necessary for

Us to buy such bills down there in order to introduce dollar

credits, I am convinced that a safer way for ue to introduce ourselves

into the situation =hid be by first discussing the arrangement



American banks that have displayed enough enterprise and public spirit to
spend the money and take the risks of opening offices in the Argentine.

You say you think it might be a welcome facility for us to be there quoting

rates, etc. it will be easy to ascertain that by conferring with them.

I feel very sure that I am not exaggerating the ability of the

Reserve System to drive our competitors out of business abroad, so far as

Purchasing bills is concerned, if We develop these facilities

and use them

to establish lower rates than theirs. To get at the facts in this matter
it would be necessary for us to investigate the elhole subject of rates,


at which we could buy bills but those at

which these various South


Ilarch 27, 1917.

To - Hon. Paul L. Warburg.

American banks are now buying bills.

That 'I would strongly urge my

associates to do at once.


If the Banco de la Nacion Argentina agrees to buy bills for

us at market rates (instead of at forward rates which we would quote),
we would in effect have a branch or agency in every town and city of importance in

the Argentine.

There is no escaping this conclusion because

our agent would be bidding for bills at market
originattid in the Republic.

I aa sure

rates whenever bills

Wat our own

member banks would be

greatly discouraged by any such development.

As to special safegaards, I)tould be quite willing to see
our Argentine arrangements based upon a treaty, if you feel willing to
defer this matter until such treaty can be prepared and negotiated.

You are mistaken in regard to mu anxiety in regard to the

contracts with the Bank of ilaglaad and the Bank of France causing me to

overlooa the treaty matter. The question was not overlooked, but,
as 1 was concerned, as

I explained to ybu lon

so far

ago, the sra;gestion as to

a treaty basis for these arrangements was abanfioned as thoroughly imprac-

ticable during the period of the war, my own conclusion being that a
better arrangement could

be negotiated at the

present time rather than

later, so far as terms, etc., were concerned, and that such an arrangement
as we might now establish would not in any way interfere with the


negotiation of a treaty.

My suggestion about the purchase of sterling bills was based

upon a desire to give real life to such relations as we established
the Banco de la Nacion Argentina.



It would give the South Amc:rican drawer

to convert sterling bills into dollars

in order to have bal-

L:arch 27, 1917.

To - Hon. Paul M. Warburg.

ances available to pay for his imports fro n thls country out of the
proceeds of sales of goods in England. -As would expeet the Banco de la

Nacion Argentina to endorse or gnarantoo such bill but, of course, it
would involve some sneeial arrangement with the 3ank of i;ngland as to

their handling. We could not expect the Bank of England to make any
guarantees on such bills, and would have to rely upon the Banco de la

Nacion Argentina to reimburse us in ease for an reason such bills, or
their proceeds, booame unavailable to us in-Angland. I see no reason for

your conclusion that nothing can be done in that connection at this time
because such bills are undoubtedly being drawn in considerable itiantity,

and the only real practical difficulty would be in mnohanical arrangements,

such as mail time, eta., all of ,.chich would have to be studied.

Now in conclusion let up say that I look at the Whole tatter in this

he arrangement should bo tilde with the idea of doing business and

not merely to have a,dormant and sterile account. To make the account active

and of value in its relations to exchange rates we certainly must contemplate
carrying considerable balances in the Argentine, which would be a dead locs

to us unloss

purchased bills there.

Al are forced to purchase bills there

in order to siploy our money unless we arc willing to consume our balances
by buying bills drawn on New York.

Should we decide to buy bills drawn on

New York, we will to a greater or less extent compete with our own bins.
If we deliberately intend to compete with our own banks, we Should first

make an effort to enter into such arrangements with them in that regard as
would avoid doing them an injury and likewise doing ourselves an injury at


To - Hon. Paul M. Warburg.

March 27, 1917.

The suggestion that our arrangesent might he confined to the
custodianship of dold., etc., would bo found impracticable because such

arrangements aro already in operation successfully with other American
banks which undoubtedly give facilities which we cannot diva, such as
allowing interest on balances, extending credit, opening commercial
credits, buying Argentine securities, etc.

1 would 11.e exceedingly well to discuss this subject with you
before final steps are taken, but mantirJe don't forget that this is a
matter 5.:

-rhich 1 am most interested, almost more than any other develop-

meat of the Reserve System, and want to see constructive progress made.
Faithfully youru,

Hon. Paul M. ',:arburg,

-,deral Reserve Board,
;hincton, D. C.


Denver, Colorado,

March V, 1917.

Dear Warburg:

I have just had a delightful visit from Delano and it was hard
to lat him go.


won't recount in detail what vps did for he will be in

7hington almost as soon as this letter


tall you himself, but I

am sure that the report he got fray. Dr. Sewall was satisfactory to him

and hope it will be to you and the others.


Mother writes me of your doings and / inn so glad that she and

y. Warburg have had opportunity to get better acquainted.

i-'very time I

look at our statement from New York

1 want to go

Our reserve is up to nearly 09%, for Which I am blaming you a

good deal because you are the determined, consisont, irreconcilable
readtionary and, if I do say it, you

bave been able to

buffalo those

nartnors of mina in a way that you could never buffalo me were I on the

You had better get lots of exercise and fresh air and strengthen

up before I 6et hone for then you are going to be in for it.
\\*Y best to the family.

Please tell Mrs. Warburg

writing her soon with all the latest personal news.
Best regards to you olL man,
Faithfully yours,

Hon. Paul M. 'farburg,

Federal Reserve Board,
7ashington, D. C.

will be


Denver, Colorado,

April 9, 1917.
Dear Warburg:

Many thanks for sending me a copy of your address on "Government
in Business", which I enjoyed reading very much indeed, but why didn't
you give me advance notice that you expected to be in Chicago on the 7th,

for I -mould certainly have arranged to

hear you deliver

have a visit with you there and

the speech.

The thing that delighted me most was your unqualified statement
about citizenship.

Your friends will be delighted, all of them, to read

of your having made this plain statement Publicly and I predict that you
will be more comfortable and contented in your own mind for having done

I suppose you are all exceedingly busy, but I would like right well
to have a

line now

and then, telling me of your plans.

Best regards,'

Faithfully yours,

Hon. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.


Denver, Colorado,
April 17, 1917.

Dear ,burg:
Many thanks for yours of the 10th.

I have not been writing you

much lately because I know how busy you are and than I
in considerable time on the links
friends to Southern Colorado.

have been putting

and have made one short trio with

Mother has written me of her visits with

you and Mrs. V!arburg and I am delighted to feel that you know each other

better and, personally, an exceedingly grateful to both of you for the
many hospitable attentions

which you

showed mother during her visit in


Of course you understand my anxiety to return.

keep me nretty unhappy to rennin here very

It is going to

much longer and I really

that the call of duty is getting too strong.


This quiet period at the

bank is just the time when the last finishing touches should be put on
the Organization



matters I regret to confess that I think

the boys at the office are not at their best.

A few weeks' punching

thin- would do thetrick, if l could get back for the purpose, and then
again I am most anxious to see Lord Cunliffe during his

visit in this


I hear that your Chicago address was a great success and that you
;ere received with enthusiasm; this is most gratifying.

Also i learn that

the State banks and Trust companies, both in Chicago and New York, are

again beginning to tae notice and we may

before the year is out see the

solution of that most puzzling problem well under way; let us hope so any



April 17, 1917.

To - Hon. P. M. Warburg.

About Argentina, we will have opportunity to discuss matters

long before final arrangements are possible. Meantime a letter has gone
forward Which I really think will open the door to everything that you
have in mind in the way of banking arrangements and if not, let's you
and I get busy when 1 return and see that everything is done. Thank you

for sending me copy of Mr. Davis' letter.
Mother writes no that Jimmy wants to go into the sUhmarine service.

Don't let him do it. Personally,

thin :c a boy of Jimmy's very unusnal

,ability can be of greater service to his country by avoiding those branches
of the service that require long technical training such as the navy, and

that his real place is in the infantry or possibly the artillery


there the ability to manage men is of the greatest value. Ben is in Com,.
pany L. of the 2nd New Jersey Regiment, and has been mustered into the
Federal service. He is now stationed at Camden, N. J. and 1 want to see

him pass his evaminations and get a commission as soon as possible.

Best luck to you, old man, and don't work too bard.

Paithfully yours,
non. Paul M. -iiarburg,
Federal Reserve Board,
Washington, D. C.

Denver, Colorado,
April 23, 1917.

Dear .Jarburg:

A great many thanks to you for your newsy letter of April 20th.

I am so delighted that Jimmy is In training that I really cannot express

my feelings strongly enough,

although I know What a very severe. shock

it must have given you and Nina.

About my return, I have almost decided to make a flying trip to
Wew York and then return here at once, provided arrangements are made in
regard to a brief meeting with Lord Cunliffe, and to have a little chat

with the men at

the bank.

It would only take a week or ten days and as

a matter of fact I am perfectly fit to come back now.
What you say about the financial p1ans4e just exactly

What I

have been gathering out here from various reports that reach me.


the $50,000,000 and 4290,004,000 loans were badly handled - rather on
I was

a cheese paring basis, than a good, broad basis of statesmanship.
grievously disappointed about it.
What you write about temporary

borrowings is exactly my own

nought and I have been writing almost daily to the boys at the bank,

asking them to urge
were asked.

this policy of short borrowings

It is the one way in which these large Government borrow-

ings can be safely conducted without disturbance to

The Treasury should


have bills on sale at


the money

permanent loans aro placed,


Reserve banks all the time,

rates to be fixed by the Secretary from time to time

Then when

whenever their views

to meet

the market.

one hand will wash the other and no


- Hon.

April 23, 1917.

P. Marburg.

disturbance result, the money will be disbursed as rapidly as it is

borrowed and the machinery will work smoothly. Any other course will be

the height of folly and will lead to a gAstly

disorganization of our

country's business and finance.
You always amaze me in your comments about Jack Morgan. He's

but just the 884/0 is a

got a heart as kind as any humanbeing can have,

good bit of a chip off the old block suoerficially.

In any event, Jack

was not to blame personally for the faux pas and as that is all past
history, it should all be forgotten and everybody play the game.


i do not fully agree with you about a two billion loan.
are looking at

that matter from the standpoint of New York.

bond is absolutely unattractive to banks, institutions


A 3-1/2::

and investors in

all sections of the country west of the Alleghenies, or one might say
outside of New &gland and New York

and Philadelphia, with the sole ex-

ception possibly of Chicago, and would have to be sold purely on patriotism

rather than on an invoatment basis. My feelinn
go very successfully and then sell at a premium.

to risk the possibility of a premium which is

is that one billion would

crowd beyond that is

the absolute essential of

subsequent success.

About the Guaranty and Bankers, I have been writing some of my
friends, punching tham up a bit and hope that between your efforts and my
own, Are may get action.

fine, but these miserable
Cain about chec


The Whole state bank situation is coming along
little country state

collections and seem to

banks are still raising

be particularly active in

1 am afraid Thrawls is largely responsible.






To - Hon. P. M.

April 23, 1917.

. ,arburg.

:heir activity, I have urged Mr. Treman to pursue our policy relentlessly
for the time has now come to get this miserable question behind us once
If you can only keep Congress in line, we can get these

and for all.

New York state bankers in line, I think.

If I were you and your associates

would put the issue squarely Uo to Congress, urge them to have enacted a
law which contemplates par collections and tell them that it is a very small

percentage of the banks that want to Charge exchange and legislation 'egalizing it would now make it universal instead of as in the paat, confined to
those fea banks that were willing to charge all the traffic at par, and

Congress Should decide and decide at once whether we are to have universal

Dar collections or universal exchange charges.
Once more about Jimmy, i cannot tell you how delighted I am.
You and Nina have

done a very wise thing, as always, and no one rejoices

more than I do.
Best regards to

you and the family,

Hon. Paul L
Federal Reserve Board,
Washington, D. C.


Faithfully yours,

Denver, Colorado,
April 22, 1917.

Dear Warburg:
Many thanks for sending me the printed copy of your Chicago

I have just been going throudh it again and once more I am

impressed with he skill

and thoroughness with Which you do that sort

I cannot tell you with what extreme delight I have read

the first part of it.

Now that the development

of the Reserve System has resolved

itself to only one or two sharp and well defined problems, the rest of
practically being complete, I can understand the

the development work

great satisfaction that you get in looking at our balance sheet.


did any Of us realize that two and a half years could accomplish such

great results. Beyond everything else now we need to

have the Secretary

of the Treasury show his confidence in the System by turning over to the
Reserve banks as large a share of the fiscal agency business of the Gov.

ernment as is possible under present conditions - our prestige will then
be fixed for all times.

I am still hanging on here, Playing


every day, with a feeling

I cantime, but
really leave at any

nevertheless that I should be home.

will stay on awaiting word

that I am really needed.

I hate to miss the

opportunity of having some part in our financial arrangements with the
allies because the Bank of England and the Bank of Frances understandings
fit into


situation so perfectly.

I hope that you and your associates


To - Hon. Paul U. -:iarburg.

April 22, 1917.

will not deprive me of the opportunity of completing that important

Best regards to you all.
Faithfully yours,

Hon. Paul a. Warburg,
Federal :esorve Board,
Washington, D. C.


Denver, Colorado,
April 24, 1917.

Dear Warburg:

I had a talk by telephone with Mr. Jay last night and he explained to me very roughly the scheme for handling the proceeds of the
short loans now being made for England.

is that

My understanding


money raised from each Reserve District is to be placed to the credit
of the Bank of England at the respective Reserve banks.

From this I

gather that the Bank of England will draw on all twelve of the Reserve

Me principle of having the money deposited in the District where
it is raised is, of course, thoraujay sound but I would greatly regret
to see an arrangement made which would result in the Bank of England
drawing an twelve depositaries 1..1 this country.

center and, of course New York under the proposed

New York is the exchange



abroad is the place where these drafts should be cashed and the account

normal/7 would be ran.

plan be modified so
Could not this

that pro-rata

withdrawals would be arranged through the exchange accounts which we now

with the other

Reserve banks and as rapidly as tie Bank of England

draws on the 'Federal Reserve Bank of New York, we, in turn, would appor-

tion the withdrawals from the other eleven and exact a weekly settlement
through the gold settlement fund?

I cannot help but feel that any other arrangement indicates a
certain regard for political and sectional considerations, rather than


To - Hon. P.M. Warburg.

April 24, 1917.

response to sound business judgment.

If you can have the arrangement

worked out roughly as I suggest, it wil/ be much more satisfactory I am
sure to everybody and pave a lot of bother.

Faithfully yours,

Hon. Paul M. Warburg,
Federal Reserve Board,
Washington, D. C.



May 9, 1917.

My dear Warburg:

Don't think me overinsietent in certain matters which

are really of

great importance to us just now.

I shall refer

to them by subjects:

The amendment which would permit member banks to count
Federal reserve notes as part of their cash reserve, is absolutely vital to a successful handling of the bond issue.

This was

emphasized at a meeting of the clearing house committee yesterday

which is meeting to-day
ing house should be.


discuss what the attitude of

the clear-

I have recommended that instantly the

amendment passes (if it does), the clearing house should adopt a
resolution authorizing the use of Federal reserve notes in settling balances and in any event should extend the arrangement by
which balances are settled on

our books-.

There should

be no

misunderstanding, however, that an arrangement for settling balances on our books will not entirely accomplish the


seek, because it does

purpose we

not give us the means to Issue notes freely

against gold and keep them

la circulation.


This amendment is interdependent with the last named




Paul M. Warburg, Esq.

and I

hope that you and your associates are not going to permit any

stone to remain unturned in your efforts to secure its passage.


I have written Governor Harding on this subject.

Mr. Hine

tells me that there is some uneasiness among some of the savings

banks that no means exist by which their securities are available for

the purpose of furnishing currency in
from the offerina of the loan.

district pay

ai%, some 4.

case heavy withdrawals result

Most of the savings banks in this

Those which pay


may lase deposits

heavily as our campaign for selling the bone will

aatend into every

nook and cranny if the distrct in order to get small subacriptions.

One of our directors made a
ing which strikes me as valuable.

suggestion at to-day's meet-

Both State and national banks

throughout the upper part of New York State allow 41 on deposits
of certain character.

The State banks say

that if the


banks will discontinue these high rates they also will discontinue.
It will be mighty, dif:icula to get people of small means through-

out that territory to subscribe largely to the now loan when they
can get 4`', on small balances in commercial banks.

is that the

The suggestion

Comptroller or the Pederal Reserve Board take steps

to bring about a discontinuance of this practice.


I am frank to


that the general feeling in this

district is almost unanimously expressed in condemnation of the
present program of publicity conducted in Washington.


11t.ul M. Warburg, Esq.1111111111r-1111.1


.inreeard to the amounts of subscriptions being received are regarded

111111r as

dangerous and possibly misleading and it is having a tendency to

discourage people from taking an interest in the loan and, in some

Gases, has caused possible subscribers to delay subscriptions which
otherwise might be made.

I do not feel competent to make any

definite suggestion on this point; but if experienced men are of this
view it seems to me that it should be regarded by the deeartment.


Mr. Kenzel hands me the enclosed nembrandum of a conversation with Mr. ickelheimer.

There is

much In

his suggestion, but 1

would not dare recommend until the amendments relating to our Federal

reserve note issue and geld reserve have been paesed.

If they are

think I would be inclined to recommend that Federal reserve


-.banks be authorized, during the period of the war only and for a
limited period after the conclusion of the war, to make loans up to

50% of the pee value of war loan bonds and certificates of indebtednese;

but such privilege should be exercised with the utmost dis-




Members of our coumittee have suggested to no- that it is

hilly important in the early days of the campaign that the right
kind of cooperation exist among the reserve districts, 30 as to avoid

publication of ipportant decisions or news in one district in advance
of another; so that effort may not be duplicated, and so that the

handling of the funds resulting from the

subscriptions will be worked

out so as to avoid disturbance of the money market.

If you desire


Paul M. Warburg, Esq.,



oranda describing the points to be covered, it will be prepared
and forwarded to you.

It is

regarded as

borrowings by the Government

highly important here that all short

in this

market shall hereafter be ef-

fected by invitations for tenders for bonds.



Renewals to-day were mostly at




and money later loaned

is the result principally of the disbursement which we

are making to the Allied Nations and I do not expect to


in the immediate future


payments as the one to be made to-

morrow can be arranged so that the money is at once returned to the


if such

see any


by the Allied Governments.

The fiscal agency arrangement will

effect that if the representatives of Great Britain, France, Italy,
etc., carry out the plan

which has been







Hon. Paul M. Warburg,Vice Governor, Federal Reserve Board,
Washington, D. C.



Form 1206

id- AM

/ Letter
Night Message

Night Letter
ons should mark an X ono3 the class of service desired;




'Ist Day Me s

Receiver's No.



Time Filed


d the following telegram, subject to the terms
n back hereof, which are hereby agreed to

Denver, Colorado,
May 16, 1917.

s. Paul M. Warburg,

1704, 18th St.,
ashington, D. C.

Just arrived in first rate order after a very comfortable trip.
Your good care of no semis to have been effective for I never felt better.
Love to you and Paul and Bettina.
Benjamin Strong.

Chg. Benj. Strong,
4100 Montview.

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Denver, Colorado,
May 17, 1917.

Dear Warbemg:

I had a fine trip west and after submitting an account of my
performances to Dr. Sewall, he and I are both satisfied that no harm resulted from my visit. I put on another six pounds in the two weeks and
12077 weigh 162; this is really the barometer.

I am writing particularly to thank you for everything that you

did to make my trip satisfactory and particularly to make it safe - you and
Nina certainly know how to do those things and I feel everlastingly grateful.
Just a word about your own work. My visit to Washington opened my

eyes a bit as to the many difficult and trying

features in the nresent sit-

uation Which at times have caused you worse thal

Don't let it


influence your attitude a particle; you are doing a grand piece of work in
a noble cause and later on when

the dust and fog blows away, the country will

wake up to the fact that you were big enough

to recognize your citizenship as

coming above everything. Meantime these annoyances Which are trifling in
comparison with
and I

do hope

the great end to be accomplished simply add value to your work

that you will not permit yourself to be disheartened or dis-

couraged In the

slightest degree.

I shall see you by about the first of June for I am perfectly satisfied after my short trip east that for a month

at least my

duty is in New York.

After that I may take your suggestion and move down to the country, where I
will be in striking distance of both New York and Washington.

To - Mr. Warburg.

Liay 17, 1917.

I spent Monday in Chicago, met the Liberty Loan Colimittee and the

officers of the Reserve banks and tried to give the situation there a little

They are making good progress., displaying great energy and. I am con-

vinced have a good committee.

Their organization had not progressed quite as

far as ours in New York, but was moving ahead rapidly. I am writing you

seoarately with one or two suggestions about the great problem of clearing
the loan when payments are made.

With best regards,


Faithfully yours,

Hon. Paul M. Wasburg,

Federal Reserve Board,
Washington, D. C.


Denver, Colorado,
May 17, 1917.

My dear

I have been spending all of my leisure moments considering just

what is going to happen in connection with clearing the payments for the
big loan, and want to give you the best views that I can express right now
because I think some action will be required by the Reserve Board to insure
a successful operation:

There would be little need for concern if payments were to be
made only in installments on the schedule provided in the prospectus, but

the provision for anticipating payment in full presents the possibility of
a very large payment within a short period.
dollars, or even more.

The total might be one billion

In that event considerable strain will result and

I thiniethe course of development

is likely to be about as follows:

Preliminary to payment being made, interior banks will begin to
withdraw balances from New York in preparation.

Those balances now exceed

$1,000,000,000 and the withdrawal may force the big New York banks to rediscount heavily with the New York Reserve bank.

The adoption of the amend-

ments to the Reserve Act will serve to protect our reserves to some extent,
but the rediscounting may be so heavy as to force New York to put some of
the load on the other Reserve banks, who will grow correspondingly strong as
we grow weaker.

It seems to me, therefore, necessary that arrangements be

made at once by which the New York Reserve

bank can

rediscount upon an agreed

schedule of division among the other eleven banks end at a rate to be fixed

To - Hon. P. M. Warburg.

May 17, 1917.

now in advance and without the possibility of any demur or delay on the
part of the lending banks.

It seems to me the Reserve Board should anticipate

this situation by sending notice to

each Reserve bank and by taking appro-

priate procedure to fix the rates.

When the payment is made in each of the

twelve districts, the strain will begin to turn the other way and as rapidly
as money is moved to New York for the purpose of loans to allies and payment
of existing obligations,


heavy and at the same time the

from the interior Reserve banks will be

member banks throughout the country will doubt-

less find it necessary to rediscount heavily with

their Reserve banks.


at the same time, in New York will grow correspondingly stronger, consequently
we will take up the loans made by the other Reserve banks and gradually as
the strain increases as our resources grow,

we should rediscount for the

Reserve banks just as they did in the first instance for us.
to the conclusion that the real



This leads me

is the reserve problem of the Reserve

banks themselves and instead of shifting immense

masses of gold

through the

gold settlement fund, with a resulting distortion of our statements that will

not look good, it would be much better to effect the shift between ourselves
by a liberal policy of rediscounting, each bank, of course, holding the paper

on pension for the bank which makes

the advance.

ecutive Committee of the Chicago Reserve bank

I spoke of this to the Lx-

and they seemed to hold much the

views that I expressed and were entirely willing to do everything necessary
when the time arrived.
One thing that puzzles me in our situation
tecting our gold reserves.
 out a definite

is the means for pro-

I-do not see how it can be done effectively

understanding with member banks that they will settle




May 17, 1917.

To - Hon. P. M. 'iarburg.

debits and credits on our books, in addition to the adoption of a plan by
which rederal Reserve notes may be used for settlinL balances at the Clearing

House, particularly in

New York.

To facilitate these matters I believe it

would be most desirable to provide for the issue or Federal Reserve notes for
use by Clearing Houses in large denominations.

Could not such an act be passed

by this congress?

Has the Secretary of the Treasury

accepted the doctrine that the

government mast on checks drawn on country banks in payment for
the new loan? I do not see any other way of handling the matter as the
Hardwiok amendment stands, and the amount will be

Won't you write


very large, as you realize.

your views about these matters?

Yours very sincerely,

Hon. Paul M 7arburg,
Federal Reserve Ban,
Washington, D. C.



Denver, Colorado,
May 22, 1917.

Dear Warburg:

Many thanks for yours of the 18th.

Of course I realize how

exceedingly busy you have been and recognize your handiwork in much
of the material that is now coming forward from the New York office.

These are great days and I am glad that you are permitted to be on hand
during the yeomans

What you say about the Hardwick amendment


is exceedingly interesting.


was a vicious, selfish and unpatriotic

maneuver, to which I am sorry that Hardwick allowed hi:Jself to be persuaded, but let me once more repeat what I know you are conscious of more
than any others in Washington, -

that those amendments

must pass if we

are going to see our Ship in good shape for stormy weather.

I shall be in New York on Wednesday of next week, ready for
another bout of a few weeks and then hope to

get away again.

.without saying that I will see you in Washington.



Don't bother to

when you are so exceedingly pressed, unless there is something



in Which I can be of help.

I am leaving in a few minutes to act as one of the committee

meet Secretary

McAdoo, Who is to make an address here this afternoon

and attend a dinner.

He will

and an enthusiastic welcome.

have an

immense audience I am glad to say

Denver seems to be stirred up with real

war entausiasm.
Faithfully yours,

Hon. Paul u. Warburg,
Federal Reeerve Board,
Washington, D. C.


t Day Message

ay Letter





.nark an X oppoof service desired;


Receiver's No.


Time Filed


nd the following telegram, subject to the terms
on back hereof, which are hereby agreed to

Denver, Colorado,
May 24, 1917.

Paul M. Wqrburg,

Federal 2e8erve Board,
7ashington, D. C.

Many this for telegram.

be too strongly emphasized stop.
visit did immense good.

Vital importance of passing amendments cannot
Secretary's reception

enthusiastic and his

This and other western districts badly =cid stimulation

if loan is to succeed stop.

Hope Board acts favorably on sw,gestion I am

making through office to establish in advance rates for discounts between Reserve

Reach New York Wednesday of next week and hope to see you soon.





Chg. Benj. Strong,
4100 Montview.


To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the originating office for comparison.
half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND PAID FOR .1,
onsideration whereof it is agreed between the sender of the telegram and this Company as follows:
The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED te'
ived for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond L..y times
sending the same, unless specially valued; nor in any case for delays arising from unavoidable interruption in the working of its lines; nor for errors
In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the non-delivery, eg this tele,
oed by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless a greater value
,ing hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid based on such value equal to one-1,,.
per cent. thereof.
The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary to reac
Telegrams will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and within one mile of such office in other citi
us. Beyond these limits the Company does not undertake to make delivery, but will, witkout liability, at the sender's request, as his agent and at his expense, endeav
cract for him for such delivery at a reasonable price.
No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such
one of the Company's messengers, he acts for that purpose as the agent of the sender.
The Company will not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty days after the telegra
d with the Company for transmission.
Special terms governing the transmission, of messages under the classes of messages enumerated below shall apply to messages in each of such respective classes in addition
'oregoing terms.
No employee of the Company is authorized to vary the foregoing.




A full-rate expedited service.

Accepted up to 2.00 A.M. at reduced rates to be sent during the night
id delivered not earlier than the morning of the ensuing business day.

A deferred day service at rates lower than the standard day mesge rates as follows: One and one-half times the standard Night
. tter rate for the transmission of 50 words or less and one-fifth of
e initial rate for each additional 10 words or less.


In further consideration of the reduced rate for this special "Day
Ater" service, the following special terms in addition to those enu-

Letter shall be delivered on the day of its date absolutely and at al
events; but that the Company's obligation in this respect is slit jec
to the condition that there shall remain sufficient time for the trans
mission and delivery of such Day Letter on the day of its date durin;
regular office hours, subject to the priority of the transmission of reg
ular telegrams under the conditions named above.

No employee of the Company is authorized to vary the foregoing.

Accepted up to midnight for delivery on the morning of the n
ensuing business day, at rates still lower than standard night messt._
rates, as follows: The standard day rate for 10 words shall be charge
for the transmission of 50 words or less, and one-fifth of such standar,
day rate for 10 words shall be charged for each additional 10 words

e rated above are hereby agreed to:

A. Day Letters may be forwarded by the Telegraph Company as a
SnTed service and the transmission and delivery of such Day Letters
in all respects, subordinate to the priority of transmission and
-ery of regular telegrams.
Day Letters shall be written in plain English. Code language

. permissible.

This Day Letter may be delivered by the Telegraph Company
telephoning the same to the addressee, and such delivery shall be a

iplete discharge of the obligation of the Telegraph Company to

This Day Letter is received subject to the express understandnd agreement that the Company does not undertake that a Day


In further consideration of the reduced rate for this special "Nigl
Letter" service, the following special terms in addition to tho:
enumerated above are hereby agreed to:

Night Letters may at the option of the Telegraph Comr an
be mailed at destination to the addressees,. and the Company E ha
be deemed to have discharged its obligation m such cases with respe,
to delivery by mailing such Night Letters at destination, posta4

Night Letters shall be w-ritten in plain English. Code langua'
is not permissible.
No employee of the Conzpany is authorized to vary the foregoing.






Mt Message

d Letter
.-dtrons shoule,



site the class ol


.11 e-

Time Filed


iend the following telegram, subject to the terms
on back hereof, which are hereby agreed to

Denver, Colorado,
11ay 24, 1917.

l'aul U. Alrburg,

Federal ReOtrve Board,
Washington, D. C.

Telegram received. Am expecting to Go away again shortly after

return and just as soon as circumstances permit and I am satisfied that clearing
arrangements are completed and understood.
Benjamin Strong.

Chg. Benj. Strong,
4100 Yontview.


IV To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the originating office for comparison.
me-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND PAID FOR H
n consideration whereof it is agreed between the sender of the telegram and this Company as follows:
The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED telegram, F 'nd ti
-eived for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond fifty ,times sun
sending the same, unless specially valued; nor in any ease for delays arising from unavoidable interruption in the working of its lines; nor for
cipher .
In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the non-delivery, o
,,eiegram, wh
iqed by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless a gr..
ling hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid based on such value
per cent. thorreof.
The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary to read
Telegrams will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and within one mile of such office in other citie
towns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at his expense, endeavo
contract for him for such delivery at a reasonable price.
No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such o
by one of the Company's messengers, he acts for that purpose as the agent of the sender.
The Company will not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty days after the telegrar
filed with the Company for transmission.

Special terms governing the transmission of messages under the classes of messages enumerated below shall apply to messages in each of
he foregoing terms.
No employee of the Company is authorized to vary the foregoing.

such respective classes in additio




A full-rate expedited service.
1ccepted up to 2.00 A.M. at reduced rates to be sent during the night
I delivered not earlier than the morning of the ensuing business day.
1 deferred day service at rates lower than the standard day mes_e rates as follows: One and one-half times the standard Night
tier rate for the transmission of 50 words or less and one-fifth of

he initial rate for each additional 10 words or less.


In further consideration of the reduced rate for this special "Day
Letter" service, the following special terms in addition to those enu-

Letter shall be delivered on the day of its date absolutely and at
events; but that the Company's obligation in this respect is subj
to the condition that there shall remain sufficient time for the tra
mission and delivery of such Day Letter on the day of its date dur
regular office hours, subject to the priority of the transmission of x
ular telegrams under the conditions named above.

No employee of the Company is authorized to vary the foregoing.


Accepted up to midnight for delivery on the morning of the ne
ensuing business day, at rates still lower than standard night messa
rates, as follows: The standard day rate for 10 words shall be charg,
for the transmission of 50 words or less, and one-fifth of such standa
day rate for 10 words shall be charged for each additional 10 words

merated above are hereby agreed to:

Day Letters may be forwarded by the Telegraph Company as a
leferred service and the transmission and delivery of such Day Letters
s, in all respects, subordinate to the priority of transmission a4d
lelivery of regular telegrams.

Day Letters shall be written in plain English. Code language

; not permissible.

c. This Day Letter may be delivered by the Telegraph Company
y telephoning the same to the addressee, and such delivery shall be a
Dmplete discharge of the obligation of the Telegraph Company to


This Day Letter is received subject to the express understand9.nd agreement that the Company does not undertake that a Day


In further consideration of the reduced rate for this special "Ni
Lett4r" service, the following special terms in addition to th
enumerated above are hereby agreed to:

Night Letters may at the option of the Telegraph Compax
be mailed at destination to the addressees, and the Company sin

be deemed to have discharged its obligation in such cases with respe

to delivery by mailing such Night Letters at destination, posta

Night Letters shall be written in plain English.

is not permissible.

Code langua

No employee of the Company is authorized to vary the foregoing.


4wpm opt
JUN -1 1917

Swam tkru47714 Owe
May 31st, 1917.
Dear Mr. Warburg:

Mr. Jay has oho= me your official letter in regard
to rate for one day loans and i am writing to inquire whether
the 4

maximum limitation cannot be eliminated.

Surely, with

your wide oxnerionce of the money market in New York, you will

appreciate that the maximum rate as determined by the tioard

has no relation whatever to conditions which may have to be
met and that the conditions in this matter may be ouch ac to
make i' exceevingly unwise to surround our dealings with the
money market in such condition.
Sincerely yours,

Honorable Paul W.. . iarburg,

Vice aovernor, Federal Reaerve Board,
Washington, D. C.


MiSC. 34







June ath, 1917.
Hen. Paul M. Warbung,
Vice Governor, Federal Reseritio Board,

Washington, j. C.

A ruling that discounts for member banks for
of stnAe
be accompanied by notes of cuatomers of state benefit given for banks must
or carrying Liberty Bonds would seriOusly impair the ability of national
banks to assist state banks and their customers for following
First, Savigs banks would borrow far own account and could notreasons:
customers notes. Second, Trust companies frequently take general liability agreements instead of notes from customers and many may need to borrow for their own account. Third. Many state banks doubitess willing
to borrow for their oan account secured by their own bonds in order to
accomodate customers but will be unable to obtain curator-ars assent to
repledge their notes. Stop. Hope that ruling will be broad enough
B-5 include notes made by nonmember banks withoid deposit of customers. to

July 16, 1917.
14 dear Mr. Warburg:

We are agein experiencing Jam domande for loane, an increase of
:,12,000,000 held's' taken place to-day, as shown in the following list:

Bollston Spa Nat'l Mk.,
Borchants National Bk.,
Nat'l Bk. of Ogdensburg,
Chrse National Bank,


Ballston Spa, N. Y. $

New York, N. Y.
Ogdensburg, N. Y.
New York, N. Y.
Amerloan Exchange N. B., New York, 14 Y.
National City Bank,
New York, N. Y.
New York, N. Y.
Second Nat'l Beak,
Nat'l Park Bank,
New York, N. Y.
First National Bmek,
New York, N. Y.

First National Bank,
First National Bank,
Bundeellatel Bank,

Port Jorvie Nat'l
Port Jervis Nat'l Bk.,
Washington Co. N. B.,

First National Bank,

Donroe National Bank,




15 drys


Greenwieh, r. Y.
Silver Creek, N. Y.
Dundee, N. Y.
Port Jervis, N. Y.
Port Jervis, N. Y.
Granville, N. Y.
Forestville, N. Y.
Denroo, N. Y.
IMPX0;755a.- 05$'046,040.95

10 cloys


Cell. Note


Our purchases of teceptances amounted to $10,692,000, but ue had 4:47.667,000

running off our own account and 06,168,000 for other Federal reserve banks.

Our balance at the clearing house this morning woo $39,508,000, with a re-

sulting net credit of 10,900,000.
There is a very general interest in the obmises which have been made in the
New York Clearing House bark statement, and, in calling on cormorcial paper brokers to-

day, 1 was asked severe' times to explain the change.

The high call money rates have

Trectionlly stopped the sale of commercial paper for the moment at least and the
brokers are eager seekers for light as to the Why and wherefore.
'Call money opened and renewed at 6, touched 10% and closed at 6%,


major portion of the loans wore made at .6% tbsugt about $10,000,000 is reported to

have loaned at the higher figures.

Imikers hero ascribe the hiffri call rate to the




Federal 'teserve Board


to the withdremel of aevorment Iowans.

:be heavy immerses in our lorn mom& shoo that they rre taking steps to hanAle the situation.


Ve transferred alout 46,000,000 of our Geld bare to the assay office Uempoot to forsarquero durinu tho week.
Verw truly yours,

Assistant Federal Reserve Agent.
Honorable Paul
Vice Doverner, Federal Reserve 30ard,
Washington, D. C.



Dear lir. Varbtlre,I

Our loan acao-zst No boon ilirdri:slose
with tho rollowing

bi trp-ralmitoly 4240009000

rat'l Rads

fir t tat 1 onal Bonk
Notional 014 Lank

National Pare,
Amor.,son 4soitani3 24'1 Bank
Seoond national Bank, 41mir. M.Y.


4 4.0014000




Bank, aarks.r, i.r«


.0 Durc;basod aseevtzzeoc, staouzating to 4;1,760000 as


aliult our °cm

other banks' mat:aqui: bills of ;At76,001.
Tho call moaey 1,..4.rkot W:44 oas.:-1* t4.:-.414v, t

beihg 0%, la
repuirot.ionts but no tine

i close LiA",.

enti aad ronnwel

There Tr.,s money' snowit


to Lite Ogle of an


The optAlou hare is t=t the werst of Ulu flurry
Is oror r.ald that we ray expect roalleaable
aaso fca, thc, next feu dvs.
paid oqrtifioutos of Indebtedness due tomday to the
w:ount of 0000000 end tills, no doubt,
had an luvort,'..rt pezt In bringing abut

oaslor cull mow.

Ger credit at the Cloarinkr, ;bus° ma 4,27,062010 spoon, 444406,1A0
The commercial papor Ilarkot was a little.
fiwuor with aloe at 4 1/2 to b 240 but

It Is tholy.Tht that the rate by to-uorrow will boon coupoll back
to 4 li2 to 110..
rotes to customers are around W.


-Vord trulj yours.,




Wzornor, iwural Amery° Board,

Assistant Federal Ra-rve



R, r1Vk



(Governor Strong)


The Federal Reserve





Ally le. 1917.

Our shoo a win of approximately C2,650,000 with the following



Amoriosn Exchange National Bey*,
Now York, X. Y.

First National 46k,

New York,

Chomioal Nationnl Bank,
Now York, B. Y.


Lev: YorK, N. Y

Nations' Pnrk fthk. VW York, 11.Y 2,500,000
Nttion1 Park 3ank, "
Liberty rail/ Bank, "

First Pet,' Bank,.i3ilver





Chrthem an Phenix National

$ 3000,000



Net'l Bank of Westfield, N. J.
Lambertville National 'izatt,
.L.cmhertville, 1z. Y.
First Nat'l Sank, Irrmnwish, H. Y.,

9 SOO 0-10 00





0,250006, 10111u our
Our purohrses of m000ptrknoes to-day amounted to
motuzities wore only t206.000 for our own 8000810 nn- ,571,000 for other
reserve bnaliZ.

rates at
The eou:sroial paper ineriot is reportel quiet with

Call monoy opened enM

to 5)1.

mole at 6; lol 0-74 average 5V4 clone Z.

debtor at the olorrinG houre to-day to the amount of ;41,830,000
This is
banks' debits brought the total up to 419,A6,000 debit.

vie were

and our member

of InAobted.
probobly, In large part, a rofleation of our paymonts of eartirlantea
nose ertdeli, for yesterday sad to-y, Settled 442,s00,00o.
been heavy this week, our balance
Thv flow of monoy fron new York has

well over 100,000,000. Under
due to other 7e4ern1 rosorve barilm running up to
the Treasurer
imetrustiota from Atlmite, we gosterda;; charged them and eradlteA

Memorable mmal k4


to-day for 44,000,00
trrrzfer from 3nnespolis
0,000,000 amJ mndo like
the transfers to be
settlement in antleipation of
Withholding of funds from
authorized by 3enton25,0o0,000,

have been
mAde by the Treasurer to.imorros
.J9071no,000, making
013,000,000, Riefrond,
Chicago, 426,000,000,
statement will, therefore,
Our debit on the Weekly

C totel of 04.000.000.
proaddy be

025,000,000 and 435,000,00040
eemOilierre between

time the note of e nonnambor,bnit,
to-dsy for tho first
IA) discounted
the %Alters Irust OmparY
It was the obligation of
Liberty Bonds.

secured by


the Liberty National Mink.
,500,000, indorsed by

Very truli inns,

Assistant Polars/ Hosorve.Agent.
lonerable Paul Mo Warburg,
Vine .;evernor, Federal Reserve 3orrd.
':;satington, D. O.



July 19, 1917.

Dear Mt. Tiarbutg:

Renewal notes were given to-day by the National Park Bank, .1'2,530,000.,
Chase National Bank, $10,000,000., First National sank,
010,000,0)0., and *mond
National Bank, 1250,000.
New loans, or rediscounts, were as follows;
Herkimer National Bank, Herkimer, N. Y.
Florida National Sank, Florida, N. 7.
North Creek National Bank, North Creek, N. Y.
Second National Bank, Elmira, N. Y.



Our purchases of acceptances to-day amounted
to 41,876,000., including
1550,000., which were taken late yesterday afternoon

and not reported in yeotorday's


Commercial paper rates are

for short paper at 40,


with little available.

ing some very cholee six months' paper at

Call money opened and renewed at 6%,

5%, and brokers roport a good demand

A.large member bank reports purchas-

0%, but regards this es an exoeptian.

average $%, low and close 4%.

rmr gross credit at the clearing bonsai,'
all of this was against member banks

015,995,000., but practioally

so that OUT net credit vas only 4;23000.


had a debit of ;29,60,000. In the gold settlement fond, having
withheld from set-


total of $74,000,000: Transfers to Om Treasurer of the United States
have been made to-40, either through the gold settlement fn d or on our books to
a total of 067,000,000, which with 40,000,000.

transferred in the last two


ekes a total of $97,000,000, which we have r)oeived, and item which ge expect to


transfers being from the
486,010,000. to the British Goverment to-morrow, the
foi/owing banks:


St. Louis
Xansas Oity

San Francisco



interim certificates from the Liberty
We are beginninf; to receive
banks, the total thus far amounting
Committee to be held in custody for our member
circular letter sent out someThis is done pursuant to our

to around ;41 000,000.

time ago.

hundred boxes of gold to-morrow morning,
The Assay Office will take two
handle next week an amount approxiwe are aware, will be able to
Mid, so far as
hundred boxes, se that the congestion
that taken this week, or five
mately equaa to

in our vault will soon be materially rolloved.
Very truly yours,

Assistant Federal Reserve Agent.

Honorable Paul I. Warburg,
Vice Governor, Federal Leserve
Atsh1ngton, D. 0.


August 8th, 1917.

Dear Warburg:

Thank you for yours of the 3rd enclosing copy of your letter
to Mr. Treman in regard

to certain tra

sections in bills which hrd


recently effected by the Federal Reserve Bank of rew York.
I agree with everything you say in your letter with only one


I would not only not sell bills in the market (which was

done without my
folio to the



but would not even sell any of our port-

reserve banks.

Before leaving New York last month, I

him to adopt the policy of
vailing, anticipating

maintaining our rates at

that money would


folio would autometically liquidate itself.
this development did not take place

raising our rates for bills in
portfolio. In his anxiety to
that he has gone


sure that all phases

agreement as

that is

the levels then

ease off and



our port-

further urged him in case

after a reasonable


to consider


to ensure prompt


out this policy, I agree with you

far, but once the

to our policy in that

with him I am

understood and we will be



the other reserve

a mistake is because in my

liquidation of our

matter is discussed

of the matter will be

As to sales to

wrote Mr. Treman urging

banks, the

opinion the other

reason why

I think

banks are


Mr. Warburg.


not liquidating fast enough.

There still seems to be

disposition on the part of the management of some of the reserve banks
to "make money".


the extent that we are Oontributing to that de-

velopment by supplying them

with bills,

I think we are making a mis-

take and shall hope to see all twelve of the banks reduce their bills
and investments to a minimum within the next 30 days
Of course, we

the Treasury in

must not

overlook the fact that


tion of the country.

We have the

flow into treasury certificates

by the other

market than upon any other sec-


the rest of the country will beTreasury raises

to that extent be justification

liquidation by sales of bills a

this view to Vr.


hastening our



Monday right and I ex-

Treman and find that Mr. Jay agrees with it.

Honorable Paul M. Warburg,
Federal Reserve Board,
rashington, D. C.

its rate.

reserve banks.

Sincerely yours,



little in advance of

We had just a word about this matter


cheapest money and that money will


gin to contribute and then only as
fore, there

the policy of

placing certificates of indebtedness will have a

effect at first upon the New York money


or 60 days.

August 24, 1917.

Dear Mr. -arburg:

I understand from Governor Strong that you have received a telegram

from rr. Jay

of similar import to the one received by us.

I want to report that our telegram was

read to the

In this connection

board of directors of the

bank at their meeting held last Wednesday.
The directors passed a resolution expressing their opinion that in
the best interests of the bank

Mr. Jay

aught to stay away until October 15th

at the earliest, and as nuch longer as necessary.

They also

expressed the

view that in so far as the bank was concerned, and, of course, without trespassing in any way upon the jurisdiction of the Federal Reserve ?oard, the
directors felt that in

behalf of

the bank they would be pleased to have "r.

Jay receive a leave of absence with full pay for the necessary period.
Our directors, of course, realize that this matter lies within the
discretion of the Federal Reserve Board and their opinion goes only to the
extent of indicating the view that the bank should pay full compensation to


for whatever period the leave of absence is granted.
Very truly yours,

Fonorahle Paul

Vice Governor,
dera/ Reserve Board,
Washington, D. C.







August 24, 1917.

lkir dear Nina:

This is a business letter, consequently dictated and typewritten.
Some friends of mine have toll se of the emelt that Ilies Eaowlee,

JoeS0liorsan's sister-in-law, is doing, and I have been a good deal attracted

by the accounts of her ability and qualities as e prospective business woman.
It happens that we are ead17 in need of help at the bank in various
of our departments, and it might be that we can find a good position for her

with a good future to it if she happened to have just the qualifications.
Can you tell me tomething about her work, her capacity, her health, her education, her general point of view with regard to a woman's business °Eimer,
and, more particularly then anything else, if we find a roar- 'hie position

for her, hae she poise- and character to exert ar
welfare, behavior and affairs generally of some two hundred or :nerd young
women who are now working in this bank.

I am bending a copy of this letter to"Paul, the Bold," and asking
him to also write me on the subject.
Sincerely yours,


Ire. P. N. Warburg,
Eaxteciale, New York.

Dictated. by /Ar. Strong
iYat signed in his absence.


August 2, 1917.

Dear G. IC. W.:

Fmclosed is A copy of a letter which I am address-

ing to Nina, whic# explains itself.
What can you tell me about this young lady, and would

she be good material for our organization?

Confidentially, I might want to train her for a

rather important position, if she is equal to it, and I should
want to see her and have a good frank heart-to-heart talk with

her before putting her in training.
Very truly yours,

Honorable Pau/ IL. W-rburg,
Vice Governor, FeloraI Reserve Board,
Washington, D. C.

Dictated by Mr. Strong

but signed in his absence.



August 2Rth, 191?.

ear WArburg:
Thank you for your confidential

letter of

the P7th regarding Miss Knowles,
which T arpreciated
very much.

We have decided to do nothing

just nt nresent in this conne7tion,
so it rill be
unnecessary to carry the mstter further.
Sincerely yours,

Honorable Paul V. Warburg*
Care Federal Reserve Board,
Washington, D. C.


September 15, 1917.


Dear Warl-ierga

I am obliged to send you this line for your personal use only,

although it is -a matter of greet importance to all of us.
Aiken has been offered the choice of the presidency of two of

the largest banks in Boston.

In on case I suppose he would receive a

salary of possibly 00,000. or $50,000. a year; in the other case he
has been offered $50,000. dnd they have expressed their willingness to

pay ' ',60,000. if he feels justified in asking it.
Now I

ant you to consider this in contrast with the action

taken by the Board in regard to the increase in his salary and similar

actions in other cases.

When his directors proposed to increase his

salary 35,000. a year a short time ago, the Board granted it, making it
effective next January. This, of course, it none of my business, but

that policy, if pursued with Aiken 'and, in fact, with others in the System

like Curtis, is going to result in the loss of the best men we have. I
feel the same way about Mr. Jay's salary.

An increase of $2,000. a year

is ridiculously ingdequats.
The demand for banking talent is far beyond the supply. Particularly Tith the big banks we need high priced men.

,I am going to do my

best to persuade Aiken not to accept either of these offers, but just as

sure as fate he and others like him are going with other banks if the Federal
reserve bank positions are not made more attractive by paying adequate sal-


Aiken is the head of about the largest bank in New England, and

his salary is only one third of thst receive" IT other bank presidents in

Honorable Paul M. Warburg,




eller institutions. I do not mean by
this that he should receive as large salaries as they do, nor that that
oston who are tile heads of



policy should prevail generally among the Reserve banks, but it car.

tainly should be -z.leasurably nearer what bank presidents get.

I am in

dread all the time of the'possible los of our awn good men in New York.

Aiken, I an sure, will write or sea you about this, aid tells
a that he would have spoken of it in Washington yesterday had there
:eein opportunity.

Please do not write him or mention this until you

hear from him.

Yours vary truly,

Honorable Paul M. Warburg,
Vice Governor, Federal Reserve Board,
Washington, D. C.



September 22, 1917.


Dear Warburg:

You wilLrecall that we wer doubtful of the wisdom

of accepting the application of a certain state bank in this
district for membership in the Federal Reserve System.


were, however, accepted by changing to a national bank.
now enclose translations of advertisements which are appearing
in some of the Jewish papers

will read with interest.

in this city, whici I know you

I am told

that the advertisements

printed in Yiddish.
Very truly yours,


Vice Governor, FederaIlicirerire Board,
Washington, D. C.


M isc. 31




Sent by





Ponorable Paul 1.1 zorborg
Hotel Tilts


11,11ted to tukiro i i lino with as on tgon;Lay

time atter obt °clock

4141 wot you at Plain ai

!mjn.troy .
red. .T.3f1o. Boric

120 Broodway





November 10, 1917.

ilon. Paul M. 7a:rburg
Federal Reserve Board


Washing-Lon, D. O.

'ear Warburg:
LIz1,x27thanics Tor yours of the 7th.


1 am

not going to72t1swer it jilut now an I ;ant to stuay
the memoranda you sent me and I assume that the matter may he kept'yfaiting tl-fr!w days or will go ahead

1 am loafing here, exactly an you would
advis. me to au, and while I have spent thiu morning
cleaning u:.0 routine mail, I have put aside everything
that needs aay continuous study, Includinr7 your letter,

and will write you fully just as soon as 1 fool like

soriou9 work.
My game of colt has improved"and very soon
am going to write that you and Bina (some down he-re and



cheer me up a bit.
With warmest regards to all of you, including the other Federal Reserve Boarders, I an
Faithfully yours


January 11th, 191P.

My dear Warburg:

1 an exceedingly anxious not to have questions of precedent

and authority come un any more than necessary, but I do feel that a
serious mIstake is being made in the way some of these foreign nego-

tiations nee being handled and must rely upon you to strrighten it

out personally if we are to avoid the necessity of formal represen-

tations on the sub'ect.

It seems that regctiations of which I wee some time age,,formally advised were actually and finally concluded through the State
Department with the Argentine aovernment, which have the effect of

imposing upon this bank a possible gold liability to a meximum of

Similer negotiations are being conducted with other

foreign countries.

Yr. Kent and I have kept in touch with these elans as closely as possible and I understand that the Federal Reserve Board is work-

ing on then with the Treasury Department officials but, of course, it
would be most unfortunate to have them concluded without our Board

having opeortunity to act in the matter and then have them disapproved

by our Directors.
In a measure, a somewhat similar situation arose with the negotiations with Baron Megata.




Ur. Warburg.

r,ur 3oard of Directors has delegated and, in fact, the
by-laws rrovide,powers to the Executive Committee which meets
every day, which will enable prompt action to be taker in any of

these matters prior to definite understandings being arrived at,
and I hope that you can arrange without possibility of misunderstanding that these negoti,rtions can be so conducted that our Di-

rectors will not be entirely ignored.
I have stated this to Dr. Rowe verbally as it struck me
that he was assuming that nothing further was

required beyond the

knowledge of the 7edoral Reserve Board of what was being done and

that implied that the anprovil of the Federal Reserve Bank was com-

Very truly yours,

Honorable Pall'
Federal Reserve Board,
Washington, D. C.

February 15, 1918.

Dear Governor -,iarburg:

Replying to your favor of the 12th instant

enclosing a statement of

the estimates of the amount of advances expected to be made by the various reserve
banks on Liberty Loan bonds, it seems to me that the assumption that these estimates
were misleading is not quite justified.

After the first Liberty Loan was placed

the discounts and investments of this bank were reduced to considerably below
4100,000,000, at one time getting down as low as 470,000,000 in August.

From that

time on until large issues of certificates of indebtedness were outstanding, the
bank was called upon to purchase a large amount of bills and to make a large amount
of loans on Liberty Loan bonds and certificates of indebtedness and to discount
large amounts of paper.

On November 26th, we were advancing a total of

4308,000,0A upon the security of certificates of indebtedness and Liberty Loan bonds.
The amount of these advances fluctuated between November 21st, 4 253,000,000,

to a maximum November 30th, 4346,000,000, being reduced as low as 423,000,000 on
December 15th


now standing at 447,0)0,000 with the addition of 442,0)0,000 of

certificates actually purchased under contract of resale, which is the equivalent

of a loan, making


the advances at this date in round figures 4100,000,000.

should be observed, 'however, that as the amount of advances of this character de-

creased, the volume of discounts on purchases of bills increased so that I think we

may say that as a result of loans andadvances have been made by this bank directly
on Government securities or indirectly on other securities
ly around 4300,000,000, all


which will average

about by the Government's borrowings.


I should

say that in general the estimate which was made of from 4200,000,000 to 4300,000,000
was about as close as is possible considering the enormous fluctuations in our trans-


Governor Terburg



On the date given for the actual advances, January 18th, our books show
that we were lending directly 490,000,000 on the
security of Liberty Loan bonds and
certificates of indebtedness and had purchased under contract of resale 444,000,000,

making the total on that date :J34,000,000, but, in addition to that,
we had
4280,000,00 of bills discounted and acceptances purchased.
Very truly yours,


honorable Paul M. Warburg,
Vice Governor, eederal Reserve tioard,
Washington, D. O.


February 26, 1918.

Dear Er. 7arburg:

Your favor of the 20th instant is


statement of the possible calls on the Reserve bank


Liberty Loan was a reflection of


I think Mr. Tremanfs


in connection with 'Lle

estimate which I had already made

in the office of i.;300,000,000., which turned out

to be substantially


In regard to the matter of interest rates, concerning which Governor
Harding telegraphed last week,


matter had already been takun up by our

clearing house committee and a discussion had started along the general ling.;

of Governor Harding's telegram.

I am not at all hopeful of

being.rei,ched by the clearing house committee, or the members of the clearing

difficulties seemSome

house or the banks of New York generally.
be insuperable.

of the

Trust companies have always allowed higher rates than

national banks, and both trust companies and natiOnal banks allow varying

rates of

interest on different classes of business, but the lines

of dis-

tinction are so indefinite as to involve a whole revision of banking methods
in New York if the allowance of interest on derosits is to be governed

some fixed ruling.

Another difficulty would

be indirect violations of the

role or simply failure to observe it.



2xperi4nce has shown

a general and indefinite character among

the banks in these

matters are

ineffective unless penalties may be imposed upon those who violate the;.

After discussing the matter with a good eany bankers, I believe
the wisest course in New York would be to permit this discussion to proceed
without any intervention at this time,

as that might involve us in

troverapl discussion and in aapartisan attitude towards one or

a con-

another group.

Honorable Paul M. Warburg,


As soon as we are satisfied, as I think will be the

can be reached, then possibly
can be devised, will be more


ease, that no agreement


our intervention with a

plan, if one

effective thate join the debate now.

The Enclosed is a copy of a letter

which I

have sent to Mr. Frew,

Chairman of the Clearing House Committee, and which I hope will facilitate

Very truly yours,


M. 7arburg,
Vice Governor, Federal Reserve Baneh
Washington, D. C.
Honorable Paul




y 28, 1918.

I enjoyed my visit with you Tuesday very much and
only wish it could have been longer,
You may get a note from 7Jean 7/eat of Princeton,

asking something about my work for the Government for use in

cenneotion with the conferring of a degree. Don't give me
too bad a character.
Do you know anything about the publication referred

to in the attached letLer, I see your name mentioned.
ou mind returninc_kt, with your reply.

Faithfully yours,
Honorable Paul M. Warburg,

/nee Governor, iederal .Reserve Board,
Washington, D. 0.




May 31, 1918.

Dear Paul:

Thanks for your note of the enty-ninth. I found great
difficulty in writing Dr. West because it 300M8 more than egotistical
to write such a letter oneself so I had to call upon you for
I have nut yet seen the duotor again and wild give you a
report when I hear from him.
My plans for the slimmer are not :et

I go to Woods hole the first of next week; will come
batik for Grandin's comaeneement and for the

Princeton affair and then

make plane'permanontly for a long summer's holiday.

had a bully letter from AcAdeo this morning and am delighted that he -pproired of your letter to the President.
best regards to you and the family, I am,

ftithfully yours,

Honorable Paul f4 Warburg,
Vice Goverffur;-1106ArROWrft-Doard,
Washington, D. G.


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Hon. Paul M.




H. R. Ickelheimer, Esq.
in re
Requirements of European discount markets
with reference to minimum life of bankers'
acceptances for good



Copy for Mr.



of indorsers.

January 2, 1917.
Dear Henry:

The discount market is developing very well in New York,
except that the habit exists too much for acceptors to hold
their own paper. This leads to unsound practices and I am
sure you, who know European methods, will be in full sympathy
with what we are trying to develop.
My object in writing today is to ask you to tell me exactly what are the rules of the European discount markets
with respect to the minimum length of bankers' acceptances.
What I mean is this: paper, in order to be good delivery as
bankers' acceptances at the rate for private discounts must
not be longer than ninety days and must have at least a miniI remember that in
mum maturity of a given number of days.
I do not recall exactly what
Germany it was forty-five days.
is the minimum in France and England, but, so far as I can recall, it was about the same maturity. I have been trying to
encourage a similar habit in New York, but it has been claimed
by some of my critics that in England and France there does
I am perfectly sure that when, in
not exist any such rule.
years gone by, when I still was in the exchange business,
that it was the habit that when you agreed with an English
discount firm to send £100,000 for discount or a million
Francs to the Credit Lyonnais in Paris, the paper you sent
could not be shorter than a certain number of days or you
would have received a pretty lively kick. I should like to
have my views confirmed and would be glad if you would write
me fully about the subject, or about anything else that might
be of interest.

Very truly yours,
(Signed) Paul M. Warburg.

Henry R. Ickelheimer, Esq.,
Forty Nine Wall Street,
New York.

New York, January 4th, 1917.
Dear Paul:

I quite agree with you that a pernicious habit has crept
into the New York market from the first of having acceptors
take and hold too much of their own paper.
Investigation has
led me to the conclusion that this was due to ignorance in
certain quarters rather than to the anxiety of being the possessors of their own acceptances. Once having become a custom others like ourselves were reluctantly forced into the
unbusinesslike procedure of offering to take their own bills
In foreign countries, as a refusal to do so might reflect on
the strength of a firm as compared to the large banks so eager to buy their own signatures. As you and I are agreed on
that there is no purpose in my taking up your time in discussing that question.
The minimum length of bankers' acceptances that can be
sent to London or Paris as a good delivery, except by prearrangement, is sixty days, the maximum ninety days. Occasionally if a bill has from forty five to fifty days to run they
will take it at the regular rate but generally speaking the
market expects a delivery with a minimum length of time of
sixty days. On this point the rules governing the two markets
are practically identical. Your memory with regard to sending bills to London and Paris is therefore quite correct and
it is probable that what your critics may have meant was that
there is no rule governing the minimum number of days excepting so far as the rate is concerned.
The position you take
is entirely correct.
It seems to, me that possibly one of the remedies for
bringing about a discontinuance of the purchase by acceptors
of their own paper'would be a rule similar to that existing
among the leading European banks requiring two signatures of
the country where the draft is accepted.
Such signatures
however should not include the endorsements of foreign banks
having agencies or branches in New York: in other words
there should be two signatures of concerns whose capital is
in this country, for we all know that agencies and branches
are practically doing their business with deposits or credit
and going a step further another reason would be that it would
not be wise to accept as an endorsement to which one might
have recourse an institution in a foreign nation that might
at some future date be an ememy of the United States.
Sincerely yours,

Paul Warburg, Esq.,
Washington, D, C.

(Signed) Henry R. Ickelheimer.

January 5, 1917.

Dear Henry:

I have your letter of January fourth, and thank you

very much for your prbmpt and most satisfactory


I should like to get your views quite clear, and
would, therefore, ask you to make it quite plain to me
what you mean when you speak of "two signatures" on the
second page of your letter.

I suppose you mean two sig-

natures not includinR the acceptor.

In other words, one

signature - that of the drawer - and another - that of an
American indorser.

"Two signatures of the country where

the draft is accepted", as you put it, would not do the
trick in case the drawer were


in the United States.

very sincerely yours,
(signed) Paul M. Tarburg.

Henry R. Ickelheimer, Esq.,
Forty Nine Wall Street,
New York.

January 8, 1917,
Dear Paul:

What I meant by two signatures calls for an endorser other
than the acceptor, such endorser to be either a member bank, an
insitution or private banker whose signatures are eligible.

This would cover the case of the drawer being located in the
United States unless it were that an eligible name drew on
another eligible name in connection with a commercial transaction, as, for instance, Brown Bros. & Co. might have reQ
ceived an order to ship coal for the Italian Government and
as reimbursement were asked to draw on the National City

Such a case of course is imaginative and you would

have to deal with that as you saw fit.
I understand that the Bank of England has a list of
names whose endorsement they take in connection with the
acceptors' but that bills drawn by one British concern on
another are only taken with great reluctance.

The Banque

de France likewise requires two French names known to them.
Trusting that I have now made myself clear as I really
should have in the first instance I remain
Yours very sincerely,
(signed) Henry Ickelheimer.

Paul Warburg, Esq
Washington, D. C.


Dear Strong:

January 19, 1917.

JAN26 1917

Just by chance I ran across the enclosed excerpt from Dr.

Messer's book bearing on the subject of bankers' acceptances.
This bears out my statement of the other day and the statement
of Mr. Ickelheimer.

We are working at present on our annual report, for which
the Governor will this year take the responsibility.

It is

coming along and I hope in a week or two we shall be through
with it.

Governor Harding went before the Banking & Currency Committee yesterdayxana had a session with then today, from

which it looks as if our amendments had a fair chance of be-

ing passed in the Huse.

If they get through the House, I do

not think we need expect much trouble in the Senate.


I do not want to be -over-sanguine before we are that far.
Harding and Delano went to New York day .before yesterday

and came back very well pleased with what they saw in the
bank, and particularly the new vaults.

I think their visit

has had the effect of removing whatever there may have remained of irritation or bad feeling on both sides since the last

Jay writes me that Woodward at last has reported favorably
concerning Aiken and that he is to write you to take it up with


I am much pleased that this matter is now in a fair way


of being disposed of.

We are much importuned just now by importers - particularly
from the Argentine and Spain - owing to the fact that England
has put so many obstacles against our shipping gold to those
countries, which is rather a high handed proceeding.

It is

somewhat difficult for some of our importers to understand why


should find it possible to fill us with gold - and force

us, if you please, to inflate our deposit structure - while refusing to let this gold which is due us flow to Spain or the
Argentine, so that they are keeping us out of those markets

with the very banking strength that we are giving them with
our loans.

There is one company here that kicks up a pretty

bad row about these things, and its president has appeared before the Committee on Banking and Currency.

I do not know

what the outcome will be, but hope it will not mean another

I am doing all I can to avoid it.

What did you say to Lawson?
Can't you find him a job in Denver?

There is a fin
The investigation itself

has become so ludicrous that I do not think that anybody takes
it seriously any more.

With all that, it is a mighty unpleasant'

thing to have one's name drawn into the mire as has happened to
some of my friends here.

I have been thrown into this thing

too, but in such a perfectly unwarranted way that I do not


think that anybody has had more than a smile for the thing.
However, all these nuisances take up one's time and thought
and that is the worst of it.

In addition, as the old Latins

cite, "something always sticks".
Jay appears to be all right again.

His voice sounds good

over the telephone.

I hear that Jimmie Curtis was in Washington a few days
ago, though with a bandaged ankle.

The peace outlook is bad again, and I am mighty sorry
about it.

Vanderlip was here day before yesterday, havinr, been sub-

poenaed, and we had a long and quite interesting talk.
expected back in a few days.

He is

He shot into me on account of

the British treasury bills, whereupon I launched a torpedo
Into his ever-growing "tummy" (he is getting terribly fat) and
I think the end


the comversation was that we both were

satisfied that we-me-re-TItht - nobody having changed his view.

I believe, however, between you and me, that I gave him a new
aspect of the case, even though he did not want to concede it.

He said that the gravest blunder that we had made (he called
it "phenomenal') was that we had permitted these 'renewal credits

to creep into the system.

You would not say that he says that

because he entertains pro-German views!

However, it will

please you to have me say that I think that Vanderlip goes


too far in his views, and if we only Manage to keep this thing
within reasonable limits I think no harm has been done - quite
the contrary, we may have done some good.

How would it be for you to write me how you are getting
along with respect to your health?

Vanderlip said

pected to go out to California in the spring and that he hoped
you would go with him.

What does the doctor say?

Jimmie is at present handling freight in a B & 0 freight
yard, and I envy him, the opportunity of kicking things around.

The "vimmens" are well and good natured as always.
am I - but not always.

With warmest regards,
Always cordially yours,

Benj. Strong, jr., Esq.,
4100 Montview Boulevard,
Danver, Colorado.



Senate Document
No, 593.
Gist Congress
Second Session.

National Monetary Commission

in connection with



Pages 289-290-291:

"The first rank in this line of investment is held by those
bills that are regarded as prime discount bills throughout the
German discount market.

Such are the acceptances of the six

foremost Berlin banks * * *.

According to the regulations of

the Berlin Bourse (similar ones prevail in Frankfurt-on-theMain), these prime bills (or private discounts) must be payable
in Berlin or at a place where there is a branch of the Reichsbank, must be at least 5,000 marks in amount, and run not less
than two months nor more than three months.


and quoting actual market rates of private discount, no difference is made between sixty-day and ninety-day bills




The Reichsbank, however, does not buy bills in Berlin below the
Reichsbank rate of discount."

(The Reichsbank rate of discount

is the bank rate - not the private discount rate.)


Draft of letter drawn by
Mr. Warburg for the F.R.B.
of N.Y., addressed to Mr.
Manuel M. De Ariondo, Pres.,
Banco de la 7,Tacion Argentina.

My dear Sir:

Upon his return from his trip to the Argentine, Mr. Warburg informed us of the conversations thich he had had the pleasure of having with
you during his stay at Buenos Aires, and we have ever since been waiting for
an opportunity of entering into a correspondence with you for the purpose
of establishing reciprocal relations between the Banco de la Nacion Argentina
and the Federal Reserve Bank of New York.
The amendments to the Federal Reserve Act passed by Our Congress

in the fall of 1916 permit Federal Reserve Banks now not onlj to establish
agencies in foreign countries, with the approval of the Federal Reserve
Board, but also to open reciprocal accounts for those institutions that will
act as agents for the Federal Reserve Banks.

We are therefore now in a position to enter with you upon negotiations upon a basis of reciprocity.
There would appear. to be two ways in which our banks might be useful

to each other and of service to our respective countries; r
One is, our placing at your disposal our discount facilities.

American bankers' acceptances drawn in dollars on our national banks, trust
companies, or private bankers, are being used freely nog to finance our own
trade with your country and to a certain extent, our acceptances are being
used also for the financing of the trade of other nations.
.- should be happy to enter into an arrangement with you under which

we should secure for you a discount rate good for bills on arrival of the mail,
within a given time; and we should be happy to stipulate these discount rates


as low as possible to encourage the free use of our acceptance facilities in
the Argentine.

We would cable you our rate and it would remain good until


You could draw on us by the same mail lyd which would be sent

these remittances to us, or we could, no doubt, arrange to remit to you against
these remittances to England or France or other points where you might desire
to direct remittances against your balance with us.

If you should wish to

draw on us by cable pending the remittances of acceptances, we could probably
find some method by Which this could be done, adopting such way as would enable

us in doing so to remain within the limits of the legal powers given us by

The account would be free of commissions; on the other hand, we
regret to say that we are unable to pay interest on balances.
We should be glad to hear from you as to Whether facilities of this

kind would be of service to you, and upon what conditions you would open for
us an account with your bank.

The other way in which our banks might be of service to each other
is in dealing with gold.

At the present time the remittance of gold from here to South America
is rendered difficult both by extraordinarily high insurance rates and by the
limited amounts that can ba.sent, in view of the insufficient number of ships

sailing from here to South America, and by the limited amount of gold that can
be taken by each individual steamer.

It has occurred to us that we might be of great help to the importers
purchasing goods in the Argentine if we could make mutually satisfactory arrange-

ments by which we wuld undertake to accept gold for you (in gold certificates
or in actual gold) and keen it for you ear-marked under lock and key as your

We have made similar arrangements for another Government bank and we

are charging this bank at the rate of

j per annum for this service.

We would

undertake to safe guard this gold with the same care as our own, without being
liable, however, for acts of superior force or consequences of fire or burglary.

We might mention, however, that our vaults are the newest and the strongest that
human ability can devise, and that they were finished only last week and are now


hundred million dollars of lawful money.

As a matter of fact, we

have been waiting for the completion of these vaults of our own before writing

The arrangements for the safeguarding of this gold as your own undoubted

property could be made to suit yourself.

We could, if you preferred it, put the

gold under a double combination, which could be opened only by us in conjunction
with another party, representing yourself - a trust company or a representative
of the Argentine Government designated by you.
We believe that if gold could be handled in this manner it would not
only be a great help to the development of commercial transactions with your
country, but in addition, it might be a profitable transaction for yourself.

Because the present high charges offer so large a margin that if the gold were
kept in New York until normal conditions were reestablished on the ocean and
until normal freight and insurance rates were reestablished, it would ultimately
be shipped at a much lower expense and you could count for yourself on the
corresponding profit ultimately coming to you.
If there are any other ways in which we can serve you, we should be
glad to receive any suggestions from you and we assure you in advance that it

would be a pleasure for us to do anything within our power to establish with
you relations mutually agreeable and profitable.
I beg to remain, dear sir,
With assurances of high esteem,
Very truly yours,

Mr. Manuel M. De Iriondo,
President, Banco de la Ilacion Argentina,
Buenos Aires, The Argentine.




WAsHiNom2 1917
January 30, 1917.
Dear Strong:

I have your various letters of January 26th and 27th
and am delighted to see from them that Dr. Sewall is so
much pleased with your condition.

That is the best news

that I have received in a long while.
I am inclined to think that the Starek dope acted
as a stimulant in your case.

That experiment proved,

anyhow, that if a man is a scoundrel, you need only give
him rope enough and he will hang himself.

What really

happened is best summed up in this: Apparently he got interested in some mining stock; that he got his financial

affairs apparently balled up; that he introduced some
friends to some of the National banks, which made loans
in their own names., but the suspicion is that they were

only dummies -'at least that he was interest in these loans.

He did not attend to business, came late, and was not in a
condition to attend to his job while he was there.

He ap-

pears physically to be in bad shape and highly nervous.
I give you this story as we received it.

He got a leave

of absence and it was suggested to him that he would better
resign, but he insisted in delaying and so finally was

Whether or not some of his Republican friends



will not try to raise a hue and cry that he was removed
for political reasons or to create room for Malburn, remains to be seen.
been in the papers.

Some indications to that effect have
We have not yet acted upon his

directorship because we want to give him a chance to resign.

If he does not we shall have to remove him.

is a shame that that was not done a year ago.


Much good

might have been done in between; but there is no good in
crying over spilt milk-,-rather be glad that the end has

I am glad to learn that you feel like coming back.
But do not get it into your mind to come too soon.


Aiken here so you will feel certain that matters are being attended to,as they should, and then take your time.

Half a year more or less may make all the difference in
the future.

If you take your time and go easy, there is

lots of fun ahead of you.

I say this even though nobody

wishes more than I that you could be back at your old desk.,i;

As to our correspondence,

I really think we ought to

drop the argument, because I do not think we are getting
very far with it.

We are not talking about the same

thing, although we appear to be very near together.



The difference is this:

At the official bank rate every-

thing is being taken that the bank takes at all; at the
private bank rate the same rules apply to Government banks
as to private banks.

I cannot see

you are drawing between transactions on the street and
with the street in that respect, because when Government
banks buy at the private bank rate they are dealing on the
street every bit as much as every other bank.

You over-

look the point that I made and that is, that there were

years in Europe when some of the Central banks had a
private discount rate; and the minute they have that they
are observing the same rules.

The difference between a

private bank rate and a bank rate is that the private rate
is the one at which banks do not buy broadly.

We are now

developing the rules for the street and should not simply
take the course of the least resistance and let things go
at sixes and sevens.

Everything you say.,about the bill

brokers that melt their bills at the Bank of England, etc.,
is done at the bank rate, not at the private rate.


have in mind mainly the volume of bills and you do not
want to do anything that interferes with the development
of the bill market.

fere with that a bit.

But what I want to do does not interWhen thoir bills are beinc, sent for



discount they are ninety dayslong.

The people who are

affected by this are only the New York houses andthe
acceptance firms who hold on to their bills and do not
sell them when they begin to run down.
fellows that I want to get at.

It is these

If there is anything

that hurts our discount business, it is that the bulk of
our acceptances just now is being dicounted in Europe at
rates which amount to, in some cases, over six per cent,
by your N'w York friends.

(The -European drawer has no

interest at all in our discount rates and he does not

worry about it whether we make it a rule that our private
discount rate shall apply to paper that has to run between
forty-five and ninety days.

I think it is a mistake to

want to keep the private acceptance rate pegged at' one

If you do that the dealers lose interest entirely.

Our acceptance' rate has moved between 2i and 34 for cur-

rent acceptances.

It is just now back to 24- and 2i, even

though we have not bought anything these last weeks and have
consistently permitted our holdings to run down.

This is a

pretty large order for our poor Federal Reserve Banks at
this time; but they are doing their part nobly - except
your old friends at Chicago, where there is again an indication of getting nervous and buying some acceptances, at
least, in order not to lose their beloved earnings.



You might be interested in a memorandum which I

wrote today for the Board and of which I inclose a copy which please tear up with the rest cf my correspondence.
I believe that very shortly we shall have an issue
of short U. S. Treasury bills, and that

ill both bring

steadier rates and at the same time an opportunity for the
Federal Reserve Banks to invest some money.
I am sending you a copy of the amendments as they
passed. the House Committee.

The reserve requirement

amendment makes Federal Reserve notes reserve money, and
so you see - if the Senate will only pass the same amendment, as I hope they will - we will have won out on that

I told you that we were moving in that direction,

but you, old skeptic, did not believe me, as usual.
On the other hand,

I am mortified that our gold tote

issue amendment was again knocked out.

But having got

as far as we have now, it is only a question of patience
and perseverance and that will fall into 'our lap, too.

Pending that, we have to go on accumulating gold through
the round-about present process.
Section 22, as amended by the Committee is bad.

wrote Glass a stiff letter this morning about it and he
came in just now and said that they would fix that up to
suit the Board.

That will be a great help.


On the whole, if we can get what is on their cards
now, I think we shall be very lucky.

However, I am

afraid that by the time the bills go through the House
and the Senate Committee and the Senate, there will be
some more shaving.

The foreign exchange situation is very bewildering.
On the one hand England does not permit us to send gold

where we want to; on the other hand, with a country like
'Spain we cannot get any cooperation because they are glad
to have dollars stand at premium because they think that
is good business for them.

They apparently do not see

that that reduces their exports.


We asked the Spanish

to send a cable and they did not want to do it;

but we have cabled through the State Department, though
we have not yet 1.:eard from the other side in reply.

As soon as ,I get time I shall write a chatty letter
in long hand.




With no more for today, 'I am

Always si

Benjamin Strong, Jr., Esq.,
4100 Montview Boulevard,
Denver, Colorado.

y yours,


RE1-ORT - P.M.W.

Jan. 29, 1917.


On January 19th the Governor addressed the Federal Reserve
Banks as follows:

"There is general agreement that this continuous
and rapid growth of deposits and loans is not without
dith the present ease of money, it would apdanger.
pear, therefore, in the opinion of the Board, to be a
wise policy to permit the earning assets of the Federal reserve banks - which combined amount to about
$206,000,000 - to be reduced by from forty to fifty
millions, and thereby to absorb, temporarily at least,
an equivalent amount of the newly imported gold. Of
course such a policy must be carried out in a careful
and tactful way, and no definite amount can be fixed
at this time to which the investmants of the Federal
reserve banks should be reduced. Changes in a)nditions may occur at any moment, which may render it
necessary to reverse this policy, or to apply it'even
more radically than is now contemplated. During the
past few weeks Federal reserve banks have operated
along these lines with very good results, and acceptances and rediibounts have been reduced by about
000,000 since they reached their highest point, early
in December. 30 long as the present ease continues,
there sholild not be any difficulty in continuing the
the present policy. By permitting the open market to
absorb the bankers' acceptances, the additional object
is gained of training the member banks to deal in acceptances and to become accustomed to investing in


Total Earning Assets.
January 18th


Rediscounts and Acceptances





Since Dec. 29th
Rediscounts and Acceptances


Of which:

Nev York


Phil a.

San Francisco

New York


41% (about)

Bills and Acceptances maturing
Within next.15 days
Bet. 16 & 30 days



The question is, shall the Federal reserve banIcs continue

their present policy for another week or two of letting the
open market absorb the acceptances at the prevailing market

rate of __%;

or shall they invest their money at this 4.ow

rate in order to secure earnings?

- 3 -

ior the sake of protecting the development of the accepting business their purchases are not required at this time.


the sake of developing an open market and the practice of member
banks to invest in acceptances, it would be better that they
should stay out and not depress the rate
prehensive purchases on their part.

or acceptances by co

From the point of view

of carrying into effect the policy which the Board has championed
publicly, it would be consistent for the Federal Reserve Banks
to do their share in preventing gold from being absorbed too rapidly or too extensively as the enlagged basis of an enlarged credit

It would appear that, for a week or two, the Federal

'Reserve Banks could well afford to continue their preBent policy
of not following down the low money rates buying acceptances at 29



and, by doing se, increasing the downward tendency of

The mere fact that the banks would be withdrawing about

00,000,000 during the;next two weeks would have some effect, and,
moreover, it is generally expected that time money rates will
after a short while show a little

stronger tendency.

We ought to consider, too, that plans of the Treasury in
issuing a large amount of short term notes will, in due course,

have a strong effect upon the money market, and that, with the
hoped for cooperation of the Secretary of the Treasury, the
Federal Reserve Banks would then become important facotors as a
balance wheel, Which would mean temporary large transactions for

Incidentally, the money withdrawn could be aaployed, to

a certain extent, in buying short term Government notes.



It follows, therefore, that a consistent policy of Federal

Reserve Banks wo ld make for a continuance for a weelvor two
It is obvious, however, that

of the plan at present in force.

a plan of this kind, which is based upon the public interest
rather than that of the stockholders, should be followed as far
as possible by all banks alike.

It would hardly be fair if

nine or ten banks carried it out and two or three banks would
continue to buy at no matter what low rates in order to keep
their funds invested.

It is suggested that the Governor place himself in com-

munication with those banks which do not cooperate on these

lines and explain to them the Board's point of view in this
connection, inviting their cooperation.
Respectfully submitted:

(Signed) PAUL



February 15, 1917.

Dear Strong:

The enclosed memorandum came to me from Denver.
I have not read it, but it looks to me that it was
written in a pretty high altitude and ought to go back to
It is beyond my plane.






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sq.,Aeu_4, z

Benj. Strong, Jr.,
4100 Montview Boulevard,
Denver, CO1 o rad 0



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FEB2 6 1917
February 20, 1917.
Dear Strong:

Mr. Jay has just left me, having come here for a short

I hope, satisfactory discussion concerning Banque de

France affairs.

I was delighted to hear through him about the good news
that Mr. Curtis brought back concerning your health.


150 pounds that you tip the scales with now look pretty good
to me.

Keep it up, old man!

You will have to put on quite

a number more before you will be able to complain about an
overdose of fat.

I have your letter of February fifteenth, and have
read it with a great deal of attention.

There was a mis-

print in Section 22 of the amendment as you received it.


section now permits a reasonable fee for an attorney, at the
same time permitting an attorney to borrow from his bank upon
the normal terms that any other borrower may enjoy.
gets the same interest.

He also

You may remember that, under the old

section, the language was such that an attorney-director
could not even receive a fee.
I believe, flexible enough.

The expression "reasonable" is,

You certainly would not argue

that he should receive an unreasonable fee.

Of course, any-

body can bring business to a bank and get any kind of compen


sation he pleases if he does not act as attorney for the bank,
or if he is not a director.

I do not believe that Section 22,

as amended, will give us much trouble even though the language,
as it now stands, is not that proposed by the Board.

It has

the great advantage now that it frankly permits directors to
contract for loans with their own banks, a condition which

hitherto, under the language of the old Act, was not provided
forIbut was permitted to slip through by the Comptroller
wherever he thought well of it.

In country banks it was con-

sidered as a pardonable thing, while with the big banks it
was considered a crime.

The law now creates definite and

clear conditions in this respect, which is great progress.

The days of grace were also omitted through oversight on
the part of the4 rinter, and I think Governor Harding telegraphed you that this had been remedied some time ago.
The clause requiring the Federal Reserve Bank to appoint
correspondents in foreign countries was not suggested by the

personally I disapprove of it, but ihasmuch as the

power extends only to requiring a board to appoint correspondents and the board cannot force the bank to operate after the
correspondent has been appointed, I do not see that there is
much harm done by it.

Mr. Glass brought in this amendment at

his own suggestionrand it wont take you long to guess from
where the inspiration camej


As to the Assistant Federal Reserve Agent, I am in accord
with your criticism.

We hope in conference to get in an entire-

ly different clause, of which I enclose a copy, which would
create a joint control by the Federal Reserve Agent and the
Bank and would enable us to re-shape the power of the assistant.

We tried to secure the other changes that you suggest,

making the bond run to the Board and the Agent responsible to
the Board, but, Strange to say, the4committees did not approve
of that.

They wish the Federal Reserve Agent to assume full


It is easy for you, being one mile high, to take a bird's
eye view and suggest what should be done, but it is a very different thing to get what you want.

At present we are trying

as hard as we can to put some steam behind the two committees,
and behind the Rules Committee of the Housefin order to get
the amendments considered and acted upon before Congress adjourns, which is less than two weeks off.


that the country bankers, under the leadership of Mr. Thralls,
have gotten behind some members,and tried to tack on an amend-

ment which would permit the country banks to charge 1/10th of
1% for exchange.

Glass is absolutely opposed to this.


far there is some danger of a deadlock.

trying to block legislation, wants such an amendment to be
added, and Glass swearing by all the saints that he would rather let the amendments go to pieces than to permit such an

The Ki


The Board has taken the point of view that, while


it sympathizes with the Glass attitude, this exchange charge
is not important enough one way or the other to block the
amendments, and that, while the Board does not approve of
this charge, still it would not feel that the granting of it
would be fatal; but that it would be fatal, however, to lose
the amendments at this juncture.

I am less worried about the House than I am about the

In the latter there is no leadership at all and it

would take quite some strategy to get the amendments on the
We are doing all we can in this respect.


final work will have to be done at the conference.


If we can

get the amendments through we shall have to see to it that
the finishing touches are put on there, and we ought then to
bring pressure to bear to get the note issue amendment through
In some form which will permit the issue of notes against gold
or paper.'


I am holding my breath in this respect and in many

The next fortnight will bring interesting develop-

ments in many ways, and I wish sometimes that we had those
two weeks behind us.

However, there is nothing to do but to

waitr as far as we have to and to push as far as we have to.

Aiken was here for a day last week but it did not look
to me as if he were reacting favorably upon the New York

I am frank to say that I am much disappointed

and that I still hope that somehow or other a way can be


found to solve

this problem.

He said

he had written you

that he would let me know his final conclusions when he



again from you.

With warmest regards and best wishes, in which

family joins me, I am

Benj. Strong, jr., Esq.,
4100 Montview Boulevard,
Denver, Colorado.

incerely yours,





(Suggested substitute for the last paragraph of H.R.20661)

Upon the recommendation of the Federal Reserve Agent, the
Federal Reserve Board shall appoint one or more assistant Federal Reserve Agents.

Such assistants,

who shall

be persons of tested bank-

ing experience, shall perform such duties asmay be assigned to them
by the Federal Reserve Agent and shall also have power to perform
the duties of the Federal Reserve Agent in the absence or disability
of the Federal Reserve Agent.

Assistant Federal Reserve Agents shall

receive an annual compensation to be fixed and paid in the same manner

as that of the vederal Reserve Agent and shall give such bonds as the
Federal Reserve Board may require.


Substitute for the last paragraph of Section 1
of House Bill 20661

Upon recommendation of the Federal Reserve Agent the

Federal Reeerve Board shall
reserve agents.


appoint one or more assistant Federal

Such assistants, who shall be persons of tested


shall perform such

duties as may be assigned

to them by the Federal reserve agent and in the absence or disa-

bility of the Federal reserve agent may be designated by the
Board as Federal reserve agent, in which case he shall be vested
with all powers and shall assume all the duties of Federal reserve agent during the period designated.
Assistant Federal reserve



shall receive an

nual compensation to be fixed and paid in the same manner as
that of the Federal reserve agent and shall give
the Federal Reserve Board may require.

such bonds as





That all Federal reserve notes and all
gold, gold certificates, lawful money and eligible collateral sedurity issued to or depaisited with any Federal reserve agent under the provisions of the Federal Reserve Act shall hereafter be held by such agent, under such rules
and regulations as the Federal Reserve Board may
prescribe, in the joint custody of himself and
the Federal reserve bank to which he is accredited
Such agent p.nd such Federal reserve bank shall be
jointly liable for the safe-keeping of such Federal reserve notes, gold, gold certificates, lawful money, and eligible collateral security. Nothing herein contained, however, shall be construed
to prohibit a Federal reserve agent from depositing gold, or gold certificates, with the Federal
Reserve Board to be held by such Board subject to
his order or with the Treasurer of the United
States for the purposes authorized by law,





February 27, 1917.

Dear Strong:

I have your letter of February twenty-third, and notice
that your mother and your sister will be coming here.


will give me the greatest pleasure to make them comfortable,
not only in the gallery of the Senate, but also at my house
if they will let me.

I expect they will come before Congress

.adjourns although it looks just now as if an extra session
were mighty possible.
Today is our critical day.

While I am dictating these

lines it is hoped that our amendments will be passed in the

If they do not pass this morning, I think our chan-

ces are gone unless we get an extra session, and there I believe we will have almost a harder time to get the thing diecussed than we are having now.

I was glad to receive your letter of

he twenty-first

telling me of your trip to Arizona, but I was sorry that on
your return you had some little trouble which I hope by now
has been completely removed.

We telegraphed New York yesterday that the Board approv-

ed their application for establishing an agency with the Banque
de France and the public announcement will be made Thursday.
Jay telephoned expressing his pleasure at having the matter

arranged in this manner.

With kindest regards,

c-V 6



Benj. Strong, Jr., Esq.,
4100 Montview Boulevard,
Denver, Colorado.



March 2, 1917.


Dear Strong:

I have your letter of February twenty-sixth and have
read it with much interest.

You are wrong about the Assistant Federal Reserve Agent.
The amendment reads now that the Federal Reserve Agent
shall appoint his assistant with the approval of the Board
and that the Agent shall be responsible for his assistant.
We have had no end of telegrams and letters from Mr.
Perrin, who does not want this responsibility.

He wants

the whole responsibility of appointing the assistant thrown
on the Board, so you see that the Board is subject to very
divergent views eXpressed just as emphatically as your own.
I have been communicating with Aiken and I hope that
he will come over-here Monday or Tuesday, although he has
not definitely said so.

I want to try my luck with him

and urge him to go out to see you.

The amendments appear to have lost their chance of being passed upon.

There is a complete lack of leadership




Several attempts were made to bring them up but

there appears no doubt now that an extra session will be
necessary because Congress cannot get through at the rate
at which it is moving now, and the matters still pending


are of too great importance to be disPosed of in a jiffy.

Cera 4,1








truly yours,

Benj. Strong, jr., Esq.,
4100 Yonttiew Boulevard,
Denver, Colorado.




Dear Strong:

March 12, 1017.

MAR 16 1917

Saturday (day before yesterday) your dear Mother and
your sister lunched with us.

We had a very good time to-

gether and talked, as you may guess, quite a little about
the truant in Colorado.

Your Mother is looking very well and appears to be
interested in everything that is going on.

I secured for

her two seats in the Senate gallery for today, but that
august body has adjourned for today and I suppose your
good Mother will have to wait for a few days.


Unfortunately, it has become necessary for the louse-to come back soon.

I say "unfortunately" because it does

not augur well for general conditions.

On the other hand,

for OUT amendments it is distinctly advantageous for we

now have again a fair chance of seeing them passed in the
near future.

Thank you for your two letters of Marsh fourth and

You want to have my judgment about the proposed contract with the Banque de France.
shape and have nothing to suggest.

I think it is in excellent

You know my general

feelings about the matter which I have not changed; that is,
while I believe that the mutual gold arrangements are admir-



able and will probably be of benefit in the future when nor-

mal conditions prevail, I do not believe that for investments
in bank paper the two government banks - theirs and ours will work out to be the best instruments.

to be seen after peace will have been established and after
we get going.

I am glad enough anyhow that the thing has

sufficiently advanced to get out of the frying pan and out
of your mind.

I am glad that you are pleased with the growing amount
of gold controlled by the system.

To me it is very inter-

esting to see this illustration - which for you and myself

is not necessary - that we increase our gold holdings at a
time of general unrest when people normally think that
they should be reduced.

But the fact of the matter is that

if we handle our problem right there should be an increase

of gold whenever there is a movement by depositors from one
bank to another; that is to say, Bank A needs currency and
asks for Federal Reserve notes because depositors withdraw
and Bank B receives the money withdrawn and deposits the

excess cash by an indirect process in the Federal Reserve

You ask if the Board's original ruling that gold held
behind notes could not count as an asset originated from an
opinion of counsel.

We have had no formal opinion, but in-




formally I have asked and they only confirmed my own view
that that could not be done.

Quite recently, when the amend-

ments were being discussed, there was quite a stir in Congress
when some of them tried to create a big row because they
claimed that the Federal Reserve Banks were doing something
illegal in locking up this gold which, to their minds, ought
to be in the hands of the people.

They saw in this whole

process a conspiracy to bring about contraction.

We were

glad enough to get these fellows quieted down and I would
not dare to go much further without authority in law.


I am hopeful that the amendments sanctioning our note issue
may now pass.

Mr. Glass expressed himself the other day as

much more mildly inclined toward the same and the Senate is
strongly for it.

Don't you fuss about your investment account.


are extraordinary times full of possibilities which nobody
can foretell.

Whether or not you have a few million dollars

more or less invested does not frighten me one way or the

I would not object to a $50,000,000 investment if

it came to the bank as the result of a proper policy.


is difficult to make it clear, but what I mean is that it
is not the investment that counts just now but the proper

We have during the last quarter very successfully

maintained the policy that we are in the market when we
are needed but that we are not in the market when we are not



That has had the effect of smoothing over the rough

places and that is the very thing we want to do.
kept the rate at about 3% for acceptances.

We have

We have discour-

aged buying warrants, which I think is correct in times like

Inasmuch as the4banks have been going into the market

pretty heavily and absorbed all the floating acceptance material, our investments have reduced a little during the last
week, but you will have noticed that while our reserve position has been strengthened during that period the position of

the New York Clearing House members has been weakened by
$34,000,000, so you will probably see that in the coming week



the position will again be reversed.

z",,evveA4b.i: A




be that


ca,-(47 o w iwyt 744,4/xy.

as it may, what I expect is this, that the United States Government will have to appeal to the market pretty substantial,"
ly in the future by an issue of one-year bonds aftd by the

sale of long termbonds.
lowest ebb.

The Treasury is at present at its

In the present banking situation some hundred

millions of dollars will have to be paid in to the Treasury
in payment of Government bonds or notes and no doubt it will

affect the position of the member banks, particularly in New

At the time when these payments will be made, it will

be necessary for the Federal Reserve Banks to have a low rate
for acceptances and a low rate for fifteen day paper so that


whatever goes into the Federal Reserve Banks in excess of what.

the banking situation can stand will have to be returned by
I have no doubt at all that

way of discount transactions.

that will result in very welcome and ample earnings for the
New York Bank.

I do not think that we want to be guilty at

this time of encouraging too low rates, and it looks to me as
if at present, with the 35 rate, we were occupying a pretty

We are getting in and out according

good strategic position.

to the relation between member bank reserves and our own
Furthermore, if by the

banking strength just as we should.

first of June our amendments should have been passed and
reserve agent balances will have finally gone out of existence, and if by the end of June large demands for income tax

will have to be met, you will find that there will be enough
requirements to leep us busy.

7 yours,

Very t



/ ;/



a-6wr U.






Benj. Strong, jr., Esq.,
4100 Montview Boulevard, /e-t,,t_
Denver, Colorado.




kr-if 6 A/afee61"z,


tat() ,



MAR2 7 1917

March 19, 1917.

Dear Strong:

I have your letter of March eighth, concerning the

Banco de la Nacion Argentina, and when in New York last
Thursday and Friday I had occasion to discuss its contents with Messrs. Jay, Treman, Woodward and Peabody.

The points in your memorandum which need discussion
are item 4, on page 2, and item 6, on page 3.
As to 4:

I do not think that, speaking quite gener-

ally, it is advisable for Federal Reserve Banks to keep
accounts in foreign countries in foreign currency

and to


buy taper payable in such foreign currency except in England and possibly France and later on Germany.

To my mind,

these foreizn accounts ought to be for two purposes: one,
for the mutual gold, facilities that we can afford each

other and about *hich I need not go into details; and, two,
the protection of our gold situation by maintaining port-

folios of foreign bills of strong gold countries or suCh
countries as are likely to draw upon us for gold in case
of adverse trade balances.

But only such countries can be

taken into consideration where the financial stron7th and
the obligation to pay in gold is of undoubted character.

While it may be necessary or advisable to keep very small


in foreign countries in order to

accommodate our


customers, I do not think that we want to operate very extensively in foreign exchanges and maintain large portfolios in foreign exchanges in what I might call the minor

The history of Argentina is not sufficiently

free from doubt as to make me think that it is nessary or


for us to put large amounts into Argentine cur-

rency even though I am strongly convinced that Argentina
will be one of the creditor countries of the future.


will depend, however, upon their

ability to


keep in

leash their extravagances which, in the past, have been

their one great danger and which, in case of continued
prosperity, might easily again gain the upper hand.

As to No. 8: You fear that we drive our own banks out

business by

permitting the Banco de la Nacion to buy

American dollar bills for us in Buenos Aires.

I have given

this question very careful consideration and I have reached
the conclusion that such fear is unwarranted.

you control the thing


First of all,

by the rate which you offer

for prompt forward delivery to the Banco de la Nac ion.


apprehensions would be justified only in case you would of-

fer mite unreasmablyjates to your correspondent.

It is,

however, of the greatest importance that in foreign countries
there be established a reliable dollar exchange market.


have been in South America and all over the one thing that
was quoted to me as obstructing the larger development of


the use of

American acceptances was that the market for

these acceptances was nil; that if the City Bank did not

buy its own

acceptances other purchasers were not reliable,

and, frankly, between you and me,

the discount

in some

cases I found

rate that the City Bank offered was so

high that the natural advantage which the dollar exchange

should have/with/fa3.i acceptance discount rate as against

in London wasalmost completely wiped out.

It has been

different in Buenos Aires, where at least one of the British
Banks, the British Bank of South America, is in the market
buying these bills for


The Bank of New York, N. D.

banks in



Furthermore, the German

South America were buying our acceptances and re-

mitting them to their North American correspondents.
if we want to develop a real acceptance market



if we

want to get away from the rotten habit of acceptors handling
their own acceptances there must be purchasers


the market.

The City Bank is not likely to assist its own customers to

rediscount their paper with the branch of the First national
Bank of Boston, and, vice versa, the latter would not welcome
the paper of its customers going to the City Bank's branch;
so they both would rather be likely to buy their own acceptances, and the consequence of it is that the drafts come to

New York and Boston with only one foreign name in addition
to that of the acceptor, and if ever anything should happen


/toourAmerican accepting
you do

in trying to

banks we would have a nice how do

recover in

the Argentine

(and a


condition exists with respect to our French credits!).


is a much better and healthier growth


the drawer


South America can through a broker sell his

and the latter remit it to

paper to the Banco de la Nacion
New York.


the broader tiax basis for the Ameri-

can dol1ar exchange would help the City Bank and the First

National of Boston to introduce dollar acceptances as against


St Cr





ea-4 GL.a.,,,L

There are three or four banks in all these South American
cities competing for Sterling paper and the acceptors rarely

buy it themselves, and I am very anxious to see similar



ditions developed with the Argentine bank-4 .The discount of

dollar acceptances is not the main revenue for these South
American branches.

They all get


and they make advances on local loans.

for accepting

But I am not all at

all sure that it would not at times be quite a welcome facility for them that their customers would be able to dispose of

the acceptance in other quarters than with the accepting

You appear to have in mind that this arrangement

should work only as an emergency measure.

It is in your hands

by fixing the rate to make this arrangement an emergency one
or a regular


I would hope

very much that you would make

it so that, without unduly beating down the branch banks,


there should in effect be an active market with the Banco
de la llacion.

It is by far the most imortant concern of

the country and it would greatly help the prestige of American banking if this bank would be as regular a buyer for
dollar exchange as for Sterling.

Inasmuch as we could not

accept for the Banco de la Nacion it could not compete with
two branch banks in the granting of


and that is the one thinc:. where I think competition on our

part would be justly resented.

As to making the enormous resources of the Federal ne.

serve System available for the competitors of these two
branch banks, I think you exaggerate the point.

probably limit

You would

the amount of acceptances that might be on

the water from time to time.
As to the ;.53 branches and agencies, soma of them are

in wee bits of places and would not have very much of a bearing on this business, which is done priiiiarily in the few big
cities of the country.
The Banco de la /Taxi. n has connections with the Guaranty

Trust Company and other banks and has large balances with
some on which it receives interest.

As to special safeguards, you know my views about these.

Before I would leave large amounts of gold ear-marked in any
foreign country I would want to see ratified the treaties


which I have written you quite frequently.

That is



one of the reasons why -I regret that, in your anxiety to

perfect the contracts


the Bank of England and the Banque

de France, this phase of the question was completely overlooked.

I do believe that we ought to have international

treaties in which quite a number of nations would be the
joint contractors and become the joint


for gold

kept by one country in another.

As to buying Sterling bills in South America, I doubt

whether you want to do this at this time, seeing the point
of view that you have taken that you would buy Sterling

bills only when

guaranteed by the Bank of England.


normal conditions again prevail I think that it may be necessary for us (and at times may also suit our book) to permit

Banco de la

Nacion to send us Sterling bills.

I would


',would not

sayfas a matter of principle
exclude this


but I


nothing can be done in

that connectionsat this time.
I hope that I

have answered all your questions.


there is anything else that you want to know, please advise

I am delighted to hear from Aiken that you are
so well and have again increased your weight.

Bully news!

Keep it up, old man.
With kindest regards,
Always ve-


Strong, jr., Esq.,
4100 Montview Boulevard,
Denver, Colorado.


sincerely yours,






Argentine Republic.
_rch 14th, 1917.

Dear Mr.

Weir lug:

During a conversation I had with Senor
Corneille, he brought up the question of the Federal Reserve
Bank having asked the Banks of England and France to act as
its Agents, in their respeative countries, and asked if it
might be possible that the Banco de la Ramion be appointed
in the same capacity for this country.

Evidently the matter had been mentioned
at a Board Meeting, and the Directors of the Banco de la Nacion
seemed to hope that the same courtesy would be extended to
If such a move should be made it would
undoubtedly cause an excellent impression in this country
and would no dobbt assist greatly in creating more friendly
Furthermore, the Banco de la Nacion are
desirous of making an arrangement by which their gold reserves
in. the United States could be held in custody by the Federal
Reserve Bank.
I am taking up this matter with you, at the
indication of Senor Corneille, in view of the fact that delicacy
does not permit him to do so direct.

Trusting that you will do yhat you can in
the matter.

With kindest regards,
Yours very truly,

Paul E. Warburg, Esq.,
18th Street, N. W.
Washington, D. C.



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March 29, 1217.


ear Strong:

I am in the throes of a speech and send you an
advance copy herewith.

Of course, whatever I say about the issuing of
Government bonds and our entering the war is entirely tentative and I shall have to fix up this speech
in that respect at the last minute to suit the occasion according to what the President will finally
say on April second.


incerely y

a-A 4(



Benj. Strong, jr., Esq.,
4100 Montview Boulevard,
Denver, Colorado.


Third Drat t




Aciareets by

before the



April 7, 1917.


Third Draft

Mar. 27,1917

It is just about twenty-five years ago that I came to the
United Statea for the firet time, and, taking things in the sequence of their true importance, I came to aee Chicago first
end Nie York afterwards, in ihentally coming from Jepan. I
helve since been a frequent vieitor to ttie wonderful city, and
every time I came back I have admired its continued growth as

one of the most important centers of this country, not only in
comreerce end trade, but as a leader in civic thought. One of
my vieits hare etande out eitn particular clearnese in my memo-

ry. That le *ben I --me here in 1907, as a member of a coeeison delegated by a convention of Chambere of Comeeree and

Boards of Trade, in order to aeeist in the formation of a Busineee Men' e League for the promotion of better understanding of
finenoiel reform, a moverent et that time atill in its swaddling
This eork W30 taken up by a group of your leading citizens
eith that intelligence sad energy which are characteristic of
your city, end if our country was able to pass through tbi last
,atekr/f41, the
to meet
finanoiel dieturbance
three years without any
phenomenal requiremente made upon us, and if today we find our-

elves fully prepared to oerry still greeter burdens, these men
eAy feA that they have done their full share in bringing about
this happy reault. For without the comprehensive cempeign of


education twat preceded the enactment of the Feth:ral Reserve Act
so far-reaoning a reform could not have been carried out in
,:5z,r eplet."
proper time. I am particularly grateful fordikthe great privil--(a'AteeAGA,....
ege of addresing the business men of Chicago, £. It gives we
a w,lcome opportunity of paying tribute to the
citizens h-TrT-F27711.4 in this great or of monetary reform.
Those of Us who know the Bible remember the chapter on the


Tor of Babel. Tte story of the world's first skyscraper is
the parable of the conoait and do-Anfall of mankind. Confident
in his ability to overcome any difficulty, man undertook to
build a tower that would reach the skies - and the world. fell

into general confusion, so that people ceased to be able to understand one another any longer. That is the orld'


And those of us who no their ola Greek tragedians cannot
help eeling that three hundred million people, iwaividually


abtorringfilie maimhtnd.k114- wore driven into this world contest
by powers stronger than they tnemselvesi by something even more
powerful than the will of th-Jir leaders, something it/311Mt4XS akin
to the Fate that the Greeks held to be superior even to the gods;
by the cumulative effects and consequences of political and
racial feuds of generations, of economic developments, and of
orioles and mistakes, to which all nations have contributed their
full share, and ror which none alone ia entirely to be held responsible.


The great calamity that hau befallen Europe would, indeed,

a.en in 1.1j nothing but a feeling of abject deapair of tte ultimate ability of the human race to rise from ite aboriginal
level, *ere it not for the confidence that out of this atruggle
there will come to the world a. greater liberty to man and a
loftier understanding of human rights; and furthermore for the
redeeming thought that it is the profound belief in the sacred

historic miseion of their respective races that makes gentle awl
peaceful individuals willing, for the greater glory and advan-

tage of tteir tribes, to endure and to inflict untold hardships
and cruel suffering.
In the latter respect our own problem and ideals differ
those of Europe. The race thougat is foreign to our country as a motive for making war. The United States iz not a one
race country; all the races of the world have brought to these
/shores the most characteriatic that la in their attain, and
merged Is it into the composite type of the citizen of the ne*
*orld. Viten the United States is foraed into a war, it can
never be a race war; it must be a 4l* for a principle, for liberty or for human rights. It cannot be a war by a race against
a race, but a wax by people holding to one principle against
people holding to another. Our greatest contribution to the
world's development is that ae are giving the living proof that


oommon aims and ideals can be stronger than racial differences.

When the die is oast there can be only one iuty for any citizen
of a: y country, and that ia to stand loyally by his flag. But
that luty is noubly strong with us, wev,1* any hesitation in that
rlaipaot would ahake the fundamental thought of the Union - qhich

Is: 'Oat its citizen muat he off the smaller racial or sectional thought, and subordinate it to the larger duty of loyalty
and ,allegiance to tne United State's. That does not mean that
we should oease to love the people who were near and &air to us
in the old countrites where our anoestors', or even our own,
cradle atood, or that we should forget tnat every one of these
old races has given us some great contribution towards the higher development of our own couttry. During OUT civil war many
a brave man continued to love his brother, even though he found
himself forced to fiolht him on the field of battle. But this

tragic conflict of affections could not shake his loyalty to
the cause he had espouse. And so it must and will be oith us.
When our country is forced to go to aar it haa'a right to expect
and demand of all its citizens a aillingnese to serve and to
suffer and to die. No matter what that may entail for any of
us, about our whole-hearted and uniueationing allegiance to our
flag, about our unheaitating readiness to do our duty, there
cannot be any possible doubt.


Tai duty may be performed in many ways.

It may be personal

service A.ith the colors or In branones directly allied thereAith.
It may be nr4anisak organizing and plaoini7 .at the nlaposal of
the Government the vrious industries of the oountry or leq-the
investors' prompt r sponse to offerings of loans issued in the

intrest of the cause.
In the particular oirumstances in which we\enter the *ar

the financial aid that our country will be able to render will
be one of our most important contributions, and I have no doubt
that in whatever *ay our Government will finally decide to appeal
to the Amerioan investor he 0111 respond it an alacrity and
in a apirit that 111 astoundth grid.

It is a profouni

tisfaction to all of us to know that

never before AAU this country financially as strong and as well
prepared as. it is today. During tha last three years our gold
holdings have increased by 5? from $1,900,000,0°0 to about

In 'iddition, as you are well aware, W4 A4.17d im-

proved Our position as against other nations 6y repurohasing
our on seourities and making. foreign loans to an amount approaching $5,00,000,000.
Moreover, by the establishment of our Federal Reserve System
have organized this enormous strength. We have brought into
effective coordination large portion of the country's banking
reserves. Te have regulated and brougnt about a weneral under


standing of modern methode of rediscounting. We have oreated
a new wide market for bankers' acceptances, ao that our member
banks now have an easy meene of reoouree to the Federal

Banks in ease they wish to replenish their reserves. We have
ready and available a vast supply of notes of undoubted
which are ready to be ieeued whenever there may be demand;
through the gold clearing fund, we have established a
of freest eAohange of balances between the various
parts of the
country. Not by any stretch of imagination could
ee perceive
any more the poeeibility of a gold premium beteeen the various
American centers or a currency famine as in years gone by.
our power to take care of ourselves there cannot be any doubt.
But in view of the unparalleled demands that may be made

us - demands that it may be our highest national interest and
duty to be able to iatiafy - ee should not omit to perfect our
financial machinery to such a degree as to give it the
possible strength. 'or thie reason the Federal reserve Board
has again recommended to Congreee amendments
having for their

object a still further concentration in the Federal Reserve
Banks of gold held in scattered bank reserves and a more

substitution of Federal Reeerve notes for our present unscientific and wasteful use of our rigid 100$ gold

certificate circulation

The committeee on banking and currency of both houses
of Congress


showed themselves in sympathy eete the general thoughts of the

Unfortunately, however, in the general tie
up of all legislative work at the end of the preceding session,
Congreee was unable to pass the desired legislation. It is most
essential for the best interest of the country that prompt action
be taken by the present Congress and it is most desirable that
public opinion assist the committeee on banking and currency in
eecuing early and averable coneideration of these amendments7
1,, t
, $ ec),
When many months ago I accepted your flattering invitation
and selected "Government and Business' as the topic or my tonight's address, I did not anticipate that between then and now
conditions would take so serious a turn that the relation of
Government and. Business in timee of peace would nardly be of interest to my audience. But just beoauee at this present juncture
a see so plainly to how great an extent a country's fate, its
power of defense and offense, depends upon its railroads, its
amendments proposed.

shipping, its industries, and its finances, and just because we
perceive so clearly how essential it is to secure consistent development and preparation in times of peace, it may be worth
while to stop and analyze the gradual growth in importanoe of
-far, ?wet eteet
the interrelation of Government and Bueineausatftee-to.aek ourselves:
"Hee government activity in business - generally Galled regula-

tion - come to stay?" "Is its future scope going to increase or
decrease?" "Can modern business succeed without it, and what is


the attitude of businase towards government and government towards
busineae and *hat should it be?" Theae are large questions wtioh

it would be intereeting to discuss in the light of the past, present and future, but we cannot do more tonight than dwell upon the
most eesential phases of the problem.
Some of then economic changes brought about in Europe
during the past century have been: The transformation of nations
aa oterk
oliticalyeenitiElliinto political and economic units;
the evolution from mainly agrarian into agricultural and indusen%

trial states; from decentralized, self-contained, and self-supporting individual activity, to strictly specialized vocation. This
eevelopment haa brought about wholesale production - on the part
of the individual and conmunit
leaking upon broad national
and intereational markets Ooth for the sale of emegodew excess proucts andA tha purchase of many eee-44.4 articles, of neceeeity and
lueury, lemmelet for their own daily life. It has resulted in making every country devndent upon the goods of otters.
When Napoleon I. overran Europe, a little over one hundred
years ago, England has tne only industrial or manufaotmeing state
in Europe. It %As the period of Goethe, and Germany was then a

multitude of small, separate, agrarian state, A country of "poets
end thinkers".

When Napoleon closed the continent againet England

he cut off England's trade in eueh articles as cotton And eoolen
goods, steel, coal, and glass, just as Germany has been deprived


today of her foreign trade. But he could never have thought that,
in so doing, he mightAsubjeotko famine a lerge continent which
at that time was essentially agrarian and entirely self-supporting
with respect to food-stuffs.
Prussia's humiliating defeat at the aande of Napoleon brought
forth in that country the theory of a "people in arms". Since
then, universal service has gradually been adopted by all the
leading nations on tae European continent, and at the same ti,e
moat of them have become, to a greater or less degree, industrial

nations. These two evolutions have been most important faetore
in the making of modern history.
Industrial development enables a nation to sustain within

its boundaries a larger population than it could feed from its
oen agricultural produots, provided it can trade with countries
that have a surplus of tnose products. Larger population and
larger taxing power means, in turn, the possibility Of creating
larger armies. But industrial countries are vulnerable if they
can be cut off from other nations which suppl/ them with food
and other raw materials essential for their daily life.
Here we nave in a nutshell the European problem, as it lay
at tne root of tae present oatastrophe, and we see the importance
of tae part played by business in this connection. Given the
wieked diviefon of Europe into two armed camps, of fairly equal


power, it is obvious that each aide must have watched witrireatest concern any change in
these three important items;
popuation, wealth and ocean control. Wealth is all the more important because the efficiency of modern armies and navies is,
to a much larger degree than in the past, depenient upon the

most modern and ample equipment, a dependence which in turn re-

aolv4 into a queation of financial endurance.
Modern warfare has since developed the fact that defeat or
victory depend upon the degree of speed and efficiency with which
unheard-of quantities of ammunition and instruments of war can
be supplied. And a country's ability Auicxly to organize and mo-

bilize its industriee has
struggle of the nations.

become a most essential factor in the

questions of
commerce and production, have long ceased to be simply regulatThis explains why European governments


ors, and have become active promoters, of business, and at ties
have even become partners in it, or themselves producers.'
Not on account of the welfare of the individuals concerned,
but on account of the national importance of these subjects,

are vitally interested in proper tariffs and commercial treaties. Railroading and shipping are likewise subjects
of the care of government - not merely because of their strategic
importance, but because of the bearing that efficient transportagovernments

tion has upon a country's development end its ability to compete

with other nations.
In railroading and shipping, therefore, we find in the

world today all kinds of variations of government influence, from
government suoventions

and control of tariffs to joint partner-

ship between private oapital and government, and complete government ownership and operation.

In a similar manner, we see

governments actively promoting

agriculture and new industries, we see them organizing their in-

dustries into aggressive ayndicatea (and cartels), and we see a
growing tendency on the part of almost all countries to control

end develop their own natural resources. At present we see in
Europe governments operating factories_and regulating almost
every phase of demand and supply to a degree never before known.

We have seen some governments at work to develop new markets by
acquiring and operating new colonies.

We have seensin Europe during the last twenty years a growth
of control by governments of the national power to save and invest in foreign countries. Foreign loans were eirected by governments to points where they were to produce business for the

lending nation, or where they were to assist politically allied
countries, or where - through financial

aud rendered -


countries were to be draen into closer commercial and political

relations. Loans granted to

China, Russia, Turkey and the Balkan

States, are illustrations of such a policy.


We all fervently hope that the end of the war will bring
aeout conditions enabling all powers to reduce armamento, thus
lesaening the urgent neoeasity for governments to secure increased maxim revenues for the sake of maintaining large armies and
navies. On the other hand, the debts of the leading powers of
Europe have increased at auch an unparalleled rate that what
seemed an an unbearable military burden in the past willA4eTersmall
as comparee with the financial burden created and to be borne

in the future.
The consequence will be that the future busineee activities
of such governments will not, in scope and intensity, be decreased but will be Increased. It will have to be tAeir concern to
rebuild their country's trade, to bring it back into conformity
with the normal requirements of nations at peace, to secure larger
revenue fromAweakened people, to reduce to a minimum imports for

the purpose of unproductive consumption, and to increase to the
maximum the exporting poser of the nation. Every country in the
world has learned during the last three years the necessity of
developing its own resources and of becoming less dependent upon
other countries for its normafrequirements. There will be a
tendency, I believe, on the part of most of the leading nations,

even after the establishment of peace, to keep their trade balances under government control by restricting importations, particularly of luxuries, by regulating home consumption of all

kinds of articles, and by bringing about the lowest possible cost
of production on the broadest possible basis of organized cooperation.

I have no doubt that government monopolies will be estab-

lished for the production of many important articles.


of goods between countries, once the shortages of raw materials

and finished products caused by the war have

been met, will, to

my mind, be decreased in volume, rather than increased, as compared with pre-war times.

And wherever purchasing power exists there

will be the keenest kind of organized competition to secure the
contracts for the goods required.

I have outlined these conditions at such length in order to


the question: "In the face of the ultra organization to be ex-

pected of other countries, can we afford to believe that when peace
is restored we can meet this competition, or hold our own, unless

we likewise systematize or organize our industrial efforts?"
Wexixa Furthermore, if in Europe it is necessary to have governments take an active part in organizing

industries and banking,

may we expect that' it can be done without government regulation in

a country that by law and sentiment much more than Europe is opposed to exclusive combinations in industries and banking?
We are all in accord, I believe, in thinking that, if at all

possible, the operation of industries by party governments in the
United States should be avoided.

Where regulation is re4uired

and where regulation borders on the field of operation, it is
best exercised through non-partisan government oodles.


aside the councils and commissions organized for the purpose of

dealing with emergency situations, we have bodies of that kind


in the Interstate Commerce Commission, the Federal Reserve Board,

the Federal Trade Commission, the United States Shipping Board,
and the Tariff Board.

The task of government regulation is as

complex as it is ungrateful.

Those charged


It is a largely judicial function.

it must heax the producer and the consumer,

the shipper and the carrier, the borrower and the lender, and
find a course that is fair to all, at the same time taking into

consideration the larger question of the interests of the entire
country in its national and

international aspects.

In additien,

the problem of the producer and the shipper must be dealt with

from thetwo-fold point of view of capital and tbor.

Foreign governments wpich own and operate coal mines are
interested in eecuringU4141
resulting from a combination

of high prices for fuel and low cost of production.

At the same

time, however, tney have to consider the millions of citizens

consuming coal, the manufacturer, who must be tle to compete in


world market, and finally tne coal miner, who is entitlel to

reasonable wages.

Efficient government regulition must conscien-

tiously weigh all these aapects eita
malice towards none.

fairness towards all,


It cannot pleaee all sides; it probably

will invariably displeaee some party involved in the question,
or even all.
or blame.

But the test of its work does not lie in praise

There is only one standard to be applied, and that is:

"Has its work been fair, and, first of all, has it been in
effect constructive?"


:hen by reduction of rates and increase of service, excessive dividends on watered stock are being cut, no harm is done;
provided the country at large profits from such action. If, however, by going to an extreme in this direction the corporation's
credit is interfered with, and its ability to grow and expand
isA destroyed, regulation proves itself a failure.

The carrier,

by exacting extortionate rates, may hurt his own interests be-

cause he is bound to weaken or even destroy the shipper, or drive
him away to other lines.

Conversely, the shipper, by securing

excessively low rates, may destroy the railroad'a ability to
serve him well, or to serve him at all.

But these two conflict-

ing interests, themselves often engaged in a life

and death strug-

gle with theire,competitors, cannot take any but a strictly selfish
view and there must be a power to intervene between them, protecting them from each other, and safeguarding the public interest.
Without governmental bodies of this nature, which take a judicial
and at the same time -constructive point of view, the only remain-

ing solution would be government ownership

and operation.

All this is so obvious that I feel like apologizing for

taking your time in stating it: but if it is obvious that these
bodies perform functions of the very highest importance in regulating transportation and finance, in developing equitable
tariffs, and in seeking to develop ways and means by which our
industries may organize for joint and effective competition in


foreign fielda, why then, ii tnie is so obvious, dose business
look upon the.ork of these bodies, generally with apathy, and
frequently with ill-dieguieed animosity?
believe there ere four main reasons:
First: We are a highly individualistic people; we cherish
our personal liberty and naturally resent any kind of compulsive
regulation as bothersome and unnecessary interference;
Second: There is a strong believe amongst American business
men that they "know better", and that any Government requirement

or regulation is bound to be theoretical rather then practical;
extreme and destructive rather than helpful.
Third: It is natural that those should be dissatiefied whose
past shtre has been larger than as due them, and has consequently been out by government interference;

And, finally, it is equally natural that those ahould be
dissatisfied whose share, small in the past, has been increased
by the Lovernment, but who now feel resentment that they cannot
have the whole.
We need n t lose much time over the last two classes, but
we may devote some thought to the first and second.
True democracy cannot resent self-imposed regulation as an

infringement on personal liberty, it would be that only if it
were imposed by others. Police regulations we willingly accept
as measures adopted for our own personal safety (we do not resent


them - except when we are caught exceeding the speed limit). Why
then should we revolt against regulation that deals eith the much

larger question of national protection?
Putting the question in this way is to answer it: "Because,
in our daily life, me value our personal interest higher than
that of the country."
These last months have brought us face to face with problems
of extreme gravity. For us tneir redeeming feature has been
that they have awakened in us the willingneee to consider our
country first, and to place our personal comfort and interest
where they belong - in the second row. But our lesson sould be
only half learned if we did not begin to apply it in peace as
well as in times of stress or war.
As to the second charge that these boards are largely
manned by men stronger in theory than in practice, 7 believe that
in thinking of them many of you have in mind
nard Shaw's earcastle remark, "He who eandoes. He who ol044
But, gentliemen, ehen you consider the tremendous scope of

influence that the Government is bound to exercise in the future
business life and growth ef nations, when you bear in mind that
with the rapid changes of heads of departments and in our legislative bodies, these non-partieran boards and commissions, as
years go by, may become the strongest elements of economic eta-


bility and expert knowledge, you will agree that these government

boards will not be positions for "teachere"

but, indeed, for

real "doers".

Do not overlook, gentlemen, that these boards will have to
act as buffers and balance wheels,

not only between

the various

business interests involved, but also between emotional and
changing factional government influence on the one side and the
needs of quiet and steady economic evolution on the other.


ital and labor, farmer and manufacturer, shipper and carrier, all
have their spokesmen in Congrees, often representing as one-sided


elaes view as the classea themselves.

ties to


To understand all par-

controversy, to conbine the business man's point of

view as well as the farmer's, with the -'ore detIached


of a non-partisan, expert government body; to arrive at the ju-

dicial and national point of view; to discover the proper middle
course - that is conducive to the beat interests of the entire
country; to prevent,harmful over-regulation in either direction;
to overcome mutual distrust, prejudice and suspicion of all

parties concerned, is a task deserving of the beat talents and
the etrongeet characters of the nation.

The scope of government regulation in business matters all
over the world will not decrease but rather increase in the next
25 years.

Modern states can no longer succeed without it.



hall we or shall we not have
government regulation, or promotion, in certain branches of our
business life. The problem is to find its most effW-teert, form.
Unless we do, we shall fail to nold our own. gee* For us, the
question is only shall it be a non-partisan, expert regulation
or one changing eith changes in party government.
That democracy is the ideal form of government, I do not
doubt. But Europe's reoent history has borne out the experiences
of 2000 years ago: that, in the hours of greatest need, democracy
often is not the most efficient form of government. That is why
in the old Republic of Rome, in times of war, recourse was invariably taken to temporary dictatorships, and that is why, for
certain branches of government, we now see this form of administration again adopted in Europe. Democracy is government by the
It is the 'moat self-respecting form of government. But,
being the expreseiOn of the ever changing will of the masses, it

us it is no longer the question


is lacking in stability of policyland continuity in office


It furthermore abhors autocratic power vested in
single individuals. It believes in checking one power by the
other, and each man by other men, and, therefore, vests authority
in groups rather than in individuals. These are conditions which
cannot be avoided. Whether democracy will prove itself capable,
however, of d aling effectively, fairly and promptly with the
large economic problems of the modern state will largely depend
trained men.


upon our ability to develop to their proper degree permenent and
capable expert boards and comeissions, aseuring that measure of
stability and reasonable promptness in action without which
healthy progrees cannot be made.

But, gentlemen, in order to achieve that result, uuoh boards
must find an attitude of sympathy and support on the part of the
Business men mu3t feel towards these boards as lawyers wautd


Just as any lawyer might be asked to
give up a highly remunerative practice in order to follow a call
to the Supreme Bench, oo the Government must feel that it is entitled to ea LaAf' the beat business minds and put them on a eupreme bench, if you please, of transportation, banking or trade.
towards the Supreme Court.

It is true that serving on these boards entails sacrifices of a
material and, what is more, of a personal nature; but, if in
England, France end Germany the floeer of the nation stands always ready to serve its government, ahy should our country find
its citizens less realy to follow ite call? ien are willing to

serve their country if they feel that the sacrifice involved is
commensurate with the service to be rendered and if they can
count upon the confidence, the sympathy and the support of the
people they try to serve. How much has the buzineee, railroad
or banking profesaion done in this respect to enhance the attract-


ivenesa of these government positiona?

Have they tried to do
everything in their power to help in the public work and to promote a sympathetic understanding on the part of the public? Or
have many done the beat they could to belittle it; to lament unneceasary government interference and to look often with hardly
concealed animosity upon those charged with the duty of carrying
into effect the people's ooem-will?

(Page I A follows)



ones led a

of car

g nte




p pelhose

th /feo els

ar ed it


the duty

Personally, I have no reason to complain, but speaking by

and large about tUe general attitude of the public, I am certaiil
that you will bear me out when T say that it has not been what it
should be for

the best interests

of the country.

Itoought to be

clear beyond a doubt - particularly for you business men - that

the more capable the men serving on these boards, the better for
all concerned; that the higher the estimation the country places
on the work of these boards, the more the country realises the
importance of having the ablest men serve it, the

greater will

be the chance of securing and retaining for these boards the
services of leaders in the respective professions; that the mere
capable the various professions show themselves of taking a large
and cooperative point of view, the greater will be the justifica-

tion for the Government to fill these boards in a larger measure
from their own ranks instead of seeking them elsewhere.

Men who

join such commissions or boards do not want foolish compliments
or praise.

There is but one possible compensation to which they

aspire, and that is success in their work.

interested in their work; if

it trusts them and wishes them to

prevail, their battle is half won.
s IttA-414-e

a sympathetic


If the public is

Intelligent understanding and

rveajt4A 144, /4414- 4aisl
all that they require.

May I tax your patience for a few more minutes by illustrating these conditions in speaking to you of some problems of the
Federal Reserve Board.


have mentioned to you the important amendments we are
trying to secure; amendments in the adoption of which every
American citizen is interested and nobday more

than the business

For almost three years the Board has been striving

towards the perfection of this

greater financial mobilization.

How many business men have followed the work of the Board;
how many have raised a hand in its support? Row many realize

that what really caused the fatal delay in acting upon this
legislation, was, as we have reasons to believe, a aide issue
not directly affected by the proposed amendments. It was the
question of certain exchange charges, abolished by the Federal
restoration of which a large number of small
country banks want to see included in the proposed amendments.
Tiie does not permit me to go into the merits of the case, but


it offers a characteristic illustration of problems requiring
governmental regulation.

As between the shipper and the carrier, so there is in
banking between the customer and the bank an old feud as to
equitable charges. As in railroading, so in banking, many
services are rendered without any or with inadequate compensation, while charges for other services, as a consequence,
are made to pay the price for both. Exchange charges in many
sections of the country became unreasonable. Regulation is
never required unless there has been some abuse, and the greater

the latter the stronger will be the tendency of the famous


"pendulum" to swing too far in the direction of reform. The
customer is entitled to the lowest possible charge for
collection that business will stand, and the Federal Reserve
Board, in the exercise of the duties placed upon it by the
Act, will in due course reduce the charges to be made to the
customer to the mintmum the traffic will bear. The Federal
Aeserve System will provide the most comprehensive clearing
system the country ever possessed, and as this system grows in

scope it will bring about savings in time and cost of operation
for the general benefit of banks and customers alike. But, as
in railroading, the sound business principles must not be
brushed aside or the small bank cannot live, and only the larger
ones will thrive. The elements of time and space cannot beR.AJ
disregarded and the business man who berates the Federal aeserve
Board because a check on Galveston is not taken at par for
immediate credit at Seattle is ali-unreasonable as the bank
that insists upon an excessive charge. If you study our weekly
statement you find an item of about 4160,000,000 representing

deferred credit on checks in transit. Thisitem, as our clearing
system develops, is likely to increase by more than 100%; if we

give immediate credit, I believe it wpuld at once rise to at
4least four times that amount, lifti+44 would mean that we should

invests an important portion of the country's gold reserve in

checks in transit, in the so-called "float",
strength of our system.

andAundermine the



A check is not a bank note. The latter is the binding
obligation of the bank and, if issued in proper volume, it
circulates for an indefinite time and can remain outstanding
indefinitely without voiding the bank's obligation to pay/
The check is the drawer's (*ligation, not the bank's. The
latter pays only upon presentation and only as long as the
drawer's funds are suffioisat. The recourse against the indorser of a check is lost unless it is presented for payment
without undue delay. Checks are, therefore, not a "circulating
medium", as is claimed seoften by economic writers. Quite
the contrary, a check is a "non-circulating medium" because its
safe use and the law require prompt presentation and collection.
It is not a means of circulation but a means of avoiding the
actual use of circulation. It is an unsound idea that a check
must be taken everyWhere for immediate credit at par like a
bank note. The bank note, when received at par, may be put
into the cash bex and paid out again at par. The check must
be despatched at once on its trip to its place of payment, and

the cost of collectibn cannot, therefore, be

disregarded even

though it should be reduced to the minimum equivalent of the

interest loss involved in transit on a time basis of greatest
generosity to the bank's customer.
In order to carry out this par clearAgg plan, member banks,
however, must agree upon presentation of checks drawn on them


to remit to theqederal Reserve Bank at par. That is to say,
they may, in return for checks on themsevles sent to them,
either remit other checks to be credited to them at par,
subject to time scheduke, or if they have no checks they may
,remit currency, charging expressage to the Federal Reserve Banks.
It is on these remittances that some country banks insist they
must charge a small commission of one-tenth of one per cent, and
- incredible as it may sound - it is this small charge that has
furnished the main cause of the antagonism of the country banks
towards the Federal Reserve System.

Aaether or not these charges should be permitted or refused is a matter for Congress to decide, but it does not seem
reasonable that vital legislation should be withheld or delayed at this time on account of an issue which ought to be settled
independently upon its own merits. I have mentioned this incident because I have been wondering at the apathy of business
men in this connection, and, in a similar manner, it has been
a source of surprise to me that, apparently, the businessman
has net yet fully realized the fact that the entrance of the
State banks and trust companies into the Federal Reserve System

4;his concern.
The exchange problem, of which I have jest spoken, would

not offer as much diffioulty if it were not that the member
banks feel it a hardship that they should be asked to provide



the entire system of protection for the country while the
State institutions not only des do not contribute their share
but, in addition, are free to make charges and to do their busineas as they please. If some of the gentlemen who are directdos
or pre4J---of State banks or trust companies were asked by

Itheir neighbors to join in paying for a watchman to patrol the
neighborhood of their private residences, would any of them say:
"Why should I? As long as you, Mr. Neighbor,pay the watchman

for your house I am protected anyhow withoutVaying for it."

II know that a great many of the leading State bankers of

ithe country are very sensitive of this slitaAer,, situation.
They do not feel happy about it and have made up their minds that
iit is the proper thing for them to come in. Theyeoh ratqa)



wouldçe in the position of paying their share of the watchman's salary. They furthermore know that every depositor in a
member bank contributes his share to the stronger protection
and to the greater redit power of the country, and that their
depositors will awaken to a realization of the importance of
this condition. They know that in case of a real strain
savings banks, trust companies and State bans indirectly will
have to depend upon the strength of the Federal Reserve System

The State banks and trust companies carry outside of the System
reserves amounting to
while a large portion of
these ought to be added to the general reserve power of our


iat others maintain for them. Some of them, doing a large
_Lcceptanoe business, profit every day from the acceptance
market created by the Federal Reserve System, a Market that
has enabled the American dollar acceptance to take its place

along with the Sterling, 'franc and Mark bills in all parts
of the world. But 'they know that entering the system means

certain sacrifices in earnings, and, may be, the loss of some
interlocking directors. Yet, if that is their share of the
contribution tc the rise of America's banking system and to the
safety and better growth of our economic edifice they ought to
be willing to pay that price. They know it and they will do it,
but the trust company president thinks of his competitor -

"will he come in? If he will, I will."
When still a banker in New York, I once tried to get into
a subway train during the rush hours. T forced my way into
a crowded ear, but with another man was caught between the automatic doors Which would not close behind us. jr.,; fellow sufferer

began to yell at the top of his lungs; "Isn't there anybody
to push us in?" Well, a guard came and pushed us in. It locks
to me as if there were enough tn the present situation to push
the State banks and Trust companies in.
beyond a doubt public interest must prevail over individual

This is


Early training in banking in Europe has inculcated in
me4 aversion to banking by regulation when, by intelligent
voluntary action of the banks, the same result can be achieved. But in Washington I am constantly met with the view that
without compulsion it is impossible in the United States to make
any headway. I am unwilling to surrender to that point of
view. I still like to think of the Federal Reserve System
as of a club which the strongest and best banks consider it
an honor to join, and not as of a "club" to swing over the
heads of the banks to coerce them into sound banking methods
of cooperation. It is a most satisfactory fact that in almost
every important city some leading State institutions have
come in voluntarily, and I hope that on that same plan the

'ajority of the strong State institutions will soon follow.
The prsent condition of having 7,500 banks carry the burden.
or 27,000 is unfair both to the member banks and the best inter-

ests of the country. The strong non-member banks who, knowing
the facts, do not remove this 1/uppel inequality will, in time,
-7oroe the Government to do its duty in adjusting the matter.
,ut if Congress finally should be forced to swing "the big
stick" they will be the ones to complain most loudly about
the muisance and unfairness of governmental compulsory regu-



In England there are 259 banks, in Canada 21.

We have about

It is obvious, therefore, that leadership and direction

by Government agencies is even more necessary with us than in Europe. We have adopted from Europe the principle of cooperative
protection in banking and we ought to aceept from them also the

loyal spirit in which they cooperate with their leaders. The people, the banks and the press are mindful of the fact that farmer
and manufacturer, borrower and lender, of necessity Cannot take
an unselfish point of view; that no matter how profoundly they

believe to have given due regard to tne country's general interests, most of them are so busy with their own affairs that they
have not even had the time to consider the problem from any but
their own angle. The central bank's actions must, of course,
bear careful analysis and healthy public discussion. But the
first impulse abroad is to follow the men they have placed in
charge, to stand by them rather than to attack them and to take

it for granted tenat'Ine obvious is not lieely to have escaped
their attention, and that the only object they can have in view

is to be fair to all and to do the best for their country.
More than in Europe is It necessary with us that our banks
do not consider the Federal peserve System as an unwelcome and
bothersome leash from which some day they still hope to escape.

The Federal reserve Act provides for a joint administration by
Government on the one hand and banking and business on the other.

9 (AA)

The more the banking and businese communities realize that Government regulation in banking la indispensable and has come to

stay, the more they substitute for a critical attitude a spirit
of active cooperation, the more they begin to recognize their
duties and privileges as half-partners in the administration,
the more they make it their business to perfect the machinery
which has been eetablished for their on proteotion, helping instead of hindering those who try to make it a success, the hap-

pier and the safer will they be and the better it will be for
the country. Let them be clear about it tnat our country sill
never permit this Federal peserve System, or any other similar
system, to be run by the banks alone without the check and regulation of the Government, just as little as the country would
permit permit the Government to run such a system without the
counter-check of the cooperation of the banking and business

You may say that this marriage between Government

and bueinese is not wedlock based upon love at first sight. But
no matter whether it was love, reason, or necessity that brought
it about, there cannot be any divorce. And inasmuch as they
have to live together the only wise course ie to pull together
and let the beet advantage be the strong bond uniting them.


And, now, coming back from this digression into

my own

eleld of activity, permit me in closing to recapitulate the
thoughts that I have tried to convey.
The modern state is an much an economic as it is a political unit. There are millions of individual enterprises apparently self-centered and independent, but, as a matter of fact,
all dependent upon each other. There is not one in the conduct
of which, directly or indirectly, the state is not interested.
'ere is not one Abich, by exaggerating the single and selfish
point of view, wbuld not do harm to others and affect the well
being of the whole. ikemirer -leenever the fair middle course,

essential for the greatest prosperity and comfort of all,
cannot be established and adhered to by common understanding
between contending parties, Government has to step in as

a regulating gactor. If this regulation is to bring about the
highest result, it must not be exclusively preventive of
abuses or destructive of old business practices, but itmust
be, at the same time, constructive. Government must not regulate only. It must also promote.
In the state of the future, particularly in hurope at the
end of the war, the most efficient Government promotion of
industries will be held to exist in actual government ownership and operation in many branches of business and trade. More
than ever before will states become solid industrial and
financial unions effectively organized for world competition


driven by the necessity- of perfecting a system of greatest
efficiency and economy and thrift in order to be able to meet
the incredible burdens created by the war.
That is the future of the world in which we shill have
to maintain our own position and it requires, on our part,
thorough organization and steady leadership. Under our
democratic system this cannot be furnished by changing party
governments, but can only be provided by fairly permanent,
not-partisan and expert bodies. These bodies must combine the 4;14
judicial point of view with that of active and constructive
business minds. They must be able to act as expert advisers
alike to Congress and the industries concerned. They must
break down suspicion and prejudice of Government against
business and of business against Government. They must stand

for the interest of all against the exaction of aggression of
any single individual or group, be it called labor, carrier
or shipper, lender or borrower, Republican or.DemocrIt.
11-4t- p.

Our ability to handle effectf,e4*-the 1116gge;economic problems of the future will depend largely upon developing boards
and commissions of sufficient expert knowledge and independence
of character. This will be possible only if both Government

and the people fully appreciate the importance of such bodies,
so that the country may find its ablest s)ne willing to render


public service worthy of the personal sacrifices it entails.
I believe that the dark. clouds of sorrow and suffering
which for three long years have shrouded the world will before
long show us their "silver lining", we shall see it in the
greater political liberty and safety coming to millions in
Europe. We shall perceive it in the chastening that will
come to some and the awakening in others to the deeper realiza-

tion of the things most essential in life. To us it will bring,
I believe, a keener appreciation of the individual's duty
torards his muntry, not alone to his country in stress, but
also to his country in its peaceful endeavors. It will develop
a better understanding of our common problems, and with a proper

estimation of their importance there will come a greater
willingness on the part of all to serve our country either by
taking a more active share in tts government or by readier and
more intelligent subordination of our own work to the larger

public interest.
This broader conception of genuine citizenship will perceive
in government regulation not unwelcome and arbitrary reetraint
to be resented by liberty loving men, but self-imposed rules
established for mutual advantage and protection.

Aristotle, in defining the essential characteristics of
liberty, said; "it is to govern and in turn to be governed"


and this thought has lost nothing of its force even though
2000 years have passed since it was expressed.
Liberty without government is anarchy.
Government without cooperation of the governed is
To govern and in turn to be governed is ke the only form

of true liberty.
In this conception there is nobody governing and hobody
governed. Te all govern and serve alike and together. We all
serve one master; the only master that no liberty loving man
need be ashamed to serve - we serve our country.


APRi 7


April 10, 1917.
Dear Strong:

Things have been so intensely interesting and perplexing
during these last weeks that I do not remember when I wrote
you last.

Since then, Delano came back and brought us the

very best news about you, and I cannot tell you with what
pleasure I am looking forward to the time in June when you
will be back at your desk.

However, do not get it in your

head to come unless you are certain it is the wisest thing

This is also how your Mother feels about it.

was a great pleasure to see her.


She is a wonderful lady, and

I now know from whom you get some of your traits.
I saw your telegram to Harding.

I understand, of course,

that you are impatient and want to come back under the
stances, but do not be foolish about that.


As a matter of

fact, there is very little doing at the Federal Reserve Bank
of New York at this time, and even we here ii? theFederal Reserve Board cannot do as much as we should like to.

Most of

the things are being cooked up at the Capitol and taken up
with the Secretary of the Treasury.

of course, we are doing

everything to get in some ideas of ours, and I believe on the
whole things are moving on sound lines.
I just returned from Chicago,

where I had some very good

meetings with the Chicago bankers an ). where my speech was re


ceived with remarkably hearty applause.

The stiff old Chicago

bankers and mer,Thants really woke up and showed some enthusiasm.

T think I made good headway with the State banks and trust companies.

The Union Trust Company promised unqualifiedly to

come in and Hulbert, of the Lierphants Trust, promised too with

a very slight rese2vation(that he wanted to study the amend-

ments proposed)

But I do not believe that he will find any

They both expect to come in during this week.


they do, I am confident that we can also get the State Bank
of Chicago, which is the most important of the State banks

The St. Louis Union Bank came in yesterday.

The Cleveland

Trust Company has come in, as you know, and the People's Bank
of St. Paul also.

So things are moving.

In New York, Jay is stirring up the trust comnanies.


do not know with what success, but I am sure that, if handled
properly, they will come in on a basis of patriotic appeal.

The ammdments in Congress are making some headway.
Senate Committee voted to report them favorably.


I do not

know what will happen in the House, but, confidentially, we
have good reasons to believe that the president will place himself behind it at this time and I suppose that we will get the
gold amendment through now.

As to Argentina, we do not understand each other very well,

(3 )

and it is about time you should come back so that we can talk
over matters a little more easily.

I do not think that in

writing we Get very much closer to each other's thoughts.
I enclose copy of a letter which I received today which
shows how anxious the Argentine bank is to get into touch with

the hew York Bank and that this is largely a question of gold
I do not want to go

reserves that they might keep with you.

into a lengthy argument concerning your long letter, but I can-

not understand how it can be in your mind that we should invest
heavily in Argentine exchange or'-und.ertake to regulate exchanze/

between these two countries.

That is much too large an order

and we could not possibly go into so comprehensive a program
wherever we formally open relationships with foreign government

Before you would kncw it you would have to do the same

thing with Chile, Brazil and' od-knows-What".

On the other

hand, so far as our purchases of4acceptaaces are concerned, I

cannot see any danger there because that is absolutely controlled through the forward rate fixed from time to time.
The Banco de la Nacion has not got a large gold reserve of

its on but it has the power to draw on the Caja de Conversion
for a large amount of gold against the deposit of commercial

The New York Bank has meanwhile sent a letter to the

Banco de la Hacion, but before active operations begin I expect
you will be back at your desk and can have your own fun in the

are& cr- /2,64_4,ceteL.-/


enj.otrong, jr., Eso.,,4 4100 Montview Boulevard
Federal Reserve Bank of St. Denver, Colorado.

. e/Yrzi/kte,-1-)








April 20, 1917.

APR2 3 1917
Dear Strong:

Thank you for your letter of April seventeenth, which
I received this minute.

I can well imagine how restless you are.

Nina, Aiken

and I were discussing only the day before yesterday what
a terrible itching you probably would have to break away

from your golf links as soon as you would hear that Lord
Cunliffe would be in this country.
It is hard to advise you.

I can understand only too

well your unwillingness to stay away.

On the other hand,

I am profoundly convinced that it would be foolish for
you to come.

From all I can hear you are doing splendid-

ly just now and:it would be a great wrong, I believe, to
interrupt thip splendid recuperation no matter how hard
it may be to renialn reasonable.

Moreover, the gentleman

has not arrived yet and nobody knows where he is or when
he may come.

I do not believe that at this moment much

more can be done in the Bank of England matter, and I think
that Ounliffe very likely will want to talk about general
financing and, as to this, there is hardly any help necessary because I think he will get whatever he wants just as
far as we can furnish it.

I believe that it is generally



understood that our only important contribution for the moment can be a financial and economic one and we have got to
do all we can and plan wisely for the financing and get all
the cooperation we can.

The difficulty is that there are too many cooks on the
one hand and maybe too much autocracy on the other; too

much consultation and deliberation where it need not be and
too little where it ought to be.

However, in spite of all

that, I believe that things will take their usual United
States course; that is to say, we shall blunder along at
first but when we get to it


the thing in in good

This has been the experience of the last few days.

I think that the problem is clearing up rapidly, and personally I feel that it is getting into a shape where we can
handle it.

That we did today, I think, is a great step in advance.
The Secretary ha

now announced his plan to issue $200,000,-

000 of certificates payable July 1 on a 3% basis.

We hope

before we are through we shall issue about $500,000,000 of

As the banks will subscribe for these and the pro-

ceeds will be turned back to the market in order to pay for
the various Government purchases, be they local or Allies,
we shall anticipate any disarrangement that might follow
the paying in of the instalments'because if the banks hold



0500,000,000 of these certificates which they turn in in
payment of the first instalment and if the depositor then
withdraws a like amount for his payment for the bonds the
two items will wash.

I believe that if we proceeded on

these lines so that for each instalment the banks will
have An advance invested in these short certificates before the final payments are made there will be very little
money withdrawn through the Treasury from the banks.


ever temporary disarrangement there will be the Federal Reserve Banks may take care of by putting out money at a very
low rate for fifteen days, be it

25') or 2.e.

We had a long and interesting meeting with the Advisory

I was amazed at the unpreparedness of these bank-

None of them had really a definite plan in his head.

Some, however, were very good because they wanted to be
helpful and were intelligent in catching on.
ularly pleased with 17ing and Rue.

I was partic-

Wing has developed from

the worst member, I think, intoAthe best.," Forgan, unfortunately, was ill.

Morgan's attitude was most disappoint-

He took the attitude of a spoiled child, being mad

at the taxation scheme


he dislikes.

He gave the im-

pression that he did not care to play and that he did not
care how the loan went so long as things were done which he
considered unreasonable.

They all claimed that no more than



one billion would go, and it was yours truly who urged
strongly that a c2,000,000,000 issue should be considered,
which I believe can be done provided the

policy is adopted

of selling short Treasury notes ahead and if the instalments are spread so as not to be more than four or five
hundred millions at a time.

In the end I believe that al-

most all agreed with that point of view.

I had a frank talk with Morgan in the afternoon in my
room in which we discussed the entrance of the Guaranty
Trust and the Bankers Trust and which gave me an opportunity to say some things to him which decidedly cleared the

I had heard that he had said some pretty un-

fair things about me in connection with the statement by

the Board of November, and I wanted to put his mind

It all ended by his saying that he thought he

had done me an injustice and that he was sorry for it.

The nice part about Jack Morgan is that he apologizes when
he finds that he is wrong and I like him for it.

But it

is very regrettable that he is so absolutely unbalanced
and says so many silly things when he gets mad.

The im-

pression that he generally made at the meeting was not a
favorable one.

The State bank situation is excellent.

Hulbert was

here and said definitely that he would come in.
Haxry Wheeler I told you.


The Marshall & Ilsley Bank

and the German American Bank, of Milwaukee, have telegraphed




that they would come in if the amendment should pass.

Commercial Trust Company, Kansas City, has applied for iskt-i-eftecli-mtiryn and today we have received a confidential let-

ter from St. Louis saying that the Mississippi Valley Trust
Company would come in and bring with it three other State

That the Union Bank of St. Louis has come in I

think I have written you.

The Mississippi Valley Trust

Company is entirely confidential.

I had a letter from Lamont in which he says that the


Guaranty Trust and the Bankers Trust are considering en-

trance, so as to the State bank situation I believe we can
say that we have won.

I have no doubt that the leaders

will now come in thick and fast and the mob will follow.
As to the amendments, they have passed the Senate Committee and we have asked the President to place himself
particularly behind the gold amendment.

Inasmuch as Con-

gressman Hayes, who is the ranking Republican member, is
for it/- T had several talks with him and I Joelave we can



get this thing through in conference.

The difficulty now

is that the exchange charge question is being drawn into
the discussion and it may .be-devil the whole situation.

However, I have no doubt that we shall succeed in pulling
this thing off this time.

So if you will do me the favor

of staying away until June I think when you come back you

will find a situation which will be pretty satisfactory and


rounded out.

You will have your hands full.

Thank you for what you say about Jim.

News and since

He is in Newport

two days he is flying to beat the band.

Is having a great time, but

that I

am relishing the



of having my son develop into an angel I cannot say, though
under the circumstances it was the only proper thing to do.

I did not

but aviation for
circumstances not a bad

like the "Mosquito Fleet" idea

the Navy, I believe, is under the

plan inasmuch as quite a number of his friends have joined
that particular corps he is feeling doubly satisfied to be
in the swim - or I should rather say "in the


With cordial regards and best wishes for a good appetite and good golf, I am
Always s

cerely yours


Benj. Strong, jr., Esq.,
4100 Montview Boulevard,
Denver, Colorado.





these three symbol,
ter the check number of

,s isaday message. Other.
.haracter is indicated by the






Day Message


appearing after the cheek.


Night Message


Day Letter


Night Letter


If none of these three symbols
appears after the check number of
words)this Is adaY message. Otherwise Its character Is Indicated bythe
eytnbol appearing Wet the cheek.










to bes...


4 :( .7, 7.




May 14, 1917.

JUN - 6 1917
Dear Mr. Jay:


Permit me to introduce

bearer of these lines,

Mr. William Taussig, son of my friend Professor Taussig

of Harvard, now

Chairman of the Tariff Board.

Mr. Taussig, Jr. up to now has been in the bond

business with

John Muir and Co.


horever, to abandon his present


He is willing,
in order to do

serving the country. I have suggested to
him that possibly he might render valuable service in
joining one of the organizations formed by the Federal
his share in

serve Bantsfor the placing and


of the


After my talk with Mr. Anderson Saturday I had

the feeling

that possibly in

New York

it might be

agreeable to you to secure his cooperation.
With kindest regards, I am

Pierre Jay, Esq.,

Federal Reserve Agent,
New York,

uly yours,












',hot Letter
If none of these three symbols
appears after the check number of
wordsithis is a day message. Otherw Ise its character is indicated by the


symbol appearing after the check.



Day Message

Day Letter


Night Message


Night Letter
If none of these three symbols
appears after the check number of
words, this is aday message. Otherwise its character is indicated by the

symbol appearing after the check.


163KS 36 GOVT






MAY 2 2 1917

May 18, 1917.

Dear Strong:

I confirm my today's telegram.

I was glad to learn you Ore back.

I am sure you

must have a feeling that your weeka,were well spent,
and I am quite certain that the knowledge of how import-

ant for the success of our work you are will give you
renewed patience to hold out and get4well.
I have delayed answering your letters, but I have

been so confoundedly buss that it has been absolutely impossible to do so.

I think the prospectus as it has now been published

is a good piece of work, and I am confident that the announcement to

b'e made by

the Secretary today, concerning

redeposits, will be received with general satisfaction.
The scheme was developed

with the cooperation

of a great

many helpful minds and I believe that it represents the
consensus of


We are today



200,000,000 of certificates at 31/10, at which I am con-

fident they will mov .

We might have placed them at 3,

butAtwas felt that we should reach the little fellow
and, therefore, it was a good plan to make that concession in order to bring that about.
The amendments

are in good shape. Confidentially,



the conference has agreed on its report, including the

reserve requirements without any obligatory till money
involved and including the gold note issue amendment.

The other phases have been satisfactorily included. However, there is a devil of a mess owing


the Hardwick

amendment which the Senate tacked on and concerning which,
at the last minute, the House instructed its conferees
to consent



the substanceof the amendment.

word "in substance" saved

Glass, with


This little

situation because Owen

our assistance, have concocted a tail

that amendment which will wag the dog.
however, will Congress swallow it.




The question is,


there is dan-

ger again that the whole blessed amendment business will
hang fire on account of this exchange charge.

I am con-

fident we will get the amendments through in the end, but
I am very much afraid that a great deal of delay will be
caused again.

For the time being,

the Banking Committees

and all Senators are flooded with telegrams protesting
against the Hardwick amendment, and owing to this flood,
which pleases the Conference Committee, they have not

today and have delayed action until

hope they will report.

Monday, when I

Ninety per cent of this amendment

situation is, therefore, excellent, but ten per cent is
pretty bad.

The gold amendment, I am happy to say, has passed the




Glass is willing now to let it go through owing

to heavy pressure


has been brought upon him, and

asked me himself to take it up with his fellow conferees

Very confidential information

of the House, which I did.

from behind the scenes

cussed in

isthat when

this thing was dis-

the Conference Committee practically

understood what he was

to vote for

talking about but


they were



I have my hands very full and you

for not writing


pardon me

more today.

It was very nice to see you here.

Family sends warmest



Benj. Strong, Esq.,
4100 Montview Boulevard,

Denver, Colorado.

Come soon again!

y yours,




TE L 741W AM





.dl essage

d Letter
one of these three symbols
dears after the cheek nunth, of
ords 'this is a day message. Otherwise its character is indicated by the

Isymbol appearing after the check.




Day Message

Day Letter


Night Message


Night Letter

If none of these three symbols
appears after the check number of
words)this Is aday message. Otherwise its character is Indicated bythe

symbol appearing after the check.



44 YR 4 197)

A417CH 67 GOVT








Form 1206


Receiver's No.




Patrons should mark an X opposite the class of service desired;



Time Filed


Send the following telegram, subject to the terms

back hereof, which are hereby agreed to

ashington, D. C.
.ay 23, 1917.


Benj. Strong,


Conference report signed tonight unanimously carried all
Hardwick amendment

recommendations of Board including gold amendment.

modified so as to make charge subject to regulation of Board and no
charge to be made against Federal Reserve banks.

They hope to get it

I hope they are right,- I have my doubts;so far good.


(Sg.) Paul M. Wa.,411QL.


To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the originating office for comps
ne-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND PAID
n consideration whereof it is agreed between the sender of the telegram and this Company as follows:
The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED telegram, beyont
eccived for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond fifty times the
or sending the same, unless specially valued; nor in. any case for delays arising from unavoidable interruption in the working of its lines; nor for errors in ci2: or obsc,
etc grams.
In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the non-delivery, of this telegram, whether
aused by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless a greater value is stated in
citing hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid based on such value equal to one-tenth of
ne per cent. thereof.
The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary to reach its
Telegrams will be delivered free within one-half mile of the Company's'office in towns of 5,000 population or less, and within one mile of such office in other cities or
owns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at his expense, endeavor to
ontract for him for such delivery at a reasonable price.
No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such office
y one of the Company's messengers, he acts for that purpose as the agent of the sender.
The Company will not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty days after the telegrem i
led with the Company for transmission.
Special terms governing the transmission of messages under the classes of messages enumerated below shall apply to messages in each of such respective classes in additio

he foregoing terms.
No employee of the Company is authorized to vary the foregoing.



Letter shall be delivered on the day of its date absolutely and at al
events; but that the Company's obligation in this respect is subject
A full-rate expedited service.
to the condition that there shall remain sufficient time for the transmission and delivery of such Day Letter on the day of its date during
regular office hours, subject to the priority of the transmission of reg
Accepted up to 2.00 A.M. at red-heed rates to be sent during the night

uad delivered not earlier than the morning of the ensuing business day.

A deferred day service at rates lower than the standard day mes3age rates as follows: One and one-half times the standard Night
Letter rate for the transmission of 50 words or less and one-fifth of
the initial rate for each additional 10 words or less.


In further consideration of the reduced rate for this special "Day
Letter" service, the following special terms in addition to those enu-

ular telegrams under the conditions named above.

No employee of the Company is authorized to vary the foregoing.


Accepted up to midnight for delivery on the morning of the ne
ensuing business day, at rates still lower than standard night mess
rates, as follows: The standard day rate for 10 words shall be charge
for the transmission of 50 words or less, and one-fifth of such standard'
day rate for 10 words shall be charged for each additional 10 words or

merated above are hereby agreed to:

Day Letters may be forwarded by the Telegraph Company as a
ieferred service and the transmission and delivery of such Day Letters

in all resnects, subordinate to the priority of transmission and

lelivery of regular telegrams.

Day Letters shall be written in plain English. Code language

not permissible.


In further consideration of the reduced rate for this special "Night
Letter" service, the following special terms in addition to those
enumerated above are hereby agreed to:

Night Letters may at the option of the Telegraph Compan
be mailed at destination to the addressees, and the Company sha


be deemed to have discharged its obligation in such cases with respect

nplete discharge of the obligation of the Telegraph Company to
This Day Letter is received subject to the express understandand agreement that the Company does not undertake that a Day


This Day Letter may be delivered by the Telegraph Company
telephoning the same to the addressee, and such delivery shall be a

to delivery by mailing such Night Letters at destination, postage
Night Letters shall be written in plain English. Code language
is not permissible.
No employee of the Company is authorized to vary the foregoing.




ICE Dt...:-.ED
t Day Message

ay Letter


'ight Message


Night Letter
Patrons should mark an X opposite the class of service desired;




Time Filed


Send the following telegram, subject to the terms
on back hereof, which are hereby agreed to

New York City,
May 24, 1917.

Benj. Strong,
Thanks for






rediscount as suggested by you.

There won't be any difficulty arranging
Believe everybody in favor of it.


to know you are coming but can't you wait another week - the transaction will
stand it.
(Sg.) Warburg.

To guard against mistakes or delays, the sender of a telegram should order it REPEATED, that is, telegraphed back to the origin.ating office for comparison.
ne-half the unrepeated telegram rate is charged in addition. Unless otherwise indicated on its face, THIS IS AN UNREPEATED TELEGRAM AND PAID FOR A,_
consideration whereof it is agreed between the sender of the telegram and this Company as follows:
I. The Company shall not be liable for mistakes or delays in the transmission or delivery, or for non-delivery, of any UNREPEATED telegram, beyond th,
eceiveci for sending the same; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any REPEATED telegram, beyond fifty times the sum
or sending the same, unless specially valued; nor in any case for delays arising from unavoidable interruption in the working of its lines; nor for errors in cipher or oh.
In any event the Company shall not be liable for damages for any mistakes or delays in the transmission or delivery, or for the non-delivery, of this telegram, whel'
'used by the negligence of its servants or otherwise, beyond the sum of FIFTY DOLLARS, at which amount this telegram is hereby valued, unless agreater value is state,i
vriting hereon at the time the telegram is offered to the Company for transmission, and an additional sum paid or agreed to be paid based on such value equal to one-tenth
.ne per cent. thereof.
The Company is hereby made the agent of the sender, without liability, to forward this telegram over the lines of any other Company when necessary to reach its
Telegrams will be delivered free within one-half mile of the Company's office in towns of 5,000 population or less, and within one mile of such office in other cities or
owns. Beyond these limits the Company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at his expense, endeavor to
:ontract for him for such delivery at a reasonable price.
No responsibility attaches to this Company concerning telegrams until the same are accepted at one of its transmitting offices; and if a telegram is sent to such office
,y One of the Company's messengers, he acts for that purpose as the agent of the sender.
The Company will not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty days after the telegram is
iled with the Company for transmission.
Special terms governing the transmission of messages under the classes of messages enumerated below shall apply to messages in each of such respective classes in addition to all
he foregoing terms.
No employee of the Company is authorized to vary the foregoing.



A full-rate expedited service.

Accepted up to 2.00 A.M. at reduced rates to be sent during the night
nd delivered not earlier than the morning of the ensuing business day.

A deferred day service at rates lower than the standard day mesage rates as follows: One and one-half times the standard Night
etter rate for the transmission of 50 words or less and one-fifth of
ie initial rate for each additional 10 words or less.


In further consideration of the reduced rate for this special "Day
setter" service, the following special terms in addition to those enu-

Letter shall be delivered on the day of its date absolutely and at all
events; but that the Company's obligation in this respect is subject
to the condition that there shall remain sufficient time for the transmission and delivery of such Day Letter on the day of its date during
regular office hours, subject to the priority of the transmission of regular telegrams under the conditions named above.

No employee of the Company is authorized to vary the foregoing.


Accepted up to midnight for delivery on the morning of the next
ensuing business day, at rates still lower than standard night message
rates, as follows: The standard day rate for 10 words shall be charged
for the transmission of 50 words or less, and one-fifth of such standa-rd
day rate for 10 words shall be charged for each additional 10 words or

ierated above are hereby agreed to:

Day Letters may be forwarded by the Telegraph Company as a
eferred service and the transmission and delivery of such Day Letters

in all respects, subordinate to the priority of transmission and
Day Letters shall be written in plain English. Code language

livery of regular telegrams.


In further consideration of the reduced rate for this special "Night
Letter" service, the following special terms in addition_o those
enumerated above are hereby agreed to:

This Day Letter may be delivered by the Telegraph Company
telephoning the same to the addressee, and such delivery shall be a

Night Letters may at the option of the Telegraph Company
be mailed at destination to the addressees, and the Company shall
be deemed to have discharged its obligation in such cases with respect
to delivery by mailing such Night Letters at destination, postag

This Day Letter is received subject to the express understandg and agreement that the Company does not undertake that a Day

Night Letters shall be written in plain English. Code languag
is not permissible.
No employee of the Company is authorized to vary the foregoing.

not permissible.

uplete discharge of the obligation of the Telegraph Company to


JUL s lett



June 30, 1017;"4A"eal

Dear Governor Strong:

Thank you for your letter of June twenty-eighth, sending
me a copy of an amendment submitted by the Clearing House Committee.

I do not think for a moment that Mr. Glass would stand
for this kind of an amendment.

I happen to know his views

about the subject, having discussed with him an emergency
clause on these lines.

I found him very much opposed to it.

I shall be glad to submit the Clearing House Comnittee's
suggestion to the Board at its next meeting, which wilttake- --

place on Monday, but I am confident that the Board's opinion
will be adverse.
is against it.

As far as my own judgment is concerned, it
I agree with you that it would be unwise to

permit this amendment.

It would open the door wide to the use

of securities as a basis for advances by Federal Reserve Banks
and as a basis for note issue.

It would also bring about the

very thing that the Clearing House banks want; that is, we

would remove the incentive for our member banks to keep invested
largely in commercial and eligible paper and encourage instead
investment in loans on securities.

I do not for a moment deny

the importance of the latter loans - particularly in New York -

but the Federal Reserve System ought to find its roots primarily
in commercial paper.

It has been necessary for us to open the


doors to Government securities


we should not go any further

unless it is absolutely necessary for the saving of the situa-

tion, a

condition which, to my mind, does not exist.

A great

deal of money is being redeposited by the Treasury

against collateral of the kind that the Clearing House banks


see made available.

A question that

goes through my

mind in this connection is whether Federal Reserve
the wider development of


Banks, pending

acceptance market and a market for

commercial paper, should not have the power to make deposits or

make loans on securities up to a certain percentage of Government
deposits held with them.

In other words,

enable the Federal

Reserve Banks to do themselves what they axe now doing acting'a,


for the Treasury.

That is a question which I think we might well

consider because it would enable the Federal Reserve Banks to
exercise the banking functions which nowias a matter of

sitymust be exercised by the Secretary of the Treasury.


Benj. Strong, Esq.,
Governor, Federal Reserve Bank,
New York.






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Dear Governor Strong:

Alagust 27, 1917.

I have your letter of August twenW-fourth, enquiring
about Miss Knowles' qualifications.

You met her Sunday a week ago when the whole Knowles family
called at Hartsdale.

She is quite a capable girl.
When her
a IP-a 7,414, eic,e
father's financial affairs got involved4(I understand they now

have been straightened out again) she took up stenography and
showed quite some grit in this respect.

She became secretary

of some league - I forget which - and I believe did well in
that capacity.

Personally, I have never taken a great shine to her, though
she is very popular. with the boys and Jimmie liked her quite

She has been going out a lot in spite of her business


career and I do not'know how far she expects to keep this up.
If she does, I doubt that she will be capable of doing both at
the same time; that is, business and society.

Jimmie says she

is very popular amongst girls and that she might be a good

Personally, I would suggest that if the girl appears

of the right type to you you give her a trial and get your own
experience first as to her earnestness and abilities before
you pick her out for a leading position.

Maybe she will make

good but I think you want to form your own judgment.
Federal Reserve Bank of St. Louis

Strong, Esq.,

ly yours,



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eekt-w-, Fo

Fish Rock Camp Via Saranac Inn
Franklin County
New York
Thursday, September 6th (1917)

Dear Strong,

Thank you for your letter with chart which was seat to me here
from Washington. It rains like h.... today and I am profiting from this
non-golfing condition in order to answer your question, at least superficially. I expect to be in H. Y. Monday morning next and leave by the
Congressional. If you can arrange to have the morning reasonably free
for MB, we can talk the matter over. I have arged Crosby repeatedly to
begin issuing two or three day U.S. certificates of indebtedness to F. R.
banks for short advances (instead of overdrawing) even if he paid only 2%
for that. I think at times that may be helpful on the lines that Kenzel
suggests, but I do not think it alone will do the trick. Banks are not sufficiently milling or able to take and put out on call these large sums. We
should not try to add (as Kenzel would do) or withdraw large sums, but
rather seek to return what we take as quickly as possible. The F. R. banks
must take care of two things in this 3onnection (1) the temporary dislocation;
and for this, let us call it, "float" the Kenzel system may help anticipando, or
rediscounts and open market transactions as post- or simultaneous relief; (2)
reserve-balance-basis which will be necessary in consequence of our growing
credit operations; (3) in addition, the normal seasonal demand must be taken care
of by the F.R. bank, as at present.
The more operation under 2 gr
more difficult will it become to satisfy 1 and 3.
Particularly in consequence
of our continuous loss of gold!
What we should do is, of course, to (1) stop that loss of gold (2) get
(at the proper moment) more gold from England. Rates over there appear to ease
off and there are still, I am told, $150 million American balances in London.
These will be drawn unless England puts up her rates and assist's in keeping
money easy here. But that is essential anyhow for her on account of her
interest in the success and continuation of our Government loans. Moreover,
the gold we lose we Ship to cover her debit balances in neutral countries.
the gold in we can lay our hands on in the U.S. (4) Keep the
(3) Get
float down to the miminaiM.


I wonder whether there is not something to be said for a plan of selling
the next loan outright, instead [sic.] subscription, letting everybody pay at
once, if he pleases, and permit banks to pay by credit. The Government paying
out whatever it withdraws.
There are two problems: one, to keep the F.R. System strong in gold, and
two, to reduce the nfloat.0 At present, 611 banks outside of N.Y. draw on N.Y.
for their payments and pile it into their F.R. Banks, then the Government
draws on N.Y., asks the other F.R. Banks ta refUnd M., then the money must
travel back to the member banks in payment of goods. In other words, money

Page 2
makes large round trips in order to move from the N.Y. member bank to the
F. R. Bank of N. Y. and back (for account of the country bank) or in order
to move from the western F.R. member bank to its F.R. Bank and back.
The question is can we short-circuit at any spot and let money go direct?
The difficulty is that money changes hands in the various Districts and does
not return in the same quantities.
But that is the problem.
My feeling is
we cannot much shorten the float but ought to reduce the quantity to the
minimum. This is a gossipy letter and I must close it in a hurry to catch the
only boat that may take this letter. I am jotting this down just to start you
thinking on these lines. Will see you Monday; hope you are not overtaxing
Sincerely yours,


See picture on back of this


Member bank West

Member Bank, N. Y.

Federal Res nre Bank of N.Y.

Course of money paid to the Government in the West and paid out by
Government in New York





M =ssage

Day Letter


Night Message



Night Letter
f none of these three symbols
pears after the check i.number of


ords)this Is a day message. Otherwise Its character is indicated by the

symbol appearing after the check.




Day Letter
Night Message

Night Letter

If none of th,se . hrea
appears aft.r the
words)this is aday
wise its chara4ter
symbol appe ing




B2291) 33 3








o GT 2- 1917


412 WM7


Day Message

k (nun




October 15, 1917.

Dear Governor Strong:


Supplementing Secretary Crosby's today's letter

with Government deposits, I am writing these lines for your
personal guidance and referring to your letter of October 9th
to Mr. Leffingwell, concerning the acceptance of Russian bonds_



The view here

as collateral for special government deposits:

is that it would not be practicable openly to discriminate
against these

bonds, and that

Federal Reserve Banks should

deal with the matter using their discretion and protecting
themselves by adopting the

following policy.

As to



rities, except United States Government bonds, no one bank or
trust company should be permitted to secure its deposits by

more than a reasonable amount of any one security, particularly
in the case of securities which are not selling on a conservative interest basis; the object being to have the collateral
pledged by each depositary well diversified.

This will enable

the Federal Reserve Banks to deal with the problem cautiously.
Yours very truly,

Benj. Strong, Esq.,
Governor, Federal Reserve
New York.







°C.T 27 1911




October 25, 191


Dear Governor Strong:




Please talk to me


count rates.


BoehOilhAve made appli-

cation to increase theiirnMpday rates on Liberty Loan
paper to four per cent', to go into-tfVerct on November


The 15-day rate probably may have to be considered

As to thai,we shall know a little bit better after

next Saturday'
I think/the rate for bankers acceptances ought to
be moved up, also.

With 90-day Government paper sell-


ing at fair per cent and probably going higher, I believe that bankers acceptances probably ought to move
up to three and a half to three and three-fourths.
Of course, you must not overlook that we may have
to formIthe under-writing syndicate for the U. S. Cer-

tifioulites of Indebtedness; but I believe that the four

per cent rates for Liberty Loan 90-day

varying in the

half to

and 15-day


several districts between three and one-

four per cent according


requirerents, would

not interfere with the larger plans before us.



I have no doubt but that all the districts except possibly New York will want to move up to four
per cent for 90-day Liberty Loan paper, and I am
rather inclined to think it will be to your best advantaq.e to loin keiftthe=lfty, or otherwise the pressure

will be all on your bank,
Let me know your views about this topic.

ely yours,,W.A.AtI,a1AAA",
Benj. Strong, Esq.,
Governor, Federal Reserve Bank,
New York.

November 7, 1917,
Dear Strong:

Just as I left the house this morning your nice letter
came from Virginia Hot Springs, and Nina and I were delighted
to hear from you and to know that you have safely landed and
are planning for a good rest.
over and play with you.

I should like very much to go

However, I do not see how I can get

away within the next week or 89, inasmuch as I want to keep my
eye closely on money conditions in conneotion with the payments
on the fifteenth.

We shall all miss you/tomorrow and day after tomorrow at
the conference with the Governors.

We have prepared quite an

interesting program and quite a comprehensive one, and I believe the conference will be timely and useful.
I send you heYewith a copy of the re-draft of my war loan
finance scheme.

You might study it while on your back, and

might drop me a line as to your impressions.

Something has to

be done, and my own feeling is that this is the least objectionau
ble form.

Did I tell you that Jimmie is not flying any more?

He has

some defect in his eye sight which the little devil managed to
conceal very successfully in order to get into the


This prevented him, however, from seeing the water


line when coming down and he I

been managing to get through

without a scratch by taking risks that he had no business
to take.

His lieutenant had his eyes examined again and

this time he could not cheat and he was told that they could
not permit him to fly any longer.

However, his lieutenant

gave him a most glowing recommendation and apparently they
are going to hold on to him in the aviation service.

He ex-

pects to get his commission within a few weeks and will then
be kept on some other work in the department without active

Jimmie is furious, but Nina is a different being

since she is no longer worrying every hour of the day about




tm 6h,tzt


Let me hear soon how you are getting along and be wise
and keep quiet.

Verycerely you s,

Benjamin Strong, Esq:,
Virginia Hot Springs,


In re
International War Finance and
War Industries Corporation.

my dear Mr.

November 5, 1017.


Since writing you on October 13th about the "National Fi-

nce and War Industries Corporation", I have given

the matter

some further thought.

Having discussed the problem informally with some bankers,
I believe that the thought frightens them that if the Government

once goes into the financing of railroads and industries there
will be Government financing of private enterprises in perpetuity and that, for instance, railroad ownership by the Government
may be the next step.

On the other hand, it is clear that the powers to be vested

thecharacter outlined by me are such that
strict Government,control must be a prerequisite. These powers
could not possibly
vested in private citizens.
We are conin a corporation of

fronted with the same problem that faced us when dealing with

the Federal Reserve Act, and I believe that our solution must be
sought on similar lines.

It would appear, therefore, that the simplest way would be

to organize a Federal War Loan Bank, administered under your

chairmanship by a board of directors consisting of the Federal
Reserve Board, to which the President would add, for this purpose, four additional members. Some of the members of the Fed


eral Reserve Board together with these four new members (taken
from the War Trade Board and similar positions) might constitute
the executive committee.
The corporation would have twelve branches, whioh would be

located at the Federal Reserve City points, and, if possible,
housed with the Federal Reserve Banks.

Each branch would be un-

der the management of a board consisting of the directors of the
local Federal Reserve Bank, to whom again would be added four additional members, and these four members, together with some mem-

bers of the regular directors of the Federal Reserve Bank, would
constitute the executive committee of the branch. All applications for loans would have to come through these branches, and
would be granted subject to the approval of the Board at Washington.

In my earlier memorandum, I suggested the initial capital
of ;:;50,000,000. I believe that was too modest. I think that a
minimum of a hundred million dollars ought to be provided, with

power vested in the President to increase this capital to A50,000,000.

The bank would not be endowed with any note issuing

power, but would be authorized to issue its obligations, having
a maturity of no lass than a year and no more than five years,

to the extent of eight times its capital. These obligations
would be subject to full taxation. Federal Reserve Banks would
be granted the power to treat these obligations in the same manner
as Government bonds; that is, they would have power to rediscount


or member banks notes seoured 4 t-,ese o'o1igationo.

The bank

lauld have to liquidate within a given number of years after the
conclusion of peace.
The Federal War Loan Bank would normally grant loans only to
member banks and mutual savings banks, but it might be wise to

insert a clause similar to the open market clause of the Federal
Reserve Act, providing that, with the approval of threefourths
of the members of the central board, loans might be granted direct to concerns engaged in industrial business essential to the
best interest of the country.
All loans should be secured and no loans should be made on
stocks. Provision should be made for ample margin against market

value, subject to the rules and regulations of the central board.
The obligations of the Federal Wax Loan Bank should either
be placed on the market through bond houses and in round amounts
as the business of the banks develops, in a similar manner as now
done by the Farm Loan Banks, or to the borrower direct. To illus-

trate, it might be practicable to issue the obligations to the
olvings banks against the pledge of the collateral, thus enabling
the savings bank to secure a loan from a member bank which, in
turn, would he more willing to do so on account of the possibility,

in case of need, of pledging this obligation as collateral for
a loan to be secured from the Federal Reserve Bank.

The objection will be raised that the sale of these five
year obligations (for simplicity's sake I am only referring to


elle year though they may be iaaued also in one, two, three or
four year maturities, according to the requirements of the case)
would compete with the financing of the Government.

The Govern-

ment sells long term bonds and short term oertificates running
less than a year. These obligations, as contemplated, would be
something in between" and, therefore, would not compete with
the bonds offered by the Government.

But we must bear in mind

the alternative, which would be that the Government itself would
have to issue these securitiee, in which case we would still further increase the financial requirements of tne Government. Fur-

thermore, it Is worth while noting that, as, for instance, in
the case of a savings bank, a loan eould not amount so much to

an iaeue of additional securities but in effect it would rather
be a means for the savings bank to secure a guaranty for its
loan from a member bank.

Moreover, we may safely expect that the actual use of the
War Loan Bank will probably not be a heavy one but that the mare
creation of this inatrument will eliminate well grounded apprehensions which otherwise mienht easily create a panic owing to the
realization on the part of the public and theibanks that there
is no adequate machinery that would take oars of securities in
case of an emergency. I believe that the psychological effect

in this case will be a vary important one and that actual auoistance will possibly not be required to a very large extent unless
the war should continue for laite a period and the Government
should be forced to borrow at increasing rates, thereby further


endangering the position of the savings banks both as to the
shrinkage in values of their securities and the increased danger
of withdrawal of deposits as Government securities would in that
case gain in attractiveness through the higher rate of interest.

It is furtharnore moot desirable to avoid as far as practicable the dangerous practice of having the Government go too far
into the business of making direct loans to industrial corporations,
savings banks and banks. To a certain extent this is being done,
and admirably done, today through Government deposits, but these
are temporary loans for the convenience of the Government; not
long term loans for the benefit of the borrower. Direct Govern-

ment loans of the latter character will, sooner or later, lead to
embarrassment to the Government, particularly should losses be

incurred., and it is better to throw the burden of transactions of
this kind on an organization similar Co that which has been created
for commercial loans through the Federal Reserve System (or in
the Aldrich-Vreeland-currency associations) and
years gone by

vest the responsibility for this in a separate corporation administered by a. group of men appointed for this purpose by the Government and sharing this responsibility, to a moderate extent,
4th the representatives of business (the Federal Reserve Dank

There will be criticism, of course, against that feature
which would permit Federal Reserve Banks to treat these obligations as Government bonds, and the hue and cry of inflation will

be raised.

To a certain degree this criticism will not be :ithout


justification. But we must bear in mind that, without this priviloge, these give year obligations probably could not be placed
to advantage, in which case we would again be confronted with
the necessity of either having the Government itself issue these
obligations or of having the Federal Reserve Banks mAce these advances direct. If the Government provided the funds direct it
vA)uld issue additional bonds and these Government bonds would

carry with themselves the same privileges as proposed for the obligations of the Federal War Loan Bank. In that case, therefore,
"inflation's would be the same as in case of the War Loan Bank.
If the Federal Reserve Banks would make advances direct, the
kheels m14It work so fast that inflation to a .i.uoh greater degree
might have to be apprehended.
There cannot be any doubt but that during normal times a

proposition as here described would have to be firmly rejected.
It would be argued with force that the market should absorb the
securities and that whatever banking ordit could not be provided
in the natural way should not be secured by unnatural means. But
we are at war, and the natural means of havinc the security market provide credits have ceased to exist. We must, therefore,
take some extraordinary measures, bearing in mind that we must
take recourse to such measures only to the most moderate possible
degree. I believe that, here proposed, we are not going too
far but are doing only what the necessities of the country require and wa are doing it in the least harmful way open under
the circumstances.


This plan would have the advantage that it would at once
create confidence and that it would simplify the problem. At
present there is danger that we are getting too many boards; too
many groups of different people working at arm's length and at
oroos purposes even though striving for the same aim.
Exportation cannot be restricted without a careful consideration of the consequent necessity of paying for our importations
in gold. Credits cannot be restricted broadcast without a care-

ful discrimination of what industries are to be restricted and
what are to be encouraged. Without restriction of our domestic
consumption - that is, scientific economy on the part of indieviduals, corporations and municipalities - and a scientific, not
haphazard, regulation of our foreign trdde and that of our allies,
our fIncial problems may end in hopeless confusion and failure.
Close cooperation between the various Government agencies is ab-

solutely essential for the successful prosecution of the war. It
Is much to be regretted that the Federal Reseeve Board was not
invited to be represented on the War Trade Board and to strengthen
on that Board the Treasury point of view. By putting representatives of the War Trade Board on the board of the Federal War Loan
Bank a community of thought might be created which is most desir-

able for both sides.
While under the plan proposed the Government would have an

efficient control over the operations of the banks, the public
would at once understand that the matter is in the hands of the
Federal Reserve Board and the Federal Reserve Banks, which are both



now firmly established in the confidence of the country and are
charged at present with the duty of exercising a financial control
over the banking situation, and in whose hands tnie additional instrument should, therefore, naturally be placed. Moreover, by
adopting the well established lines of the Federal Reserve System,
the problem would be simplified for Congress and much unnecessary
discussion and loss of time would be avoided.

The great advantage of this plan is that whatever financial
burden may fall through it on the Federal Reserve System will
only come indirectly and we are creating a second line of defense
around the system. Unless we provide for something of this sort,
I am confident that we will be forced to amend the Federal Reserve
Act so as to permit the Federal Reserve Banks to make direct advances on securities, and this step is fraught with many dangers
and subject to a great many serious objections.
Commissions could be created that would cooperate with the
Federal War Loan Bank with a view to vetoing or permitting new
issues of aeouri 1.6s in a manner outlined in my previous memorandum, directing banking so as to produce well guided economy and,

incidentally, exercising a most necessary indirect control over
the issues of States and munieipalities.

If any further elaboration of the plan is desired, I shall
be only too glad to submit further details.
(Signed) Paul M. Warburg.
Hon. 7. G. McAdoo,

Secretary of the Treasury.







x..71.,,:sguiARLEs S. HAMLIN









FEB 141S13


February 12, 1918.


Dear Sir:

At the time of the Boarcl's last conference with the Governors,

on November 10, 1917, they were asked by me to estimate What, in their
opinion, would be the maximum amount of rediscounts by their respective
banks of 90 day paper secured by Liberty Loan bonds or certificates of

I give you enclosed a list of the estimates made of 90 day
paper secured by Liberty Loan bonds and have added to that a co1rmu
showing the borrowing on fifteen day notes secured by Liberty bonds and

certificates of indebtedness, and/further column showing the total,
It would appear that the only estimate that was fairly correct
was that of Governor Van Zandt.
I am sanding this believing it will be of interest to you.

Benj. Strong, Esq.,

Governor, Federal Reserve Bank,

New York.

uly yours,




Secured by Li_berty Loan Bonds or Cartifi.cates of indebtedness

Estimate made
Actual as of
by Governor
January 184918
Nov, 8, 1917
(In thousands of dollars)

New York
St. Louis
Kansas City
San Francisco



Washington, D. C.
February 12, 1918.


Actual as of
January 18, 1918













Actual as of
January 18, 1918

(In thousands of dollars)






E15.RAL FZ.

F EB 2




REsEmi E


February 20, 1918.

Dear Governer Strong:

I have your letter of February fifteenth, in reply to
mina of the twelfth, enclosing a statement of the estimates

of the amount of

advances expected to be made by Federal Re-

serve Banks on Liberty Loan bonds.

I have read your letter with a great deal of interest

and do not disagree with you as to

your analysis concerning

the effect of the Government's loan operations on the general investments of your bank.

However, the


that was

asked at the time was a very definite one, not "How much will
your loans expand in consequence of the Liberty Loan operations" but "What will your bank's investment be in 90 day


secured by Liberty Loan bonds" and, as a matter of fact,

the fifteen day paper was excluded from that question.


do not think that you were present at that particular confer-

ence but Mr.

Treman was, and it was hie gue4s, not yours.

The estimate, as I remember, was given by Mr. Treman only

with all due hesitation.
I should like to mention

that I have not been sending

this memorandum for any purpose of showing up anybody as
right or wrong, but simply because I had been asked

by several

of the Governors concerning the result of the guesses.



Van Zandt was particularly insistent, and you can guess the
reason why.

As to the large amount of advances made by your Bank on
certificates, fluctuating between Y253,00C,000 to $346,00e,000,

that, as

you know, really has nothing to do with the placing of

the Liberty Bonds but was caused simply by the fact that banks
in your district, instead of using the certificates for the
purpose of paying for their subscriptions, were carrying them
and a majority of them borrowing from you against the certificates.

That was, as a matter of fact, a transaction which had

nothing to do with the


result that we were trying to


Since dictating the above yesterday,

I have spoken to you

on the telephone about the telegram that we sent concerning
deposits bought by Clearing House banks.
I send you herewith a copy of my testimony
of Secretary McAdoo before the
case you have not seen it.

Senate Finance

and also that



I have more interesting testimony

before the House Committee which I hope to be able to send you
in a few days.

The latter contains some material that might

go into the press and be helpful in the present controversy.
Very truly yours,

Benj. Strong, Esq.,
Governor, Federal Reserve Bank,
New York.
En c.

(PiAated by
Mr. Warburg)















February 23, 1918.


Dear Governor Strong:
In reply to your personal letter of February twentyfirst, with respect to the various amendments recommended
by the Comptroller of the Currency,

I may state to you

what, no doubt, is known to the majority of the banks,
that the fact of the Comptroller's recommending certain
measures does not in any way mean that the Board is of
the same view.

As a matter of fact, when the Comptroller

handed in his report, and when he permitted some of us to
see his recommendations in advance of their loWing released

for publication, he was advised that the majority of the

Board was opposea to some

of his recommendations, and the

Comptroller himself stated that he felt, of course, that

his recommendation
would not be

did not in any way mean that




free to state frankly its opposi-

tion to any such amendments if the Board felt so disposed.

The Governor informed the chairman of the banking and currency committees of the Congress that the

Board did


consider it advisable to have the question of guaranty
of deposits agitated at this time, and that, in case it
should come up for serious consideration, the Board would
wish to be heard.



It is difficult to advise the Federal Reserve Banks as
to what attitude they should take towards banks which make
enquiry of them with regard to these bills.

I should say

that they might state what I have said above, that neither
the Federal ?eserve Board nor the Federal Reserve Banks


in their opinions by the recommendations of

the Comptroller, and that the fact of the amendments having
been proposed by him in no way indicates that the Board is
in accord with his recommendations.
Very truly yours,

fa4 I ea,,_

Benj. Strong, Esq.,
Governor, Federal Reserve Bank,
New York.



rm 1201




.hree symbols
,ck (number of
.egram. Other' 1)y the

s charact

ii appearing after the check.

is ind

TEL iLtiWas AM




If none of these three symbols
Night Letter

appears after the check (number of

words) this is a telegram. Other-


wise its character is indicated by the

Washn D. C. Aug 10, 1918.


Benj Strong,

Woods Hole, Mass.

Thank you for your message I received a very grac
satisfactory in its form accepting my re


greatly relieved but I cannot but regre


letter yesty

rement personally I

with all my heart that




s sociation with you old man and my

associates in this work of

s as




loyal friends and

come to an end ihdeed I cannot

quite realize-how my mind w 11 manage to leave the old tracks

however friendships formed in t is work and the common aim will but


symbol appearing after the check.]




Day Letter




Night Message






Form 1201






II essage

J of these three symbols

s after the check number of

, this is a telegram. Other-

Is character is indicated by the

,o1 apearing etc, the check.






Day Letter


Night Message





Night Letter


If none of these three symbols
appears after the check (number of

words) this is a telegram. Otherwise its character is indicated by the

symbol appearing after the check.



last whatever artificial barrier there may exist from now on affectionately


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102