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Strong to Norman, 1921

Jan. 27
Feb. 3
Feb. 4
Feb. 8
Feb. 21
Mar. 16
Max. 21
Mar. 28
Mar. 28
Apr. 5
Apr. 18
Apr. 26
May 5
May 9
May 13
May 24, with poem
June 2
June 2
June 3
June 8
June 9
June 13
June 13
June 20
June 20
June 20
June 24
June 27

1 C

Sept. 14
Sept. 24 C
Oct. 3 C
Nov. 1
Nov. 1
Nov. 2
Nov. 3
Nov. 17
Not. 25

Dec. 16P,
C -cable

STRONG PAPERS, Strong to Norman, 1921
(List created 6/2004)

January 27
February 3 (missing its attachment from Kiddy)
February 4
February 8
February 21
March 15
March 16
{March 21 (Note: original copy is missing; copy
of photocopied letter is now in originals' file)}
March 28
March 28
April 5
April 18
April 26
May 5
May 9
May 13
May 24, with poem
June 2
June 2
June 3
June 8
June 9
June 13
June 13
June 16
June 20
June 20
June 20
June 20
June 21
June 21
June 21
June 24
June 27
July 5
July 5
July 11
July 12
July 13
July 21
(August 1 C)
August 9
September 14
(September 24 C)
(October 3 C)
October 24
November 1

November 1
November 1
November 2
November 3
November 17
November 25
December 16 (by Jay)
C = cable

Strong Papers Key for years 1922, 1927, 1928:
) = Document is in Papers but prior to now had not been photocopied and included in research binders
[ ] = At earlier date, item was listed as present but no original or copy is now in Papers
{ } = Photocopy exists but original is missing



hr. Norman


of the
I will try to write you a decent letter in the couree
next week.

F%ithfuliy yours,

Montagu C. Wormla,
The EInk c.)-f! England,

London, En6laad.



Februery 3, 1921.

my dear Normen:

Enclose. is a cummunioation which I received a few days aeo from Ur.
Liddy, together with a copy of my reply, which I thought might be of interest
to you, partieulerly at a Lima ween dip oueelon of taiu question of rates is
becoming rather ae-4ue hare, as i euceee IL is With you.
As an Indication of
this, I am eeeleeiee e elieeine ffem the Nee York Times of February 1, end a
news blip which epeeared yeetareey corning.
At the moment I tnink it would be
moeL uefertuaate for kw. Kiddy toinvitee emearvaesment by reforeeeee of this sort
to the policies of the two inetitutiona and the extent to which they may or may
not be syncnrenized, and I 'floe,: tnat you will eefoo with this.
It is still impoesiLle for we to write you any...filar.: very definite

about daveloemeats here.
Co much ea:: trantspiro and the eleuaeion is so coselex, "visibility" etill .:.slog "lee," that I fine myself embarrassed in trying
to send you an uelnion thee asses zonelueive

3upelemantine our oaeeee, I mee say time there sae been some little
evidence of imerovement in business; farm products are moving a little Letter,
retail ericee are eraduaily, - but only gradually, - oomine uuwn, the reduction
in the prices of sheet and eteil Leine: imeurtaet exceptions to the major reductions with white you are familiar.
As to the rate eituetion, - thec I
wrote you ie emphasized by
recent develoemente.
7he loan account at this an does nut eu down to any
conaideretle extant, I behove, beeeuse strong pressure is bailee exerted by
interior tanks to liquidatkeK 411 bank loans, parLieularly borrowings from the
local reserve banks, which results on the ant hand in withdrawals of deposits
from Na* York, end, on the other hand in some increased burrueinee from the ReA particular thine ehich we notice is the constant drain upon our
serve Lank.
reserves to the :Ulterior, which would amount to *50,000,000 a weak or more ware
it not that our reserve position is readjueted every week by various seecial
transections of the Tieesurf, is tartly relieved by regular imports of gold
minimum remain after
=wine from abroad, and whenever deficiencies L610W the
these tr.:mei:et:lone, tee reserve yob-leis:a is from time Le time reeejusted by our
transferring a portion of our portfolio to other reserve banks which are growing
You will observe that this movement of funds away frum New York
is contrary to the movement to be exeected at thre time of the year in normal
years before tne war.
It is safe to say that considerably lower money rates cannot to anticipated here for the ereeent, and it is difficult to say how coon they may be exmy personal disposition would be at tne moment to leave rates unchenged
except, of course, were we obliged to make some Blight increase in the seecial
rates allowed for borrowings by bankers upon Treasury Certificates of Indebtedness.


Mr. Norman


I ale beginning to have a feelin6, although still not very definite
until developments more fully justify it, that we are not through with the pressure for liquidation of commodities.
There was a general return of better feeling after the firet of January, but *ith the least indioation of tightening
money, such as we have had this week and late last week, a cold ohill seemc to
go through the air, wdica is at onco reflected in the etock market ant) elsewhere.
Furtn:;rmore, there is much uncertainty as to the policy of the new
No one knows who will be in command of our foreign policy or
our iinancial iolicy, and there is important financine hanging over the market,
such Is the Ford Company, with a ii;reat deal of mystery as to the real condition:
which exist, and out of s'aich the fIntmcin::
I notice evieeLee iu tbe pal m's of a rather formidable drive at the
You will, I hoe, keep me informs:., by wale
Bank of England to reduce rates.
if meow:wary, (Jr aajtting important trwl*Crinf, and I shall try to do likewise.

rite vIcation and that you have returned to the
I hope you had a fir:
bank feeling 4.6 refreshed and energetic as I.
Please give my warmest re3trds to your aFsooi,Ites.
Faithfully yours,

Montagu C. Norman, Eng.,
The bank of England,
Threadneedle LltrooL,
London, Lntiluni..


February 4, 1921.

My dear Norman:
Immediately after dictating my J.etter to you yesterday,


rather unexpectedly took action on the rate which we charge for loans

on certificates of indebtedness issued by the Treasury Department, of
which you are being auviued by cable today with the LIFUSa confirmation.

Action was hastened by the fact that our Treasurer may make a small
issue of certificates in the near future and it did not seem wise or
fair to postpone the rate change until after the issue was sold.
In my former Letter I omitted to mention that one cau:sa of

the increasing loan account of the commercial banks in sea York at
the present time iv the delay in the payment of the claims of the
railroads against the United StateL, growing out of the period of
Government operation.

Theee unadjusted claims amount to posething

like t350,000,000 and the deferring of iayment, due to b0M6 legal
technicality throws tiClite pretty heavy lcani: upon our Lanke.

,pith test regards, I am,

Faithfully yours,

Montagu C. Norman, Esq.,
Toe 'imink of England,

Tureadneedle Street,
London, England.


Februery 8, '!7.1.

Deetr No

:,11e important matter I overlookfd lefere leeving Thorpe Lodge,
which was, to get from you that picture which you promieed, end *hieh I am
very keen, indeed, to have.
I knee your prejudice egainet phetegraphe, but
hope you will, nevertheless, let me teve one of you:.!.
my hobbiee ie
to collect the pictures of my friends, end I would be very eorry if youre
wee not .stoma them.

Enclose-; is the number cne, r 2:.00, Pittman Act, Federal BeserveEenk
Note, issued b, ti
Federal 77eerve Eani of New York.
The numbers on to
note have verioue indic!tions. The eeeriai letter mnd humbel in the four
coreers, "8." it thf elehz,beticl and numerical designation
this sank,
we ineue.
being required by the utetute to number all the ourunoy
The blue number, "L A" indicates Oat this; ie the first note of the ;,2.00
denominetioa issued.

As you know, these ere the netec ellieL ere ieeued to ezetle us
to retire the silver cfeetificater which were, in turn, aurreudered to the
Treeeury, to eneble cur 3overnment to rural:3h silver to year Gevernment for
exportation to Indie, and ate neto may, therefore, appear to have vome
sentimental velue in connection 4ith our ear relatione.
:hie iz net .t bullies -. letter, and there ie, in reet, little in
the wcy of lees to send you, anyway.
We are rocking doue juet about the
same, end if ny ehesuc oecore, I shall promptly advice you.

Just now we are e tit uncertain hs to Governmeht boroeingr, because of the uncerteinty es te whether our Congrers will perm the pending
bill providie6 for the reimburuameet or the tmeunt owing cy the Government
to the railroads, by instelleent ceyments. Due to vole oculerity of the
exicting law, belencee on dal= not yet eattled, can only be paid when
As the Government oeec the veilthe
1,:dine ere proved ond eudited in full.
which toe reilroedc badly need, we are
roads ::7350,000,000, or thereebout
urging thfit the 'All be passed prometly, so that the rd.lroade mey get out
of the money market, where they ere now heevy borroeers, and so emt they
It looks to me now at though
may ,i,ay their supply hills more promptly.
only about i:100,000,000 would be reeuired by the 'Treasury to leave 3. fairly comfortable position for the new Administration, unless this bill is
passed, when they will, doubtless, need a considerably large amount to take
care of such payment& au rry be made to the railroads as above indicated.





Peeibly I might say to you, very confidentially, that the
statement by your Chancellor, which was reportei hero some dayr ago, to
the effect thmt hit. Government lied a:4rosched our Government with a scheme
of debt cancelation, had for the moment, A rather unfortunate effect.
do wish we could it around the table and discuss these matters face to
in the spirit of friendship, and -void public discussion in thin way,
although possibly it cannot always be avoided. We certainly are guilty
enough here of indiLcretions of that sort, if indeed it was In iniscrt,tion,
but po.,:dibly the r,3turn o" your Ambasador ind Lord Chalmers will get matters

With slimiest regards to you, and locking forwarr.: to 3 letter before long, I as

Sincerely yours,

Montague C, Norman,
cio bank of EngiNad,
London, Idgland.




Montagu O. Norman, Esq.

hope may be adopted, although it is not yet decided.

81 1921.

This seems to be a rather

Cerent view of our refunding problem than that suggested in your own letter about
the conversion of the national war bonds.

Our view has been to keep a series of

maturities constantly in front of both the Treasury and the Congress.
most impressive

!ligament for economy in public expenditure.

It is the

If we refunded all

of the present floating debt, including the Victory Loan (which I regard as quite
an imposEible undertaking), I fear Congress might take the view, as did that famous
borrower, that having succeeded in signing a note his debt was paid and he was now
free to continue his riotous living.

I hope th© new Chancellor proves to be all that you would have him as an
associate as well es Finance Minister.

Secretary Uellon, ehile a man of very few

words and of great diffidence and modesty, is I believe a man of prompt decision
and sound financial wisdom.

if the politician:, will

let him alone so that he has

rime to think about his job, I am hopeful that we will have a first-class Treasury
Department administration.

My fear about the reduction in rates by your treasury did not arise from
the mere fact that a reduction had been made, but rather that it indicated the

possibility of a reversal of the old problem which could mean that you would need
to reduce shenever the treasury reduced and vice versa, with the possibility of
getting out of line with true market conditions so that your ways and meenn advance
account would again begin to roll up just because the public would not take the
current issues of treasury bills.

Putting it the other way around, if the publid

did take treasury bills under these conditions, it would really be


the result

of an inflated condition.

In conclusion, I do not see th© possibility for the moment,, of important
rate reductions by the reserve banks, and especially not here in New York, ec long
as rates in the market are still considerably above ours.

Montagu C. Norman, Eeq.

April 18, 1921.

I have seen nothing in the press, and heard nothing from you finally in

figerd to your re-election.

Has this taken place?

It is a matter in which we

have a feeling of deep interest and concern.
The appearance of the first number of "The Gld Lady of Threadneedle Street"
has given us a real thrill.

You may, in fact, see some note of it in an early

number of our Club magazine.

Finally, how do you defend the proposed schedule of reparation payments to
be made by Germany ehich contemplates building up these payments on an increasing
scale until they reach so large a figure as 6 billion marks, and then suddenly stopping all payments:

It would appear to me that, assuming that Germany is able to

pay, (which i doubt), this plan might result in the re-creation or GerTany's war

making ability, with a budget at the end of the 12 years almost completely designed
for the re-establishment of the war machine.

nhy would it not have been preferable

to have the payments increase over a period of 25 years, or slightly more, and then
decrease for a period or 15 years, or slightly lesul
with warmeEt regards,
Sincerely yc,ure,

Montagu C. Norman, Esq.,
c/o Bank of England,
London, England.


April PC, "P".

Dear Norman:

Not at all to my surpriae,the pressure for reduction of rates, to which
I referred in a recent letter, has crystallized in Washington, and even gone so
far as to result in the introduction of bills in Congress providing that the rates
of discount to be established by the reserve banks shall be limited, in the case
of one bill to 8%, and in the Ch86 of another to 5%.

Our difficulty at the

Capitol largely originates with the agricultural interests of the country.


farmers have been hard hit by the decline in the value of almost everything that
they produce.

Many of them failed to bell last year's crop promptly and they

are consequently heavily in debt still, and at a time when they need to borrow
money for the purpose of making the new planting.


due, I fear, in a large number of cases, to their own unwiedom in speculating in
their own produce.

this condition

On the Ether hand, they feel the pressure resulting from



We are beginning to feel it, and I was only

yesterday advised of a very determined effort, originating I regret to say, with
some members of the present administretion, to bring about a reduction in the
rate of diecount of this bank, and of some of the other reserve banks, if not all
of those which have rates above 8%.
Knowing that you would have an important decision to make this week,
it seemed best to keep you posted by sending you a cable as per the confirmation
enclosed, which was dispatched yesterday.

I still have some hope that action

can be deferred until conditions more justify it than at present.

:ear chief

difficulty undoubtedly lies with Congress which, even with the best intentions,
may be led into unwise legislation, if our reeistence is too determined to I!,eet

April 28, 1921.

Nalteir extreme views.

Another week or ten days will probably dieclose just what

has to be done to avoid the possibility of some extreme or unwise


I am beginning to
may be that we can hold our present position indefinitely, but
doubt it.

This comes as an unpleasant surprise after our Conference in Washington,
where, with one or two exceptions, everybody agreed that lowering the

rntes was unwise at the present time.
You see, we suffer from somewhat the same difficulties that you do.

Yours sincerely,

Montagu Norman, Esq.,
c/o Bank of Enljand,
London, England.



May 5, 1921.

Dear Woman:
4hile I was able to send you a preliminary warning of possible rate
changes, the situation was such that no definite prediction of our action could be
made until the hour of our meeting.

My various lettere and cables to you may

have given the appearance of vacillation, so I shall explain the circumstances in
some detail

for your personal enlightenment, but would rather that you regard my

letter as quite confidential.

the effect of the great price li-ridation which we have suffered in this
country has been more felt by the agricultural and live-stock classes than any

They are themselves partly to blame, but some responsibility also rests

upon agitators and politicians, who started an organized propaganda last year, and
to some extent the year before, to induce the farmers to withhold their crop from
the market.

It was the same old talk of 50 cent cotton, and X3.00 wheat.


result was that many of them were caught carrying their own crops, in which they
were in fact speculating.

but, I firmly believe that as to the great mass of these

people they were the victims of circumstances over which they had no control.


crops are made very largely on borrowed money, and the sudden decline left the
farmers literally unable to dispose of their product for sufficient amounts to
liquidate the loans incurred to make the crop.
With this situation widespread in the West and South, enormous pressure
has been felt in Washington from the agricultural sections of the country that
measures be taken to ease up credit conditions.

So far as I can discover, the

pdemand came from no other class than those engaged in agriculture.

They mh.da an



Montagu C. Norman, Esq.

May 5, 1921.

of three-year notes, and of short Treasury certificates sometime next week, although

he particulars Enclosed is the confirmation of my private cable of yesterday; also a co
have not been definitely agreed upon.
of our circular announcing the new rate.
After receiving the first copy of the new magazine, "The Old Lady of

Threadneedle Street," I offered a little prize for a poem relating to this import
event in the history of the Bank of England, and the prize was awarded to one of
men in the Statistics Department.

Enclosed ie his reply, which I thought would

interest you to read.

There is not much in the way of news to eend you.

I would greatly

appreciate a letter from you telling me just what is going on in the coal strike
situation, and what you feel able to send me about the Reparation dispute.
so much that is unreliable, that a word from you would be most enlightening.
tith kindest regards,
Yours very truly,

Montagu C. Norman, Esq.,
c/o Bank of England,
Threadneedle Street,
London, England.

Enos. (4)

We h


May 13, 1921.


Dear Norman:

I an grateful to you for your note of April 29, enclosing a copy
of the Statement of Claim just issued in connection with the Soviet Gold Test

Jn first reading, it impressed no as being almost hopeless, just as

you said.

At the seas time, I have read a cable from London, dated May 12,

published in the New York Times, describing the decision reversing the lower
court in the so-called "veneer-wood" case.

The distinguishing dIfferonee between your position and ours, lies
in the so-called trade agreement.

I hive alweis felt that with that trade

agreement in existence, your courts were likely te brush aside all technicalities
in favor of a de facto Russian Government, which would involve recognizing all
of their titles, and thin, as I construe the cubic, is about what the Court of
Appeals has done.

With us, however, all of the acts of our gevernment appear to have
been consistent refusals to recognize that Russia had a de facto or a de jure
government, or any other kind of a government, with which a civilized government
could deal, and if our courts are governmd by the same principles which seem to
have governed your courts, it would

clearly imply that we would recognize no

titles es resting in a government, the existence of which our government declined
to recognize.

It might be a good plan if you could give us some information as to the
test shipment, to which you recently referred.

For various re:es:0ns, as I think

May 13, 1.221.


I wrote you, we are now only purchasing at the bank gold certified to be new
production of the mines of the British Empire; but when the congestion in the
Assay Office becomes somewhat relieved, we may decide to extend the scope of
our purchases, and it would be well for us to know something of the character
of the gold now being shipped to Morgan's, so that we would not be in danger
of rejecting gold simply because we were unable to determine whether It was or
was not shipped for the purpose of waking this test.
Of course, we have not brought, this matter to official attention.

We think it might De well to explain to some of our Treasury officials your

I cannot say that it will do any harm, and it may facilitate getting

a clear issue established.


best wishes,

if necessary I hope yuu will cable me.

Ray 24, 1921.

My dear Norman:

Under separate cover, I am sending you a marked copy of the
Federal Reserve Club Magazine, containing the poem (if such it may be
called) commemorating the appearance of the "Old Lady of Threadneedle

The poem which received honorable mention, thLt iE, which was
regarded by the committee as next in merit to the one published is enclosed herewith.

We do nut claim great merit along literary lines, but possibly
the sentiment will appeal to you and your colleagues.

I have a most interesting letter from you, which I shall defer
answering until my return from Washington, where I an obliged

With warmest regards,
Sincerely yours,

Montagu C. Norman, Esc.,
c/o Bank of England,
Threadneedle Street,
London, England.


oo Up-



A new magazine, of a very high rank,
Prom England, produced by the Staff of the Bank,
A journal of general interest, you see,
Was sent over here by our bank vis-a-vis.
A shilling its price, the volume is I,
Of number the first, dated march '21,
With art of the best, 'tis an issue complete,
And called, "The Old Lady of Threadneedle Street."
The frontispiece pictures a fair knight of old,
With visage sedate, despite ringlets of gold;
The Latin word "Salve" next catches the eye,
"Te Salutamus, Old Lady," we cry.
Their Governor Norman, Mr. Trotter, D. G.*
Sir Nairn°, the Comptroller, sir Harvey, C. C.**
Did see qolanthe" an opera played
By the Bank's employees in fine raiment arra:,ed.
So though it's a tryo and not very old,
ar. are sure that all honor 'twill reach and enfold,
And we wish it the best of success, B. of E.,
may it soon rival that of our own F. R. Bt

* - Deputy Governor.
**- Chief Cashier.

March 21,


My dear Norman:
I have before me your fine letters of February 17 and 22, and toe day
received yours of March 1, much delayed in arrival for some unexplained renson.

I was greatly interested in the comments contained in all of these
letters on general subjects we discussed so fully in London; that is, the drivel/
All of
for lower rates, easy money, and a more liberal discount policy, etc.
this we have read of in the prose dispatches, and we have heard a great deal of
it from various quarters here, where the pressure of liquidation has develpped
One of the officers of our Government, who has just retired from
weak spots.
It has originated in
office, has been an urgent advocate of such a policy.
various parte of the country, where distress is felt due to the sharp decline in
the value of agricultural and farm products, such as cotton, wool and meat, but
so far I have been unable to determine the slightest indication among my own
associates in this bank, with the Federal Reserve Board (with the exception of
one member, recently retired), nor in fact with the Secretary of the Treasury,
Only yesterday I learned
that any moth policy is justified by conditions.
definitely and authoritatively that the remark attributed to the Secretary in
regard to rates, which was cabled to your side, waz never made by him at all.
The newspaper note to that effect may have been what we call "flying s kite."
We do see, however,
In other words, an attempt to draw a statement in denial.
that you have been subjected to insistent pressure and almost every day I 40
asked by banking or newspaper friends whether your rates are not likely to come
down, and whether that will not necessitate a, reduction in our rotes, or whether
we may not reduce our rates and so necessitate a reduction in yours.
question is propounded directly, indirectly, by innuendo, subterfUge, and in
So far,
every form which eight be likely to disclose our policy and position.
we have maaaged successfully to avoid any disclosure of what we believe the
It is more than likely, however,
future policy of this institution should be.
that we will be subjected to pressure of the same character as as encountered
last fall, and as you apparently are encounteri -.g now, for lower rates. This
may be of political as well as general origin, and we do not look forward to such
It likely will not arise until after Congress
a development with much pleasure.
meets in special session on April 11th.

The sale of certificates of indebtedness, of which a minimum of 400
millions was offered, with choice of aix months at 5 1/2%, or one year at 6 3/4%,
resulted in subscriptions of about $620 millions, and the large number of sebecribere,
with the wide distriattion evidenced on the original subscription, indicate:6 that
the market will absorb the *hole ISM, very promptly, without expansion of bank
It also indicates that the slight rate
loans for more than a temporary period.
redsiotion by the Treasury of ]loth of 1% was justified by market conditions, particilarly as all reserve banks are now charging 6% for advances upon these certificates, and the banks which subeoribed for them must have felt certain of marketing
Sooething less than 500 millions
them promptly or they would not have gone so well.
Our problem in connection with
of the subscriptions were accepted by the Treasury.
the Governmentee borrowing is to fix & rate not so attractive that the banks will be
induced to hold the certificates ZS, a profit, nor so low that they must be forced


C. Norman, Esq.

pending in in Congrees to permit partial settlewent.

if it passes, the Treesury
will borrow the money on certificates of indebtedness, which rill be taken up
by investors and not by the banks, with the result that the railroads will ply
off their current borrowings and pay off their outstanding account& for meterial
purchased, end reutiy facilitstc bank liquidation.
The other difficulty
arisee from uncertainty on the part of commercial banks at to what sort of
credit etatezente, will be made by the large induetriel and commercial borrowers,
following the tremendous decline in comeodity values. Hesitation in taking the
paper of theca concerns, pending the iseue of stetemente, her led to ths bidding up of rates for commercial accommodation. The statements have been delayed in many instances beceuse of the necestity of conferring with tex authorities
as to the valuation of inventories. This will gradually clear up as the 15th
of March, which it tex day, approachee.
Stock Exchange Liquidation.

Confidentially, we have here experienced the greatest linuidetion
in New York, of any single department. Stock exchange loanc are now riot
probably over twoethirde of what they were ut the ',leek of laet year, Aad a
very large proportion of the emeunt now eseried has been transferred from
New York banks to interior banks.
Government. Borrowings.

This Congress bae very confidently voted eppropriatione of about
5,000,000,000. I fear they have eVerleeked the fact that we are liable to
experience a tremendous reduction in recei2ts flow Income and excess plefite
taxes, due to last year's lieuidation, and whet with the railroad settlements, and with the vaut program of expendituren referred to, we may see the
Government short borrowings considerably increased.

Thin is increasing right .along, and movements toward wage reductions are successful in many lines, nitheugh ee far completely unsuccessful
in railroad weger which are governed now by a war-time agreement, and in the
building trades which have co far teen oieratine under mgreemente in this
section, and I believe, generally in the larger cities. Ilhat is observable,
however, and very markedly cc, in the increasing efficiency of labor.
the war, a good workman war laying only 500 bricks h day, and working et a
reasonable capacity could have completed a day's work in four or five hours.
In our new storage building, we got an average of 1,000 bricks per man por
day, but there were a goad many men standing on the other side of the street
waiting for jobs. The same is true of other cities.


The etebilieint; effect upon the miadc of both bankers and buseineee
nee, brought about by the existence of the Federal Reserve System, and its
succeeeful operation durinz, the part four or five years, hae done much to
enable us to escape comeerciel aad bank failuroe during this unprecedented

pereenei view could be that after F. period fM' Some activity
this spring, when the fermere are planting their creperbuying their supplies
for the -etive eeeeen, the limmer will see uo relapse inte n very dull period,
and if the reserve bank rates are maintained, as I hope they will be, liquidation ail' extend into the retail trede, to sone extent to labor end wages,
and then at last we %ill see tank loans and currency being reduced.
I em very luch miAaken, e have had the worst of the shock, an the eocelled
clarsicsl "panic" period is ptet.

i observe with much interest the evidence of tight money in your
market, which hes n:t eurpeired me after that ycu raid about the tee situation.
that I do not understand is the abandonment of the excess profits tax
at a Uwe when till tee revenue: will autometieelly decline.
Is it en indication the! your Chancellor believes, that he could afford to abandon this
revenue, :Amply hocause it had abandoned him?
i would give a good deli fur a chat pith you just now ebcut pelitics,
and the like. Various indications thee reach me, encourage me to believe that
our new President will 'neve some very etrong men in his Cabinet,, including,
I hope, Hughes, Hoover, Hayes and Vteeke, but the final announcement hes, not
yet been made, except es to Hughee.
1 hope your holiday AMS all that it shoulo have been, and that you
ere net overworking again.
Please do not disappoint me about the photograph.


warmert regards,



Sincerely yours,


C. Nermen, Esq.,

Governor, bank of Engleenr1.,

London, England.


March 16, 1921.

Dear Norman:

Enclosed is a copy of a note of introduction which
I am sending to an old friend of mine, who is proposing shortly
to visit London and Paris.
Our association terminated some
years ago, but he is a fine fellow, and desires particularly
some letters to bankers.
I shall only esk that you give him
an appointment if you are not, too pressed to be able to do so.
told can tell you a good deal about conditions in the northwest of our country, %here he have been struggling, as you
know, %itb a very extreme socialistic aovement.
I have two fine letters from you which will be answered at a later date, as I want to give a little time to preparing
a letter which will tell you something of value of what is going
on here, but absences in raehington have made it difficult to
find the time.

Grenfell is here. He was good enough to lunch with us
at the tank yesterday, and to-dy I met him again at a luncheon
given by Lamont.
He returned frog his cruise looking as brown
as a. berry and very well, but in great ignorance of what had
been going on, as he hack been quite out of reach of mail and

I went over sore of our recent cables with him and have
no doubt that he will take back a better report than I am able to
put in writing about what he learns of conditions on this side.
With warmest regards to you, and all at the bank,
Faithfully yours,

Montagu C. Norman, Esc.,
Governor, Bank of England,
Threadneedle Street,
Londo::, England.





March g14 1021.
C C. Me rman, Esq.

In other words, they oust be sufficiently
upon the beaks and oannot be resold.
unprofitable to restrain the banks from holding then but sufficiently profitable
induce the public to buy them; and, that is exactly what happened with this
.It will give you a line upon our market sentiment and conditions, because
commercial paper is selling at 7 112%, the rate for stook exchange call loa.-s its
The general feeling
from 5 to 7%, and the rate for prime bankers bills about 5%.
of uncertainty about the goodness of oommercial loans and credits induces many
individuals and corporations to buy Treasury Certifiostee, 'Mob is also indicated
by the fact that the year certifioates sold in larger volume then did the ix months

I want to give you a little view of general busineee conditions.
The steel bueiness is literally going
but few exceptions, prices are still falling.
to pieces, the United States Steel Corporation now operating considerably under 50% .
of capacity, and the independent steel mills somewhere from 20 to 25%.
business as is being taken I believe reprevents considerable cuts from quoted prices,
but steel prices cannot go very much lower so long as labor rates are sa.tntained,
and that wage policy seemb to be the policy of the Steel Corporation to the "last
Common labor in New York has now been much reduced.
Vie are undertaking
to get figures on wage reductions &ad until they are essembled I shall only say
generally that the cost of labor i* coming down, but the real crisis in the wage
adjustment will probably not arrive until the railroad labor problem has been dealt
The earnings of a very large
Railroad traffic has literally welted :may.
percentage of the mileage represent little, if any, margin over operating costs, and
the railroad oompanies, in despair, are making an earnoot drive not only to reduce
labor costs, but to make it eore efficient, and also to get rid of the useless working men whu were forced upon them during the period of Government operation, who do
little more than stand around and draw a day's wage for a very few hours work.

The great price reductions of ehici we have kept you advised are now being
reflected in the annual statements of condition of the large borrowing firms and
They show loeces on inventories of such extent as to make it
difficult for the commercial paper houses to sell the usual volume of commercial
paper which these conoerne generally float in the market; and, of oouree, the pressure
on the larger banks where these borrowers keep their bank accounts is by so much the
All of that we feel in Ie. York more than in any other part of the country.
The decline in cotton, wool, meat, copper, etc., has been extremely severe, and,
probably, in these and some other important oomeoditiee quoted prices are below cost
One of them is in the reThere are bright spots here and there.
of production.
tail trade which keeps going astonishingly well, oonsidering that prices have not
yet been very much reduced.
But, it is u fact that new goods are coming along at
very muob lower prices, due to the reduced cost of raw material, and these goods,
in competition with old etocite, are having a competitive effect upon retail prices,
which ere, and will continue, declining.
If there had been no Federal Reserve System in this country, bankers would
now be inoisting thit borrowers pay their loans, and, were this to Throe sacrifice
sales of inventories st prevent euoted prices, we would have a long list of ioThe assurance given to beakers
solvenoiee, closing mills, unemployment, etc.
generally by reason of the existence of the reserve system has resulted in a much
more temperate and courageous treatment of this whole credit eitustion than in pest
times of crises, and makes one hopeleil that we may escape the worst effects of this
period of prioe reduction.
Temporarily, our reserves show improvement due to the lart certificate
I shall not explain the technical reasons
sale, collection of rococo taxes, etc.
which cause this, but it is usually the case on our quarter days, and we are taking
advantage of thin occasion, ellen our reserve percentage is artificially enlarged, to


Montagu C. Noreen, Eee.

March 21, 19E1.

change the, eethod of calculating reserves,, to one much sounder in principle than
*.he aethed formerly employed, which has the effect of reducing the reserve percentage
-about 1 1/2%.
Thic will show when the effect of the Government'e borrowing and tax
collection wears off.

There are certain special matters mentioned in your letter that I suet
refer to.

As to Soviet Ruesia; we get intimations that gold from Russia is creeping
into us Lhrough various roundabout channels.
They say some ill coming through Mexico,
that some ie cowing from Sweden, and even Prance.
it is a diffioult matter for UB
to deal with and we have put the responsibility squarely up to our Governent.
the gold is eelted, say, in Sweden or in France, or in Mexico, or even if they receive Soviet gold, but keep it and ship us their own geld in place of it, boa can we
very tell check the movezent?
They eight even ship us their own coin for an &mount
equivalent to the eeount of Russian gold received.
This whole gold matter is
giving us u good deal of concern.
Tre hive received from the prevent movement over
the past twelve menthe, or se, 4735 millions in exceee of that we have exported, and
it still continues to come.
hence ay cable to you, the reply to which hat just
reaoked me.
I ahell write separately en this subject, t5 ee shall likely ask you
to help us deal with the matter.
It does net look as though the trade egreetent *bleb you have entered into
with Soviet Russia will be very popular over here.
Certainly, from a. distance, it
has more ef the appeerance of a political meve than a sound business venture, et
our people seem skeptical of the possibility of any deeireble business resulting,
with the peoeible exemption of such limited sal* of goods as may be paid for with
"tainted" gold.
The flood of security issues here seems, temporerily, to have been arrested.
1 guess our markets were getting a little cungeeted.
We had quite a number .f
foreign loans, ant eons domestic loans, all of which usre geiag pretty well until a
few weeks ago, when one or two failures, or at lest only partial suoceesea, slowed
up the offerings.


I au interested in what you write about the Imperial Bank.
Possibly you
have talked with the Secretary of State fur India, sod he pay have told you what 1
Redd Le him after you left London.
I have gone over the mezorandum entitled
"Central Bunke," numbering the peragraphe free one to twelve, and enclose a meworandue in reply, to which I have added paragraphs :3, .4, and 15, which I hope sill be
of some aid.
Your own memorandum covered the ground pretty thoroughly.
While I
was in India, although not attempting to make any special study of the subject, I
nes struck by the absence of a well orgaaieed method of dealing with the domestic
exchanges, collections, etc.
The Imperial Bank with its system of branches, and
with its expert knowledge of native credits, sere of the inland bill, should be in a
position to deel with domestic collections and exchanges better than any other.
Such a scheme could be made to synchronize with currency and redemption operations,
end, I ahould think, would very much stabilize banking operations.
I was told
that large denomlnatiwok Rupee notes are soretimen sold :t a premiun in various
cections of India, because of their convenience in effecting interior settlements.
Possibly the Imperial Bank might take a leaf out of our book in this matter, but
the important thing is to persuade them, or require then, to conduct their operations
in London with you, in harmony with your policy, and so as to avoid such 4 situation
as has developed in Australia.

Montagu C. Mormon, Seq.

March 21, 1925.

Ae to the latter, we were having such difficulty in getting settlement of
ellections and accounts, that permission was granted to our banks to accept finance
rills, that is, bills drawn in settlement of oolleetions, end our banks, generally,
offered these facilities to their Australian correspondents, but so far se I can
learn the offer has not been generally availed of.
It might be in the iatereet of
the Commonwealth if the Commonwealth Bank used some sterling balances for the purpose
of making settlemente in the eountry.
exchange on New York hae been quoted in
Sydney and Melbourne at a considerable premium.
Cuba, as you know, has been struggling with a bad banking situation, largely
brought on, I fear, by improvident management, of the local banks, but to a great extent by the sharp decline in sugar.
Their election having been successfully concluded, with General Crowder there representing this Government in e general advisory
capacity, I look for improvement.
A comriesion has been appointed, consisting of
a few experienced men, to advise the Preeident cf Cuba, in regard to banking and
financial mattere, end the general economic situation, one reaber of the commisaion
being an old associate of mine, Mr. Oscar Welle, formerly Governor of the Federal
Reserve Bank or
-nd now Freeident of the First National Bank of Birmingham.
He happens to be in Sew York lust now and toile ee that eonditions ere really looking
up, although slowly.
A new sugar crop will be needed to help them out of their
difficulties, and I have no doubt that it will be suocessfnlly financed.
You know
they have no currency of their ern, American currency circulating eery freely, particularly notes of our Federal reserve banks.
Their favorable trade balance has
given them commend to cur paper money, and now they have put en netarge upon its
export co tht they probably have a redundance in circulation.
There can, of course,
be no depreciation in this currency, although during the moratorium period checks
drawn by depositors upon their local banks have sold at tremendous discounts, ecn,le
below 50% of their faoe value, and the effect of this has been to linuidate deposits
and loans to such an extent thet the condition of come of the banks has been much

Unfortunately, Ise have a situation in the Philippines which requires drastic
I fear it is duo to miamanageetat, rather than to inherent unsound conditions.
You probably have heard stories of the difficulties of the Philippine
National Bank.
We are urging our Government to step in and tike authoritative con-

trol and give necessary assurance to the bank's creditors th.t their interests will
be taken care of.
Their difficulties largely grew out of speculation in exchange
by the manager of their Shanghai branch, as well as making some slow loans in Manila.
If our Government taker vigorous eteps to clean up the situation, I have no doubt
it will be handled without loos to anyone, except possibly the Philippine Government;
that ie, the stockholders, of which the Government is the largest.
What you say of Mr. Kiddy's correspondence I really understood without
hearin6 from you.
It would, as you say, be a thousand pities if our two institutions
were accused of getting up a "money trust."
I have always taken the position that
both you and we had three possible courses in our relations with each others One
was to deal wholly independently with our respective problems, without any relations,
and in complete ignorance of what the other was doing, in other words, to ignore each
other; another might be to pursue a wholly selfish policy, each disregarding oompletely the interests of the other, and possibly pursuing a. policy antagonistic tc the
other; and the third light be to adopt a policy of complete understanding, &nd &zebu**,
of information and views, and to cooperate where our respective interests made it
Bow can there be any choice between these three, nor any ground of complaint, so long as we are right and not afraid of our critics?


Montegu C. *omen, Eel.

March 21, 1921.

As I explained to you in London, ye keep no register by numbers of our
The only exception being gold certificates of large denomination,
'Ot'a iSBUSO.
erkere records, I believe, are kept by the Treasury Department, but these of course
are now very little used, the great bulk of the certificates being in the bands of
We Dave always felt that the advantage gained in keepthe 1044era/ reserve bunks.
ing such a register wee trifling ie return for the enormous cost involved in a
country where the volume of ourreney in circulation is tiO great an with ue.
A letter recently re1 am no glad that you had a nice visit with Ben.
oeived taco him gave a glowing account of your hospitality and bin reepp4ion at
I consider it a great compliment to him, and to me, that you :should
the bimWhe
have giren him the opportunity to luneb with the directors, and appreciate it ex
Ben and his brother reterned from
thoroughltae he did, which in a great deal.
Surope Saturday, both of them looking exceedingly well and very-glad to be back
Also, many thanks for the little parcel which I will greatly value, more
oven that you realie, although I bad circumvented your modesty about your picture
during a recent visit with Moreau emlano, when I found that he bad an extra one,
which he was good enough to give me.
I expect shortly to write Sir Ernest Harvey in regard to the atLempl/ at
He was good enough to vend me a report, -clad the people in our Bureau of
Engraving and Printiak I hope, will have some suggestions to flake about ink, with
a view to protection.

The Winslow bill euthoriaieg a more prompt method of repaying the
4e expect the
Governmentse debt to the railroads has been passed -tad became law.

present payment to be about MO millions, and ultimate total payment& of about
But, after all, this ends railroad payme:1Le, vhcreas
$.140 millions, on this score.
duriag the last twelve months, or eo, the reilroeds, one way or another, have taken
a total of one billion dollars out of the Treasury, so you see there is an enceureging
outlook as to Government expenditures on that account.
Just now there seems to be a gradual influx of foreign visitors which has
British, French and
a significant, but I should not nay ominous, appearance.
Very privately and confidentially, all that I have
Japanese are here or coming.
been able to learn of the policy of the new administration in matiere in which you
and we are both interested, it rather encouragire in the belief that it will be
I an sure that they Root to du the right
neither Bourbonistic nor reactionary.
thing, but they will suffer through having so few of the old responsible heads of
Ie have, ou the whole,
the t3overnment at hand, mho know the history of the past.
a very good Cabinet, and the Juniors for the various departments, I learn, are
I sincerely hope that we say ohortly start upon
being chosen with great care.
period of constructive work of reconstruction, and Chet this country will on its

I am not at all hopeful about the Ter ieulen scheme end have tecol,,e diuoonraged of the success of the prodoee4 large export credit corporation which is
being organized under the provisions of the Edge law by the American bankers.
This scheme has encountered rough weather, the. banks are beeit?ting about eube
scribing to the stook, and, I rear, that it will oaks but a halting start, if it
They were a bit too ambitioue, apparently, and they in common
starts at all.
`with Ter Mftlen, overlOoked the fact that the volume of business to be done ie
limited, not by the amount of capital which can be raised by 'thee ieruee or
borrowings, so much as by the quality of the business which is available to be
done abroad, and people are now learning that the political risks inherent in
Central Europe are :till so grave as to require insurance before capital can be
invited into such enterprises.


Nentagu C. Noreen, Esq.

'arch 21, 1921.

Replying, now specifically, tc yours of Narob let, the Prize Vlinieter
aeons to have encounter ©d the sane difficulty which we have all encountered.
export credits,
-e)ems unwilling to deal with thinge MA they are in this setter
and prefers to emphasize a hypotheticel condition 'hick be would like to create
but,:pstant well create no long te the riekesof exchange and 2olitice1 uncertainty
I cannot for the life of me ese what object it gainere as grave as at present.
ed My asking the bankers to make bad loans end then blamini the* and abuoine them
I wee particularly pieesed to get your explanation of
if they do not sake them.
the incident, which makes the situation clear enough.
It would be a pleasure to tee Lord Chalmers :then hN .trrivsP it' r have
The President ben !appointed, 1n1 the Senate conthe opportunity of doing so.
firmed hire Eliot Wadswo-th as Assistant Seeretary of the Treasury, to duceeed
Nicholas Kelley, who in turn succeeded !fir. Rethbane, in sherge at rereljn Loans.
4adeworth is a very old and intimate friend of nine; a eplendid

1J1 he was thy operating hoa.1 ,)!"
t111-:)Ft th'
,antiro war period.

considerable knowledge ,)[.' European conditi,Ins,

the AmerIcen Red Cross under Davison during
was formerly a partner of the firm of Stone A. 'Webster: you will recmll meeting
He is still ewe of our directors.
Mr. Stone recently in London.

Ahat you nay about Ben Guinneee wee net Kiri:rising ae root Americenc
who visit Europe, i fear, tzeume to know a good foal morn, about our policy, :Ind
about such !hatters es mmodtteconditions here than in eleeys .1ustified.
I have written you on this subject ie,Absolutelyethe fundamental and centtolling
Until thet is
factor, that is, the debt of member banks to the reserve bank.
much reduced, or until we reduce our rates, I h'.rdly ceo how money conedtione
it has been estimated thee. te reduce the loan and :nveetvent sccount
can ease.
of the reserve banks from three billions to one billion v.ould in turn involve
a loan contraction by all the banks of the country, running ell the ek'y from
four and a half billions to nine billion dollare, according to the varying
views of different estimators. Ity own view is about halt ray between these twc
extremes, that is, from six to seven and a half billions, although it is little
As a natter of fact, tae loans of ell of tbe tanks sf the
more than a guess.
country, according to our present eetim.ten, have ectuttly been reduced celly
meeething like 4%, while tso contraction, such as I have ireiiceted, means about


In conclusion, and for your own eye, I want to -vrite that my beet o;:inion,
Just now, is that we ebould maintain our rttee or this side unleee we see, Is :Ain
may be possible, that the preenure in so erett that it ney force ioeelveneies that
Are not the result
In other words,
',all "legitimate."
are, what I might
of improvident, reckless speculation, and adventures, but are simply the misIf our eitue!,ien ehoted beeeee serious
fortunes resulting from price declines.
on that score, it night be that we would be forced to modify our policy.
a conference of the Governors of the reserve banks has been called -t washington
for April 12, when we are going to get down to "bard pen" end discuss a policy for
the whale system, exchange views, and, I hope, develop eomothing constructive.
It is still too soon to form any estimate of whet the ?obey of our Government, and
So many queetiene are
the nountry generally, will be as to foreign finance.
pressing upon ue, such ee our new tax and revenue leginletion, possible tariff
legielationi relief to the farwers,Fa,great p1611 of 'depertmentel recrgeninatien,
( MML, you will observe, are domestic quectiun3)
which, the President bee in mind,
that I. fear, that the development of a national policy in this particular natter

March 21, 1921.


I have dictated the above just as I would talk to be of very plow growth.
you were I at Thorpe Lodge, and apologise for the length of the letter.

With warmest regards,
Sioatirely yours,

Montagu C. Norman, tag.,
Governor, Bank of Bingland,
London, angland.




Yes, without euestion. v


lee, without question.


Yee, with possible exception of nearby dependencies.


Yes, without question; understand this to mean coe.merciel
business with the public.


Yes, without euestion. v


Yes, without question.


Yeo, except that such protection can only be effectively
afforded by one of two methods:
(a) By doing a more general commercial business than
is done by our Feder/11 reserve banks, which
deal only with their member banks, or,
(b) By supervision of banking in detail, such es we
have under the Controller of the Currency.
In this connection, it should be noted that
bills are pending before our Congress, to
transfer all of the functions of the Controller
of the Currency to the Federal Reserve System,
and when this legislation becomes law, as it
likely rill, the supervision of member banks
by Federal reserve banks will be fairly cemplots.


Yee, eithout question.,


Yee, without cuesticn. '/


Yes, except that occasions will unavoidably arise ellen rate
policies cannot always be edo;.,ted, which will aeoid
some conflict, greater or less, according to circumstances and conditions; but, the principle of cooperation should be complete between the central banks, and
where an agency is established in another country the
policy of that agency (if not a central bank) should
to to observe and conform to the policies of the
central bank in the country in which the agency is located.




Yes, without question.

without eueetion.e

To the above are edded:




The central bank should act ae the settling agent for clearing
house balances arising between the banks of its own country,
and to the Ilidest extent practicable.


Should, according to our experience, 111.:Indle domestic collections

for its members an3 so regulate the domestic exchanges.

Should have power to nxanine banks which core to the central
bank for credit and assistance.





My dear Norman;
e.eplying to your letter of March 7Ith, comrenting u;'on Mr. f:7ayder's

eemoreneum, I hope you understand that material

th t character is prepared in

our information department by Len who invariably have their own point of view, with
whom Mr. Jay and I are not alrayc in complete egreement.
As to ey own cem:ent in regard to the preferential rate; the total loans
held by the Federal Reserve System, secured by gevernment collateral, and

hich en-

joy a preferential rate (now SF is act of the reserve banks) aggregete no less


then one billion dullare, cur on proportion of this total being neerly

I have long been convinced that in theory this preferential rate is a mistake, thet
it encourages borrowing, and has no relation to the government's finances, and is
merely one outlet through which banks eey seek and obtain credit free WE at rates
which are not justified by general market conditions.

on the other hand

to have reached about the maximum of borrowing of th :t character.

we seem

At oeo time it

comprised over 80% cf all of the System's loans, and hes new been reduced to a point
Idlere it is only a little over 405; in fact, this particular type et7credit seems

to be taking care of itself pretty well, and were ee to increase our rates to
the effect would be, first, a very sharp decline in the government's bonds;

second, a acre urgent demand than now exists for borrowers to li'uidate leans secured by government bonds end, I fear, some distress among corporations, firms and

individuals, who patriotically subscribed for more possibly than we prudeet, but
are still willing to hang en to their bon is for better days.

The loans, in a senfee,

are froven &imply because the holders ere reluctant or unwilling to sell their

Montagu C. Norman, Esr,.







bonds and take losees of 10% or more, or else are unable to reduce the emeunt out

0 Sof

current sevinge by a moderate amount each year.

The time will core, I hope,

when this differential can be eliminated, but to do eo now would invite n very sharp
and dangeroue contraction beyond what has already taken piece.

The other comment in regard to Mr. Snyder'e memerendum, I thin
fied, and I nhould have explained it in my letter.

is justi-

Mr. Thyder lel a determined

believer in the quantity theory of money and creilt.

He eees an imeenLe

in the value of staple cenwodities with a very eeell correrdendin6 decline in back
credit, end believes that unlese bank credit end currency 18 ?oreek.4 to contract in

a volume cerrespending to the contraction in the v-lue ef comeeditise, the invariable

result *ill be that eomeodity pricee wall rice again in response tv tLo maietained
volume of credit.

?y ewe belief in thet the, charts exhibltiag tiel

riwetion pro -

sent an enpirioel picture rether then an aaaly1:%1 picture A. Lbb sttution; bank
credit ia greduelly declinia3, but the rate or reduetier

beck nee e erd currency

it measured not by to !ell in ?rice,, tut by the raiidity at *hick, sales take place

at the lcer level of prices.

tei have etruggle,

for wipe yeerF

vi a2 of

those eho rather eleviehly Mick to elle Leentity theory ef eeaey, essumie: to_tt it
expleincd ell of our rinanctal ead economic ille,
and currency is the invariable eeuee of higher prices,

th9.t An increase in bank loans
tkt are unwilling to accept

the view that eometimes bank leans and currency exiele:i in

which arise free. other ceuaes then the "eutatity" ef none

have recently written you fully

espenee Lwx e
or credit.

n regar:!. to retee end policies ,eneral-

ly, so trill not repeet.

Whet war quoted incorrectly about Mr.

was unfo:tuantm.

Mj meatinge

with him recently have failed to disclose the clightert inclination on his dart to
bring about e reversal of policy, and I gather that he Is a can who 'mill see very

much influenced by the counsels of his associates; in feet, in one of the luat men
to attempt te dominate the policy of the System, as might have been indicated
by the ouotatione in the newspapers.

I wouie certainly have cabled you had it


;!arch ?8, 12P1.


March 28, 1921.

My dear Norman:

The news contained in your letter of March 14th, just received, so far

as it relates to yourself gives me imense satisfaction.

It means, I hepe, that

you will remain as Governor of the bank for at least another year.
The other changes, to which you refer, are not a surprise to ee as both,
I recall, were anticipated es possible when I ras visiting you.

The appointment of hr. Peacock should be not helpful in connection with
your proposals for Canada.

I an frank to say thet while the Canadian banking

syetem has been somewhat advertised as functioning admirably, and well designed
for the needs of that country, I have nevertheless felt that the difficulties
about eYchange, which we have .:et in this country, might at tires be dealt with

wore effectively had they been operating under a central bank of issue which conducted the business of the Dominion Government, and repreeented all of the
Canadian banke.

As I understand it, most of the business of the Dcainion Government is
conducted with the Bank of Montreal, which is nevertheless a privnte commercial
institution competing with other banks, and one which we would hesitate to
,cint as our correspondent bec'use of its coneiderably different status than
our own.

If, in the course of the evolution of your plan, Mr. Peacock should
visit this country, I hope he will give me the opportunity of a visit with him.
It has sometieee occurred to


that. some development

along the lines

of your proposal is justified in the Strait eettlements, end the Federated Maley


discussed it briefly with Sir Lawrence Guillemard when I sae him in

March 28, 1221.


Singapore, and had one talk with the Treasurer, or Fiscal Officer, of the Federated
Malay States.

He is a native but a man of considerable intelligence.

Canadian bankers will be, I fear, subject to the same influences which
have lone characterized American banking, and I should suppose that the bankers
associated with the large commercial banks would not welcome the establishment of
a central bank which deprived them of any part of the stroug position,



valuable business, which they now enjoy with the Dominion Govern tent, but, l hope,

nevertheless, that your plans will be well promoted by this addition to your Board.
kany thanks for writing 3e about it.
Sincerely yours,

lontagu C. Norman, Efyi.,

c/o Fsak of England,
London, Scglaod.



April 5, 1921.


My dear Norman:

Aosence from the city prevented my writing you in regard to our cables

on the subject of the weaned South African gold.

In elaboration of whet is

contained in the cables already sent you, 1 should explain that this censiderable
and steady increase in our monetary gold is causing scme of us ccncern, lest it
give an appearance to the credit and reserve nituntion by reason of the fortuitous
increase in our reserve percentage, ehich, in fact, does not reflect the actual
conditions in credit throughout the country, n:r such as night justify a change
in our rate policy.

some weeks ago, we went into the subject very thoroughly in

eaehington, and a number of suggesticnn were brought fnrnard for dealing with the

The plan indicated in our cablee was my own suggestion, believing that

it was a natural and normal procedure for us to impound gold in this say, in
anticipation of its expected export at a later date, even though much deferred.
It also involved no fundamental change in the principles of the reserve eyetem,
or in the rulings of the F.eserve Board, or in the form of our published statement.

Another plan suggested, however, was tc impound the gold behind our note
issue, which did not appeal to me as being

as sound or defensible under the

law, but which nevertheless had attractive features.

After starting our cable

correspondence in the expectation that we would go ahead with my plan, it developed
that it would be desirable to diecuse the matter further at a meeting to be held
in Washington next week, so I cabled you last night, indicating our intention to
defer any final decision until after this meeting.

I hope we have not given you

unnecessary trouble, or caused any embarrassment pending some sort of a conclusion,
and thet meantime the regular procedure will not be changed by reason of our cables.

April 5, 1921.


As to rates, I enclose a sample of what appears to be a fairly regular
Iliass emanating from this, end other like sources.

There are some who claim that

a is propaganda, but I have no knowledge ef where propaganda might, erielnate.
So far as I can now see, the only possibilities of a changed policy here
ere those: which would result; first, from indications that we might eefer b. credit

breakdown, pith many insolvencies, because of the decline in commodity values, and
which I now regard as an unlikely develupment, and the other, political pressure
upon the reserve system, which is always a possibility with us, es with you.


course, when I say political pressure, I mean pressure from political sources as
distineuiehed frog, influencee confined to the system itself.

The increase in our reserve in :ice York is due to the flow of funds from

the interior, as well as the regular additions to our gold stock, the flow of funds

from the interior being an immediate result of the transactions in certificates of
indebtedness and tax payments occurring duriug the month of March.

There are some

indications that we will not maintein this poeition for very long.
We shall probably ee ahead with our building at once, in anticipation
that the next to or three yearn swill afford tic the beet o;portunity we may have

for a lone period to let contracts at lower prices than those
three years.

%ith warmest regards,
Cincerely yours,

Montagu C. Norman, Fee.,
c/u Bank of England,
London, England.


the part two or

If we de not take acvantage of this opportunity, it may be that our

building would to long deferred, end that we cannot afford.



April 18, IsPi.


My dear Norman:

Thank you for your confidential cable of April 15, which reached no in

Washingten; also for your letter of April 2, which I find on my desk this morning
on my return from the Conference.

Our translation of your cable No. 15 reads as


"Strictly confidential for Governor - referring to enclosure
in my confidential letter FebruLry 17 have received account
representatives of Soviet Gcverniner.t small parcel of gold
roubles formerly property of State Bank of Russia for the
purpose of test case which anticipeto will be decided in
favor of Soviet ownership.
Eventually expect to forward
baffle parcel on Soviet account to Net York to ascertain if
freely saleable at full gold price.
Propose forwarding
J. F. Morgan & Company unless you prefer to act on above
line which fear might embarrass you."
Undeelined word mutilated.

As to the gold matter, ee have arrived at the following generel decision of
policy for this beak;
First, we will continuo to make advances upon,or purchaso

gold imported

by Messrs. Kuhn, Loeb & Company, in connection with Messre. Rothschild & Company, upon
the former's assurance to us that the gold is specifically the product of mines of
the British Empire, until further notice.

Second, we have discontinued all advances upon, and all purchases of gold,

other than that

ebove mentioned, and will hereafter accept it from the Assay Office

after it has been assayed.

The effect of this is to simply discontinue the position of volunteer in

0 facilitating these transactions, placing the entire responsibility upon the Assay
Office of passing upon the title.

We have been acting as a volunteer for the

purpose of facilitating the handling of the gold by American firms and institutions

Montagu C. Norman, Esq.

April 18, 19E1.

which imported it, principally to enable them to avoid the inconvenience of delay in
ILtment of the gold, which is now experienced as a result of the overcrowding of

the Assay Office during a period of heavy movement.
Third, we cannot state what will transpire in respect of the gold mentioned
in your cable lio. 15, to which we are replying as per the enclosed confirmation to-lay.

The cable reached me in Waehington too late to arrange for a reply last week.

I em

greatly obliged to you for the further light which your letter throws upon the
situation regarding the Rothschild account.

Seme of us feel tbet their pertnerb in

this business in this country are laborine under the Oelusion that they ere performing a patriotic service to the ceuntry in handiiag this gold wevement; at any rate,
they speak with pride of the amount which they have hendled.

I suppose they do not

realize that it somewhat resembles the attitude of u toper who brags about his
capacity to absorb alcohol.

Since your letter

ae dictated, Secretary of State Hughes has addressed a


letter to Mr. Samuel Gompers, PresiJant cf the emericqn Federation of Labor, in reply
to an inquiry by him, ehich pretty fairly sets cut the positiou taken by our new
administration toward Ruscin, which seems tc be, brief-Ili-that they believe Russia is

an economic vacuumrthat there is no trade to be reslized under such a trade agreerent as you have entered into, certain)), ne trade of any particular moment, -that the

outside estimate of gold in the hands of the Soviet Government iv about

l75 millions, -

and that Russia's regeneration will depend upon the speed with which they develop a
new and more enligntened system of government.

Personally, I applaud the decision.

The Conference at TeGeington vas a rather strenuous affair, lasting all cf
last week.

The Boston reserve bank developed a keen appetite for lower rates, which

they have been threatening for come time, and finally last week reduced their
commercial paper rate to 6%, which is the same as the rate charged for advances on

government collateral.

Other than Boston, I discovered no sympathy with the idea

of lower rates in the minds of eny of my colleagues, and believe that the general
disposition was to maintain the present level all around until,

Montagu C. Norman, Esq.

April 18, 1921.

First, retail prices, and the general cost of living is

somewhat more

Second, Money rates in the market

are somewhat lower.

Third, a clearer insight into the labor situation has developed.
The fact is, that very considerable distress was reported to exist throughout the agricultural sections in the west and south, due to the sudden end extensive
decline in the values of almost all farm commodities.

Many. -or the small country

banks are carrying large amounts of farmers' paper with ne hope of ideil,uidetion with-

out heavy losses, unless prices advance, or until ft new crop is produced at very

much less cost to the farmer than wue the old cm)p.

I urgently advocated liberality

in making fresh advancee to these banks, but maintenence of et least the present
level of rates, that all direct pressure upon member bmike to liquidate their
borrowings be discontinued except in crises where it appeared that the member banks

were abusins our fecilitiev.

My suggestion vex met with a good deal of enthusiastic

approval by the Class B directors cf reserve banks which are located in the west and

south, and I believe was holpful in crystallising o:Anion that in this period we
should advance liberally, but not lower rates, which night revive the activity of
the speculator both in stocks and commodities.
policy will be observed.

It retains to be seen whether this

I think it will here in New York.

The only very important matter which came up, outside of routine subjeets
which would not interest you, related to the treatment of the public debt.
For your eye alone, I have been urging for some time that the Treasury begin
to anticipate the maturity :f c.ver t4 billicns of co-called Victory notes falling due
in May 19FZ, by quarterly or cemi- annu-.l iseuee cf about ',ECIPIO millions each of three

or four year notes, the proceeds of which would be employed in retiring a like amount
of the
present issue

of Victory Notes.

This will cut down a large maturity that


June 2, 1921.

Dear Norman:

I now have before me your letters of May 3, 14 and 17 (2).
I am very glad to have the statements ano hope that you may be able to
What interesteh me especially in your letter Wtt3 the
continue to eend them.
rather cryptic reference of "various reasons" for doubting whether they may be
Does this seen that the pleas of regular publication may be
regularly eublished.
We feel that the weekly eublication of the statement
1 hope not.
of condition of the tanks in this city is important in the interests of the public.
It is, at the moment, difficult to
Referring first to yours of gay 3:
give any forecast of what may be done as to our general policy on rates.
is a widespread propaganda to bring pressure upon Congrere and the Administration to
k great variety of
make money easy, particularly in the agricultural seotions.
impos ible and foolish schemes of legislation are eroemma in Congress, and I cannot
help but sympathize with the diffoultime with which President Harding a;ad his
Cabinet are faced in dealing with the great variety of cases of real distress,
especially among the cattie and cotton people, caused by the immense reduction
in the value of their products, much of which to still in tneir hands.
unable to write anything very certain, I fear the effect of writing anythine at
My own position with the members of the Cabinet and the
all lest you be misled.
members of the Fsuerai Reserve coard has not been changed, and I see no prospect
of changing it, except as a concession to a. situation which might result in
dangerous legislation affecting poseicly even the fundamentale of our system.
I have maintained that all pressure for liquidation saould be removed, except
that exerted by the reasonably high rates whist we ;till maintain, but that, on
the other hand, at these rates the Reserve hanks should extend credit liberally
in tnose sections of the country where it is needed ana to those ::.ember tanks
which show a dieposition to stand loyally by tneir customers ana see them through
this ,eriod of depression, especially those who are in need of credit to make
I would rely upon fairly
new crops and to continue as producers and earners.
high rates to check speculation and inflationary develoimente, and upon a
But now and then I
generous credit policy to take care of cases of cistreps.
feel rather lonely in my eosition, eseacially when I am in Washington.
last sentence of the second page of your letter of jay 3 expresses vary much my
own view, - a claesicel policy, sound in theory, might be practically unsound because of social and political consequences more serious than a little inflation.
The plan regarding the Victory notes was deferred for a month, partly
because objection wae made tc she rates which .e urged, and partly because of
Put I hope to see the troeras under way within a week or two.
market conditions.
you must not assume from not hearing from we that your reelection was
I would have felt
other than a matter of deepest interest and concern to me.
such concern had you not been at the helm curing this year, ana, in my own mind,
am planning another trip to London next year when, if you do finally retire, I
hope that you will give me your aid in establishing a real understanding with your

lir. Norman




It looks as though this tank would to the depositary for the dollars
accumulated by Germany for the reparation payments.
We are glad to have it so,
ant; I think, on the whole, it wee well that you and we should La in close touch
with this operation.
It gives me some concern to feel that Germany will now be
driven into a frantic share for dollars all over the world, wherever the Germans
can sell goods or borrow money, and that ee may be entering upon a eariod of
further exchange disorders, and, from our own standpoint, further difficulties in
keeping an export trade going.
The enclosed account, published in yesterday's
New York Times, did not emanate from this kink. fie, of course, never give the
press information about the private effeire of our cuutomors, but. the tankers who
represented the Reichsbank over here, - that is one or more of them, - probanly
did some talking which may. or may not have been inspired.
Referring to yours of May 14, again I find that the first earagraph, with
a few worn changes, 0c:tad apply diroctoy to our own situation.
I sometimes .et
my tooth with a determination to fight fora policy to the last ditch, and teen
again J take the view that an atteut to etrictiy observe tradition and the rules of
experience which should, in orcinu.ry timee gcvern our policy, may be a mistake under
conditions which are so abnormal and diOficuet as the ereeent, and that we ere still
in the eosition of choosin' the lesser of evils which may, indeed, involve a aeries
of compromises more or less distaEteful to both eertiee.
that you write About Austria ie exceedinely interesting.
hope the
Committee of Control, if aeiointee, gill the ceurege to foroe a policy of
taxation and the retirement of notes by loans and otherwise eo as to avoid what
must be an almoot unendurable pressure upon the poor, who, as usual, are forced to
pay the worst penalties of such a situation.

I have not celled you in rogerd to the specific sogeesoione regarding
export taxes contained in your leeter, partially leeoauue of under Linty az to just
what I eeould cable, and hesitation to sand some word which might be misleading.
I ehoulu eupeose that an export tax ueon commouitdee souic be levied all right,
but how could it be paid in gele?
hero will the gelO come from? Might it not
resolve itself to an export tax payable in dollar exchaege?
I think that with
some sort of insurance of political riske a smell, but erobably very small, amount
could be raised by a loan issue in this country, tut, subscriptions woulc, probably,
be confined to toe Austrian and Cermon eleeent in our population, uneees, indeed,
very etrone insurance of political stability was actually afforded by the League of
Just now there isn't a grant deal of confidence in this country either
in political stability in middle-Europe or in the ability of the allied nation© or
the League of Nations to iroduce it, and it would, in my opinion, be rattler 'hazardous
to count upon raising any considerable amount in this country.
I do not think that
the idea it ridiculous, but I think that the transaction souic be exceedinely difficult and would need to be handled by a group of houses woo had the imagination to
make Just the right sort of appeal to the ,roper (element in our population.
present difficulty, I think, would be found in the tendency of our present administration to encourage only those foreign loans in this merkot the proceeds of which will
be spent hare.
And they do not always seem to understand that no loan can be
placed in this market and the proceeds literally exported
for expeneiture elsewhere.
The proceeds, of course, mutt be spent here, whether by the original burrower or
by those to whom the borrower makes eaymentz of delete or for goods purchased in other
The political effect of some of these foreign loam: has not teen



June 2, 1921.

Dear Norman:

Since dictating my separate letter of this date I have
your cane of May 31 which is exceudingiy intereuting rind throws .ome
light on the strike situation which I am very glad to have.
It would be most telpful if you could .end me some word
as tc what you anticipate will develop in connection with tile Gerwan
How much will be accumulated in dollars;
reparation payments:
and how they will gat the dollars; and to what extent they will be a
disorganizing element ia the exchange markets.
I have just deciinad an invitation to attend the meeting of
the International Chamber of Commerce to be held in London the last of
June, but am writing to some of my friende in that organization urging
that the principles adopted at the Lrussel Conference should Ld
I do not mean he Tar-keuien Come
indorsed by the organization.
especially, but the genural principles which resulted frow the discussions, particularly ty the _:ritieh delegates.
If sows of your
friends can give this idea a little push I think it would be helpful.
With cordial regards, believe me
Faithfully yours,

liontagu C. Norman, Esq.,

Covernor, rank of Agland,
Threadneedle Street, London.
Federal Reserve Bank of St. Louis

June Z, 1921.


My dear Norman:

Your note of Pay ?I just reached me, and it is very good of
you to kee, no advised of the matter referred tc.
I hope the change of

]acne, or lack of plans, intimated by

your letter do not arise fror, diengreements.

tion of that Leine the case.

I have heard no sugdee-

It would rertalnly to unnecesEary and

The Asslatant Secretary ff tha Tre-tsuly in chLtrgo of there

matters ie

wirm personal friend of min.?, And a very fine fellow.


have Lad hopes that hie appointment would fn.cilitd=Le these negotiations,

and that they would have a happy outcome.
Again, thank you for your note.
With best regards,

Montagu C. Norman, Esq.,
c/o .6a:lk of England,
Threadneedle. Street,
London, England.

Sincerely yours,

14 4

June 8, 1921.

My dear Norman:

The enclosed cartoon does not apply particularly to the New York tank.
The whole Federal Reserve System is being blamed for bringing on the deflation,
so called, and eepecielly some of our colleaguee in the West, Nbere the farmers,
are tempted te paraI
cattle men and wool growers have been rather herd hit.
phrase Sherman's 'amours remark by saying "Deflation is all."
I have before me your cable No. 29, which was partly answered by my lust
letter thet had not yet reached you.
The enclosed confirmation of the cable I am endina you to -dty giv's the
There is no confidence whatbest indication I can of this perplexing situation.
It his been advertised
ever, generally, in thin country in th© Austrian eutlIoa.
in widespread fashion by the areas as desperate to the last degree, and with that
background it seems to me that nuthing but a diroct political or economic Interest
which people understand aoold make a loan of any sort a possible success here.
Of course we have a considerable population, largely people of small
means, who caze from Austria and that region, as well as the '3-rman
Austrian sympathy, who might be led to subscribe for loans in small amounts if
It weuld be
offered through just the right channels and in just the right. eay.
rather expensive because it would recuire widespread propaganda and the employment
of an extensive selling organization.
As to the releoee of the chic, of the United States Government; that i
find upon making unofficial ineuiriee is going to be a rather difficult matter to
Our government ::sec: not directly hold a 015.IP, against the Austrian
bring about.
The United States Grain Corporation, a creature of Congress, with
Y50 millions capital stock, all osued by the government, holds, I am told, eetethiog
over t24 millions of obligations of the Austrian Government delivered in exchange
It appesre from examination of the
for supplies furnished after the Armictice.
law that no authority rests anywhere, so far as has yet been discovered, for any
officer of the grain corporation or the United States Government to sake the
release of this claim, or to subordinate the claim to other claims, and it looks
It is impossible for me to forecast
as though it would r&-uire an oct of Cengrest.
Thosewith whom I have talked seem to
the official attitude of our government.
have been fully familiar lith the Allele subject, aed aireedy to have been approached
nuite personally and unofficially, I would venture the
to do epaethiog about it.
opinion th.t ur eeeple are net unfriendly to s eropoeal to subordinate the debt in
some proper way, but that such an attitude by our government, which would necessitate
a request fir lezieletion by Congress to euthorize this subordination, could be
pr000ted if the plan in general of dealing eith the Austrian situation were one
I do not meon be imply that improper
that appealed to theln -t eeund and proper.
plans are being proposed, but merely that if claims are to be subordinated, a


June 8, 1921.


recommendation to that effect made to Congress would stand the test of inquiry
and discussion very much better were our Administration in a position to say that
41111 the general scheme of dealing with the Austrian situation appealed to it as sound
and fair.

I am writing to you cuite frankly and very confidentially, giving this
personal impression of the situation, and am sure that you will deal with it in
such a way that no possible embarrassment can arise.
Jne of your earlier letters indicated that the controller, or administrator',
or receiver, or whatever he might be called, would be a responsible person selected
from some neutral country.
I have been privately told that this plan will not be
carried out, but that a commission will be appointed, one from Great Britain, one
from France, and the third from some neutral country.
It occurs to me that this
may not be a wise program, viewed from our standpoint; but rather the first
suggestion contained in your earlier letter might insure a treatment of the
Austrian difficulties more definitely from an economic than from a political point
of view.
Please do not take this remark too seriously.
It just occurs to me
as containing a possibility of Question.

I am much interested in your letter of May 25, which was also awaiting my
return from hashington this morning.
we will now know a little better what to expect in connection with the gold shipments.
I hope you will excuse this hastily
dictated letter.
My desk is piled with work accumulated in my absence.
With warmest regards,
Faithfully yours,

Montagu C. Norman, Esq.,
c/o Bank of England,
Threadneedle Street,
London, England.



P. S.

Both Mr. Jay and Mr. Treman will be in England this summer, and I will give

them letters of introduction to you.

B. S.

June 9, 1921

Dear Norman:

I am sending you with this a copy of the Business
Summary, which is prepared particularly for the use of our
directors, and attached to it is a confidential discussion.
The yellow pages are treated as cuite confidential because
they sometimes contain eugiostions as to the future course
of events, concerning

we never like to be auoted.

I thought you would be interested in seeing the
way this kind of work is prepared by our information depart1.ent.

Sincerely pure,

Yontagu C. Norman, Escl.,
c/o Bank of England,
Threadneedle Street,
London, England.


June 18, 1921.

Dear Norman:

During the past month, I have been literally commuting between New York and
Washington, and in the resulting confusion of mail on my desk, fear I hrIve failed to

acknowledge the receipt of your letter of May 23.

Most cf the matters you refer to,

have developed to a point there comment would be a bit "stale."
I am glad that you maintained your athletic supremacy in Frmnce.

We are just

now participating in a variety of such things over here, with more or less success; my
own share being confined to golf, as I am prohibited from playing tennis.
The Treasury refunaing program was deferred only one month, and possibly wisely
so, becauue conditions have since somewhat improved for the success of the undertaking.

Subscriptions close this week (Aednesday) and on Friday something over $500 millions of
subscriptions to two varieties of notes will have been already filed.

le expect them

to run up to about $750 millions, one-half of that amount being for the three-year notes,
the proceeds of which will be employed in purchasing the Victory notes that mature in

This operation will be continued from time to time as conditions are favorable;

but I think I have already sent you the details of the plan.

It was necessary to cut

down to 5 5/4 %, which I fear has flattened out the sucdese of the three-year note issue;

at the 8% rate it would have been a stunning success.
About our rates, I have not yet confessed it to any one, and probably still
am not justified in cabling you; but it is not impossible that re will recommend re,!ucing to 0% at our directors meeting on 7edneeday.

Our reserve is now over wt, com-

puted upon combined deposits and note liabilities, where, looking et it as you would, defilleting the 55f reserve reouired upon deposits from our total reserves, our note issue

would be almost 100% covered. I would not hesitate to make a recoNlendation

were I as

Montagu C. Norman, Ese.

June 1% 1921.

confident as you seem to be, of increasing our rate later on should necessity arive.
The delay
Federal Reserve Bank of St. Louis

in my replying to your cable in regard to the Austrian plan was entire-



June 13, 1921.


11001, sure that you and Blackett, and the others interested have this all in mind.
Tour cable No. 32 is most interesting, and I am delighted to learn of the

41!!!ibility of the settlement of the coal strike.

The sooner the better.

Xe are most

anxious to learn of devslcpments in the Austrian matter, and I would appreciate your keeping ur informed, as you ware good enough to suggest.

aim enclosing for your very confidential use a copy of a letter which I have

just ,ritten to Air. Gilbert, Aseietaut Secretary of the Treasury, about the reparation

This situation Yresenta many puzzling features, and I would very such value

alai e,.2reciate your views after loading the enclosed.

With warmest regards, and many thanks for your letters and cables, I as
Sincerely yours,

Montagu C. Norman, Esc.,
c/o Bank of England,
Threadneedle Street,
London, England.

P. S.

Oocasionally, you will notice articles similar to the enclosed, speculating upon

the rate policy of the Bank of England, which might lead to the thought chat it came
from this office.

These are, however, based upon dispatches from London, and nothing

is ever stated or suggested at the bank, which would be the baeis for such publications.
1 suppose you realize this without my writing it.

B. S.

June 15, 1921.


My dear Norman:
You have doubtless heard seine rumors of banking difficulties in New York, and

I am writing you meat cenfieatially what the facts are, ex I think you ehould know them,
and you will then be in a position possibly to answer come inquiries with a better
kncwledE,e of the facts.

Some years ago, some of the leading New York hankers and banks organized a
foreign trade company called the Mercantile Bank of the Americas. Tha principal interested
parties ware: J. t W. Seligmae & Co., Brown Brothers & Co., guaranty Trust Co., Shawmut
National Bank of Beeton, and 8010 other out of teen banking institutions.

It eas, in a

measure, an outgrowth of the old Bank of Nicaragua, ehich was largely controlled by

Mesers. Brown & Seligman, and whose business originally was trade banking in Central and
411Soutb America, Cuba, and more recently in the East.

The collapse of commodity .erices,

and the shut -doer of remittenceo on South America left them tied up with 1 large amount

of goods and oontracte for finaneing goods, so that some months ago the interestei tankers
had to eta) in and furnish the necessary funds to take up their bills.

Matters seemed

to have gene from bad to worse recently, and in order that a through cleanup might be
effected, some $20 millions of new capital was furnished to the Mercantile Bank, and in
addition, credits of from $35 to $10 millions were provided, which, of course, is amnia
to put VI,e bank in condition to meet all engagements, and to continue as a going concern,

with in unimpaired organization and personnel.

From information received from the

officers of the bank, I gather that while they must sustain some severe losees, they Hill

now be well protected, and no apprehension need be felt by any of their creditors, nor
the oreditoro of their allied institutions.

The liquidation in South America will be

411elew, but it seems now to be at the low-water mark of prices, and I should look for

Montagu C. Norman, Esq.

June 171

The largest single interest in the Mercantile Bank is held by the Guaranty
1/110 ,t Company.

A rumor that assistance had to be rendered to the Mercantile Bank by

its principal stockholders, and credits furnished by the New York brinks, led to a lot of

unwholesome gossip about the Guaranty.

It happens that there had been some politicalt

tly, which led to our making a review of their

pital of *25 millions, a surplus of h like amount,

0 millions of undivided profits.

They had un-

to about $10 millions more.

Our review of their

by the State Banking Department, leads us to

owance for undisclosed losses due to merchandise

have considerable profits over and above their

arge business and has a large earning power, and

g whatever to be uneasy about, except such unand gossip is flying about in regard to any bank.

ou will recall, six months ago, or thereabouts,
this will also.

Their deposits show ao

d evidence of the whisperings about the street,

tock to about $240 or t250 a share; a lose of

different from any other bank in this country

certain amount of slow loans.

d could have done otherwise.

nce of

No bank which
I suppose you

our bank in itself allays these feelings

in stating that I expect to see nothing of a

on with thi,

or any other matter of a like

closely posted on banking conditions here, and

are in excellent shape

in this part of the

June 13, 1921.


try, considering what we have been through.


The bankiag difficulties now tieing experienced are principally in the

agricultural sections, where in the South, cotton hat. been a greet problem, selling,as it

is now, below the cost of production; in the middle Meet, where land speculation under-

mined the stability of the banking situation in the rural sections, cupeoially in Iowa;
and in the far West, the Dakotes principally, where the ridiculous aeffermances of th©
non-partisan league led to local troubles.
So far W3 we are aware, the banking situation in all the large centers is
sound and getting stronger every day.

Please treat the above with Jle confidence which it requires.
With warmest regards, I am
Sincerely yours,


Montagu C. Roman, Eel.,
o/o Bank of England,
Threadneedle Street,
London, Englee2.


June 16, 1921.

Dear Norman:

I thank you for your cable No. 33, received June 14,
reading as follows:
Your second letter June 2.
Position regarding
Reparation payment unchanged but meeting of
Entente Treasuries may be held shortly to consider temporarily accepting payment in European
currency at agreed rates.
If meeting successful no subsequent dollar purchases by Germany
should be needed.
Meanwhile no further payments
are actually due by Germany to Reparation Commission
but Germany may of course accuire dollars for future

Your courtesy in keeping me informed as to the matter of
reparation payments is fully appreciated.
With cordial regards,
Yours sincerely,

:;ontagu C. Norman, Esq.,
c/o Bank of England,
Threadneedle Street,
London, England.


June 20, 1921.

Dear Norman:

With this I as enclosing copy of a note of introduction which I save
given to our kr. Pierre Jay, concerning whom I want to write you a fee separate

He is visiting Europe with his wife and daughters for recreation,
primarily, but wishes to take the opportunity of meeting some of my friends in
London, and especially your good self.

kr. Jay, I think you will recall, is a membur of one of the most
distinguished families in this country, ans., after over six years of intimate
association with him in the Bank, I fuel that he exhibits, as well as any man
I know, the old adage "blood will tell."
We entered the service of thin institution together; 1.9.V.5 run it as partners over since;
and it hag proved to be one
of those
associations, with no diffesence of views or policy to mar it.
I know of no one for whom I have a higher regarc.
You may discuss matters with Nr. Jay as freely and frankly as you would
with me, and you wili fine him exceedingly well informed upon conditions and
matters in this country, and especially sound in nie point of view in those matters in which *e are particularly interested.
While I have not wished to burden him with a lot of letters, nur, on the
other hand, to burden my friends in London with any obligation of courtesy, I have
given him notes to the following:
Sir Robert M. Kindersicy, Mr. Gaspard Farrar,
Mr. Hartley Withers, Sir R. V. Vassar-Smith, Mr. Henry Loll, Mr. Arthur W. Kiddy,
Sir Lrien Cokayne, and the Right Honorable Reginald McKenna, some or all of which
he hopes to present during his stay there.

Just tefore be leaves (he is absent the first of this week on account of
the marriage of one of his daughters) I shall have a long talk with him about the
Austrian matter, concerning which you have written me so fully under date of June 9,
&leo in regard to the Reparation payment snarl which we have b en watching as closely
as possible.
To refresh your memory as to the organization of the Eank, Mr. Jay's
position as Federal Reserve Agent makes him the representative of the Federal Reserve Loard, which is the supervising body.
he is one of the three Government appointed directors of the bank, and the Chairman of the Board.
In assense he represents the supervisory authorities of the system, as distinct from the operating side.
In the case of this Rank, as distinguished, possibly, from the otherReserve Lemke.,
we have not permitted this line of demarcation to influence the Rankle affairs more
than nominally, as kr. Jay carries much of the re.vonsibility of actual managsment

Montagu C. Norman, Esq.




and is regarded as an officer of the Eank just as much as I am.


I do hope that you find him, as I am sure you will, a most satisfactory
and helpful visitor at this time.
I shall write you separately in reply to yours of the 9th.
With warmest regards, believe me,
Sincerely yours,

Montagu C. Norman, ides.,
Eank of England,
Ihreadnoodle etreat,
1,,JnOon, En land.


June 20, 1921.

Dear Norman:

This letter will be presented to you by my friend and
associate, Mr. Pierre Jay, concerning whose visit to London I am writ in;; by separate letter.

I feel vary sure that you will find pleasure in having a
chat with kr. Jay, and he is lookin5 forward to the pleasure of meeting you during his stay in England.

I nave not hesitated to assure him that he sill receive a
coruial WeiCOMe from my friends in London.
Assuring you in anticipation of my appreciation of any
courtesy you may show Ur. Jay, I Leg to remain,
Faithfully yours,

Montagu C. Norman, Esq.,
Bank of England,
London, England.



June 20, 1921.

My dear Homan:
I received the second edition of the "Old Lady
of Threadneedle Street," which I shall take pleasure in

Sincerely yours,

'iTontagu C. norman, Eel.,

c/o Bank of England,
Threadneedle !Amato
London, England.


June 20, 1921.

iffy dear Norman:

I have for acknowledgment your letter of June__?,

( io,r)

enclosing recommendations as to the financial restoration
of Austria, issued by the Economic and Financial Committee
of the League of Nations, together with the report made to
that committee by the special Commission of Enquiry.

I am

glad to have these reports, and shall read them at the first
Sincerely yours,

Montagu C. Norman,Esq.,
c/o Bank of England,
Threadneedle Street,
London, England.




Dear Norman:

This letter mill be presented to you by my friend
and associate, Mr. Robert H. Treman, concerning whose visit
to London I em writing by separate letter.
I feel very *are that y)u will find pleasure in

having a chat with Mr. Treman, and he is looking forward to
the pleasure of meeting you during his stay in England.

I have not hesitated to assure himhLA he will reoeive a cordial welcome from my friends in London.

Assuring you in anticipation of my appreciation of
any courtesy you ln_y show Mr. fireman, I beg to remain,

Faithfully yours,

-ontagu C. Norman, Esq.,
Sank of Ragland,

London, 'gland.

June 21, 1921.

Dear Forman:

I beg to enclose copy of a note of introduction which I
am giving to my friend and associate, "Ir. Robert H. Treman, who is
sailing for Europe on the Celtic on Saturday of this week.

As you are doubtless aware, Mr. Treman is one of the members
of the 3oard of Directors of this Bank, and was, until recently,
of its officers.
Thule his trip to Europe is primarily for pleasure, he will,

I hope, take the opportunity,

if time affords, to call upon yon.

You will, I am sure, appreciate the opportunity of having
chat vith Mr. Treman, and I will greatly appreciate anything you are
able to do to make his visit an agreeable and profitable one.
/ith kindest regards and best wishes, I beg to remain,
Faithfully yours,

Montagu C. Forman, Esq.,
Sank of England,
London, England.

June 24, 1921.

My dear Nor%an:
The monthly statement o

London clearing banks for

Nay 19?1, has just been received, and I thank you for letting
me have a copy for my personal information.
Yours very truly,

Benj. Strong,

Montagu Norman

c/O Es,nk of England,

Threadneedle Street,
Londoa, England.


June 27, 1921.

4ear abrman:

Also for your cable
I !at grateful to leu for your fine letter of June 9.
And I
36, 'ea which I have replied under No. 40, as per oonfirmation enclosed.
-Leoo&Ov here to acknowledge your cable of June 23, advising the reduction in your



dkpAqat rate to 5 per cent.
At to the Austrian matter, there is little to be said beyona what I have
Mr. Speyer sailed for Europe on the Olyipic on Saturday, and
written you.
e the arise steaaer took Mr. Hanauer, one or the partners of Kuhn, Loeb &
so that if apFroaches are to be made to either, or both, of these houses,
To refresh your memory, however, it
1 have representatives on the ground.
known that there tac firms are not on the best of terms( with each other and
I talieve the only exception being the
teoome associated in floatatione,
e k Ohio hailroed financing, in connection with which I have been eonfidennforwed they have an old joint contract.
Since I last wrote you, the aeainietretion bill, designed to give the
Secretary of the Treasury authority to negotiate the funding of the debt of the
allied aovernmente to our government, has been submitted to the respective coamitteee
of the Senate and the Houee of Repreeentatives, and I am tole that it will likely
altnough it is bound to meet eome opposition because of the broad authorities
h it providec to be given to the Secretary cf the Treasury.
I have not been able to be in Washington for two weeks or more and a not
It is obvious, however, that the
posted as to how these matters are developing.
power to negotiate suet be vested in a single individual, end naturally the Secretary
of the Treaver;, and 1 should hops that Gungress will grant this authority promptly.
It reeve to be broad enough to cover the Austrian situation, but of course I have no
knowledge what catitude the Secretary gill take towards the scheme of subordination.
I should hope it will be favorable because it appears to be so obviously necessary.
While dictating this letter, I had a call from J.P. Morgan, who hts
Intimated that under certain conditions his firm night be interected in handling the
pie-ans.:id Austrian loan on behalf of the League of Mations organisation, or of the
ogamissioners appointed to administer Austrian finances, and have accordingly sent
ypu at once my cable No. 43, confirmation of which is enclosed.
abet you say about the cossible political aspects of Austrian rehabilitation has been in my mind very strongly eel ia by all means to be avoided.
It should
eon-political, based upon sound economic principles, and avoid any taint of
oojitical maneuvering either on the part of the allied governments or on the other
400d on the part of that element in Germany which feels that the only outeoae.for
If such a fate awaits Austria, it
Uitrig is absorption into the German Republic.


Mr. Norman

June 27, 1921.

4Orsiainly should not be undertaken at a time when Austria is helpless and limp, but
.ther at a time when a suitable Austrian government can deal with regard to their
lbown welfare and development.

I am led once more to comment upon the proposal for a foreign loan for the
purpose of establishing a gold exchange fund and of giving anything like artificial
stability to the Austrian exchanges.
To -day I do not believe it is possible for
any country to stabilize exchange rates or conduct such an operation ;.E; the britieb
Government conducted during the war in "pegging" sterling at a given level, or even
holding fluctuations within a range of levels.
Were Austria to attempt this, it
seems to me most likely that the German arbitrageur would not hesitate to take
advantage of the situation for the accumulation of foreign exchange, which might be
needed for reparation or other foreign payments.
The credit required by Austria
to stabilize exchange rates would be too large for Austria to obtain, even upon
such security as could be offered, and with the friendly assistance of the League of

Adverting now to the reparations problem.
As I think I wrote you, I
cautioned our Treasury, and State Department as well, against the possibilities of
exchange disturbances resulting from Germany's signing this huge obligation payable
in dollars, and hoped that the warning might have some effect; I know it was conveyed
to our representative.
I had assumed that with such men as now compose that body
(the Reparations Commission) an apireciation of these matters would be apparent at
but that does not seem to have been the case.
The powers of the Commission,
under the Treaty, aa I recall, are broad eacuill to enable them to do wise things,
and possibly broad enough to permit them to de unwise things.
Certainly it would
not be a wise thing for the to force Germany into competitien with their own
countries, without limit, in the purchase of dollars the world over.
It is only one
more convincing evidence ef the feet that the reparation will be made by the delivery
of goods and the performance of services by Germany, and whether the reparation bank
account is carried in Sea cork, or London, or Paris, cr in all three of those places,
or elsewhere, makes no difference in the long run.
Those 'ho get the dollars, and
pounds, and francs, mill employ theklAtilifrbuying go:As from Germany, to the detriment
of our own trade for the time being, or else Germany will run against the stone wall
of exchanges so adverse, that further payments will be impossible.
I can see no
outcome from the situation except through long years of readjustment with constant
disturbances to trade, finance and exchange.
Of course, if the German industrial
organization becomes so busily engaged in turning out cheap goods, with which to
flood the world and gain the credits to enable reparation payments to be made,
Germany's workmen will wake up to the fact that they are only able tc do this because
of the low standard of living and loe wages, and their labor organizations will in
time begin to make demands which will increase costs again to something like a competitive basis with the rest of the world, and then again we will see further depreciation in the mark, and eventually some readjustment of a fundamental character
in Germany; in a word, the outlook as to reparation payments does not :strike me as
alluring or hopeful.
Commenting upon your suggestion of a possible combination between the
central banks of the countries concerned;
that might be a good plan, or at least
that might be the instrument through which to work out a good plan, if any plan is
What is most in my mind just now is to insure that the allied governments
which receive reparation payments in dollars, use those dollars as promptly as
possible for the payment of debts in this country, or for the purchase of goods here.
It is the only way in which the pressure upon the dollar exchange will be removed.
If dollar balances are permitted to pile up in this country indefinitely, and no

checks drawn against them, then indeed the outlook for the exchange is bad.


Yr. Norman

June 27, 1921.

If cooperation between the
On one point i feel great uncertainty.
central banks, which might moan yourself, the Reichsbank, the Bank of France, and
ourselves, were undertaken, how could anything be accomplished toward avoiding
exchange disorders so long as ,::arks must be converted into the other currencies
Is Germany going to be able be float
more rapidly than Germany exports goods?
if large loans are floated abroad,
I see no hope for it here.
loans abroad?
then Germany nes the added obligation of interest in addition to the regular
reparation payments.
It strikes me that the operation under present world trade conditions
becoees an almost impossible one, and is liable to keep ue in a state of suspended
specie payments and disordered exchanges for the rest of your life and mine.
These comments are simply teinking out loud, and soeewhat as we might
chat at Thorpe Lodge, where I should like to be with you.
During the past tee weeks I have been reviewing in my mind our converse,
It seems es though the
tion of last Christmas time, in regard to future policies.
great price reduction which has swept over the world (in other words, the liquidation which ire *ere then discussing) ass retched a point, certainly in Cube, the
Philippines, sole parts of South America, a considerable part of the Feet, and
possibly in Europe, %here the very peril which we anticipated may be erieing.
the great reduction in trading profits and incoees, are nct government budgets,
7or the sake of the
certainly among the weaker natiels, liable to be imperiled?
better good, in the long run would a deliberate policy of inflation be justified?
I have puzzled over this subject endlessly during the pact few seeke, seeing as I do,
sugar aelling at one-tenth at its high price, cotton at about one-fifth, rubber at
about one-sixth, *ool at one- fifth, &c., &c.
The twelve basic commedities which we
reduce to index values, to-day show prices at only about 5 per cent above the 1913
level, the premium being principally due to steel ani wheat.
For how long can the
merchants and bankers of the world stagger under this situation?
I am inclined to
think that we can go through ithout any serious .i.ifficulties here, but how is it in
I would give a great deal to have an opportunity to chat these things
over with you, and last week was tempted tc cable to inquire if you could run over,
if only for a week.
I hope you have not been disturbed by rumors of bank troubles in view 'fork.
he have followed the situation very closely.
Of course, some of our banks have
slow loans, but :after a review of the whole situation I an satisfied that the banks
of this district, and generally of the larger cities of the United States, are in
good sound condition, considering all that we have been through.
There may be one
or two weak banks, but not of great importance, in the Middle West, and there are
certainly a good away of our small country banks in the agricultural sections which
have hard weather ahead of them, and we probably will see a succession of small
bank suspensions from time to time, but beyond this I anticipate no difficulties,
certainly none with which we are not fully able to cope, and the rumors with which
this town has been especially busy lately are the products of disordered imaginations,
and possibly speculators for declines.


If you have time to write me what is in your mind, quite fully, about
I would much prefer
conditions and policiee, I would greatly appreciate it.


June 27, 1921.


tv have a visit with you.
Eepecially, I mould like to hear in detail what the
reparations plan will be, sc that we Tay look fortard e. bit in our plans here.

With warmest regards,
Yours sincerely,

L:ontagu Norman, Esq.,
/o Bank of England,
Threadneedle Street,
London, England.

Ence. (2)

July 5, 1921.


My dear Norman:

Your dictated note of June 22, also your hand written note of the same
date, both reached me to-day.

The first calls for no particular comment.

at the bank will be glad to see the Soviet gold situation cleared up.


I presume

they Rill have the same feeling in the Treasury, although, as you say, there is
likely to be little gold left for us to cuibble about.
We were all delighted with the news of the settlement of the coal strike,
but I an still wondering whether the terms are sufficiently definite and final to
remove (muses of contention for some time to come.
Referring to your cable No. 40, and my cable No. 44, I think I can review the rate position of this bank in a way that may make my subsewuent cables
a little more intelligent.

Our general policy would ordinarily be to reduce our rates as e consequence of reductions in rates in the markets; in other words, we would follow
rates down.

The market raters which would govern our action would be (1) the

rate for bankers bills (just now about 5 1 /!% in the market), (2) the rate for

treasury certificates of short maturity (just now about 5 1/4%), (') the success
of the Treasury in its recurrent offerings of three-year notes, end the rates
paid on such notes (the last issue made at 5 3/4 %, now selling in the market at

a slight premium), (4) the rates for commercial paper (now at about 8 1/2% in
the market), (5) the stock exchange call loan rate (nov varying between 5 and 8%).
You have it in mind, of course, that our corvercial paper rate corree..

ponds, roughly, tc the rate which your joint stock banks charge on their overdraft accounts.


The difference between your position and ours being that

paper can be offered for discount at this beak with the indorseeent

Mr. Norman


member banks, whereas your overdraft accounts are not capable of smelting."
The only other considerations entering into our policy are (1) general
consideration of public policy where, under present conditions, classical methods

are not always the wisest, and (2) strictly political considerations brought about
by the change of administration.

With money market conditions as they are to-day, we are hardly justified
in making a further reduction.

This is after duly weighing the five factors of

market rates above referred to.

Consideration of general public welfare leads

me to believe that the process of deflation has gone dangerously far here and

I gather that your own budget will show a deficit because of reduced

tax returns.

The same may be true of ours, and if not true, it will be wholly

due to a determined public pressure supported by the new administration, to bring
about economy in appropriations.

I firmly believe that the time for all credit

pressure 016430(1 some months ago, and should we feel that the 6% rate is causing

pressure of a serious character upon borrowers generally, we would not hesitate
to reduce it to 5 1/2%.

but I es not yet convinced that suah is the case.

Ae to political considerations, those are quite perplexing.

Our new

administration is determined to alike business good, if means can be found to do

It is not an easy thing to do; and I ail, luite out of sympathy with some of

our new associates, who think that lower rates will do it.

The lowering of our

rate from 7 to 8%, in two bites, has created a certain sense of assurance, but has
had much less to do with the sentiment than has our very high reserve percentage.
From, all of the above, you may gather that there is always a possibility

of a further reduction; that it is not iminent, but would become iminent upon any
further general lowering of outside rates, or even if indications arose that such a
development was Immediately in prospect.
even though it
Federal Reserve Bank of St. Louis

were not more than a thought in my own mind.

I shall cable y

July 5, 1921.

A separate reply to your other note accompanies this.

With warmest regards,
Sincerely yours,

Montagu Norman, Esq.,
c/o Bank of England,
Threadneedle Street,
London, England.

11,4t30 Cr LETTER







July 5, 1921.

My dear Norman:

Your hand written note of June 22, gives me a great deal of real
relief and satisfaction.

Were there not a prospect of some such program,

as indioated in your letter, I would feel some anxiety about the future.
The time will come, and it may not be far distant, when we will likely have
important things to do together, and these can be better arranged if you
and I are in harness than under any other auspices; so I look forward hopefully to the future, and with tie assure_nce that I would not otherwise

What you say in your letter is, of course, strictly confidential.
You will not mind my letting you know how ?leased I lm that the chances at
least favor what I want very much to sae done, and what obviously should be

With sarmeet regards,
Yours sincerely,




Montagu Norman, Ecq.,
0/4 Bank of England,
Threadneedle Street,
London, England.


Z/7, i

July 11, 1921.

Dear Mr. Woman:
I am desirous of forvarding to the ?reasury r,epart-

ment, for their inform_Ition, a printed copy of the orisinal and

amended "Statement of Claim" (as _mended June 3, 1921), in the
case of Marshall v. Grinoaum and the Governor and Company of
the Sant of England, in connection with the Soviet Gold Test

As I have only one copy which I do not wish to release, sonic; you be good enough to forlard us several copies

for our confidential use, if they are obtainable.
Thanking you in anticipation,
Yours very truly,

3enJ. strong,

gontagu C. Norman, Esq.,
Governor, SZIE of England,
London, England.
Federal ,Reserve Bank of St. Louis

July t2, 1921

willinevertheless spend sometime in cr near New York.

I have a beautiful house

at my disposal down on Long Island, where we can have a quiet and restful time,

take sumo motor drives, and do exactly as we phase, and where we will be near
enough to New York, so that I can at least persuade you for one evening to take
dinner with some of ay banking friends and associates.

If you are not wedded to the idea of visiting Bar Harbor, there are no
end of nice places where, we could spend a week or two with enjoyment, end
it would be cool.

If it is possible for you to spend a day cr two in .ashington,

I know that it woulu be ,v.eatly appreciates by

sseociatee on the Board, all of


whom would greatly like to meet you.

All that I have written about your visit applies equally to Addis.

ould be a perfect uelisbt t.o have a nice holiday with both of you, and my

plans will be shaped entirely to meet your plans, and in the hope of making the
holiday worth while.

I shall await further word about your arrival, and when
would like to have se reet you.

no where you

I could go to Lontreal, or join you at Bar

Harbor, if you would prefer, or anywhere else, in case yuu settle upon scme
other -,;lace.

beut regarde,

Yours sincerely,





ReLA7' \°71. CW)q!1C-3.0NDENCE

ilontagu Aorman, Esq.,
c/O Bank of England,

ihreadneedle Street,
London, England.








July 13, 1921

Dear Norman:

Our Statistics Department is going to

find most

uceful the monthly statement of the London clearing banks, the

Lay copy of which

was sent me.

to ask the proper

authorities to place the

of this Bank upon their


If you would be

kind enough

Reference Library

list, it would be keenly








I:orman, Esq.

Bank of England,
London, Eng.




July 21, 1Q21.

Dear Norman:

I thank you for your cablegram o. 5', advising
of the reduction in your bank discount rate to 5 1/2%.
As cabled you under date of July 20, similar
action was taken by the New York, Boston, Philadelphia,
and San Franoieco Federal Reserve BL.aks, effective today.

Yours sincerely,

Urontagu G. Norman, Ee(7.,

c/o Bank of England,
Threadneedle Street,

London, Enland.








Auguot '1
biontagu C.'Norman

Eani of nwiland

xl:hington this week attending hearings
Shall be eaL;aged in
tee of Congress investigating o:erl._tions 'reserve system result of

k i believe gill dO zood in educating .ublic to oirposee and affairs



?lease cable shim and date of sailing and teleraph

of arrival New York 9D tht I can meet you 4nd have accomflodations







September 14, 19?1.

Dear Norman:

Tour wireless fLessage via Quebe

of the hank very such pleasure.

;fie hope that you and Addis left feeling

that you were indeed LLeEbbers of the family.

deal of good to have you here.

has :given all of the officers

It has done us all a Treat

It has done me more good than any one

else for reasons which I explained to you verbally, and now I am looking
forward to hearini; the result of your meetings with Jay.

On reaching the office yesterday 1 found a letter from Hoover,
stating that he wanted to see Le before sending qny further comounication
on the subject of our discussion, as some natters had come ur which require
further talk.

1 shall see him next week.

To-day will be my first opportunity to write Mr. Jay something
of what has teen going on, and meantime will you be good enough to tell bit;

when he calls that things are reasonably quiet at the bank, and while we

him we do not expect to see him back until about the 15th of ::ctober.
cith warmest regards,
Very sincerely,

Montagu C. Norman, Esq.,
c/o Bank of,

Threadneedle Street,
London, England.

September 24,


Bank of England.

Strictly confidential for Governor.


ReplyinL, your number 78 and Jay's separate cable:

Have so far been unable to see Secretary Hughes but

hope to in next few days.

3elieve advances for food. relief desirable notwithstand-

ing last paragraph my number 82 upon theory that fall of present government
which enjoys reL-sonable confidence in Europe would greatly jeopardize
possible future reconstruction plans more than anything else th-...t could.


11.1iink Jay should get Vissering's point of view if time

permits even though you unable to go.

I am sending copy your cable an:. Jay' s to Goth Hughes

and Hoover asking latter v;hether it would be permissible to stcgest applica-

tion here for Arica to participate in food relief.

think there is some danger involved in holding out even

remote prospect of reconstruction relief if we c-n give no assurance now
that such relief will be ultimately forthcoming, as ultimate collapse would
then be more serious 4zu. difficult to deal with.

Sixth. Shaw this

to Jay.



October 3, 1921

73 Words.
Via W U

Bank of England.

Strictly confiaential for Governor

Referring to paragraph first

my #90 please discuss following with Jay. 1st interview with secretary
discloses no objection to plan investigation but any obligation commitment
or official sanction by adminstration impossible at present.



ratification uerman treaty October 15 may facilitate matters somewhat

Refer paragraph fifth my #90 will it be safe to undertake investigation


now and raise hone of American assistance so long as uoubt exists as to




of act enabling subordination of claims
cooperation of American Government so far as required for
out any plan auopteu
bankers willingnessto consiuer furnishing requirea loans

As there is no objection to our proceeding entirely upon our own

responsibility and without publicity suggest tnat JL4 inform


while in nonuon and we postpone uecision as to our attituue until his return
after treaty probably is ratified

5th Cable views and suggestions




October 24, 1921.

My dear Norman:

I am sending you under separate cover a report of
the Hearing before the Joint Commission of Agricultural
Inquiry on the Federal Reserve System, early in August.
I am sending this with some diffidence.

It must

be regarded as the effort of an amateur, so far as the
discussion of economic questions contains expressions of
my own opinions.

But it includes a great deal of material

concerning the organization and policy of the System which
has never before been put into print.

Our testimony was of

necessity impaired by interruption, but I think you will
find the volume of some interest.
Yours sincerely,

Montagu C. Norman,,Eso.,
c/o Bank of England,
Threadneedle Street,
London, England.

November 1, 1921.


Dear No

I am trying to catch up with


terrifying accumulation of work which

includes various matters that I have been intending to write to you about for
some weeks past, so you may expect to be deluged a bit with letters.
In order that you may be posted ae to a most rtoent oevalopment in the
Austrian affair, I some time ago received a call from Mr. H. E. Benedict, who is
a friend of Mr. F. A. Vanderlip, and who left with me a letter from Mr. Vanderlip,
advising that the latter had arranged with the Austrian Government to have a
delegation of government officials and financial people visit thie country in an
effort to negotiate arrangamente to carry out the League of Nations' program
of last lay.

Mr. Benedict called at the Treasury, the situation was explained to
him as you and I understand it, but I am unable at this writing to advise you

whether or not the Austrian representatives still expect to suit this country.
It may have been natural enough for Mr. Vanderlip to make the suggestion, but it would have been more prudent to cable in advance to soe if the
suggestion was a wise one.

If these gentlemen visit America, 1 shall endeavor

to make use of that opportunity to get some first-hand information, but beyond
that see little that they can acoomplish.

The funding bill has been amended in the House so as to vest power
to negotiate adjustment of the foreign loans in a commission of five, one of
whom shall be the Secretary of the Treasury.
ed by the President in the usual way.

The commission is to be appoint-

There seems to be no provision for

their compensation, and it would appear likely, although I have no knowledge

Montagu C. Borman, Esq.


November 11 1921.

on this point, .that the appointments might comprise one or two representatives

of the legislative branch of the government, as well as men from private life,
who have some knowledge of these matters.
that Mr. Hoover might be appointed.

It seems to me also quite likely

This is, of course, surmise.

The bill

has yet to be introduced into the Senate in amended form, and no one can
prophesy what action will be taken there.

It will not be considered, I hear,

until after the pending revenue bill is passed in the Senate, probably some time
this week, and until the emergency tariff bill is also oht of the way.

My talk with the Secretary of State in regard to the non-political
arrangement for Austria brought out the fact that further consideration had
apparently convinced Mr. Hughes of the unwisdom of a formal commitment by our
government at this time, oven to the extent of expressing no objection to such
a program.

Between the lines i read that there would in fact he no objection

if the matter wore undertaken privately and without governmental support or

on the other hand, it leaves any such program in a perilous

situation because political or other developments might, without some such
preliminary understanding, lead to a subsequent. repudiation and withdrawal of

eupport, which would necessitate complete abandonment of American participation.
!Cy continued absence has prevented discussing the matter with Mr. Jay, but. I
hope to do so to-morrow, or next day, and will then endeavor to advise you more

definitely of what we propose to do.

My personal inclination is to take the

first opportunity to visit the other side so as to norm my own opinions on the

With best regards,
Faithfully yours,

Montagu C. Norman, Esq.,
c/o Bank of England,
London, England.


November 1, 192.1.


My deer Nermeli:

This letter is intended to round up a variety of matters not touched
upon in my separate letter cf this de.te, and especially tc reply to yours of
October l!.

You were certainly very kind to Jay, and I venture to surmise that
what I had prophesied as to his fitting into a comfortable niche in your circle
proved to be the case, at least the pleasure with which he speaks of his visit
with you at your home and at the bank would indicate that you found him all
that I had described.

I am anxious to promote the plans we discussed exactly along the lines

-indicated in your letter of October 12 to Vieserine, and an pleased that


appears to take a like view of the advent:leer: of such relationships.

A letter recently received from Visserine indicates that he is expecting to strengthen end extend the relations now established between his bank and
ours, and I an wondering to 4hat extent you brought out the point which we discussed when you were here, se to the exclusive nature of such agreements.


eelieve, as ycu do, that if we are to represent De Nederlandsche Bank, for any

other bank of a like character,)in this country, we should do all of their
business here, and that they likerire should transact all of our bueinees in

The same should apply to any other relationship of like character.

The practical difficulty in applying this principle at, the moment would be
zits the Bank of Japan, where ee, sue no doubt you, find that they have important
relations with branches of their own Japanese banks in foreign countries.

I have never raised that matter in correspondence with the officers

of the Bank of Japan,

but it happens that Mr. Fukai, Vice Governor of the Bank,

Montagu C. Norman, Esq.

November 1, 1921.

s shortly to be here as financial advisor to the Japanese Delegation to the

Conference on Limitation of Armament, and I could well make that the opportunity of discussing our plans in general, and this point in particular.


do you feel about that?

My own mind is set toward the desirability of making a trip to Europe
some time this winter, possibly immediately after the first of January, but not
until the passage of the funding bill by our Congress, and I am able to learn
with a little more certainty what the prospects are for dealing with the Austrian
indebtednews to the Grain Corporation.

On this point, I would also appreciate

your views, especially with regard to developments in Austria,subsequent to your
visit, which seem greatly to have increased the difficultiee which any program
is likely to encounter.

As a separate subject, I am sending you another letter by this mail
containing the roughest sort of a suggestion in regard to exchanges, which I
discussed informally at a meeting of the Governors of the twelve reserve banks
with the Federal Reserve board last week, and which was very well received.
It is not a matured proposal at all; hardly more in fact than the glimmering
of an idea which would require a great deal of discussion before I would myself
be willing to recommend it.

(see postscript)

The attacks upon the Federal Reserve System have really received no
substantial support among responsible people, so far as I can discover, and those
who are making the attacks have now descended to the point of charging extravagance
in the management of the bank, payment of outrageously large salaries, &c., &c.
It has become rather fantastic, and, if I may say, puerile, and I shallnot even
burden you with an account of the affair.
Federal Reserve Bank of St. Louis

are cabling you in regard to rates yesterday and probably to-day,

Novemi)er 1, 1V1.


44 ederal

Advisory Council.

I cannot tell what the outcome will be until telephone

message reaches us from our representative, who happens to be Mr. Alexander in


Mr. Warburg's absence.

If there seems any prospect of the suggestion which Mr.

Jay and I are now prepared to make, being favorably considered by the Council
and by our board, we will of course cable you later to-day.

Jay and I both wish

to see rates at New York reduced to 4 1/2, but some of the other Federal reserve
banks maintain present rates and our lower rates will then have the effect of
making New York a cheaper borrowing market for those sections of the country which
are just now somewhat extended.

by late afternoon we hope to send you a cable giving some better inMoney is not

dication of our possibilities than we were able to do yesterday.

easing lit New York quite as rapidly as 1 had expected, principally I believe

because of the large amount of new security issues which arc being issued, and
the distribution of which to investors throughout the country, of course, takes

Yours sincerely,

Montagu C. Norman, Esq.,
c/o Bang of England.
London, England.
P. S.

The letter to which I refer, requires further thought, and I shall hold

it for further opportunity to discuss it with Mr. Jay before mailing.

B. S.


.0 7.1'4





November 1, 1921.


My dear Norman:

It has always seemed to me that the many plans sugzeeted for remedying
the foreign exchange difficulties were fundamentally unsound and practically
impossible of adoption for various reasons, but principally because they failed
to take adequate account of the fundamental causes of the present disturbances
and fluctuations in the relative values of the different foreign currencies.
The principal causes of these disturbances are mostly the following:
(a) Unbalanced government budgets;

(b) Unrestricted issues of paper currencies;
(c) Suspension of gold payment;

(d) The uncontrolled payment of reparations by Germany in amounts, and
at a

rate probably more rapid, than Germany is capable of paying;
(e) The existence of a fluctuating current account of indebtedness be-

tween certain of the nations in excess from time tu time, and at the moment required,
of available supplies of exchange with which to meet the indebtedness;
(f) And as a possible additional factor, no certainty

as to what will be

dune about the payment of interest and principal of the inter-allied debt.
To attemi.t to stabilize exchange between most of the nations under these

conditions would simply mean that vast sums would need to be loaned, principally
in connection with the settlement of existing indebtedness, the repayment of which
would often be most uncertain, and the final effect of which would be simply to
postpone the day of settlement and possibly lead to conditions worse than now exist.
It is, however, a fact that certain of the European nations to-day have
budgets reasonably in balance, are not inflating their currencies, have a substantial

Montagu C. Norman, Eso.


November occueying the only
1, 1921.

basis, the colors o

11.cold reserve in their banks of issue, and present a reasonable possibility for


the diecount on exc


stabilizing their exchanges, as measured in dollars, between certain limits, albeyond control that
though not necessarily the so-called gold shipping points.

These countries are
many years.


countries which mos

and endeavor to set

Montagu C. kirth&n, FEC.


AM: *promote

stability at about gold par;

November 1,


and those are the nations which I have


Now the only way in which the risk of exchange can be eliminated is Ly

basing any operation undertaken upon gold; that is to say, ultimate lobe in any
large amount can

he limited to the extent that the "position" ie limited to the

amount of gold which each participant would be willing to ship in settlement of
his share of the account.

This leads me to the suggestion that if each of the countries named,
in proportion to their means, to the volume of their trade,and consequently to
their exchange transactions and balances,
contract with each other and with us,


to enter into a gold

to ship gold ultimately, end possibly at

some quite distant date, in settlement. of the net balance of the exchange trad-

ing account, we might then establish en organization for furnishing exchange
when it was needed, and for buying exchange when it was not. needed, so as to

introduce the etabili7ing influence of organized central hank buying and selling.
Let us suppose that this plan vas extended to England; your contribution being
much larger than the others, might it not then be possible to reasonably stabilize
your exchange within certain limits even though as much gold would ultimately be
required from you as from all other participants combined?

!:r. Snyder bas been locking into this matter and gains the impression
that a total account of $'700 millions gold would support the total possible

commitment to furnish dollars which might ultimately arise from the operation of

such an account; that is to say, euaose you furnish :150 millions, and the
other six nations together furnished a like amount, that would be the capital,
so to speak, of the trading account.

The entire amount of dollars required

might be furnished by advances -Made by the Federal Reserve Banks during the
period of operation.

An organization might be set up in London and New York

for a central control of this trading.

I am not sure to what extent the

trading should be exclusively in dollars, and to what extent in other currencies;
in fact, the detailed operation of such a trading account I have not thought out

November 1, 1921.



at aiii.

It is, however, a fair statement in my opinion that i believe the

current existing balances of trading between these nations are not so excessive
but that they might be dealt with upon some such plan as the above, provided always that the parti.s could to insured at the outset against the intrusion of
eparation purchases of various currencies out of credits obtained by Germany in

vLrious parts of the world.

It, therefore, seems to me that the possible

npessary preliminary step to any such plan as this would be a better understand_
ing of how reparation payments may be regulated and controlled so as to avoid
throwing further burdens upon the world's exchanges due to Germany's frantic selling of marks at constantly declining values in various



It is not at

present the trade which is causing the difficulty; it is the payment of old debts
without any regulation of the amount paid with relation to capacity to pay.
If this plan succeeded, there would be seven nations with exchanges
prqctically restored to parity with ours

and with maximum fluctuations reduced

a. mean, and sterling would be stabilized at some level comparable to

the present.

The plan might, and should, preclude such a spectacle as the decline in sterling

from $4.01 to $3.5, and subsequent recovery to


in a few months.

It might also be borne in mind that if after the end of a year or two, or
even longer, it was found that the account could only be settled by shipments of
gold; in other words, that the premium on dollars had gotten beyond control, then
it might be possible for the governments of these various countries to negotiate
long-time loans in the United States for the sole purpose of settling balances owing.
It seems to me that while this plan is open to the charge of experimenting,
it also has the advantage of insurance against heavy loss because of the gold
commitment, and it has the very great advantage of affording an experience which
I regard as essential to the development of any ultimate

solution of the Exchange

With_best regards,
Yours sincerely,

Montagu C. Norman, Esq.,
c/6 Bank of England,
London, England.

November 2, 1921.

My dear Norman;

Thank you for your letter of the 21st ultimo, advising of your
visit with N. Lepreux of the National Bank of Belgium.

1 had

of meeting him, and, in fact, when I way in Belgium in 1919 discussed in a
very general way something of this sort.

We have relations with the Leant

in connection with reparation ratters, and i have had opportunity to meet
most of the officers, as well as to entertain two of them when they were in
New Yu rye in 1919, following my visit in Brussels.

They impressed me as

men of ability, and with a keen appreciation of the importance of such an
arrangement. as you discussed with the Vice Governor.

I would be much in-

terested t.; learn of the possibilities of some discussion along this line

with ani of the Scandinavian banks.

When this preliminary ground has been

covered, it will then be important to ;eta more concrete discussion of
objects to be accomplished, and of methods as well.

Whenever you feel

the time has arrived to make progress to that extent, please do not hesitate
to write me and ;ive me your best suggestions.

Referring to cur cables of the last few daye about rates, it locks
as though a general reduction would be made by the reserve banks, with the
highest ratee 5 1/2 in Richmond, Atlanta, Minneapolis and Dallas, all four
of which are now borrowing from other reserve banks; with 5% rates. in

Cleveland, Chicago, Kansas City, St. Louis and San Francisco; and 4 1/2%


rates in Boston, New York and Philadelphia.

This will be a rather notable

reduction, and as it will be substantially simultaneous, should have a

November 2, 1921.

considerable influence upon public opinion as to what is developing in credit

I hope that you will nut only not be embarrassed but rather

assisted in dealing with your on problems as the result of this new development here.

With cordial regards,
Yours sincerely,

Montagu C. Norman, Esq.,
c/b Bank of England,
Threadneedle St.,
Lund)n, England.







Dear Norman:

Ae had two distinguished visitors from London recently, and I want
to advise you something of their reception here.

Mr. McKenna seems to have visited about everybody of importance here
and in Washington, and so far as I am aware has made one public address, the
(inter-a.1 i 1 ed'

burden of which was to urge wiping out alleiwar debts.

While his remarks, and

the statement which he made upon the eve of sailing, have had considerable
publicity in the press,

I cannot say that they have made


very deep impression.

He is an interesting talker, and while I was unable to meet him, except for a

short visit in my own office, he has been entertained privately by bankers and

others, and I have no doubt has advanced the views that he holds with a good
deal of vigor.

As to Sir Drummond Fraser; he has been making addresses in various parte
of the country, and either because of conviction, or the natural desire to be
courteous, or because of lack of understanding of the whole problem, or for all
three reasons, I think he has been fairly well received

in the plans he has

been advocating for the extension of the ter Meulen scheme.
But this can hardly be regarded as more than an expression of views,
as no crystallization of opinion into action seems possible without a far better
understanding of the European situation than is now held generally in this

The American Bankers Association appointed a committee, of which Yr.

Kent is chairman, to look into the subject further and make a report.
These visits are interesting and instructive, but
tion is needed as to any concrete results being anticipated.
Montagu C.
Federal Reserve Bank of St. Louis


Norman, Esq.,



Arys'a E3v LET-ram




November 17, 1021.

Dear Norman:

This note is to confirm the receipt of your cable ne and my reply
#7, which I can assure you has been the cause of the most profound satisfaction
to botn Jai and me.

I suppose it is a fact that in none of our business relations has the
personal relation played so large a part as in oonking.

it has long

been the cause of some uneasiness to me that when the time 'comes for you to retire as Governor of the bank, your successor may not feel the SE.W6 interest and

be inspirea by the same purposes that have characterized your attitude from the
start in building up an

understanding between your institution and ours.


is so much to be done from now on that is important to both of us, and our
sucoets in accomplishing anything depends so much upon these personal relations
that i look forward with dread to the day when you will bo succeeded ey some
unknown person with whom 1 may not have the same intimate End affectionate
relations that I have enjoyed so greatly with you.
At least no

7e have the aesurance of sixteen months without change,

and 1 am delighted beyond expression, and it inspires me with hope which otherwise .1 would not feel at all.

I have been rhamefully dilatory in sending you a letter which in fact
has been drafted, but is still being considered by Jay and myself before mailing.
It relates to the first move toward something actual in our relations, and I
*ill send it just as soon as I feel that I am justified in doing so.

November ?7. 1921.



With warmest regards to you and to Mr. Trotter, and my congratula-

tions and mod wishes to you both, I


Very sincerely yours,

Montagu C. Norman, Esq.,
Go vernor, Eink

Threadneedle Street,
London, Eng'. and.



7144.144&adtkiA, uatt

ot- 7


November 25, 1921.


My dear Norman:

Your letter of October 28 has had a few days consideration by both Jay and
myself prior to attempting a reply.

On page four you write "What I want to know

from you is what is your opinion of the idea, what the attitude of your Administration would be and of course any better idea that may occur to you."

I am not certain

from the language whether you wih me to sound cur government or not, so have cabled
you to-day as follows:

18. Referring your letter October 28 du you desire me to sound
our government regarding proposals contained in accompanying
memorandum or simply express my personal opinion."
If you wish inquiry made, I can do so discreetly and will advise you later of the

First as to your visit from President Havenstein and Mr. Kauffmann.
very much impressed indeed by what you write.

I am

It may be that this is partly senti-

mental for yoer letter indeed presents a sad picture of an old man beart broken and
disappointed and apparently helpless in the face of events.

I have been told that

he is a most reliable and conscientious banker, but th'It he has lost his prestige
in 40 rm an y because of the

of political domination.

failure of the Reichsbank to withstand the pressure

This seems to agree with what he himself stated of oon-

ditioas in Germany.

It is difficult to comment upon the contents of your letter, excepting
UD add that it seems to add a few more strokes of the brush to a desperate and
hopeless picture.

I am very much discouraged by recent developments in Germany,

and by what has been told me by Herr Bergmann of the Deutsche Bank, who has been
here discussing the possibilities of a loan for the purpose of protecting the
poEition of the mark vis-a-vis the dollar.

Governor Norman


November 25, 1.921.

Of course we will be most pleased to correspond with the Reichsbank.
would like to establish relations with them of the right character and do everythat ee can for them in a helpful and constructive way, but it is an arrangeent which, it seems to me, should be predicated upon a very clear preliminary
nderstanding that we will be unable to interpose with credits for reparations

I would indeed feel shaken in my confidence

in my own judgment if we

emitted our resources to be employed in furthering and continuing the impossible
situation which has developed out of the reparations muddle.

it is better to

have the break promptly, in my opinion, rather than to promote indefinite postponements with an ultimately more serious breakdown than would occur if reconsideration of the matter were forced in the near future by realization of Germany's
inability to continue payments at the proposed rate.
If President Havenstein writes us, as I presume he will, I shall endeavAr,
to send him as definite a reply as possible and one which will be satisfactory up
to the point of extending credits, which I do not think we should do at the present'
time; nor in fact do I feel that he is likely to solicit them.

Herr Bergmann has in mind a loan of t

to it50 millions for six months to be

furnished by a strong group of American banks with the sole object of buying narks,
in an effort to restore them to a value of about 1 1/2 to 20.

He thinks the

sentimental effect of the announcement of such a loan will drive the German speeuctes
to selling them, and that the German Government
lator or hoarder of foreign currezr

can acquire this foreign currency through the instrument of a large gold mark loaz,
which would in effect be a domestic dollar loan, subsctiptions to which would be
made in dollars, or any other forei:;n currency now held by German citizens, at rates

of conversion to be fixed by the German Government.
I doubt if the project can be carried out.

in fact doubt the wisdo

of it anyway, upon the same grounds mentioned above.

I have told Herr Bergman$

that our attitude towards promoting such a transaction would be governed by the
attitude of some of our officials in Washington.

There seems to

be too much


Governor Norman

November P5, 19'1.

spiring just now to risk complications, which would defeat other matters of


If you are able to send me any advice on the subject, I should much

eciate a confidential line as to any expectation that may exist in London,

er as a part of the present disarmament efforts or as a postscript to them, that

e may develop any international discussion of economic and financial matters.

eason for inquirying is the growing concern at the favor with which such

onary plans as Vanderlip's seem to be received in some quarters, and confidentialam inclining to the view that some sort of international discussion will soon

lop to be necessary.

If it is undertaken, and I have no information whatever

he subject, I sincerely hope it will be as nearly non-political in character as

ossible under the circumstances.

Commenting upon the last part of your letter and the memorandum, please

rstand that what I am sending is a combination of Mr. Jay's views and my own,

essed with the utmost frankness because I know that you wish no reservation

hat I express.

1. It is assumed that the Reparstions Commission is authorized to apoept

specific securities in lieu of cash or goods, or that such authority may be


2. It is an ingenious method of resurrecting dead assets for the purpose

aking payments to creditors who are insisting upon real cash.
3. It would not appear to interfere with France's receiving payment


d, as contemplated by the Loucheur-Rathenau understanding.

4. It would defer France's realization of an income toward putting

et in balance.

5. It would to some extent substitute French and Italian treasury bilia:

payments which would otherwise be made in England in cash.
e. It could only be 1)ursued as a fixed policy if imposed upon the French,

would make reparation payments a farce from the French point of view, and I think


Governor Norman


uld cause bad feeling in France toward England.

7. If it were to be forced upon the French, while it would be an almost

. stible pressure on them for revision of the reparations program, it would be mos

k come


to them, and seems a rather circuitous method to that end.
8. It strikes me as more ingenious than practicable, and the crux of the

whole program depends upon whether it, is attempted by force majeure, or through ex-

isting powers of the Reparations Commission, or by mutual agreement.

If by the first

method it seems likely to fail; if by the second method it seems certain to cause
bad feeling.

9. It would confuse later consideration of the reduction, offsetting or
cancellation of the inter-allied debts by galvanizing into life certain of these
debts which are now quiescent.

By this plan England in effect calls on France and

Italy to recognize and pay certain of their debts.

If this is done it, will certain-

ly confuse the issue should the question of debt cancellation be taken up here in
the United States.

In general, is it. not again temporizing with a situation which needs
radical treatment?

Might it not have the effect of deferring or suspending more

thorough-going measures for an understanding of Germany's capacity to pay, and a
better regulation of the method of payment and rate at, which payments are required?
My point of view is emphasized by the language of the last, sentence:

"But could she refuse her own Bills?"
As to the attitude of our own government, I can only surmise what it
would likely be.

The chances are that Mr. Hughes would state that any tdjustment

of that character agreeable to the

parties would not be objected to here, as it is

a matter of concern only between those parties to the Treaty of Versailles, who are
interested in the recovery of reparations from Germany.

This is only a guess.

The suggestionof any better plan would involve abandoning my own convictions, which are briefly: that Germany cannot pay at the rate set out in the
present schedules, and by the method contemplated; that nobody knows yet definitely

what Germany can pay;

that as to such payments as Germany can make, there is not




adequate regulation of the means employed; and that the whole reparations proram can not and will not be adequately dealt with so long as expedients are employed 111 defer the date of actual revision of the program.

Frankly, that is why I

would not feel inclined to make an explicit statement. to President Havenst.ein as

to credits; why I could not encourage Herr Bergmann as to the banking loan; and
why I cannot see merit in the plan outlined in the memorandum.

Possibly I am too

extreme in my viers and might revise them were I on the ground.


I am satisfied that our own unofficial representatives on the Commission are convinced that the whole present plan is unworkable and must be moderated if a central
European breakdown is to be avoided.

I hope you will pardon a very rough illustration of my point of view about
Germany at Lhe moment:

She appears to be a prize- fighter staggered by repeated

blows, and being held upon her feet by some anxious partisans who have heavy wagers
on the result of the fight in the hope that the final and fatal blow, which will
render her unconscious, will by chance not be delivered.

Many thanks for so illuminating and so interesting a letter.
I might write as well and as concisely as you do.

I wish

With many good wishes to you,

in which Jay heartily joins,
Yours sincerely,
Liv C'. LE. DATE


/1411/144.444:4/ Alk


>077a, c,a4A

Montagu C. Norman, Esq.,
c/o Bank of England,
Threadneedle Street,
London, England.

cable No. '00 has just come and reply is going to-day as per confirmatien.


December 16, 1921

Dear Norman:
I started



week ago to prepare for Strong's signature a letter

would reply to several weeks' accumulation of your most interesting

letters to him.

But, as Delano will have told you before y.0 receive this

abott Strong's illness and the little setback he had the early part of this
week, which I am delighted to sly he has thus far overcome -ost vigorously,
I am going instead to write you myself acknowledging end commenting on some
of these letters, as I do not think he should be bothered at this time with
anything not .absolutely necessary.

He saw your c_bles 10 and 11, and approved the reply to them, but
did not sea either :per or our succeeding cables on that subject.

It was

the intention that Aler,nder and I should go to Was'ington to carry your message, and 4e have hid our bags packed for the purpose for the lest three days.
Yesterl.,), cn receipt of your No. 17 I had a feeling which I somehow could

not overcome, that you felt we had been rather uncooperative and only showed
you the difficulties.

Dut this n- n your No. 13 has entirely relieved my mind

on this point and made it clear that, as a matter of policy, it is considerel

unwise for your Covrnment to have any

part in such an inquiry.

While the

inherent difficulties in the situation here are,as I have cabled you, very great,
the newspaper reports from London, of which our papers have been full

.11 this

week, would undoubtedly have added very greatly to the difficulties of such :n
inquiry as you proposed.

They have lei to a semi-official denial of any inten-

tion to call a conference, to an official statement by the British representatives to the ,rmaments Conference that they had no intention of

economic :ueations with our Government and :ere not equipped for
Enator 'arris
the of St. Louis
Federal Reserve Bankintroauctior of a ref,olution In our senate by

it, and to
of Cleor,.a


Illeentaeu C. Norman, Es:.,

.ecember 16, 1921.


Alp he effect that the United States lied no intention of cancelling any debt owed

to it by foreign governments and that it .as only proper that the Governments
should recognize Leis an

proceed accordingly.

I enclose cll _ings from to-

day's Times and Post feeling with the subject, which ere more or less typical
Unfortunately, this publicity in itself, as

of ,hat eve hve had all the week.

you your-elf have apparently sensed it, made the in eary .n almost impossible
undertaking, and had

e meee it I am afraid we Erlould have found that the pub-

licity had hardened the hearts of fk,ehington.

I am writing t. is on th


to Neshington and hope that I may have the opportunity while there to post myself a little on the subject.

good that I hay

Strong's approaches to the eaministration are so

not attempted to create any for myself, but es I em inclined

several weke of recuperation
think that he will necessarily have to be away for
begin to est blish come
after he leaves the hospital I believe that I shouli
contacts of my own.

If I am successful in doing so I will let you


somet ing

of the atmosphere.
sour unanswered lett?rs run back to November 7.

his visit to Switzerland le very

Vissering's report of

illuminating, and the conditions under Abich he

seem to tally closely
finds the Swiss National lEInk operates, while disappointing,

with the forecast be made to us in


with regard to the intilltion you gave of Ter Veulen's ttitule on
Vissering's going to Vienna should a :Ilan of rehabilitation be devised, I cannot

remember .hether I told you that Ter Meulen, when I lunched with him, mentioned
Vissering $3 a good man to undertake it, but did not pursue it further.
Referring to your letter of November 16, fourth paragraph, in writing
to Vissering on November 10, replying to e suggestion of his rerlriinz me:lification
of the basis on which
Federal Reserve Bank of St. Louis

we were transacting business with him,

ye broached the aubP


Norman, Esq.,


ecember 16, 1921.

Ance our rate reduction to 4 1/2 per cent, bills have been
trifle easier, and commercial paper has since fallen about 1/2 of 1 per cent.

The re rouse to the rate reduction in the bond market wee very prompt and

Bond prices have advanced and bond offerings increased.

11,,tee Ahice

banks charge their customers have fallen Gernert:at in the past month.
I an glad to Lear that you have eec!>ped the chairmanship of the Committee
on Guaranteed Lorna.

You have enough on your hands without undertaking such a

difficult ottside jab, and one concerning which my recollections incline me to
fuel y-eu woull rot be any too entl-esiestic.

It is extraordinary how little one hears of the unemployment question
in td-is country since the Unemployment Commission adjourned

hears very little about iistreee in industrial centers.

six weeks ago.


The subject is hqrdly

mentioned in the papers.

In your letter of November 14, you refer to the report of tha hearings
before the Joint Commieeion of Agricultural Inquiry.

On October 14, the Senate

panned a resolution directing the Federal Reserve Poeri to send the Senate infor-

mation regarding sal,ries, expenses, etc., of Federal reserve banks, and in order
that you may be kept in touch with these Congressional inquiries, I am sending you
a copy of the Federal Reserve Board's reply.

Sometime }feu might find an opportu-

nity to read pages three to nineteen, ehich are the pages that include the Federal
Reserve Board's letter.

ichether this resolution, and the rely

rye been

referred to the Senate Committee on Conking, will led to another inquiry of our
expenses and operations, I do not know, but if so, we believe teat Ae have an
excellent record to stand on.

Mr. Vanderlip has returned and has made a long speech (1 3/4 hours) at
the economic Club ea fortnight ago at which he brought forth his novel plan of

dealin, with the inter-Allied debts, doubtless reported in your pepere.

not said much
Federal Reserve Bank of St. Louis

about his international

bank since he returne').

He has
He has

Aontagu O. Norman,


Cecemter 16, 1921.


got but little encouragement from eur newspapers here.

One or teo export aseocia-

As have passed resolutions favoring his plan, but they :re willing to catch at
any straw /tich might help them, jaat as Yeeers. Ford and Edison are nor; proposing

tat the Government should issue its circulating notes to the extent of $30,000,000
based on "energy" to be derived from we ter peAer which they propose to develop on

some Government property in Alabama:

the $50,000,000 to be ueed to develop the

water power.

I sat beside Vanderlip at dinner the other evening and he told me of his
conversations with you.

I am told that the condition or Wrope is an obsession

with ki and that he thire,a of othing else.
Your letter of fiovemter 24, sending tne memorandum regerling the Copen-

hagen conference, reminds me of a memoranium Strong had intended to send you regarding eceee thoughts Le had in mind for dealing with some of the exchanges.

has mentioned it to you in one or two of his letters.
a fortnigti


Re decided, however, about

ago, that he would not send it at the present time, but has nct advised

YOU to teat effect.

The Copenhagen resolution eeems to be en interesting mixture

of the brussels conference declarations and Caseeliem.
ing the lest three weeks cennot, I sheul:' think, hsve

The course of exchange duri ven greet encouragement to

the stabilizers.

Y.ur letter of Eecember 1 was most interesting, end the cables which you
have sent us since then have kept us wonderfully advised as to the progress of the
eparetione negotiations ens the final eevelopment of a policy which, preatuebly,

All be determined on at to-morrow's meeting of the British and krence prima ministers.

ee in the bank are entirely sympathetic to your idea that reparations and

debts should be considered simultaneously, but, unfortunately, reparations cannot

alt while debts can. Sy thought concemning the third paragraph of your eel:de lo.

16 is that if the reparation agreement is contingent upon sore edjustment of the
Digitized:efts to the United

States, it should be

:one, ii possible, in such a way ns not


iltilont!,01 C. hbrman, Esq.,

to inflame further the
eOlhell in eur Senate.

L.ecember 16, 1921.

already heated feelings or this subject .e.ich

It might eell be considered here as a challenge, and

the effects of it should be carefully considered in advance..

Aboue the loan to Austrie on art objecte, I wired yeu yestsrdey after
talking with lorrow And eetting him to look over the correepondenne.

As f,:r es

he could make out the Government ettitudc W13 practically neeligible, if existent

at )11, though the c,ble which wee sent crose rather indicated by inference
larger element of government opposition.

The possibilities you indicate in the last paregraeb on page 4 of your
letter of Denember 1 are portentous.

People on this side rellize 3ierdly et all

the oommercial difficulties which are sure to arise In Germany with eny improve-

ment of the reparations matter, though the papers have begun to report some
difficulties er tha result of the rise in the mark.
Your letters about the visit of Hevenstein, and the data you send regarding their relations with you, were very helpful tc us in considering the

letter we received frem the aelchebank e fortnight ago proposing opening an
account and borrowing against gold, to which we replied, as I hove ca led you,

affirmatively regarline the account but erpreseing e preference thet the quesqon
of credit should not be raised at, present.

After such a budget of vital news ee you Pave been sendiree us,

sorry to be able to send you ao little in return from this side.



Greet things

are Joing in Raehington, but of these you are doubtless fully edvi3ed by the
nekspepers and perhaps by y_ur representatives.

The conferences ere conducted,

I helieve, with greet secrecy until decisi ns ere reached, iihen they are announced

at the open meAinge.

Shortly after the conference opened it wee etsted that

only nine peopleYnew in advance of the proposal for naval reduction, among 'hot
ere none of the foreign delegates.

The four-power treaty seems likely to be


9tdirtagu C. Norman, Eeq.,

Lecember 16,



ratified by the Senate, but there will be 1:iuch discussion of it by comparison

h Article I, and the final vote may not occur for several weeks hence.
indications are that the Administration will not hurry it.


In the meantie,

with our attention fixed on the Pacific, the country is thinking rather less than
usual about Europe.
Perhaps I may have sometling more to write you after my return from
In the meantime, with my warmest regards and beat wishes to you for


dsli.zhtful month in Afire,

I em,

Faithfully yours,

P. S.

You hwe rot yet answered Strong Ns to how long you expect to

out.4 in Nice.

Norman, Eeq.,
Governor, Funk of England,
London, Englund.



ANS'D Cti,
ANS'O Cy Lz:1-1






6414'4 7


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