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/I

FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD

Yay 9, 192r.

y dear Governor Strong:
I am seeerrng you herewith conies of (1) an analysis
of the second : :cradden bill prepared by the Board's
counsel; (2) a preliminary memorandum on the effects of
this bill prepared by 2rofessor Sprague; (3) a memorandum
on the bill prepared by the Board's Divisions of hank
Operations and Research and Statistics, and (4) a draft of
a letter to Congressman 7.'cradden in reply to his inquiry
about the Board's attitude toward his proposal. This draft
has not been submitted to the Board and is entirely tentative.
You will note that the letter is very brief and merely states the Board's position without presenting detailed
arguments to sup:ort it.
believed that it wculd be best
not to go into details in the letter, but to reserve them
for presentation to the committee when the bill comes up for
consideration.

I will be very grateful to you if you will let me have
your comments or suggestions on this draft not later than
April 16, as the Board wishes to send the letter on :-onday or
Tuesday of the following week. The date of the next committee
meeting has not yet been determined, and you will be notified
of it later.

Yours very truly,
LO
:alter ':. Stewart, 2irector,

ivision of Researc- and statistics.

Benjamin Strung,
Governor, Federal Reserve Bank,
Hew York City.

June :1:3,

1925.

Dear Dr. Stewart:

The minutes of the meeting of the Legislative Committee held on June 8
have been received, sad I have just finished reading them.

The resolutione passed la regard eo tee recommendetioaa of tie Committee
on Feeerves call for special comment, and tease which I hove already submitted to
Mr. Curtiss ere briefly ee follows:
1.

Reserve on Government Deeoeite -

It is my recollection that this

can be dealt zith by regulation or the Becretery of the Treasury.

1. change in

the existing regulation, whether made by an act of Congrese or by ruling of the
Secretary, could have such bee ring ueon the flotation of short -term becuritice by

the Teeaeery, that I believe that this metter shoule be diecumeed with the 3eoretery
before eerinite recomeendetion is submitted.
2.

Currency Shipments -

Under the present ruliug of the Federal Reserve

Board, it is poeaible for each Reserve 3ank to determine whether deferred debit on
currency seipmente and r.nticieeted credit on currency receipts shell be made .!or

member banxe not only in computing penalties but in computing reeereee.

The result

of this ruling light be different rueerve requirements in the different eittricts.
In feet, 'eat is the situation now, as all Recerve Banks have not tc'erte0 the t4M7re

policy in the mutter of deeerred debit and anticipatory credit.
principle to counting as reserve any

es I em opposed in

currency which ie in tremeit, my au&z,,-eetion to

Mr. Curtiee heu been thet an inveetigatien be iiiitC6 to shoe just that effect upon re-

serves would result from tie various methods of computation which are possible under

the Board's ruling, se that would be t guide 6) u wise decision es to how to debits
end creaite ermuld to treated.

Dr. Walter W. Stewart

ft2

3.

Currency Lepots -

of currency depots.

6/18/25.

The Committee's :eport opposes the establishment

Nome have already been established.

I believe that the policy

Qt. eetablishing these depots may 1tsr be a fruitful source of friction, because
equality of treatment of all member Ce.aks canaot possibly ba ef:ective, ant, it
BeitAtia

to me that then: is 60Me doubt as to tte leEality of the pioeedare anyway.

should hope Last those tetallishea cli6ht La cistont,inued, End no attempt made to

develop taa practice.

Furthermore, I nave alsaya felt that Lhe currency repot in

Cube 9016 illaaal, end i uneretsad that it its unprofite.ble.

If the re2ort oi Chet

Committee is to deal wita sli of these situations, my co,a belief is topt that one
should be diac;..Intiauza.
4.

The ..egregation of 6evings Eepoeits -

This is aaationed in the Com-

mittee's leport and the s.iggestian tint the begi3lgtives Committee, saould deal with it.

I

ht75 alre6dy aubmitted tills in the latter addresse(i to Professor .4ra,gue.
la general, I bfaieve tte recommendations of tb. Coo qattee an Re:.arves are

aou6d and caa be supported by th6

:asekittea and should he,

comments ale the only onee that occur to me c.t this time.

Vary truly yFure,

7i'

pzu.r. 5TRONG
Governor.

Dr. Walter W. otawart,
Federal Reaarve Boerd,

L.Jhinton, D. C.

BS.LS

!..11

the above

tuyveeant
Biltmort Forget,
Biltmore, N. C.,
March 26, 1927.

PERSONAL
Dear Doctor Stewart:
You will recall my mentionine; the wis

once expressed by

my friend, Mr. 1...ontagu Norman, that it might be poeeible for you to

do some special work for the Dank of England.

This letter on that

enbject I must ask you to consider to be a pereonal one, although

you will realize that I would not write it without first being fully
satisfied that I am justified in doing so.

At present I must ask

you to take no one into your confidence until we have investigated
little further.

the matter

It ie my belief that the time has now arrived when Governor

Nor an would be in a position to make 400* arrangement with you, and
probably along the following lines.

This letter is really intended

to aeeertain quite privately weether you would welcome having a
definite inquiry addressed to you or whether you would prefer that
it be not done.

I;iret, you will be asked to go to London at an early date

to reside for, say, a couple of years.
fiecond, the object of the arrangements would be to enable

the Bank of Englund to build up a statistical and information office
somewhat along the linee of your own experience wit,h

Third, generally to adviee what material should be collected
and recorded and where it should be Obtained.
:Pourth, to give advice as to how information thus collected

could, from time to time, be used to the best advantage by the Bank
of England.

This, in general, would be the terms of reftzence, so to

- 2

IP .peak,

but I think the following would likely be the eurrounding cir-

oumstances.

You would be liven complete contidenoe by tie Governor and

Deputy Governors of the bank, and they would, therefore, expect from

you, as is usual in ouch oaeee, aeeuratuerof eerecy.
careful'theee mattere are dealt with abroad.

You

no

how

You would be provided

in the bank with neceeeary aocomrodation and all the paraphernalia of

work, and such assietancc ue you might require.

You would be weldomed

at the directors' luncheon every day, although you would be entirel.7

free to go elsewhere, either at home or abroad, in the interests of
your work.
come;

My personal view ie that you would have a very warm wel-

that you would be expected to m.ice friends in the bank on Lilt

baAiis of give and take; any. tl'nt they would really expect you to be a

bit of a guide and teacher as to the beet methods for eetablishing
euch an office, what it should consist of, and how benefit might be
obtained from its operation.

They would, of course, eruct to pay you

4hatever annual fee :eras agreed ae proper.

It ie a very unusual, in fact, probably unprecedented thing
for the Rank of 12ngland to take a non-nritish person into the organization, so I think it could not be expected to be permanent, but on

that account I think the work would be regarded as by uo much the more
important.

There are at the present time eoecial reasons for discretion in considering this matter, hence my need for all of the above
cautione.
I

ai' arranging to have this letter delivered to you peruon-

ally by hand, and will aek you in sendir

a reply to arranLe to have

3

Itit delivered through Mite rlescker, my eedretary, who ,iill ;chow my

whereabouts.
With every good :rich, believe me,

Cordially yours,

1)r. Walter

,. -teNart,

care Di Case & Pomeroy.
New York City.

1110

Stuyveeant Road,
Biltmore ioreet,
Tleltmore, N. C.,

March 26, 1927.

PFRSONAL
My dear Dr.

tewart:

Pleeee do not be aetonished by the terms of the accompanying
letter.

There 1E, of couree, a great piece of work to be done, and

my interest on the one hand in the work and on the other hand in your
own welfare and happineee is euch that I cannot refrain from venturing
a few personal remarks.
It tie obvious that this is the opportunity, it it material-

izee, for an experience almost unique for any American to enjoy.

Whether you grasp the opportunity or not I think you may mark it down
in your memoire ae probably the most complimentary offer that you have
ever received.

Because of the relotionehips which have now so long

subsisted between our bank and the Bank of 7eneland, and the very

intimete friendehipe which have grown up between the etaffe of both
banks and, to some extent, between the directors, you need apprehend
no barriers or obetaclee such as might ordinarily be expected.

In

fact, because of your own connection with the Federal Reserve :5rstem

I think your welcome in the bank would be of such character as we now
enjoy.

A decision in such a matter as this always depends upon a
clear understanding of what one ie after.

If it is simply money,

while this would doubtleae pay handsomely while it lasted, it is
obviously not a money-making venture.

If one is seeking the security

of a permanent position, thie has the obvious disadvantage of not
being permanent,.

?ut, on the other hand, is quite likely to last

longer than the two years estimated.

longer than eetimted.

Theee things always do take

- 2 -

All the considerations of family, education, climate,
associatione, friends, etc., are involved, on which I can make no
comment.

To my mind the most t4ortant consideration would be an
advantage which, for want of a better word, I shall call educational,
but which really is the advantage of a- unusual, intereetint, and
valuable experience.

This I regard as exceptional and one which

would have a material bearing upon your career whether it is ultimately to be educational or ie to be permanently business.
Then comes the question RS to whether your present abeociatione and the work you are doing have proved to be as satisfying as
you have hoped.

Of that I know nothing.

Finally, my dear Doctor Stewart, I must ask you to view
generously what miLlit appear to be an intrusion into your private
affairs.

The extent to which my friendship, in fact, my affections

are involved in both quarters is one excuse, and the other lies in
the fact that such an

institution as the Bank of England would

never inaugurate an approach of this sort if they felt that it might
meet with a refusal which would appear to be a rebuff.
course, has its personal aspects.

This, of

So consider me as a volunteer

intermediary simply to discuss possibilities, and you

can understand

that I am always glad to be intermediary between two such good friends
ae you and the Governor.

progress towards recovery has been sufficiently satisfactory to warrant my returning to New York next week.

I shall be

there only over Friday night, and am then going to Atlntic City for
two or three weeizs to finish up the job, after which I am hoping to

is
Bank of England,

PERSONAL.

6th June, 1927.

Dear Dr.Stewart,

After certain conversations which you have
recently had with Governor Strong, you will not be surprised to
and after certain conversations

receive this letter from me:

which you have had with me in past years, you will allow me to
write frankly.

We are in need of a system for the collection
and preparation of Statistics and other information on economic
questions which may guide

us in our financial policy, and some

members of our staff have been vaguely working on the subject
during the past few years.

We feel, however, that we are in

need of wider experience ana knowledge than we have at present at
our disposal, and we wish to obtain the very best expert assistance in developing a programme.

We know of your work with the Federal Reserve
Board:

we know you or of you:

we feel that there is no one

whose experience and knowledge would be more valuable and welcome
to us than yours.

I am therefore wondering whether you would be

willing to spend, say, the next two or even three years in London
to assist us in building up a Statistical and Information System,

to advise as to the manner in which material should be collected
and recorded, and to show how the information thus collected
could

PERSONAS,.

Page 2.

Dr.Walter W. Stewart.

6th June, 1927.

could from time to time be used to the best advantage in shaping
the policy of the Bank of England.

7e should of course provide

in the Bank such accommodation and assistants as you might
require.

As a foreigner your position would necessarily
ne unique and would carry no official status;

but while we

should wish you to be free to go elsewhere at home or abroad in
the interests of your subject, we should like you to come here,

to make friends with our Directors and Officials on a basis of
give and take, to see all there is to be seen, and to teach us
how best to inaugurate a system for the benefit of ourselves and
our successors.

On your side we should just have to ask for

assurances of secrecy at all times and for no publicity.

With regard to compensation, there may be
certain questions with reference to taxation which would need
consideration, but the figures which we have at present in our
minds are (as Governor Strong may tell you) such as I believe
would appear reasonable to your mind.

They are better left for

conversation than set forth in a preliminary letter.
I hope to be in the United States in July

when I should like to have the opportunity of talking the whole
matter over with you.

But I may add that I know it would give

us all very great personal pleasure to be associated with you,
and

PERSONAL.
Page 6.

Dr.Walter W.Stewart.

6th June, 1927.

and I think that you would find that your surroundings, however
strange at the outset, were friendly and sympathetic.
Believe me,

Yours sincerely,
(Sd.)

Dr.Walter W.Stewart.

X. NORMAN.

a
Ji1113 0, 1.927.

My dear :)o #-tor St wort:
a..r, you r;'-tit-F r.e
Nev Yor'e durir.;

wtethrr you vill be in

et,riy prt of t1-4 month of July, ts it, 16

probable thet T ehrll aek you to meet a fri..Fad of ri lee iron
acroee tho ;later who would like to ht,io a te-lk with you.

It was r 'rent, delic.ht to hne you

our .sinner the

other night, end I hope you elm he i regular Fttsnasnt.
count ppon your bcing at the next oar Enyvaiy.
Zinceroly yours,

Dr.

tor

rt,

C/o Cree, Porocroy Sr. Cnrrvey,

80 Beaver Street, New York City.

I

October 20, 192?.

j

dear Stewart:
The enclosed documents speak for themselves.

Tou

may retain them as an example of journdism only exceeded by

those with which we are afflicted in this country.
Sincerely yours,

W.

I. Stewart, Esq.,

Case, Pomeroy & Co.,

60 Beaver Street, New York.

RETYPED COPY
ROYAL HOTEL

EVIAN TgS MINS
July 2, 1928
My4lear Dr. Stewart I would have written you from Paris had not the last few days there been a bit hectic
with callers and calls. Your ten days with MP, did more real good than all the doctors, nurses,
and medicines. T wish I could quote that passage from Macbeth: Nor was the good confined to
me. All I can write you is to exnress my gratitude and appreciation and that I do from my
heart.
Our trip here, via nijon was a delightful one. We arrived an hour ago fresh as we
started. My plans are settled by a wire from Phil advising his marriage not later than
Aug. 30. I don't dare risk sailing after Aug. 1 for I know the boy wants me for help and
advice and I'll cut out the office if I'm not in good shape.
But I will be, T'm so much
improved already.
Sir Alan Anderson lunched with m° Friday and we had a good talk, leaving me with some
new ideas of the situation in London. If you con have a talk with him I hope you will. He
may invite it on his return.

My anxiety about the whole situation would be relieved if n few of your imnortont
associates could induce a full and frank exchange of views with the Bov'r.
Now my blessing to you, good friend and much affection.
Yours
B.S.

Retyped Copy

Royal Hotel
Evian-les-Bains

Eoy:i Ecat(,

July

20, 1923

$teW7Art-

--You hAve tlynya

pondrat

now' I kno.-,:f. it/

you ire A. poor corresWon't yo.) send Irie

-fo:r coc;eat

in-reply to the volumz-:,_ I hz.ve ..tent you?

Are locking up vlth me.

ny 11cL'_

curod, only very ailzht Irritttion inrt, my
still pc..,r
but S. nap bit rikter. lunch,. Hy old colon h2-4,-- its
probably %dr. be a rAdisrLoe ror months, tai that- trouble Ida:. persist in a ner7VaS rer:Aen despite doctors; diets and dr.mnsi
I le-,1-re for Paris lioneay. And behind me I leIve one
job cone which
please you. Eche.cIlt, Versstring,

and Franck he
been op;flos2d VI the Lesir_.:e inwiry :and
they will be r, greit help. If Gov. Boritiz.n vi:1- t -i e a ponitica
I hope that will end It end prevcat.oht.rgos th::.
a lot
or presistoric otstructinnists, or in th'
or
Churcli,
:

rundanclitLlists.
11.11 not :trite you :1-Jain, you

a

rascal, ur tiZ..I got
nice letter fr,_!la you Even thougli I shall avail labor un4er

the lici&!It of a pea v;- cebt to yo;: which
nozlecting rao shamefully ht::re2fter.
Par Tohiscur,..
B. IS

uculd excuse you

of

vt

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cq.----actzdza

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th:t for th- firr.t

±ii

In

con:rid:moo Ina s

lialwa

to the reslly,serioue and in:411Ni illness vk4tab:had..41;-744=n me

,t,.the. foundations.

:Vera I

return now:and t ke on the

-load be =:ould give me.thrce months .tai ire

you'd lay ri low-again.

H

bolo

weals not - anywhere

said that -only after stjeast six

months tore or e.bkiolutp rest, :preferably.

yezit* :would he know

'whether I should go =dr .0,3:11C17.iee, Wif,:to quit. 14;sOon a3

p...rible And do it with

little effort :Is. possible.

But he

not sItisfieri:witn-thatlAdvico until h,s knew ny,ploals
be feared that .a.ter

.iwtetivity :mint bj

f.:w 1:.onths

thlt .worliould be - =after a Ion,:; rest.

He feels

and naturally thought o' an occupation.
-quite fully--; even to explainin
-

TULTI t

Lam[ judge - and bow you felt. _His

'the _cuostion
e teraltation into :social. activity,
ialicfrotpet-

ears. 2

'r

f

conocrned.him, etc.

z. I dis,7:10:ied

.1

re:.-.ction (natural

the:porson.

Did it mean.:

too great a buzlen on a small

needed, could I count on

and :dependable 'extractor, .:etc,.

nce.2 en Lnyhor

a-- talks -,;ith you En.f. your oppor-

-Jenou&h)- wai,s to: raise

-

a 5

wal it t stable

thin 's; the thought .0: the pro-...

'told ilia that I 1,..:s the only judge

but fearing:thatl was being tonptefl for my ovn-comfort-tc be a

bit

selfish, you had-foumi a re.t.1 chance to Jud5e am4 hFd no

odoUbts nor h.z.d I. phi ha said that nothin;; could c better,

'

fail, a.ld yo u avi 7 both ;aim: it

I

hint
only

thin2..ls. Its! in fins .stla: op but k-nowz:. tr.Le

gov al to (levelo:I)mnt!l;

4. V

77.:

MI house.' He is a Airradorfta rilnist 2)d Lezloms.-:--,nied
o sin1
iii.
di ff.f.'t
;u
V/1021- don;:: 2 h' c::
tvie 71.1214t,
rief:

fia
rt

prs
p:w:s
z

hwidled

at horae.

but of courie. I host first hz-ve tire:: for judzing

A. C.,. Hiller

done his *bests. and a pits' ul

test it

is -.Ult.' I really ha vo.

e.beut aw own record. Its 1,12.1.-t,
limy happen to the barer., littich Lust be the Elide. - Dr. Jas. A. Miller
.

is sendin3 me a letts.r today vhleh
-.. ,
suicide, -(or tturder)to continue or b
proE;.:-.iet of 1....r..r;inz,SS;

ticiej

it

re4d pc.sszges in :Tou
11..NOs y brought*
-

.

from ite listen

,

sum4.14.herep-and soc#1 hope.

sacred precincts

You 'g

37:Lee will be =nrk

and VA L: and forget the nquEntit
veeho_nd adjusta: ent stabi

and ridicule -o n. old fishiOwd notion

tbIngs Ifll
-

not -so great as the.-pleas
of re,d;,..ng yburS Vith:rour message
to ez.si
zind. 1 feel: as' Isiah a deserter of you ai I do.of th
But you vi.11' see ttis- situation. through; for 1 ',fill 'be
'

13ank..

fingers at tool)

This lonL----", letter has been a pleas-..,re t 1--rite, but

solved, one wz.,y or e_nother, and

A

.

sur.miee soon.

For all the things I waist than:i, you fors znd they -.Ire
ran!, please accepttha best and learmes grPtitude l" have. I'll
Affectioritely1see you soon.:" -.*7

see nothing seri-us in ray coltm.
is

13.e."

thir;:s

2 v,2
C 0 N Y

July 31, 1928.

Dear Governor;

A memorandum on the Now York Credit Position.

You may want to ponder over some of the developments in Now York
during the last few weeks: Brokers Lonna (6000,000)
Own Account
Out -of --town DanX0

1928

Jan. 4
June 6
Jul.23

1,511 (Pock)
1,167

823(0
Fodoral gone

Mombor Pk; Ron, BnittnCen
Syotom
N.Y. District
Other 11 Diets.

Othoro

1;371
1,642
1,553

o S stun -

Total.

928,
1,754
1,808 (Peak)

t '.7od

3,810
4,563 (Peak)
4,184

in Jul

1927
2,299,890
809,240
1,410,650

1928
2,282,030
902,580
1,379,450

Chrn7e
up 17,860
down 13.340
up 31,200

398,130
92.530
305,600

1,025,110
310 340
714,770

up
up
up

Porrowin-s

N.Y. District
Other 11 Diets.

626,980
217 810
409,170

(#) Loans to brokers by Now York City banks on their own account have never
boon bolow 800 millions since the reports were started in Jan. 1926. A
considerable part of this amount can hardly be of the onllnblo kind.

(1) Ubmber bonks in the Now York District are borrowing 34% of their
Umbers outside Now York District are borrowing 504 of
th4r rocuirod balances.
re(iuirod balances.

(2) Member banks in the Now York District, who first felt the burden
of gold exports, have 613,340,000 loss reserve balances than a year ago.
Umbers outside the Now York District have 01,200,000 more than a year ago.
(3) Not demand deposits of all reporting member banks at the middle
of July were loss than a year ago.
(4) Bank liquidation has been accomplished chiefly by loan-shifting.
This has gclao farther among New York City banks than elsewhere.
(5) High money rates for collateral loans does not drive away
othor borrowers.

1

2. (Copy).

(6) Pressure on Now York banks in now approaching the breaking
Further reduction of the bane (member bank balances) will weaken the
ontiro structure - and likely to moult in wide -open break in bond values, if
forCed soiling of bank investments ie brought about.
point.

(7) Total reserve bank credit is 443 millions above u yoar ago and
just about equals the lose in gold reserves (419 millions).
(8) The pr000nt problem is to prevont "others" from shifting loans
buck to Banks in event of decline in money rates. If member banks face the
alternative of soiling invootnionta now, or agreeing to a policy of limiting
their stock oxchnngo loan account in the event corporations undertake to withdraw fund:, I should imagine they would prefer the latter, so long an present
volume of borrowing at 5p rate continues.
(9) Further pressure - will it bo applied qualitativoly to pool acoounto or to bonds' Is the problem one of the credit available, or of intos!
Would not loss credit bo availablo to oocurity markets at lower rates - if
banks viero to decline to take over the full amount of corporate and foreign
reductions?

These hurriod and inadequate notes are intended to leave you with a
fooling of my own concern over the banking position.
I think it is easy to
undorontimato the extent of bonkinc, liquidation, because of the chnrrctor of
it.
It has, of course, boon lurgolya loan shifting operation.
but the
figure:, loovs mo with the impression that furthor pressure in Now York would
result in unintonded consequences.
A
rate, relative to bond yields, is now
a higher rate than the
rate was in 1920.
Is it necessary, in order to chock
the growth of bank credit, to have a sudden break in bond pricool
Or will it
won; out come other way!
I am loss concerned about the immodiate international conooquoncos
than about, the domestic credit position and Federal Reserve policy.
Surely
it was never the intention that mombor banks should boar the full burden of
gold exports for currency stabilization in France.
It may well be that a
lovol of rates high enough to diocourago for a period the largo volume of foreign loans is advisable, but is it necessary to apply the pressure now being
exerted, and on top of it to finance tho seasonal currency domand by additional borrowingal
This note is for vou.
And it comes, not from the advisor at the
Dank of Cnglwid, but from an ex- Federal Rosorvor.
Also, it is not to bo onnwered.
/old if Lubbock thought I was writing bocauoe of any considerations
of international central bank cooperation (management) it would be regarded as
an act of treason to his Majesty's Government.
Yours, as ever,

(eO) Stewart.

de..r 1A:raters
.,

:

After re:din:3 yotir letter (s)

un4111ing to continua the fiction
unexpressive of

'ere

fete...11'1,st

r1,7

a bit si-azy

you. VI foreive

. -

this paptr fad pe-.74..1.1 for

ara5t

,

boat

..-Lich is so

tulruly

2

Tours

salutctien

And as the

my van izs

.-ku sittia7,

of a.

both ua-:ble aa.i

i

t bids ra.lr to be a long lettilr.
profour,:ly a11 d

Lu.V..4,o4;/:;)

.

mo scnsible of

Feat resource on.., Irts in

friend is onoty.: greatest need,

A

friend

So 1;.rge a proportic.n of

e fons-I kao,... only too often. disclose,. -o.necnscia,...31y that..
4,

.......

I runnin;. a stor
.

essary.

...

-

_

-

and not a Feserve B&n::, lid 113.ely .1.-,o

They mostly want something'

Sc I have

Elzo

iicouired

st, and it is too often one of distrust.

lit you both, -

you. nest of :all,: gavii -me too much credit.

ithett12:er you

-

-

---

ease
_

-

-

or not '7011 also Livo.444: 10A t 1 crave most zInd that Is your
v"Y:

::' aleaa,TOul
"

e bad -.together. same at a tir.v: uhen heath,
alone, gads the need ve.1-y great Indeed -

instinct and my.roason to suppOrt - led me

to stay

I could clehr tly ninfi- of m=ny

&,s I did.

.

So I do clie you re.r,:: th:.= you

I hve copl,le it (y:.--.]r

ea-le

.-.31

to Dresden .4here it 'Jill c;,usc men joz.

inz- so

vas not a great p1 ensure.
slaara vanity, but a dosire to

,

,

_

,

Please do not ,erry about the next feu -conths.

I shall

feel obliged to conSider my associates views, tnd -they

--ww7marT.71.7mmalmseonnrmimumwrinrmmarTmw-74rwirplr77.7

the' need Tor vre lest my resigne.tiOn'tocmistrued...s an adrlission
of-suppoted errors which forced 'my retirezent.
,7--::',

Fut tiw record of
-

the ltzt half oU19274s well.nigh pl/rTect, szve'for

Chic:7 0.

of it by the Board and by

mess m)do

If thry z",s1,i me tz: defer actuLlly

rosigning,1 shall tontinuo only nominally t7: hold office snd
like -the Arsb .flSilently.fold flyteat,'et.11

Dr. Miller's 2stter

'is in foriu-t-bcpublished, but -that Mould deplore, End it should
'

-

.

be

unnecesteary...:;Anyvay my

ttcrjghts art.:: no =oh an

that I shall be protected eg-linat any foolish.na.ss.
",

ard.

ing

.1

.

7

.

futuro

It has become'

.

7

pzst, honestly, I -,fonder that I aa :live.
_

.

.

or c4talog=e what 1 hzve had to cover - the iati..a.e

Bocrd, Conzress, Governors, Committees and mes.6inas

ign banks, com2livited rams, all tile ,iersoaal
mental
6mbers hostilityp.illness -itte

te,7,ers ne

and in its 07.7,cri,:tnce has

o. But it Itas boutul tc+ co so and I knew

cape,

the one I have chosen,

The

and complete crash z n3 I worry lest some

a'Le your,Gorornor. L suffers from
species
to-intcmication,
vhich crianot 'gut have.oaa
-

end unless

on found.

ese

:subjects and
tc
future palls mei' I do hops lou and Mrs. Stewart c:11 get to Drc,-;den.

ctr,1

After react na your letter I sent a wireless to Eleanoteo
-

-

to write you or her plc.ns red het address.

As I uni!erst..r.(1, punch

wishes her to study the dvInztic la-LIti in 1"..-cTlin, go to Dresden
coni'lict and
vhen
.

;4.

,

tAe..elinrcZe, 24.5 Vitzt

..:rcit of courze

tr-.f.1

at once.

tc:uecri of flit-3.2910-1V

u:7.-,.,.1 business :..3.rra.,Ize.A.-ente, srl-rich

same.care is reeee lest he Ger.;:n
=

objection to§:ninc:rican. Bat Bi.15:-.11 cnn ba coun.ted ul'ion there
h1,..ve taken

and he. and
-

help it).

Eleanorc: (could

gr:_v.t

ir. B

r.nd

rest.
..
Now

devote sone s

and feelinz,s. :My friend Crwapton, .±to in

r71,10

e77.1pressed the pro-isess, or evolution Es depe...adinz upon

to dapt."and execute. a process of selective analysis"
not be exactly his, but the idea i.s alliTys one of
voluntary 'aften,...fret,ueLitly by force or compulsion.
*the giraffs t liinz 'neck -men
;,,n:./ will give yo
-ch tnce in-Tour work. "The slavish or stubborn pursuit
idee. se cn wintelli,:enceservicer (as their Em-y in the
tiny defeat a grez;.tor r,.,:ri:ose in the scheztt of things in
.

.

INN

rez,r it: that your t:Aturzl raod:.sty,
for the "1E113 and feelin!;:s of rssoci:Ltenj

-;:l'1

ti=s

to teal more geutly with af.ri:irs, than 15: justifi:d.'

Of cour.so,

...1-6.1low Eton & for the differa;4o.o between a "pir:Aell &-c. let's

a 4c2aplain"
.

and realize that cue Laust be one's

,

the asset of reality. and

.51..y

u-,lf or loltc

;:re. no.-/ so fully

,

and co secure fmm tiny suspicion
"T
or motive Or.1k-reonal gain, ----that I count much u7on
can and will accoapliih:

Tiae experivAce will be an

isfaction:aIl yo4r life.

Uow I 1--is:1 I miillat help.

r dcyclop the intelligncs

sset
Ycll

1oA ro:.; nry s.;..ve a

stitution:from spoliation.
The -French have a sayir4, freely renCered "Better is,

best".

It is nct the equivaleut of' 010A vell'encu.th

it means rather that t good thin?, c=4 he
as vhen one tries to /Gild

lets.: by tinkerinz
.go I
countinz upon your
:

save sae from env reproach whit I had ben

fine.-work in London to

*cepf.thesetolead you blincifoldedl
of your -earlier and
,

This is all rcniniscent

gloomy letter, which has been nuc-4 in

.

ran4. 11nceAt.vme in Paris.

.Hy thouzhta and hopes will al-

ways be with you with pride and great affection.

for me to conclude CAB .see
vhen ve

first ttet

n, by repl,atinr: that I

rA sense of hu.ror is

.No dear fric-rd

No*,

'40

.frevi

necesef:ry

ozr associ:-.tion :.?,s gro.vn epcce into

a very real and important place in my lire.
o

It is only f.air

cf the things I count on for the ruture.

Your friendsl-dp is
I'm far fre..1 "down

, and outr,and begin to see Lhe-d of me harriO4 yeerz th:n

w4mmamiamMoreVar-161,-1Morr'777E--mowlmmmil-mt

cLny I-

tho _,-.stt so
,
sh;re

'ACM

of of which 11-.Ir,.? b-,,-;:c.t.t cruel diE,-..ppoint
1r 7,..-01.1.

e 2i r.;

for vlsits.
Every gooe. v--.1:21 I cnn thinl: or is yours z-n

as Atoll for
.

many

-Affei7tiorrly*

cr:.titude

(00PY)

1

8.

8. "Olymplopn
Auguat 8, 1928.

PRIVATE

Dear Stewart:
Your memorancluia of July 51st, is a wcloome and moat illuminating;

contribution to the eolution of the situation at home, which I am just now
trying to work out towards some satisfactory oonolusion in my own mincl,
/

That you may realize that the thoughts which prompt you to prepare the memor.

.

randum have also been in my mind, I am enclosing carbon copies of lettere

addressed to Dr. Burgess on June 18th and July 5rd, whioh are of oouree

quite confidential and which I shall ask you to return to me privately
after you have read then.
The arrangement of figuree in your memorandum is most enlighten-

ing and new to me, beoauee I have done no work of that sort myeelf since
leaving home.

At first glance, they might, raise goose-flesh.

On the

other hand, I cannot bring wyeelf to feel the concern exhibited by some of
the expressions in the memorandum, although I do agree moat oompletely

that our situation Lt. home is one whioh needs careful watching.
,

I Mall deal with your memorandum by paragraphs, and' as you may

not have retained a, copy, am enclosing a typed oopy of stint you wrote.

As to the figures, three or four things stand out most stron&lytt,
(a)

The reduced amount of New Tork City brokers" Jeans, but the

increased responsibility of New York banks because of the huge' growth of

oustomers' loans to brokers.
(b)
rowings.

The large peroentsge of reserve balances oreated by.bor-

Dr. Walter W. Stewart

(o)

- 2 -

8/V28.

The undoubted evidence that the inoreseed borrowings in

11 Districts are the outgrowth of transfers of funds from those Districts
to lend them on the New York Stook Exohange.
Based upon these
(1)

oonolueions,

the following comments: -

The borrowing of eo large a percentage of required reserves

would be hazardoua, had we not the means at any moment of liquidating the
borrowings by open market purchaeeis.
(2)

The figures of ()henget, of reserve balances are not particu-

larly eignificant;

it is in fact the growth of the borrowin&s

by which

these balances are created which is significant.
(6)

The last three quarters of 19 27 and the first quarter of 1Q28

showed an increase of 5 billion dollars in demand deposits of the banking
system as a whole, of which, as I recall, about a third arose in the first
three months of this year.

The reduotion of net dcopl.nd denoeite since

April let and eine° July let is still not very impressive and probably
could go further without harm.
(4)

I am in entire agreement that there has been little liquida-

tion except that caused by banks reducing deposit liabilities through tranefere of brokers' loans to customers.
(5)

You are correct in this, but the growth in collateral loans

is the outgrowth of a rising etook market and there never is, and I believe never can be, a material reduction in brokers' loans except it be
accompanied by a reduction in seourity prioes.
(6)

Here lies the danger

by a rational Federal reserve policy.

of the situation, which can

be avoided

Suoh a policy means anticipating

8-

Dr. Walter W. Stewart

8/3/28.

the approach of the "breaking point" by any one or a combination of four
Poiisible methods:(a)

Dieoount rate reductions;

(b)

Extensive purohaeee of bills from dealers;

(c)

Purchased of Governments;

(d)

Purchases of foreign exchange and the accumulation

of a foreign portfolio.
Hero is where I fear the coneequences of hesitation or differencee
of opinion within the System.

It has been in my mind to have thie question

frankly faced by the Open Market Committee and the Reserve Board promptly on

myreturn and adopt a formula for meeting an emergency. If the System ie

unwilling to do it, then I presume the New York Bank must do it alone, de-

spite the tradition which we have helped to create and maintain, that no extensive open market operations should be conducted by individual banks.
energenoy preeente the possible need for emergency aeaeuree.
(7)

An

I

Tilde 'hat) been apparent to me and ie one reaeon why I feel

less oonoerned than if the growth of borrowing had been the result of expan-

sion rather than loss of gold.
(8)

Nowa deepatohee indicate that the Clearing Howie is taking

cognizanee of this situation. Here lies the second danger which I fear that the Clearing House will do something foolish.
and may again.

They have In the petut

The logical treatment of this vaut indirect reeponaibility

of the New York banks is of course some syetea by which a reserve will be
set -up in the form of belenoes at the Rose, ve bank against loam) made for
customers, treating them exactly Ike would be treeited a demand depoeit lia-

* 4

Dr. Walter N. Stewart

bility.

8/3/28

The sudden adoption of such a program might increase reserve

requirements anywhere from 250

to

400 million dollars.

If, added to

that, the National bank notes should be retired a oouple of years hence
iithOut special legislation, the inoreased reserve requirements might be
at least double this and we Lou ld then haVe no surplus of gold over reserve
requirement!, at all.

So my belief is that we are much eater in diecour-

.'sging a6itation by the Clearing House, which might indeed be reflected in
action ,b)i Congress, and permit this situation to work out gradually.

It

requires study, and the dangers to be avoided are:(&)

Direct aotion as mentioned in ay letter to Burgess;

(b)

Some foolish Clearing House procedure;

(o)

Some very hostile move against the Stook Market by
either the Federal Reserve Board or Congress.

(9)

I do not think the problem is neoesearily one of security

priciest, or of available volume of credit, or even of discount rates.

really a problem of psychology.

It is

The country's state of mind has been

highly speculative, advancing prioes have been based upon a realization of
the wealth and prosperity of the country, and ooneequenbly speculative tendencies are all the more difficult to deal with.

I fear voluntary assump-

tion of responsibility for this natter just as much as I fear voluntary
assumption of responsibility for the "ices of commodities.

A gradual
)4,

unwinding of the situation is quite possible and is the beat bet.,
As to the last page of your memorandum, any general feeling is
that the New York rate is somewhat too high, but when I was advised, of the

proposed increase, I was unwilling to take the responsibility of urging

Dr. Walter N. Stewart

-5-

deferring it when I had been eo l
8/5/28.

a very strong one, would have be

Reserve banks, we maintaining t

the borrowing at New York.but h

think the effeot would have been

It never has been my i

of gold exports for currency stab

etio
position of meaber banks. 'ghat

rap

as

loe

rat

Dr.

-e

iialt or N. Stewart

-

8/3/28.

' meeting eervioes of debts, which would greatly

strengthen our position as to possible demands
upon our gold reserves.

The problem now is to so shape our policy as to avoid a calamitous break in the stock market, a panicky feeling about monby, 'a set -back

to business beoauee of the change in psychology, and at the same time acoom-

41ish if poseible some of the purposes enumerated above.
it

can be

done, and there are many advantages in having the period of dear

money as short as possible.
1

I certainly think

(1)

These, briefly enumerated, are:-

To avoid a precipitous

decline

in

the

exchanges, especially

sterling, which would weaken the bank position abroad.
(2)

To avoid restriction upon our ex0orts.

(5)

To avoid a chill to domestic businese,

(4)

To avoid embarrassment to

the

.._,

smooth operation of the Dawes

Plan and the carrying out of Gilberto e purpose to effect a general settle
'

meat if possible.

/

In oonolueion, I think you realise, as I do, that the very existence of the Federal Reserve

System is

calamity growing out of 'money rates.
with such

an emergency

a safeguard against anything like a
Not only have we the power to deal

instantly by flooding the street with money, but I

think the country is weal aware of this and probably places reliance upon
the common sense and

power of

the System.

In former days the psychology

waa different because the foots of the banking situation were different.
.ob panic:, and oonsequently mob disaster, is less likely to arise.

You wee I am not observing your injubotion to make no reply to

Dr. Walter W. Stewart

'your memorandum.

8/7/28.

In fact, I welcome the pportunity, for it has helped

we greatly to arrange my own ideas and prepare for the inevitable discus4011 when I return, But I an immensely grateful to you for sending it.

Please let we know how this all strikes you, when you return the enolosures.
My best as always.

Sinoerely yours,'

Dr.
W. Stewart,
C/o Bank of England,

London.
B&M

17%.,

.11..

.

.

nTy ,r7rrt-:r tr,11-7,"1 S47.137:72:?

--

ucurt 17, 192a,
e

ra

ibr.yr.gt
cone.

ad I not hcq..-n.tez.,

thins. ao-f X 011 Lia

y-ntcrdsy.,

ave been suspicious of the ;sin that

nd _ii=ediately cn returnint; intsnded

(ene.
th;,t I cm sufferin7

er and -14'.4t lar_d

ses._ to

ti c

..

'..;

mes, either conf,enitally or because
ntestine
Cr. .tlister
ister in rn ft:atom-one
This grfld-valy en:rade and
ea
to a tiny. oppendix..
in the sack, infIzzration eats
bally
ed,

ese

ry

..

smd I fully anticirit2 pullinc; out of this
by hoc,1-.; or by croc.
.

I .0 .s conttz,plating oz4bling about it, and then thous ht

thr,t an. r

'would he go mialv,din;: as not to

If rzything new develops I way cant: you, but now I anti cip,;te
.
nothing of the sort,
.

Voule, you mind shominz this letter. to Cecil Lubbac:-.1

uant you and him and the Governor to un,!erstand exactly uh:_t
the
N

,,,

situation is,

.

.

but Z. donft want any cf you to sorry a bit

about sie beeuuse I

an not

vorrying about myself.

you,

IV most affectionte 'reglirds to all of

incerely yours,
-

_

Bni
"29

Dr. Y:.1 tar
Stevarts
Care of the Bahl: of Entiar.ndsLondon, 2. C., England.
I

Isla write you 50011 of m, plins.
,
I-

'27

.

::-' -4,1.?itt.

..,_7r-4,491111MC

270 P.irl:..kvenue

Auge.st 130 1WS
-=

#

Decr ValterI hxd to dictE.:te an ncocunt of gy I _ct stunt, not f,:.04n::

equal. to muCh pen worX.

lines. :The innediLte-cries

Ism much better ird C211 s*nd a few
due to the large amount of

barium in ry upper Intestines, nece5s.:.ry for the 7-ray, which

-threatened to plug np.that stricture.

chat h =: s. now gestly p2ssed

out and the need for yay.emerisency cutti

But I hzve a long period cf

w

Ire cFiu tall'hav s;fe the situz:tion is.
Of course I had promised :.ic

fully of any illneSs so hard to cable he

acule h

She,tegged to -come ,home

hours -Vas in Paris and the next day m t

Berenenl-z,.

I vill be so gli_d tc .h:sve

an rev: 4m.lz tor a time and.in fact, p

until any denger.of emergency is p'sre
sh,,al see, :ts Prosper said.

Now tt-.7A,

czn lie; this tear enemy ene, lots..T1.6 t

dre.gonns.. SO don't you worr
1iten

&rid

vife and P

news -of Eleancre artd utst ye propose w

Cables. .They ere relieved frw.1

gre:I

protection, anA they kr,ve E1rel,..,d7 =et
'

opera!

It's zro:t to Gyre s'ich chi2dr

sate in every

-2..

This must 4o for odus

for

enore- to cheer lux.' on.
-

-

y.*.

,

:.-

-

.74

::4
:'-

1'

.

7

4 tunic, nd

vil:I

tt,

up in my

.more cemfotable thnl when.

1I.

e no-,- no

can face

thc eaemy &114
a

-

7 .0"i%nt,:---

';;

--N.

'9

`''

-

''

7

-

'I. r

A

-

-

T

;
-

.

-

C.t

P1ea:4 write :Ac. zhd enclo.se

,

AffectiGu%tely,

f

270 Park Averf...:e

unday, kugust 26th 1923
v
,

Dear Walter
'11,1 "i

""":

t

I

y.

t

.
I have better :mews for you r_nd
-1 a

,

..

-

-

.4

A

r

h..7...ve cabled it

did I not ,f'ear you were off o n your vacttion. The W.It inporevening (within an hour
tarit is t.h:lt Vake...znore o..zae in
t docking) full of cont-ic,z-nce snd 4s sure that Ism.
-

:

,

.

anythin;: like it -

the

I unt hove

!Imo just a3 soon an cne ern be h.Ad in thc4

?gore imnort^xt ti-n a doctor

' too.d. cookl

rit;ht

1411 of this tleanoto tsllos as simply r,,s.,1:ing her TIO".: caraor more

inportent and interusting and.nore uort4 Vhile.
;

14j,

,

.*

.

:17e l-mcval, and You discovered in Paris. Prior
.

er blue, or would
.

so =Ich better

r. of crirf! noir

t risk going.
;

It means thre nights mr..1
7,'

;

ht cause trouble.
on the road to
'
.
"
end full of tonfidence and ve.r.7 content.
.

With smell affection,
-

E

-

!ours

1:

,

-- 7:4:-.
-

1.4
,

..

.

BEN

.L-

:

.

..:',"

How

this


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102