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52 WILLIAM STREET New York, January 22, 1921. Dear Ben: Thank you very much for your good letter of January 21st. I hesitated long before suggesting your name to the President-elect. Indeed, in the first instance I did not intend to do so because I felt that both temperamentally and physically 'you would suffer more than most men in such a position as that of Secretary of the Treasury. Fond as I am of you, it was not because of our friendship, but from a sense of public duty, that I suggested your name. I think you are on the whole thb wisest man in economics and finance I know and the best equipped for tne job. About the matter of confirmation, you are mistaken. Cabinet appointments are regarded as the President's personal privilege. His appointmfnteare always confirmed. There are not I think more than a couple of exceptions to this rule in the history of the United States. The only possible obstacle to your confirmation would be strenuous opposition from the two Senators from your own State, and I assume that, so far from meeting opposition from wadsworth and Calder, you would have their hearty support. All this, however, is beside the mark. Phave shot my bolt in presenting the gravity of the problem and my -2- a own suggestion to the President-elect. I am without politi- cal influence, and in view of your feeling about the matter, I should hesitate to use it if I had any. I am just bank from Washington but did not see any politicaliVoguls. Indeed, I concluded on second thought not to do so, at least until I should have had some further private talk with you. I saw Houston, Gilbert and Miller, however, and I am a good deal frightened about the situation which has developed in the Federal Reserve Board and the Treasury. As you know, three vacancies in the Board will arise automatically on March 4th, and the fourth vacancy is, it seems, to be created very shortly thereafter by the resignation of Governor Harding. Of the remaining three members, Platt, Miller and Hamlin, no one is a banker or business man. It is not therefore exaggeration to say that the future of our banking and currency system will depend upon the appointments which Senator Harding is to make at the outset of his Administration. The situation in the Treasury is no less a cause for anxiety. On the 4th of March, not only the Secretary, but every Assistant Secretary will go out of office automatically except Moyle, who exercises a nominal supervision over public -3- buildings and miscellaneous activities which ought not to be in the Treasury at all. This peculiar situation arises from the fact that Rathbone, Shouse and I did not feel free to resign until after Congress had adjourned last June and the possibility of constructive or destructive legislation affecting our several offices had passed. When we did resign in each instance Secretary Houston, characteristically disregarding every political canon, appointed to the places thus made vacant the men who were in fact our first assistants. There- fore the three principal Assistant Secretaries all hold recess appointments, and go out 'of office by operation of law upon the adjournment of the present Senate if it fails to confirm their appointments. These are poor young men who have made great sacrifices from a high sense of public duty to remain in office as long as they have. I shall not say much about the affront to them in the failure to confirm them (although It is apparent, however, that they it makes my blood boil). cannot be expected to remain in the Treasury without authority or compensation after the 4th of March if this affront is administered. I regard it as absolutely essential that the Senate confirm Gilbert, Kelley and La Porte, the three Assistant Secretaries. They can, of course, be counted on to -4- resign as soon as their resignations are wanted. I think it would be impossible in the case of Gilbert and Kelley to keep them for more than a month or two in any event. They simply cannot afford to continue much longer for $5,000 a year. The executive appropriation bill now pending before the Senate, not only fails to make permanent the Civil Service organization which I built up in the fiscal offices during the three years of my service, but imposes a new re. strtction upon the use of the lump sum appropriations carried in the Liberty Loan Acts,which would reduce the salaries of Broughton and Hand from $6,000 'to $3,500 apiece, and, further- more, destroy the structure of the organization itself. As you know, Broughton is the head of public debt operations and Hand is the man who makes estimates of current income and outgo and has charge of transfers and withdrawals from the War Loan Deposit Account. Both men are Civil Service employees of 15 or 20 years standing and are as nearly indispensable as it is possible for men to be. I happen to know that both have opportunities in private life at salaries largely in excess of their present salaries. Neither can afford to delay long to accept some such offer; in view of the attitude of Congress. I hand you herewith a copy of a letter which I wrote on this subject to Senator Smoot, because he happened to Co -5- 0 be a member of the Finance Committee, which should deal with the confirmation of the Assistant Secretaries, and of the Ap- propriations Committee, which will have charge of the executive bill. of March. He asked me to revert to the subject after the 4th That will be too late, I fear. When you realize that on March 15th some hundreds of millions of dollars of Treasury Certificates mature and an installment of income and profits taxes is payable, the amount of which is very dubious because of the slump in incomes and profits due to the business depression, the gravity of the problem which will present itSelf to the new Secretary, if he is deprived by the present Congress of the principal members of the his organization before he has had an opportunity to look around, is apparent. Si Benjamin Strong, Esq., Governor, Federal Reserve Bank, 15 Nassau Street, New York City. c-P enc ely yours, January 24, 1921. Dear Russell: I am many times indebted to you for your letter of the twenty-880one, but even more for what you write of the feelinde which inspired you to make the suegeetion to kr. Harding. It happens that 2 may be %tie, to be of some service in preventing the chaos developing in the Treasury Department, which iS 80 well described in your letter and which I have, myself, been fearing, but I think I should say frankly to you that 1 hap:en to ) knoll-that it is practicany out of the question for the ?resident elect to appoint a Eecretary of the Treasury from New York. If he did do so, I would rather eee you aecept the Job than anyone else that I know. By tomorrow night, when I hope to sea you at dinner, I may be able to tell you something a little more definite about this situation. Faithfully yours, Russell C. Leff,iniinell, Esq., 52 William Street, New York. BS.MSE Ne York, January 13, 1921. 0 My dear Senator: I am afraid that serious embarrassment may come to the Treasury from failure to realize the importance of retaining the principal men now in the service, at least until the new Secretary shall have been able to familiarize himself with his jpb end to replace them with men of equal ability if that be possible. As you know, the personnel of the Treasury fiscal offices has not for the pest three years at least been determined on a partisan basis. zation. There are many splendid men in the organi- Indeed, I could write a book about the loyalty, devotion and efficiency of the Treasury organization. I shall not attempt now to do justice to all, but I went to tell you that there are four men in the Treasury who nigh indispensable. T think are well These four are all men who, to my personal knowledge, are remaining in the Treasury today from a sense of duty and who will retire to much more lucrative positions in private life the moment they are released from the Treasury. They are Assistant Secretaries Gilbert and Kelley (salaries 5,00O) and Commissioners Broughton and Hand (salaries $6,000). Gilbert and Jielley are New York lawyers, who came to 2 the Treasury PS a matter of patriotic duty during the war. have brilliant careers before them in the law or may prefer. Gilbert is a Republican. banking, as A they His father is or was a Republican politician of some prominence in New Jersey. is not a party man. Both Kelley His father or grandfather WPS, I believe, Republican Congressman from Pennsylvania and member of the Ways and Means Committee. Both hold recess appointments and will, I understand, automatically go out of office on the 4th. of garch if these appointments shall not previously have been confirmed. Broughton and Hand are old Civil Service employees who have been in the Treasury for 15 or 20 years. backbone of the Treasury's permanent organization. They are the You will find some description of the services rendered by these two men before their appointment to their present positions in my testimony on the Legislative, Executive, etc., Appropriation Bill, November 26, 1918, 'pages 97 to 101. Broughton was then Chief of the Ijivision of Loans and Currency, and Rand principal bookkeeper in the Treasurer's office. The offices which they now hold were created upon my recommendation in pursuance of m plan outlined'in my testimony on the Legislative, Executive, etc., Appropriation Bill, February 11,.1921, pages 2567 to 2573, inclusive. The offices were created on the bond roll and should be made permanent. I understand the House has struck out specific provision for both and limited the use of the bond C1/4, roll so AS to exclude them. Broughton is A Republican who Was brought into the Treasury by Mr. Vanderlip when he was Assistant Secretary. I do not know Hand's politics, but as he came from Mississippi, I think, 15 or 20 years ago, I suppose he is or was a Democrat. Both of these man are as nearly Indispensable as it is possible for any man to be. Hand, indeed, because of his peculiar knowledge of the Government's archaic accounting, and his almost uncanny ability to estimate current income and outgo, is unique and irreplaceable. Both have been retained and promoted through successive Administrations, Republican and Democratic alike. Failure to.retsin them now and confirm appointed would them in the positibrs to which I greatly prejudice the successful had them operation of the Treasury and would be s blow to the Civil Service principle and to the morale of the Treasury service. I am not writing this in the interest of the men, because, so far As their selfish interests are concerned, no greater good fortune could happen to them than to be released from the public service nnd to have a good excuse for accepting lucrative positions which await them both, It is in the power of the present Congress, by confirming Gilbert and Kelley, and biappropriating speclficslly for Broughton and Hand or permitting their continuonce at their present salaries on the bond roll, to save the orgnnization 4 ddeveloped, at least until which I created the new Secretary of the Treasury shell have had en opportunity to familiarize himself with the vary grave problems which will confront him at the outset of his ndministretion nnd to formulate his own plans. If this is not done, grave embarrassment will, I fear, result to the Treasury of the United States and to the new Adminis- tration. With great respect, I NM, Sincerely yours, R. C. Leffingwell. Hon. Reed Smoot, United States Senate, Washington, Q. 0 January 21, 1921- Dear Rueseil: Thiu note has twe purposes: One 5.6 to tuank you for stopping I can't tell. you how much I at the office to give me a welcome home. appreciate it, and how much I v.Que the friendsbip which kh,e formoc during the war. hlso I am writin,:', to tell you how very deoply I apHrdiate the letter yo 4 *rote which broug:ht forth the respone from Prosident-e2ect Marjing. There ure many reasons hhy it vould eeem to be imposable ror me One reauon it tiVit 1.1y pereon of to OtleoUtd,66 the idea you have in mina. my charcterisLice, *ith eilioh you are so well aoquaintea, he thu un- 1 have b4Allt In euhinFfortunate faoulty of making a g(A)0 mary eneMiak;. ton, as you know, anu even if other oircum *,ancee permitted, I am very L-uce that tLere iu not the remotest possibility of the ,Senate oenfilming my Every Democrat in the Senate would vote against it, and proLatly a largo number of the Bepubtiouns aa well. fhey protab"ly think me a lukewarm Republican anyway (and possi'ol§ they are not far wron), but more than that,' all of tuose who know inc believe that I am etrong-headed and opinionated - and maybe they are not far wrong. Thie le one of the Another possibly more impertunt is tnat I Uun't lea:A, of the argumente. want any public offioe. It woulo make me exceedinly unhappy to get inte a political atmosphere, and I beiieve twat I can be ef mo.e EurViee to the appointment. community and country in my ,:reeent job. I will space you the other.reasone, - too numerow, to recount - but I won't spare you the satisfaction, if it ie any, of knowing that I have a very deep and heartfelt apkreolation of your confidence and friendship. Sincerely yours, R. C. LeffinEweliA Esq., 5Z tilliam L;treet, New York. MSE January 21, 1921. Dear Russell: Thie note has two purposes; On is to thank you for stoning the office to give me a welcome home. I can't tell you how much I appreciate it, and how muoh I vklue the friondehip which we formed _turing the war. kis° I !Ira writing to tell you now very deoply I apo.eciate the letter yeu wrote which brought forth tho rer,ponte frow Prosident-e:ect HarJing. There are many reason hy it would aoem to Le impossible for me to encourage the idea you have in mina. One re.o i that any person of my charcterlstice, i.ith which you are bo well aoquainted, hke the unfortunate faculty of making a good mary enemioa. I hkve some in Ashingtea, as you know, anti even IT other circum ,-,ancoe permitted, I am very sure that thsre ie aot the remotest possibility of the Senate confilming my appointment. Every Democrat in the ,fenate would vote kgainet it, and probatly a large number of the Republivans ag well. fney probably think we a lukewarm Republican anyway (and poscibly they are not far wr-ont;), but more than tha, all of tnose who know me believe that I am strong-headed and opinionated - and maybe they are not far wrong. Thie le one of the lea,:t of the arguments. Another po!,Libly more impert&nt is that I don't want any public office. It woulo make mo excoedingly unhappy to get into a political atmosphere, an;.. I beJleve taut I can be cf moie service to the community and country in my .creeent job. I will aparo you the otheireasens, - too numerous to recount but I won't spare you the satisfaction, if it ia any, of knowing that have a very deep and heartfelt appreciation of your confidence and friendSincerely yours, . 52 C. Leffingwq,I4 Esc., t,tret, fiGt Yore. :t1SM-4 M 19C.3.1.9014-1-20 FEDERAL RESERVE BANK OF NEW YORK L,FFICE CORRESPONDENCE TO ' Mr. Beyer FROM H. G. Bellah DATE Statement bq SUBJECT the Jarunry 24, 1921 United States December 31, 1920. AMOUNT OF GOVERMENT SECURITIES MATURING UP TO AND INCLUDING JANUARY 1, 1925 Securittra Maturities Amounts Certificates of Indebtedness Tax 01,651,694,500 Loan 648,961,500 Pittman Act 259,375,000 Special 32.854,450 Up to Dec. 15, 1921 Up to Aug. 16, 1921 Up to Dec. 31, 1921 War Savings Securities, Victory Notes Jan. 1, 1923-Jan.1,1925 1922 - 1923 $2,592,885,450 760,953,781 4.225.970.755 Total $7,579,809,986 NOT DUE, BUT REDEEMABLE BEFORE JANUARY 1, 1925 .Securities Redeemable Panama Canal Loan of 1956 Panama Canal Loan of 1938 Postal Savings Bonds (lst'to 19th Series) Total Amounts After Aug.1, 1916 After Nov.1, 1918 1 year from date of issue 48,954,180 25,947,400 14612.160 $ _Securttils Redeemable Debt on which Interest has ceased (Payable or presentation) Non-interest bearing Debt. (Payable on presentation) Total Various Amounts Dates Various 86,513,740 Dates § w 7,441,490 225 242.689 $ Grand Total 232.684.179 $7,899,007,905 )1Alamcs. of Debt Redeemable Securities Consols of 1930 After Apr. 1, 1930 Loan of 1925 After Feb. 1, 1925 Panama Canal Loan of 1961 June 1, 1961 Conversion Bonds 30 years from issue Liberty Bonds First Liberty Loan 01,952,368,450 1932 - 47 1927 - 42 Second Liberty Loan 3,323,137,800 1928 Third Liberty Loan 3,646,868,400 1953 - 38 Fourth Liberty Loan 6,363,733,163 Amounts . Total Gross Debt December 31, 1920 (Preliminary Figures) 599,724,050 118,489,900 50,000,000 28,894,500 15,286,107,813 16,083.216,263 $23,982,224,160 SR WILLIAM STREET New York, January 24, 1921. Dear Ben: Numerous changes, to which I have already called your attention, about to take place in the Federal Reserve Board and Treasury organization make me peculiarly apprehensive and are now my excuse for writing you further. I do not know whether you are aware of the political pressure which was exerted during the fall on the Federal Reserve Board to provide cheap money for thefarmers. terrible. It was really I am very much afraid °V the renewal of this pressure, when both the Federal Reserve Board and the Treasury are made up mostly of new men, and that the continuance of certain artificialities in the Reserve Panks position will make it sew easy to try the cheap money remedy for depression. I do not think that cheap money will really exempt this country from the present world movement of prices any more than it has France or Germany. On the contrary, I believe that the principal obstacle to perTranent recovery is an Immense over-supply of currency and credit. Notwithstandinq the great reduction in the volume of business and the reduction in prices and waaes, all Federal Reserve Panks1 total earning assets on January 21, 1921, were less by only $90,000,000 than the year before, and the 2 Reserve bank notes aggregate of Federal Reserve notes and Federal $200,000,000. in circulation increased in the year by more than volume of I do not think you can healthfully float the present subnormal, or even in currency and credit either in the present normal, times. I think the Federal Reserve Board's policy should It is be such as to absorb the surplus as rapidly as possible. hanging like a cloud of poison gas over our business life. I have already written to Mr. Jay under date of January 15th about your Bank's rate on Treasury Certificates. I understand tes, gave that the Treasury, before reducing its rate on Certific principally on the Reserve Banks an opportunity to elevate theirs,^ account of the position of your Bank, A99.1441 was declined. The Reserve Banks' holdings of legal tender notes, silver, etc., amounted on January 21, 1921, to over $205,000,000 against The occasion for holding legal $61,000,000 the year before. tender notes disarpeared when gold certificates were made legal te der. The silver Certificates were accumulated when last yearts price of silver rose abovA.37 and we were providing silver for export in the effort to hold the price down so that our subsidiary coin would not be melted. In view of the present world price of silver, the silver certificates make a sorry reserve. The Reserve Banks' present apparent reserve is an invitation to inflation. Why not eliminate the padding from it by paying out your legal tender notes and silver certificates? It seems to me also that the time has came to restore to 3 circulation the gold, or some portion of it, which was withdrawn during the war. Benjamin btrongx Esq., Governor, PedF)ral Reserve Bank, 15 Nassau Street,N.Y.City Vp Aza January ?5, 1921. Dear Russell: I was particularly glad to have your letter this morning, reenforcing, it does, my on feelings in regard to the policy of the Treasury and of the Bank. I have not yet been anis, to satisfy myeelf that we know all of the reafons for the automatic accumulation of silver certificates and United States aotee which has been taking place now for see: boeths. I doubt if this is weolly due to the business rrcession, beeause there ere other influences which might help to Increase our holdinos of silver ce-tifleatce nod United Stetes notes ehech are eeneowhat 35 cure, but eoesibly have more to do with the movement than tree. I notice the last statement of the Treesury shows *265,000,000 of gold ia exIncreased accumulation of gold ceus of the urount reeoired for the redemption funds. by the Treasury would reduce our gold holdings, or at least arrest the increase in our gold holdinec, enn, ercere. 1:,, to eomo extent develop the tendency to increase the smount of But the more likely explanation i5 that our silver certificates and legal tender notes.' fou notice that the increese it is due to the movement of the domestic exchanges. of silver certificates and Uaited States notes ha e been almost wholly in the Federel ReTne domeetic ezehanges have been running adverse to Se* York serve Bank of ra% Yo. now nor a long period. Bank deposits in hew York City have been reduced by :t1,400,000,000 from the high water meek, and, as a consequence of that,. our reserves have moved to the They are just now as low in total as they ever have been since other reeerve bank. These payments which we make to the the gold was loecentrated in the reserve banks. sill other reserve banks all go through the gold settlement fund, and as we are only able to settle with gold, and not with oilver certificetes or legal tender notes, the tendency is for us to oonstently lose gold and to accumulate the other forms of reserve money. 1 share your aperehension about the situation in the Treasury Building. When the present Secretary retiree, and if his immediate associates in the Treeeury retire, as you seem to feel is possible, the only members of the organization left who are familier with the phase of the war period at all will be Messrs Hamlin and Miller of the Federal. Reserve Boerd, in case, as I feer, Governor Harding retires. Upon whom, therefere, may we rely for protection ageinet the pressure which is suite possible to arise for cheap money as a cure-all for the difficulties with which the country will be confronted during this coming period of readjustment, which cannot be That troubles me very much! avoided. If we continue to There is another matter which is equally puzzling. maintain our present rate level, or even go a step further and increeee the rates for loans upon Treasury certificates, and the other reserve banks do likewise, we can, of course expect a continued pressure upon bank credit and a continuance of the policy of lieuidation. Looking at the problem as an international or world one, rather than as a local, nationel problem, I am wondering hoe the war stricken natione oftEurope are ever going to meet their debts at all if prices go down further or even remain a period fer at their present level. With prices reduced, wages reduced, profits reduced, next the tax income of Governments will be reduced, in fact everything will 2 Mr. Leffing*ell 1.25.21 De reduced except the amount of interest and priocipal of var debts no ex;.ress:d in various obligations. Ho* are they ever going to pay thew? As one man expresso:kit to the in London, the proble before the British Government no is to main vim the If the nations of Europe should have the pound at the value of eight shillings. courage, or even lacking the courage, be forced to perform a capital operation upon their currencies, as has been suggested by some peopl, they would inevitably be obliged to perform a similar operation upon their debts, and I am rather inclined to think that much of the future in Europe, speaking narrob,ly of financial recovery, will depend upon the policy of the Federal hestrve System and of the United FiAtes Tresury, in liquidation and reducing prices, and second in first, as to the pace whioh we the treatment we accord our debtors. The situation abroad is so complex and in some respects so serious, that m, ow iD,43 to cry--tollize at all just yet, but, on I feel migity reluctent to the whole, I think the.safest present policy is to co evtrything we can to prevent too sudden movements in rices or rates for oredit until we knoz A little more of the policy of the new adminirtretion, and particularly until *e kno* a little more what is to be done about the debts evi to our Government by foreign loverrents. Tou and I both sufer fron that fortunate, or unfortunate, habit of getting_ our minds cleared up a bit in these matters by talking about them, and I *ant very much at an early opportunity to talk same of thee matters out with you and to gst your on views. But the first thing to do is to get some reassurance as to the Treasury organization, and I am doing what I cun in that maiAor lreadv. A thousand thanks !n) you 7c.'or your letter. Faithfully yours, hussell C. Leffingweil, Esq., 52 Tilliam Sta:;76T7-11ew York City. BS.MSB 52 WILLIAM STREET New York, January 26, 1921. Lear Fen: Many thanks for your good letter of January 25th. I am sorry though that you did not obey the injunction not to You must make it easy for me to fire off my views answer mine. at you from time to time. ' you will take advanta7e you will forget then. I hope that if they prove suaaestive of them, and if you think them worthless 1 shoulc feel very guilty now that I bear no share of the responsibility if I added to your burdens i by as much as the writing of a letter. I think you have fallen into a commcn error about the gold in the Treasury. I have before me the Treasury Daily statement dated January 15th, which shows gold in the general fund to the tion amount of $284,000,000 as an asset and 277,000,000 as a the 5% redemp- liability. Thus/disregarding fund(gold)of the redemption funds for Federal Reserve Bank notes and National Bank notes, which may be either in gold or other lawful money, the net amount of free aold on stead of $265,000,000. I do January 15th was $7,000,000, Innot know What statement you have been locking at, but It is, of course, unthinkable that there should have been any important increase in the amount of gold in the Treasury since January 15th. I think you are equally mistaken about the silver. 2 Tall014 of the silver now in the Federal Reserve Banks was turned over in a lump by the Treasury last spring. Furthermore, until very recently they have been accumulating silver by express direction of the Federal Reserge Board afd. the Treasury. The present accumulations of silver by the Federal Reserve Banks are not accidental but were made deliberately for the purpose mentioned in my previous letter. The reason that the A si.14ver 6 is in the hands of the Federal Reserve Bank of New York Is that we sold it to the Federal Reserve Bank of New York last spring. Other Federal Reserve Banks were excluded becaus Bank needed tle rese the New York e at that time I am interested in whae you say about the relation of our credit policy to the needs of Europe. It is mildly amusing that you and I should have precisely reversed our positions on this great question. I shall look forward to the talk about it which you suggest whenever you have time for it. In the meantime I shall not trouble you by adding anything to my letter of January 24th to you and my letter of January 15th to Jay. Sincerely Benjamin Strong, Esq., Governor, Federal Reserve Bank, 15 Nassau St.,N.Y.City V. A pç' 41" ,. 1.7 4 L i; e ,, . IN 1? / - ,,,I I . II,N. ...> (114 l'. As. OA., rd, ' dk,'4' PI 31, ,; !re., ,A)-CI) ' ihul 3, .1- -. , ,f,',,, )_ 0.-1, i.......1 , ' , , ," ,_..,.1.` -g 1.CA. TLY hj. , IC 11; \C. , ' 'A i: co 1.1214.1:i IJ.b. .c 4L C11 c1-701 ,.,_ I.J4. 4.. c..I. 4:;.".k; Uurch 8, '921. Dear Russell: Thank you for yours or the 7th, enclosing copy of your letter of February 17, to 1.r. Cilbe t. What you suggest is exactly wht I had in mind, as 1 stated to you, and I hope thut later on the new Secretary of the Treasury will sec the ..dou., of such a program. Yours very truly, .44:tia+644.1., EP1-e 52 Willi-IL '-treet, New York, BE:MM 14. Y. 52 WILLIAM STREET a position upon a political question. a New York, March 30,1921. Fai lly yours, Dear Ben: I received your letter of March 24th. I am strongly in favOr of such Benjamin Strong, Esq., Governor, Federal Reserve Bank, 15 Nassau St.,N.Y.City a constitutional amendment as was proVp posed in my letter to Mr. Green and I think it would be very helpful to write Mr. Mellon a letter on the sub» ject. my impression is that the line of least resistance would be to support the McFadden Resolution with such amendments as are necessary. I shall be very glad to talk the matter over at Mr. Hart'sconvenience. You will, I suppose, want '43 avoid anything which might suggest that the Federal Reserve Bank as such was taking April 21, 1911. Dear Russell: Last week I war induced to r ke a rather informal talk to the .4tembers of the Far College in Asehington. Nhut I k,,ave them W6.1.5 very hastily prephred and, I rear, on reading it over, not it might have been v;ith more time exactly aouurate in figures for preparatin, particularly as fcir a good deal ,of the material had to depend upon my memory. Would yuu mine rea.ding or the enclosed csid lot me knDw how it strikes you? Also, will you he good swugh to return it to me, aE it iE my only copy? Yours sincerely, R. C. lAdfinghell, Esc., 52 Nilliam St., New Turk, A. Y. BS:MM Enc. 52 WILLIAM STREET New York, April 23, 1921. Dear Ben: Did you see the enclosed article on the front page of this morning's Times? I am afraid the poll4ticians will For Heaven's sake standup to them. make it hot for you. Boston's action was bad enough, buy-the reason given for it was worse: that they had gold it! As though it were the legitimate f Bank to manufacture currency and eredit of the gold it could lay its hands on, nough to afford tion of a Reserve the extent of10% !ecause Congress in 4 its wisdom had fixed 40% as the legal 4tinimum reserve! In my opinion good times ar being delayed partly by the failure or retail prices to ce down, and that is partly due to the fact that the qua ity of currency in cir- culation shows only a trivial decre se, though the volume and, turn-over business has been enormo sly reduced; and the failure to effect a reduction in curr 4 y is partly due to the faildre of many of the Federal kie erve Banks to bring their discount rate up to the 7% rate tablished by your Bank, so that they c'eterttt continue to subOdize currency inflation. If you pay out your silver and lawful money, thus 2 00 eliminating the padding from your reserve, and restore gold it will be available as a secondary reserve in the event of future exigency, you will, it seems to circulatio5where to me, go a long way to remove temptation from the politicians. All importations of gold have, of course, an inflationary in- the inflation by two and a half if you put the gold in circulation instead of carrying it in your reserves. There will be no temptation fluence. Benjamin Strong, Esq., Federal ReserTe Bank, 15 Nassau 6trtet, New York. (Enclosure) Vp to multiply qV (eetueolona) al w5L olloY uoesm ,Secq/ Lielsbeq r_.,eatori Lni nimstnoS tanoq$2 pea 10.3V bes/sni. to noll 10 ow/ icluql tarafox /1 n1 quov, .aevrrawl no1Ialu3nsont,o1c1 .00rmull eleeT iliW .ad on no1/sInmat ol lagilfum Evil -211rd ILA amqloPlogml 19 bias ,avati 10 osquoo na of oq..51m eveyse5,1 brif liadia 11 LBA uq ecil nol vw ol evomeq nol/aIcimed. entmoql .ana1o1I/1og n/ 5(11 /neve lo squlul ,yone31xe moy tillw /1 amass a vabnonsa ol nolIalvoqlo anf,w 41 lifw ed elialtve an/tan/mils snlboaq mol/ quot ovneeel pra sq0/saq tfoB 52 WILLIAM STREET APR 2 5 1921 New York, April 23, 1921. Dear Ben: I received your letter of April 21st. I have read, ana, in accordance with your request, return herewith the copy of your lecture on War Finance delivered at the General Staff I think it is admirable; Colle,lre in Washington on April 11th. well-balanced, moderate and sugrrestive. I hesitate to make any suggestions. I like it so much that But here goes: Do you mean to advocete conscription of materiel and labor as a war measure? I do not believe that it offers a feasible economic program if by conscription of mete2ia1 and labor you mean anything more than fixing nrices and wages and imposing taxes on war profits and incomes. When we draft men to fight, hope of glory on the one hand, fear of being called cowards on the other, furnish the necessary sanctions. doubt very much, however, whether it would be possible to draft men to work in business and industry even in wartime, because such jobs lack glamour and some are so much more distasteful than others. Nor do I think conscription of mater- ials would be consistent with stimulation of production. Your comments on Napoleonic esting. finance are very inter- I know little about it but I imagine that the 2 analogy is a bit misleading, because he did upon France for men and materials in such not have to call numbers and amounts as to over-strain her economic life, and drew heavily upon enemy resources. That you say at the bottom of page 10 about economy in interest rates being false economy is undoubtedly correct, but I question.the implication from/the balance of the sentence that higher interest rates during the war would have made it possible to avoid bank loans and obtain investment our borrowings. funds for Perhaps the rest of your lecture makes it clear enough that you do not mean to go as you do think rates should far as that, though have been somewhat higher. tion whether moderately higher rates would have ant effect in preventing inflation during the I ques- had an import- war, and, of course, a really dear money policy is not feasible in wartime. You cannot speed up production and distribution for war purposes on tight money; you cannot go brakes on. full steam 'ahead with the emergency When government expenditure for the wasteful pur- is on such a scale as in the great war the governfix the price of money as of most everything else, poses of war ment must for it has upset the balance of supply and demand. The price for money should be fixed with reference, on the one hand, to making the and making loans attractive to investors in the first instance credit control easier after fighting stops, and, on the other, to avoiding during the war abrupt depreciation or 3 panic in outstanding securities andleaving a margin for further concessions on future borrowings, if the war is protracted, without establishing panic rates. This, of course, leaves a fairly wide -margin for difference of opinion as to what the Dependence for rate should be holding under given circumstances. down inflation in wartime must be placed not upon rates but upon such expedients as were used in England: price-fixing, war savings loan eamoaigns, food control, fuel control, con- during the war here and and liberty trol of capital issues and of money for speculation, etc., etc. -- and, of course, first and foremost, taxes and then again taxes and more taxes. I rather think that what you say about short loans and long loans ought to be somewhat qualified. Of course, when you are actually engaged inwar and do not long it will last, the safe course is to borrow know how periods as possible. from having too Our trouble in for as long wartime did not come much short paper, but from having too much PaPer, long and short, in the banks. If paper had to be in the banks It was better short, and when the fighting is over the sooner the debt matures the better, because the early maturity furnishes opportunity and ment. Benjamin Strong, Esq., Federal deserve Bank, 15 Nassau St.,N.Y.City (Enclosure) occasion for early repay- ona) (ww-aol al ua2aeg 1010.y.E,./8 obbx 21 ; evnaaeL 4gnad nimetnee - 4Nnon12 ipaeL ynaV ylun$ 4enuoy ./nem y*/nu1noqqo ono no/sago° no/ ylnas -yaciert ctonoos edl 1dab am beelp$ 4d4" eist*Ot oeusped ad/ lanso eritts$ Nn//d3// al novo se* wined Si EIMW stri/ed 4$40a \Ckt^ neqeq bad 0/ od nL .4nenaq snot bns n/ '1;441*4g AO mon/ Nnlvad oo/ doum mon/ snlvad ool doum /nods aq *inu$sim afirruf nu0 olduon/ n orlliaw bib :ton amoo sboinso as .aold/aeoq 3no1 11 fllw Al se odd e/aa sanuoo al ol wonnod no, as gnol nod!, vox enm ylleu/om boNawo, n/ law brim Son.ob wong won ldsuo of ad ledwomoa .bollllaup /0 4eanuog I nentan An/dt Janl /adw uoy -tee luoda 'nods anaol nfasa same/ bne anom .sexat bna t lo eanuoo Isql1 bna °mono/ a / e3x1t bna nonl $e se lon$ /o lal/qee aeuaa/ one /o yenom no/ tno/Sialffloecia 40Ie boo ytnedli nJol tang/eomeg pool tion1noo loul 4lon/nog ftnoo bna Nnol ammo' 1;n2lub sul1 law tined bits n1 :bnalbmi tanIx11-so1nq nsw wives itne/begxe as &now' beau no/Ial/n1 ftl am11naw /sum od beloalq Ion noqu se/en lud noqu data hOnelbrepea no/ Nnsblod nwob no/ es o/ tad,' eel/ 01an bluode ed nobnu nav/N .segna/amoon/0 /o -nlqo e/dT /0 tbe1gan/onq ltuod1/w 8n/de/Ida/as 0/naq .se*an nsetnu/ ano/easonog no enuft/ aNnlwonnod 11 ad1 *saw a/ oinsq n/ Nn/bns&eluo so/Nnuose bna nlvser a n/Nnam no/ 4sanuoo &eves/ 0 1Cln1s1 eblw n/Nnam no/ ognene/Ilb 4 April 25, 1921. Dear Ruecell: Many thenio for the trouble you took in writing me about that lorese. As a matter of fact, the printed memorandum sent you was but a skeleton or what I said, and can meke the following comments in regard to your suggestions: The point about conscription of material was not fully covered in whet was printed. My thought is baeed upon the fact thet ievestigatione at the bank disclose the flet that in these materials where price were fixed, price levele in percentages *ere eetually scmewhat highercin most casec than wlr:ere prices were not fixed, and in some ceees production was not materially i elaborated increased. this soeewbat In my talk, inteeding to bring out that it was duplicatien of plant which was unwise, and that the successful procedure was illustrated by the "geslees Eunday" better than an other type of conscription. Ce course, that is in the nature of voluntary eonecription by pressure of public opirin. As to labor, my whole point was to take from industry only those men wno ceuld be eared without impairmeet to the industrial mrechine and. its organization for war purposes. I think the selective eervice act came as close to being a good working plan as any that has yet been devised that I know of, &ed my particular point - E to have the conscription organization perfected, at least on paper, in time of peace as a war preparation of far more importance than is the training of a huge army. Most of the army officers, I find, agree that the problem of getting men and training them is one of much less difficulty than is the organization of the means of getting the right men, and the organization of industry and transportation. April 25, 1921 #2 My comments on Napoleon's recard were elaborated by references to the very point you make: He drew heavily upon enemy resources even in the early days of his campaigns, levyieg tribute upon Italy, Switzerland and Prussia for pretty heavy sums in cash, es well as in materiels. We do not disagree fundamentally as to the borrowing policy, and all of that was brought out in the ceuree of the talk. Where I think te may have a little difference of opinion is in the treateeat of interest rates. I have felt for a long time thet interest rates establish themselves, and thet it was a mistake to assume that high rate bonds necessarily mould affect all other bonds disastrously. The extent of the effect upon the level of investment interest rates IE determined by the amount of bonds istued rather then the rate, because they soon find their natural level in the market, and the competition of rates arises pretty promptly. Certainly, this seems to have been the experience during the war. The object of the talk was mainly to bring which 1 an out this important fact, with sure you agree; nweely, thet we are now discussing the size of an erey, and Congress is struggling over legislation fixing the size of an .rmy, while at the same time the army itself and those responsible for the development of a ear program are aking no well studied effert to take advantage of the experience of the last ear in the matter of organizing for selective service, organizing for industrial production, organizing for transportation, or organizing for finance. Tou will be interested to know that this feature of the talk impreseed these gentlemen a greet deal, and they are proposing, I believe, to do something about it. Sincerely yours, e. e. Leftirigvell, Fee., 52 Willeam Et., New Yort, N. Y. 52 WI LLI AM STREET New York, April 28, Dear Ben: April 25th. Many thanks for your good letter of You say that, for those materials of which prices were fixed, Price levels in percentages were somewhat higher Might that than for those of which prices were not fixed. not be in part explained by the fact that prices were fixed only for those materiels which were believed to be the subject of the most inordinate war demands? I do not quite get the analogy you have in mind between the gasless Sunday and conscription. the words, the gasless Sunday was a case of than of conscription. I am whole-hcartedly As I understand war saving in favor rather of or- ganization for war saving of goods, services and credit, to eliminate avoidable competition, on the part of business, industry and the general public, with the Government's war demands. This strikes at the cause of inflation in wartime, to wit, the excess of consumption over production. Conscrip- tion, I think, goes at the problem the wrong way about, taking labor and materials whether or no. I think we do not disagree in subject of interest rates. principle about the I do not know what you mean by 2 saying that interest rates establish themselves. It is scarce- ly possible that you mean they do so in wartime independently of the rates fixed by the Treasury and the Reserve -tanks. Nor can I agree that such interest bases as were established last April and May would have been otherwise than disastrous if established abruptly in wartime. It is not the amount of bonds issued, but the relation of that amount and the rate borne by the bonds to the supply of credit and the rate at which it is made available, which determines the price of the bonds. How- ever, If the principle is once conceded that dependence in wartime must be placed upon such collateral agencies as were referred to in my letter, rather than upon a deer money policy, and that the Government must fix the price of money, I shall never quarrel with any one who differs with me about what the exact interest rate fixed upon by the Government should have been or should be. I think your talk to the War College people was very illuminating and very helpful. Study by them of the problems you discussed might help the Army; when another war comes around, to avoid throwing unnecessary burdens on the economic machine. Very truly Benjamin Strong', Esq., Federal Reserve Bank, 15 Nassau Street, http://fraser.stlouisfed.org/ Vp Federal Reserve Bank of St. Louis New York, olirs, Ab xoLye To 7.1OSERN ?cLoc0 pGA mq4.171.44T 4frr:LAp Tieancl peulloaTu AGLX omTX 2oaLs4 imenwILTG. 4J1,osTu5. nulmoGasta pmg4ms ou aG 600UOWIC 49Loquq,,s: gsrn 446 VIA10 *you 1.10.QOGI. 1°17 grECI'"G:4 Ct.)1440 kkW. 2L gis butp7,,uf T1-3 4:1frto I gflTulc pcu ge conou naUDIG tee AGLI. 2pprITql pi. ox. cc IT4G.Lsa.ptGLTzea now 0 ;we oroAcialiies4 won't) JAG 4 ATt:p 1131 OLIO gitteL2 arcp WG apoo4 MWEit$ ;ye gt, aomaLux6m4: 0014 rug 220.127.116.11.Leg 4.0 Tu i..iTe4.4c0 mJ4..J4tas wn24: it ;PG woo 04, wobelb T spell bou 1st, geol w0ue2. boTTOO trEQuci.G6 se 146LO pc ilTeoGq abou , pistsg W.F.JcToic CO110444 ;pc; qGiasugGuce TE 01100 /' aAaTjapy0 mmTcp cloc.wLca co 014G0 401, 4.11G pouqsHOMpoLto .;:pG rriti!.:TA 01. (11.4_7!q14! ;PG Liqe D; APicP T; TE Ti.ativazuk 4:apTiq Tm miis4Twc, 14. uag 44JG suonu; ot Puuqs AA morIN p6AG PGCU 044;GLAT26 ;perL quava;Lons c5 T 4:'JJ 114CL.024: paaGe oaLGIE Gi4aPIT83CCI 1,..Z.4.C.;E trIcciq c:t1 t..esprn.% auu gO2GLAO Yulta HoL T% OCiaarrJG 441Z;0n-nau 4J1 qo 20 TV AmpTaIG TusqabougGu;TW 0 siaTuEi 4:pieV 040;4E; 1.43;C2 ce.pepTIap 1.1ausGinee. Te aceLoG- S. 5 2 WILLIAM STREET NEW YORK 0 advances with a view to coordinating November 10, 1921 your rate for advances with the market rate for line of credit loans, and to eliminating or at least decreasing the Dear Ben: My impression is that you have profit to borrowing member banks. been making rather too liberal use of the cheap money stimulant during the past six months or so. This is not in the way of criticism but of suggestion I should feel Ft thfully yours, more comfortable if you had a little more of this medicine in reserve against the secondary crisis when it comes. In particular, as long as you have to make advances to member banks and cannot confine yourself to rediscounts of bankers acceptances, as to which your rate is not out of line with the open market, my impression is that it would be well to establish a differential rate in respect to such Benjamin Strong,Jr., Esq., Federal Reserve Bank, 15 Nassau Street, New York City VP 5V:. I. GO\0010;Ci \ t, tr) Z.,011 *. E % 00% November 14, 1921. Dear Russell: Many thanks for your note of the 10th, which has remained unanswered because of my absence for a few days' rest. There ara many considerations involved in the rate situation just now, and I am aniioue to discuss them with you at greater length than would be poseible in a dictated letter. Of one thing I believe you are convinced without any word or argument from me, and that is that no political consideration, no attack, and nothing but sound business judgment has led me to recommend the policy which our bank has now adopted and which, I believe, is designed to further the reconstruction of our own affairs at home and assist in similar developments abroad. You will be glad to know, confidentially, that Mr. Glass has become deeply concerned at the attacks upon the Federal is preparing to make a vigorous defense of the Reserve System by Williams, and System and its management in all particulars, and to attack those who have been guilty of such gross misrepresentation. I think he may have softened in his attitude towards me, although I am not certain of that. Please read pages 500 ,kc. of the Hearing before the Joint Commission of Agricultural Inquiry, and let me know if you think that the discussion of the rate policy of the System was fair, from the standpoint of the Lenroot, I found, His attitude Treasury. had a mostsearching and intelligent mind on these Senator subjects. was most fair and helpful in bringing out the facts, but I believe November 14, 1921. #2 he was himself convinced that it would have been better to take all the risks involved in a high rate policy in the spring of 1919 than to have other invited the hazards, which have now been so clearly disclosed. Just now I am struggling to get my apartment at 470 Park Avenue in habitable shape. When it reaches that point, have dinner with me some evening, when we you and Mrs. Leffingwell must ca; l have a good old-fashioned chin. A great many thanks ta,yeu, Russell, for writing me. It is nice and comforting and flattering to be kept in mind these days, when critics are mostly the ones heard from. The argumentary part of your letter I am going to answer verbally. Yours sincerely, R. C. Leffingwell, Esq., 52 William St., New York City. BS MM November 14, 1921. 12 he was himself convinced that it would have been better to take all the risks involved in a high rate policy in the spring of 1919 than to have invited the other hazards, which have now been so clearly disclosed. Just now I am struggling to get my apartment at 470 Park Avenue in habitable shape. When it reaches that point, have dinner with me some you and Mrs. Leffingwell must evening, when we ca; have a good old-fashioned chin. A great many thanks to/you, Russell, for writing me. and comforting and flattering to be kept It is nice in mind these days, when critics are mostly the ones heard from. The argumentary part of your letter I m going to answer verbally. Yours sincerely, R. C. Leffingwell, Esq., 52 William St., New York City. BS MM 5 2 WILLLA.M STREET New York, November 16, 1921 Dear Ben: I receivcd your letter of November 14th. Our talk at luncheon yesterday was so comprehensive that it leaves nothing for me to say in reply except that I have the greatest confidence in you and the greatest admiration for the public service you have rendered and are rendering as Governor of the Federal Reserve Bank. I hope you will let me feel free to offer suggestions from time to time, and that you will realize that When I do so, I do it not in the spirit of criticism, but with the hope of being helpful. Now and then an outsider's comment throws light on the subject though his suggestion may not at the moment find acceptance. However that may be, my affection for you and my interest in the problem are such that it will, I am afraid, be utterly impossible for me to restrain myself from telling you what I think, from time to time, about the way things are going. It would be a great pleasure for Luchen and me to come to see you some evening when you get gettled. is nice to know that you are so near. It I hope you will let 2 us dine along with you when the time comes, because are not going out this Winter. Faithfuk y J.urs, Benjamin Strong, Esq., 15 Nassau Street, New York, N.Y. vp we February 18, Dear Russell: You have so frequently heard me express regret and concern that Senator Glass and I had unfortunately disagreed at one time, and more that once have I feared that be might still feel some reservation as to my work in the System, that I think I elv;uld ncv send you a copy of a letter Thiel) I have just received fm him, f an d which dispels the last doubt I have ad in my mind \ at 'aCcaleither you nor Senator Glass could have realized that it is a fact/ OZ the subject. that of all the men with Thr,m I have been associated in one Tay or another in these matters,1 would regret a difference of.' a permanent character with him more than any other because of the natural pride Thich one can not help feeling about mor that was made possible by his on accnmplishment in securing the passage cf the legislation. Such work could not possibly give permanent satisfaction if cno felt, as I did, , that in the main it vas doing violence t. the very purpe,2es for which the legislation vas passed. So that you may understand the relief and gratification that his letter affords me, 1 ar eking tr read a copy of it. Yours sincerely, Russell C. La flueeli, Esq., 52 iilliam St., New York, US.M141 Enc. N. Y. 52 WILLIAM STREET çJ New York, February 24, 1922 Dear Ben: Upon my return to the offi4le +roday I found your letter of February 18th and the enclosed copy of Senator Glass's letter of February 16th. I had always tried to reassure you concerning the Senator's feeling for you. has at last set your mind at rest. I am glad he himself Senator lass is too gener- ous and too big a man to fail to recognize your great achieve, lents and your wise leadership in the Federal Reserve System or to allow his appreciation of your magnificent work to be obscured by ancient differences of sopir4on honestly entertained on both sides. Sincer ours 1-61-4"-erali Benjamin Strong, Esq., Federal Reserve Bank of New/York, New York City. .Tr,-11-n.,w-, FEDERAL RESERVE BANK 0 OF NEW YORK PERSONAL AND CONFIDENTIAL April 21, 1922. Dear Russell: Thank you for yours of the 15th. My reply has been delayed by absence in Nashington. If you have ever indulged in the pastime of sailing a boat you will appreciate the following ilJustrationj the point that I want to make aith you. Shen navigating in rath sail is reduced too much you rocks.. ,m'airow ers with an increasing breeze, if craft is liable to'lose steerage way and go on the Your letter indic tee that you might, b ause, I believe, of incomplete information advocate that we should attempt to n4vigate our boat under bare poles in narrow waters with a rising ind and On January 3 of this of all open market operati ar 4 k lysing steerage way. e ding to our member banks, irrespective Litt e over t200 million. This amount declined steadily, but with some fl Pui the first of the year, uptil the present time when our loans to me e less than t50 millions market purchases. A cons derabl of these loans are our loans to the member Ne4 York City banks at the low were and to\day amount to as I shall not take the time to give accurate f exclusive of open the country banks and int on Speaking from memory, res, the loan account Of the System as a whole, exclusive of open market purchases, has gotten down to the neighborhood of teloo millions, and has been fluctuating below and above that figure for sometime past. Of that te00 millions, it will be found that a great many hundreds of banks in the Sest and South are still borroaing in excess of their basic lines, and that it is altogether likely that more than half, possibly two-thirds, of the entire loan account could not possibly be repaid under any rate level which R. C. Leffingsell, Esq. #2 we might establish. April 21, 1922. If that is the case, and I believe it is, the System is to-day running along with loans to member banks of over $200 to t300 millions, which are - distinctly subject to influence by rate pressure. In a country with t35 billions of bank resources held by 30,000 banks, of which only 10,000 are directly subject to the influence of our rate, were we to rely upon an effective influence upon the credit situation, with only $200 millions, or even $300 millions of loans of that character in the System, it could well be said that we had completely lest control of the market. Had we not, therefore, replaced loans paid off by our members by open market purchases of bills or treasury certificates, we would have had no loan account with which to exercise any influence or control upon the market. Shen this condition developed I became convinced that the security of the situation demanded that we should acquire investments so that we could have an account of from $250 to t300 millions which could be liquidated whenever a time arrived when it Seemed desirable to do so. That policy we have pursued since, and will continue to pursue for reasons which I do not think were in your mind when writing me. For your confidential information I am enclosing a copy of a letter which I wrote to Mr. Gilbert in lashington before reading yours, and which I will ask you to return as it is a file copy.. Now commenting directly upon your letter. You the Federal Reserve Fanks have pursued this policy under a misguided notion of the public interest or out of selfish regard for their own earnings. seems to me to be indefensible." I Please observe that you co letter to the following analysis of our policy. It is either misgui from the standpoint of earnings, and in either case is indefensible. as that I am frank to say expose you to this reply, which is , Such statements that were we to pursue such a policy as you advocate, under the conditions which now exist, we would be inviting the same type of disaster which we encountered in 1920 and 1921, and own which I regarded in 1919, and regard to-day as directly the result of your7insistence that rates I should not be earlier advanced. Vere there any loop hole in your letter R. C. Leffingwell, Esq. #5 April 21, 1922. which might indicate that those who are responsible for the policy of this bank had knowledge or views or experience which justified the policy that you are condemning, 0 I would not write you so frankly. In my opinion the explanation of your letter lies in the stock market developments of the last few months which has occupied your attention and given .rise to your alarm, and that you are not aware of other developments in the country which are apparent to us, and which are the subject of continuous study and discussion and in regard to which there is not one word of comment in your letter. AS to the other eleven reserve banks, it may well be that some of them are investing their funds for the sole purpose of making earnings, and I would differentiate in my reply between the comment applicable to our policy and that applicable to the policy of the other reserve banks were there a loop hole in your letter which permitted me to do so; but you put us all in the same intellectual category, anI have a notion that the vigorous language on the second page of your letter -would indicate that you believe that some of us carrY about with us an intellectual junk shop filled with a mass of curiosities which is neither arranged, tabulated, or indexed, and that when we wish to employ some of our stock of intellectual goods we adopt that scientific process of selection which is employed by children in selecting the contents of a grab bag. Put this in your pipe and smoke it, old scout, and don't write any more letters like the one I am replying to vithout at least asking a fellos first what it all means. Put don't let this letter lead you to believe that I have any less desire to get your views, or less respect for your own intellectual warehouse than I have always had, because it is really very considerable. Sincerely, R. C. Leffingwell, Esq., 52 ailliam St., New York City. PS. MM enc. April 24, 19??. PERSONAL Dear Russell: Our conversation of Sunday afternoon has answered yours of April 15 part, and I fear that in some I do not to policy. t!Ank in respects our opinions must continue to disagree as that 49 ara in disagreement necesearily as to the disagreement as to the time principles involved, but se may be in considerable when action is required of us, and possibly to some extent as to the character of our responsibilities. That impressed me about your letter, and I am frank to say shocked me quite a bit, vas your willingness to express 'so definite and unee,uivocal sith so small a ?art of the facts before you. So far as I can gather Prom your letter, and from ghat you stated to me Sunday, you were expressing an and unqualified condemnation of the policy a table of figures shosing the amount of investments, on our hand. important considerations, which affect our policy as arrived at without even Just nom I sant to ment in mind and body another bout at this matter. opportunity to In any event, Nem York City. Esq., consider all of the facts. and feeling more content'will have I mant to thank you for your letter and that is, the Yours sincerely, 52 lilliam St., just nom, that I fear that your when gearing crutches, and then we and mhat I knos is really behind it, R. C. Leffingmell, the one hand, and This leaves out so many see you on too sound legs than you can unequivocal of the Federal heserve Banks eased upon a table of stock exchange prices, on the other judgment an opinion real spirit of friendship. CRAVATH,HENDERSON,LEFFINGWELL & DEGERSDORFF 52 WILLIAM STREET NEWYORK APR 24- 19 22 April 1$, 1922 Dear Ben: I was glad to see you back and looking so well yesterday. As you know, I have been somewhat concerned about the cheap money policy of the Federal Reserve System as reflected in the bank rate. When, however, we had our talk and correspondence in Novem- ber I had no notion that the new policy of the Reserve Banks went further than the mere reduction of their rates. ever, that during the past Now it appears,how- six months they have been actively en- gaged in making money cheap by the purchase of Government obligations for their own account. The following figures are taken from the Reserve Banks' reports of yesterday, six months ago, and a year ago (000 omitted): April 15, 1921 U.S.bonds and notes Treasury Certificates Y25,933 7,824 02,757 Oct.11, 1921 433,656 19,862 453,518 April 14, 1922 4261,585 4424,461 Total earning assets 42,503,768 Federal Reserve Notes 0,868,527'42,476,3142,200,305 $1,680,19241,180,214 In the period there has been an important reduction in the amount of Federal Reserve Bank notes and Pittman ,,ct certificates securing them. I have omitted these figures because this matter was not within the Federal Reserve Banks' control, but in that of the Treasury. "I do not know whether the Federal Reserve Banks have pur- sued this policy under a misguided notion of the public inter est or out of selfish regard for their own earnings. In either c ase it seems to me to be indefensible. )4//r scarcely need to say to you that inflation occurs quite as definitely and harmfully when currency and credit are prey ented from contracting co-ordinately with the contraction in busine ss and prices as when currency End credit are expanded beyond th pansion of business and prices. Fait ful_y yours Benjamin Strong, Esq., Federal Reserve Bank, 31 Pine Street, New York City. x-p ex- log an1;to eFit:40 le", ?co luo 10 DZ.;.(4,:i.r:'t ' ,cf o Etillf0041 " kin re 3121 cr-mx o;f. J.: i.-tneJa 71 I GOVERNOR'S SEC'Y. balrfolv,:. 7.; 'Ttef)ae :in' aaani?Li( 01100 '011 .1. ,oi ri APVES MUT ( 52 WILLIAM STREET April 26, ism New York, Dear 8en: I received your letter.Ar74pril 24th. I do not think I was or am ignorant of any important consideretion affecting the policy of the Reserve Banks criticized in my letter of April 15th. I do not of course pretend to have the detailed information you have, but I follow pretty closely such information as you and others make public and am not without opportunity for keeping informed concerning undercurrents. From the view I take, however, any facts, whether of a political or business nature, would only serve as an excuse and not at all as a justification ofrthe creation of several hundred millions of dollars of fiat credit by the Reserve Banks on their own motion. 15th was As to the state of my mind and body, my letter of April written before the tennis accident which put me on crutches and I have no sick excuse to offer for venturing to differ with you. My friendship and admiration for you do, however, add a feeling of personal grief to my condemnation of what seems V?, me to be a tragic blunder. ; Sincere' rclirtf, 441"1-'lea-4/(1Benjamin Strong, Esq., Federal Reserve Bank, 15 Nassau Street, New *York, N.Y. x-p 31'e i1,41..1-11W sa ohoY wot RSO1 kEIS :net -18e.C1 gnIdd -ton ob I .d*.4...9 thoA lo qt,:tet qm)t; beviovc,,1 I go/lelubiRno, JntwMogml yna lo Ot 'CO .aew 9r lo al boR/o/Plo .ectar 1110 to ned...fe/ molt noldormolpl bollet5b odd OvAe oJ bneJtc!q etiqmoo lo or cr. I TIodto ZW3 uot ae nolin/16"tal Aoua ylpeolo NO*Emq wolloII J.Lfd oved VIautflocloo tivedslv ±Ci e iaeleVOW0a 09).0 I wr=lv e3d1 mo/s .alnEemivf Lammoini aniclecol 11:00o1 olj2uo, wlam .,otfoo ne ea WM'S xino Lluow ortutso ubanlau,J qo len//1117, '10 'iJrilbriw fia fa .tbn bnx eDox:.1 lA1070S In nottoe,fo iito nclI)1111t,W, ao R)in41 wmoeSh odl xd 11t9lo 4All lo anallob 10 apolfIlm Oen:baud .aoljsom MVO ,L.1111 111qA la qe$,ei 101 ticbod bila beim yn lo alotb sa$ 01 8,, esdoztuqo nn sm Iug eoldy dinektooe elnne$ eff$ e.groled ae**/nw es-r! Alai 'Ion if 'Ito o* oauoxe 'fa?, Qr. oved.I bay o$ anktp*aov bbe elevevoii 015 PDX no'i nnId4q/mba bat cidebnolql yM olsal0 e )11 of ea* 4m4o4 *Pew In volteamebaoo Trt o:t IsiqB fenoaqaq erwn% 81kk 1%. tl4nse acmoaoh Octe.I0C. Luivssg.cL .Y.4 t'.rqdY PERSCBAL April 28, 19Ta. Dear Russell: Of course, I do not believe from your first letter, nor do I gather from yours of April .?,e, just received, that you realize what a vigorous, sweep- ing, unqualified condemnation of our policy you have expressed, nor even had in mind that there might be another point of vies*. One cannot always be right; and that statement applies to you as well as to me. In our former differencasof view about some matters of policy, I have always endeavored to keep myself in a frame of mind where I eould not be asserting any infallibility of judgment in some of these matters. fact taken that very point of vies in the matter which I have in you are no so disturbed about, but really feel that the force of your opinion would be greater were your expressions less definite and dogmatic and the other man's point of view. your attitude of mind less closed to It is not the fact that me differ which me because such differences of opinion are inherent in such questions as disturbs the one we are discussing; but I am disturbed to feel that you approach the subject with your mind absolutely closed to any consideration of any that which you expressed in the first I would not state point of view except letter. this so definitely had I not felt it for a long vhile; and evidence of that I think is contained in a letter which I wrote you cd::- on October 8, 1919, of which a copy is enclosed, which I wrote at a time when /0\1' my mind as filled with serious concern lest a certain inflexibility of opinion and vies on your part might lead to mistakes. h. C. Leffingwell, Esq. fiL April 28, 1122. Fvente Which develoeed eubeequent to my letter of October 3, 1919 (which le ,ter wee the culmination of a long correseoudence on tee subject of our policy), convinced me tht in jour judgment of thot period you eere wholly Nrong, just as you eero wholly erene In your equally vieorous commente on our policy last sumeer, and just RS I believe you tre no largely rone in your comments upon eur erenent policy. Your objection to the course which T ear urgine in 1919 eee bed upon two definiee convictions; one eel/ ftat sn increftee in Intereet ,ou1,1 force a refunding of the entire netionel debt; and the other wc's thet en immediate de- cline in our export tree could be rel'ec Lion to brine door pricer. the first belief e At te whether juetified can never be proved, but I did not believe it ayeelf at the Mee endrever hove rince. DC not overlool- the fpct the4 the areument cbeui our retee .nd the market velue of .he governmentie debt would sppl hith eeu:1 rorce t any eeoeequent tic, end if s'police of TE4ping retee eeF indefinite- eoetpened it yeuid be certain to open the reseerees of the reeerve henee to a continued, uncontrolled eepansicn until its lenjine eower became erhseleted. and that. Ar exectle whet happenee as e reault of the Treasury's policy. I cembatted it by every srgument yt. my commend. thet your belief was unfoendee. As tc the second, Subsequent events eroved, I am sure, Our export trade Otet production and waeteful con- sumption continued to mount by iespe ord bounde, tnd the flinging of credit into the market during part el 1219 and the sprinp ef 19e0 wae the undsrlyine cause for the exeanEion Pnd subeequent ccllopse. In other words, we anted tee late. I think your two letters now justify sy saying tbst had the Treesury in those days pursued a more orthoeox course, the country would have escaped some part of the disester which it subseauently suffered, that the rendjustment of values would heve been zoro gradeel ond less eisestroue, a.rid test this is practicsliy the unsnimous opinion of etudente of the subject 043+91cie, of those In tha "Preaeurv 1)10 were concerned with the policies then adopted. April 23, 1922. 23 My on feeling of loyalty to you sad to thoee whom I regarded As my principals and uho carried the final reoponsibility for the policies adopted, has restrtined me from ever taking this position either before the Joint Commission of Agricultural Inquiry of the Congress, or in any other public way. Therefore, / think that my letter of October 8 is applicoble to the present sitcation, ,= ft V36 in 1g19 to the siturAion nt thht time. I gm not neVirp you to change Any conviction, but simply to leave your mind open to the admission that yours is not the only point of view entitled to e7nminetion, that you my be it te wronp now as you were in 1919, erd nu you were lest year. I certrinly share your grief srd would be quite willing to ehare some of these resporsibilities with you. but even now they The rested vholly upon your shoulders in 1P19, ss, only prrtly renting upon mine. And I still value end appreciate your advice even though it does take the form of such a vigorou. condemnation 6z you have a/Tressed. Your R. C. Leffinguall, Zsq., r2 TilliBm St., New York City. 3 JIM enc. sincerely, WtitA4 S 52 WILLIAM STREET MAY 1 5 19L2 New York, May 6, 1922. Dear Ben: I received your letter of April 28. I woule not have written !.t if I had not offended J311 by my way of putting vbat I hsd to say abont your open market purchases of government securities. For that I am very sorry and I You are carrying the burden and apologize with my whole heart. heat of the day and, however unhappy my words may have been, I meant to help, not to annoy. distressed I am all the more sorry to have you because I thoroughly appreciate your considera- tion in coming to see me at my house to talk the thing over when I myself was unable to be about. I feel sure that you will not allow my way of putting it to obscure in your mind the importance of the point raised in my letter of April 15. is to be said on your I particularly want to know all there side because I have to make a speech about the Federal Reserve system early in June and I do not see how the subject can be avoided altogether, although I would now give a good deal to escape the subject or the speech, or both. If, therefore, you think it worth while to attempt my further enlightenment I think that I can promise you to approach the matter, if not with an open mind, at least with a friendly one. 2 In any event, myself in and however vigorously I may have expressed private, I shall of course be circumspect in my public utterances. As to 1919 I may perhaps some day find time and disposition to reply to your letter don't want to reopen old sores. -- perhaps Sincerel Benjamin Strong, Esq., Federal Reserve Bank of New York, Aw York City. yours, not, for I May 15, 1922. 6 Dear Ruesell: I am on the shelf for a few days' rest and take the oprortunity to send you a few lines in reply to yours of May C. Of course your letter is just what I should expect from I appreciate it very muoh and em a good friend and old assoniete. replying whole heortedly in the Raise epttit in which you have written me. Your letter contains the first intimation that you may undertake some public discussion of t',/le mettere we have been cor- iesponding and talking shout. ing that there Please don't be offended by my say- is really nothing thst can be gained by doing so and very much possible berm that might result. Of course it is fine and really helpful for you to let me know how you feel. I would expect you to do the same With Governor Herding or with Mr. Mellon. But there is still a good desl of which you are really in ignorance about these matters; not the least important results of the recent conference. being the There is much in the situation which cennot be publicly discussed. Please don't be unmindful that whatever you may say will be regRrded as an expre-sion from e the system, and that in former colleague and friend of that capacity you can do much more to kild a difficult situation on the inside than you possibly could do pub-. Mr. Leffingwell 2 5.15.22 licly. Further than that, and this personal point or view is very much in my mind, don't overlook that I have, myself, refrained from any public criticism and, so far as possible, from any private discussion of policies in the Treasury during your period of responsi- bility) thmt my doing so bas resulted in my shouldering a much larger share of responsibility for what transpired and for the consequences than juiftly rests upon my shoulders, when one considers the vigor with which I from time to time exprw-sed disaerewitent vith you. I think you are the only man to *hop I would i-itso this sort of a ieLter, and it is just AA8 greatly dictited out of regsrd to you as it is for any other reason. If you write your speech out, I would like right well to sec it anyway. Faithfully yours, R. C. Leffingwell, Fsq. 52 4i1liam St., New York City. BS.MSB JtJU 1 1922 52 WILLIAM STREET New York, May 26, 1922 Dear Ben: I received your letter of May 15th. speech about the Federal Reserve System. I have cancelled my I am willing to wait and see whether as you say I can do more on the inside than I could do publicly. I do not, however, look at the matter as you do. Surely you are prevented from criticizing Treasury policies publicly, not by your personal relation to me, but by your bank's relation as fiscal agent to the Treasury of the United States. I dont think the same rule governs my discussion of Federal Reserve policies initiated a year or two after I ceased to have any official relation to the Treasury or the System. I dont think you are carrying any undue share of responsibility for Treasury policies; and, for my part, I am proud of them. On the other hand, I think that you owe much to Secretary Glass and something to me for supporting you whole-heartedly and withholding criticism of the mistakes we think you made in 1919. I have been glad to attribute them to your illness and necessary prolonged absences and to remember only your great services and my admiration for your fine achievements. I am mighty sorry that you have had to lay up again. hope that a few days rest will do the trick. Faithfull Benjamin Strong, Esq. 15 Nassau Street New York City. x-p A re I June 1, 1922. PERSONAL Deer Russell: I have just finished reading your address before the Academy of Political and Social Science, and it is hardly necessary for me to advise you how much I am in agreement with almost everything you said. The so-called World War Debt Refunding bill I fear contains possibilities of no end of trouble, simply because it has done much to create an expectation that uncollected debts will be collected. I have never favored in outright declaration of forgiveness of the debts, nor in fact of a policy of forgiveness duties imposed upon this without consideration in return. But the commission are so imposaible of accomplishment as to make its efforts futile and render ultimate failure, I fens, a cause of criticism and embarrassment. Also, I have your nice letter of to cancel your speech about the Federal M.9,y 26, and am glad indeed that you decided Reserve System. You probably misunderstood my statement about criticising Treasury policies, or I may have been guilty of careless dictation. Surely any attempt by the Treasury to misuse the Federal Reserve System would justify outright condemnation by a responsible official of the System. The line of demarcation between the proper use of the System and abuse of the System is a difficult one to determine. Treasury had no more staunch servant than I was. During the war the After the Armistice we disagreed. Surely my own independence of views and my willingness to express them could never be considered as other than the performance of what was my actual duty, and I am using the word "duty" to make sure that you distinguish between that word and word "privilege". possib4 the While the same rules would not govern your discussion of our 2 June 1, 1922. R. C. Leffingwell, Esq. present policies encroachment, I as would govern me were I nevertheless felt when I obliged to defend the System against wrote you, and feel now, that it would be a mistake for one who had so recently left the Treasury to now undertake a criticism of which had so the System and of the men who run the System, your own organization. It recently been a part of just didn't seem to me to be what the English call "cricket". Just now, and in fact for two years past, I cannot claim any share of responsibility for the Treasury's policies, because the Treasury is conducted upon a basis which not even its most captious critic could claim wPs in upon the policies of the Federal Reserve Banks. any eay encroaching I was speaking entirely of such share of the responsibility'es rested upon me in connection with the Federal Feserve System itself, and at a time, I am frank to say, when our difficulties are almost as great and the obstacles which we have which arose in 1919 - 1920. to encounter very much more serious than those I am referring not to the business that we transact, but to the dangers with which we are confronted; and they are far greater then you yourself appreciate. You have never really understood my feelings in regard to Secretary Glass. I only wish that the entire Senate - in fact the entire Congress of the United States could be composed of such men as he. I count him our greatest asset in Congress, and only wish he might be President of the United States some day. He has behaved In all most generously to me, and I have always appreciated it. 7. Glass, however, I have been critical on sheuld have stated tc the man, r men, wh 'Tot our discussion with ne point enly, and that as that he had been se bitterly critical rf. me that had he done his duty at the time he would have had me remeved ftem office. then - and feel new - that it was a less genereus attitude than ed frem a chief f-r shem I had lurked as earnestly and el' I felt ne might have expect- le-hoartedly as I.did him, and f( r yu. Neither #ou nor I are going to benefit in the slightest from reviewing fre June 1, 1922. 3 and reiterating the differences of opinion which we developed in 1919. rather forget them. I 4ou/d On the other hand, at the first opportunity - and feeling a little freer now than I did when I last sw.,.w you to do so - I shall be glad to explain a. few things which have taken place in connection with the iederal Reserve System recently, and while it may not change your opinion at all, it will at least give you a better understanding than you can possibly now have of what has been going on. I am sure you gill understand the confidential character of what I have written you. Thanks again for,your good wishes. I returned to the cq'fice yesterday for the first time and am feeling very much better indeed, as I hope that you are. Sincerely, R. C. Leffingwell, seq., 52 Pallier Street, New York City. ES. MM C4. AC Tto101,,,, J16 52 WILLIAM STREET ED 192? NEW YORK June 30, 1922 Dear Ben: I received your letter of I am glad you liked my June 1st. Philadelphia speech. As to "cricket7 I consider myself free to criticize publicly Federal Reserve policies initiated after I left the Treasury; and I think it is a mistake for you to discourage public discussion and criticism of Federal Reserve policies by your friends and the friends of the System. The System needs, more than anything else, the support intelligent and informed public opinion. that the King can do no wrong. and guidance It cannot long survive the theor, My notion is that, though the friends of the System should resist to the utmost political interference islative or executive power, they should encourage criticism of Federal Reserve policies, of an by the leg- public discussion and for the enlightenment of the public admit,are and of the Federal Reserve authorities themselves--who, not all intellectual or moral giants. In this particular instance you per- suaded me, on the score of friendship and old association, not to make a speech about the Federal Reserve System, which would have been an exposition and defense of the System, and, as such, I helpful because we must think primarily all the mo: se I should not have suppressed my view concerning its recent mistakes. However, as I wrote you in my-letter of May 26th, I am willing to wait awhile and see. I was glad to read that you had reduced your discount rate.t0 4%, because I think, granting the cheap money policy, it is better to reduce the rate than hold up the rate and provide cheap money by open rIrket purchases. Within the last two weeks I have read (1) in the Econo- mist (June 10, p.1199)and the New York Evening Post (June 17 in a dis- sterling may be patch from London) that the rise in due to inflation here, (2) a news item giving the official figures as to the recent rise in the cost of living here, and (3) a fulmination by the exporters criticizing the Reserve Bank for its deflation policy. If as a matter of fact the Re- serve Banks are making money cheap I think they might as well have what credit there is to be gotten out of it. I should a good deal rather have a 3 1/2% rate, effective, than a 4 1/2% rate ineffective chases. because of the Reserve Banks' open-market pur- Why dent you gradually let your holdings of Treasury Certificates run off, without replacing them, and feel out the figure rate will be at which the bank effective again? I think the Reserve Banks should curtail expenses to the utmost and charge their remaining deficit, if any, (1) to surplus, (2) to the Treasury, (3) to member banks. There is no sufficient reason why the Treasury, or member banks either, should get something for nothing or a valuable service for less than cost. be under the necessity of creating And the Reserve Banks credit to pay should never operating expenses,salar- ies and dividends. I think you should stop hoarding gold and restore the secondary reserve, in the pockets of the people, which we drew down for war purposes. At present you are like the jeweler, if there is one, who carries all his stock in the front window. Benjamin Strong ,Esq. Federal Reserve Bank 15 Nassau Street New York City. x-p Faithfully rs yl'v, ,1O q-x we utaus A deriqda Lyshorq. sv-re5F, gasa nlmstnea .pliatnpoq18 al oode aqs)cyllulndIA add lao-11 .wobalw C. uoy.tneeaul eqs egll end ,qelawet 1.1 8-151-P el ono oew 85±qqs0 sla aid te5e0Tag tavleeel edd.al adegpoq 10 ad* olgoeci doIdw ew waqb awob -fc1 I galdd uoy bluode cfola unlblaod blon bae eqodeeq ad* visbnoeee eel bas .ebnablylb ad qabnu a.ri;t .0188555n lo snitseu0 dlbeqo yoci-od nnldsqeqo -qalaete6anocixe add ayqs85k vrasel bluode gavan sIdeulav evil/gee gol 888)1 nsdd .1'800 JA txqueaelT "Eadem '10 tyquese-iT (E) °I 6)S,fisc: qedmem eleriZti5 bluode den aald*.amoe -so1 nvIddon qo .egasd eq6dT el Cu dne10111u8 noeseq ydw odd (1) od ,eulgque (2) od odd anIsdo qladd iltdlolleb.nnlniamem cii eseneqxo edd deomdu 1 *aldd edd 0yq5864 8gas8 bluode Ilstque 411,10t1Pa-'411.0.4f:).CELLIK._01. nul tno luoddlw imadd bne 1561 duo eft equb11 la dal-11w ad/ gnad .eeeado dnotefV 00y yfIsubiLqn dal quoy ennIbIod lo yquese-IT esdao1111qeD a 581.wood acs edd avqeseii legasti deklom-nogo --tug I. 0 k2\1 -ayllopneal.5Isq I bluode s boonz lseb qadda-i evari e d./b-i WIOild ovqee agnaa el od Ems el VgiPaalon yllgem 0>; '1.0 o add ay-1685;i gnsa 4\1 ed.e.i oiridoJaas rtorf 01 es hew eysd laJfw edd ddnImyedd4td1 .tali II eS s -teldsm lo doal nold d siizt egedgocixe 3nIsloldlq0 lo gnIvIl toqed N"-,,c1.)bna ,001,4,)2, 85.1"1"1 es od add dr.LJ0eq aelq 111 odd (q) e swan nnlvls,medl add o \' *eon snilqede'V- ,/im ed °sib od aolds110:1 05-fad s -81b .11rV)7 deog:nn1neyd anuL) VI nl Arilsq moql (nobnod *add add 6elg *elm an0;) 101 bn.(9G11.ci add .8aea1oquq edd . d owd 446ow I evi b.laq (1) n1 add -onooa July 7, 192?. Dear Russell: Your letter of June FO -*Quid reruire n very long enexer ver I to attempt to cover all the ereuud. There are time en the cost enlightened end eeen 'riendly criticism contains penzibilite.of real trn.U heve youreelf at tines been e victim cf thet tort of thIng, end the intie- tien in your lat.. r as to di,,tinot that you proposed criticism, whi.ch I ould certainly regret f based upon inoomplete informatien, that I felt jueti-t'led in eeking the rha suggestion that I did. reduction in cur rite eee jwtified by cenditiens, but I e.r freelk to say that judgment e,s to these conditions - or at least the infermation e use, comes from other sources than nevepseer articles - for instance, the influence vhich hes led to the rise in sterling vas not inflsti:e. hero at all but certain special. cauess with bieh I thini were vholesome. ore feni./.iar here, led which or the ebole The Hee in the indee fieurec )jre been erincipally due to the rebound frost ethereally lee prices in the cost of raw esteriele. have risen slightly, but the index figure for the erre Li ving co rts important item of ree materiale enteriae inte menufacture has risen (uite eharnly, e..nd it Iras ineviteble thet it ehculd. itou explains a considerebie part of it,"rid the cause of the rise in raw cotton has been the coincidence 4ith the proepect of a not very large yield this of the abeoprtion of the surplus year and much fear of the invasion of the boll weevil. The fulminations by exporters and othere in regard to the deflation policy of the Reserve System ehould be disregarded, exceptsele-one eishes to consider the whole policy of the war and post-ear per iod, ehich Teens an examinatioif the the tenstv itflatItt. 2 R. C. Leffingwell, Esq, July 1, 19?2 At the first opportunity when ve can have a ouiet chat, I will tell you something of the policy of the reserve banks in regard to their operations under section 14. I have not been at liberty to discuss this heretofore, - especially as I could not, and I de not think that you would want me to contribute the material for such criticism of the System as you have had in mind to make publicly. As to the expenses of the Reserve Benito; teere has never teen a time when such care is being exercised and when expenses are being kept so effectively at a minimum. Only recently as an opinion of the Attorney General rendered that the surplus could be drawn upon for deficiency cf earnings and to pay dividends. There is no means of drawing upon the Treasury for deficient expenses as you suggest, and at the present juncture eu assess the member banks for the various services that le are performing for nothing 4ould be little short of suicide. The suggestion that ee tibouid convert a primary reserve into a secondary reserve has been discusuad for the last three or four years. The consensus of opinion has been against it, but netwethetaadiag thatevederete payments of gold are being made by the reserve banks and have been for some tine, and this batik in the ordinary course mares pretty large payments of that character. Eut these are not matters that nave been subject to much public discussion and at the present juncture are not subjects that can visaly be agitated. You write me nom and then as though I ran the Federal Reserve System, and I am afraid in the past there have been times Then you have been inclined to feel that I wanted also to run the Treasury. That is not the epee. JUst as soon -s the feeling prevails that the Federal Reserve System is run from my office, just so soon vill that little capacity I have to influence the affairs of the System be completely destroyed. As you say, this is not a case where July 7, 19?.2 3 the King can do no wrong, and in my particular case I have no desire to be King. It would be an exceedingly uncomfortable crown to wear, and it would not fit rile anyway. I do wish that you would look at these matters a littlem--.re judicially than you do. It troubles me to feel that you ooze to your conclusions so definitely and finally and without an open mind to weigh the other side a little bit. At any rate, you must appropriate enough time some day, or some evening, so that Ar e can talk these things over. Yours sincerely, h. C. Leffingwell, Esq., 59, fiilliam St., New York City. 13S.N61 CC) 52 WILLIAM STREET yvsvn Air sEP -r! NEW YORK cnt- 1g22 SepteMber 8, 1922 Dear Ben: The American Economic Review for September has an article by Anna Youngman suggesting that the Federal Peserve Banks ought to make more( andmore diversified,, open market purchases,, and that their powers be enlarged to that end. Dont you think you should write Anna and tell her that on September 6tb. the System's holdings of bills discounted amounted to less than 40% of its total k earning assets, and that(With the exception of Pittman Act certificates now reduced to a relatively negligible amount) the balance of the total earning assets of the Reserve System, or about 60%, consist5of bills and long and short term public securities bought in the open market. criticized. I hate to see the Federal Reserve System unjtstly I Faithfu/0' / Benjamin Strong, Esq. Governor, Federal Peserve Bank of New York 15 Nassau Street, New York City R-p yours jb , Mem 1,014t Orfl Tf.-; piaaav 24liatrO 01,49 Rally O. cloAsimbr14 p,pcpwr,r- 1.,; 991.31EJ:iiTU J : '7:r?Car4 01tIC: VS 1111"*.r...! cri",pflf f U%; Signr IiirOltsi 110t. :rL (Jr. GEIT-Urlie 6ViStLe/itl 1.71::%)tt 11734 bcy*.o.;:.t? !* rq Eir7(; LIAM 011:4 oc ,-;'(1 , Aire TL,. AiviT.Ecif: 4: (11: ') eg3 P70. 47' !!: tftoLe q4rfuq, .cp-ur ttatial ot C;'S17'n'i CIL rci lipa 0 i30.4 C '641.14*:,1 0.i: 41'402".. ;, . !kill?, 1/10.3.;,i ienc 0 4, ex. E AA A01:31k( mir-Iviel 4J t; OA. i,oaro - 0 Er La re.n.t..:11. 13,DVTI,....E;48, won' 1911,3 0.014 40 Wfi`NG, 7 2 We 4%41,114C r 4"PC: 17:0;, vooPir.f. :fut:to ilf1 OLTvçze.J T-3:3 ;N:7 7.4.0r:11 r'f4A4 L.1), r -t),1 1: i,;..,1,1v.t9 Eiffl3g9 : --- 44Ibrr3 September 12, 1.922. Dear Russell: Thank you for your note of September 6. I have only glanced through the erticle thet you mention but will reGd it carefully. Vy impression is that the m,,teria,1 for the article is not drawn from original or firsthand sources, and, consequently, sley be unreliable, so, were 1 addressing her as you suggest, and 1P Ihsve once or t ire written to others, I would like to send somathine like this: "Young Van: your facts before stating your conclusions:" Sincerely, F. Co L, flfWil, Esq., 52 ffriiam Streltr New York Lity. BS.MSB Check up 5 2 WILLIAM STREET NEW YORK 0 September 14, 1922 Dear Ben: I have your letter of September 12th. Dont take mine of September 8th seriously. The article is silly kojad deserves no attention. My letter was a well'meant attempt to poke fun at your open market purchases. Since I have not been very succesoful in ge ting you to see my -c, more serious criticism of 401, I thought I would try my hand at satire, Evidently I missed fire. Benjamin Strong, Esq. Governor, Federal Reserve Bank of New York 15 Nassau Street New York City September 20, l922. Mr. Russell Leffingwell, 52 Wil/iam.Street, New York, N. Y. Dear Russell: Enclosed is a letter and enclosure from John Pratt, ana a copy of my letter to him, all,of which explain themselves. Very truly yours, Enos. ',-.eptember 21, 1922. Dear Russell: I was pleased and touched 14 what you said at luncheon yesterday which makes me anxious for you to realize9 as I think I do very fully, how impossible it would be for me to entertain the suggestion which reached your ears, especially under circumstances which would have all the appearances of justifying that I had betrayed a friend. and sincerely within the necessary assist I have worked so earnestl-d limitations imposed in Governor Harding's situation ,44k there would be no other attitude possible for me to assume even if this wild notion were otherwise feasible. But it is nice to have you feel as you do. deeply and I want you to know it. Sincerely yours, Mr. Russell C. Leffingweil, 454k William Street, New York, N. Y. in such a matter to I appreciate it D 52 WILLIAM STREET OCT 20 NEW YORK 0 192 October 19, 1922 Dear Ben: received your letter of October I have not been correctly quoted. 18th. I do not thlnk the terms of the new Treasury bonds were too liberal and never did think so. T think there Is much to criticize in the way the issue has been handled, but that Is one criticism I should regard as utterly baseless. Benjamin Strong, Esq. Federal Reserve Bank of New York 15 Nassau Street New York City H-p Octo/Ar 18, 1922. Dear Russel): You have been quoted by two or three i-_,eople having expressed dissatisfaction with the loan just offered by the Treasury, and as I unOerstand it, upon t!le ;round that the terms were too liberal. Would you mind letting Tne know the basis of your opinion if you have been correctly ouoted? Yours sincerely, R. C. Leffingweli, Leg., 52 Wiltiam St., riaw fork City. 5 2 WILLIAM STREET NEW YORK september 23, 1922 Many thanks for your nice letter. I too am for W. P. G. Harding, because there is a principle involved. If, however, he is not ap- pointed or not confirmed then I am for you, and I dont think that in the grave emergency which would then confront the System you could or should re- fuse. Benjamin Strong, Esq. Governor, Federal Reserve Bank of New York 15 Nassau Street New -York City 52 WILLIAM STREET NEW YORK October 230 1922 Dear Ben: I received your letter of October 20th. There is not much use crying over spilt mi1k,4owever, when I see you next, I shall be glad to tell you what is in my mind, if you are still interested. V y truly yours Benjamin Strong, Esq. Governor, Federal Reserve Bank 15 Nassau Street hew York City 13-p of New York October 20, 122. Dear Russeli: Replying to your note of the 19th, I am glad that you found the terms of the bondiP,to he right. Now won't you tell me what Tae 7;rong with the vay the 13sue was handled? Yours sincerely, R. G. Leffingwell, Esq., 52 Eilliam Et., New York City. BS. MM January 17, 1923. Dear Russell: I spoke to you about a letter from Ben, in which he gave some of his impressions of English business. I know it will interest you to read it, and enclose it with this. Would you mind returning it as soon as convenient. Yours sincerely, Mr. R. C. Leffinclvell, 62 William St., York City. Enc. 52 WILLIAM STREET NEW YORK January 18, 1923 Dear Ben: I received your l ter of January 17th with the enclosed let rer from your son, which I return herewith. great interest. Your bo pretty close to the roo very leVel head on his late,you4 A: < .EC CI= CZ9 61.1 Benjamin Strong, Esti. 15 hassau Street New York City H-p Enc. I have read it with seems to have gotten of things ;and has a boulders. I congratu- Form 1206 A WEST CLASS OF SERVICE. DESIRED Teleormn nay Le., r AM TEL nt Message Night Letter Patrons should mark an X ono. site the class of service desired: 0"-IERWISE THE MESSAGE I -UNION BE TRANSMITTED AS A LL-RATE TELEGRAM NEWCOMB CARLTON, PRESIDENT GEORGE W. E. ATKINS, FIRST VICE-PRESIDENT Send the following message, subject to the terms on back hereof, which are hereby agreed to att.A. 1 t 1 * Ca .16,-t--tt ) 1Lb- u-A- 4.4 LT_ 11kt Qv_ L--u a,l'AA -1-741AA-4.4 ctet,J - "4- aki--01- ett. 4 P., .1 1")\1 hi Receiver's No. Check Time Filed ALL MESSAGES TAKEN BY THIS COMPANY ARE SUBJECT TO THE FOLLOWING TERMS: Tb guard against mistakes or delays, the sender of a message should order it repeated, that is, telegraphed back to the originating office for comparison. Et _, onecalf the unrepeated message rate is charged in addition. Unless otherwise indicated on its face, this is an unrepeated message and paid for as such, in consideration .,tecif it is agreed between the sender of the message and this company as follows: The company shall not be liable for mistakes or delays i n the transmission or delivery, or for non-delivery, of any message received for transmission at the unrepeatedmessage rate beyond the sum of five hundred dollars; nor for mistakes or delays in the transmission or delivery, or for non-delivery, of any message received for transmission at the repeated-message rate beyond the sum of five thousand dollars, unless specially valued; nor in any ease for delays arising from unavoidable interruption in the working of its lines; nor for errors in cipher or obscure messages. In any event the company shall not be liable for damages f or mistakes or delays in the transmission or delivery, or for the non-delivery, of any message, ther caused by the negligence of its servants or otherwise, beyond the sum of five thousand dollars at which amount each message is deemed to be valued, unless a greats ust stated in writing by the sender thereof at the time the message is tendered for transmission, and unless the repeated-message rate is paid or agreed to be paid, and an at, ,,ionaj charge equal to one-tenth of one per cent of the amount by which such valuation shall exceed five thousand dollars. The company is -hereby made the agent of the sender, without liability, to forward this message over the lines of any other company when necessary to reach its destination. Messages will be delivered free within one-half mile of the company's office in towns of 5,000 population or less, and within one mile of such office in other cities or towns. Beyond these limits the company does not undertake to make delivery, but will, without liability, at the sender's request, as his agent and at his expense, endeavor to contract f or him for such delivery at a reasonable price. No responsibility attaches to this company concerning messages until the same are accepted at one of its transmitting offices; and if a message is sent to such office by one of the company's messengers, he acts for that purpose as the agent of the sender. The company will not be liable for damages or statutory penalties in any case where the claim is not presented in writing within sixty days after the message is filed with the Company for transmission. It is agreed that in any action by the Company to recover the tolls for any message or messages the prompt and correct transmission and delivery thereof shall be presumed, subject to rebuttal by competent evidence. Special terms governing the transmission of messages under the classes of messages enumerated below shall apply to messages in each of such respective classes in addition to all the foregoing terms. No employee of the company is authorized to vary the foregoing. THE WESTERN UNION TELEGRAPH COMPANY INCORPORATED NEVVCOMB CARLTON, PRES! DEN-1 CLASSES OF SERVICE TELEGRAMS A full-rate expedited service. NIGHT ME96AGES Accepted up to 2.00 A.M. at reduced rates to be sent during the night and delivered not earlier than the morning of the ensuing business day. Night Messages may at the option of the Telegraph Company be mailed at destination to the addressees, and the Company shall be deemed to have discharged its obligation in such cases with respect to delivery by mailing such Night Messages at destination, postage prepaid. DAY LETTERS A deferred day service at rates lower than the standard tele- gram rates as follows: One and one-half times the standard Night Letter rate for the transmission of 50 words or less and one-fifth of the initial rates for each additional 10 words or less. Letter shall be delivered on the day of its date absolutely and at all events; but that the Company's obligation in this respect lc subject to the condition that there shall remain sufficient time for the transmission and delivery of such Day Letter on the day of its date during regular office hours, subject to the priority of the transmission of regular telegrams under the conditions named above. No employee of the Company is authorized to vary the foregoing. NIGHT LETTERS Accepted up to 2.00 A.M. for delivery on the morning of the ensuing business day, at rates still lower than standard night message rates, as follows: The standard telegram rate for 10 words shall be charged for the transmission of 50 words or less, and one-fifth of such standard telegram rate for 10 words shall be charged for each additional 10 words or less. SPECIAL TERMS APPLYING TO DAY LETTERS: SPECIAL TERMS APPLYING TO NIGHT LETTERS: In further consideration of the reduced rate for this special Day Letter service, the following special terms in addition to those enu- In further consideration of the reduced rate for this special Night Letter service, the following special terms in addition to those enumerated above are hereby agreed to: Night Letters may at the option of the Telegraph Company be mailed at destination to the addressees, and the Company shall merated above are hereby agreed to: Day Letters may be forwarded by the Telegraph Company as a deferred service and the transmission and delivery of such Day Letters is, in all respects, subordinate to the priority of transmission and delivery of regular telegrams. Day Letters shall be written in plain English. Code language is not permissible. c. This Day Letter is received subject to the express understanding and agreement that the Company does not undertake that a Day be deemed to have discharged its obligation in such cases with respect to delivery by mailing such Night Letters at destination, postage prepaid. Night Letters shall be written in plain English. is not permissible. Code language No employee of the Company is authorized to vary the foregoing. t 52 WILLIAM STREET NEW YORK March 9, 1923 Dear Ben: I send you herewith a copy of a letter which'I have written to John Pratt in reply to his of .Larch 8th. Benjamin Strong, Esq. 15 Nassau Street New York City Enc. Aereb 9, 1K3 Dear John; I reofived your letter or Toh 8th with they enoloaed est net from a letter from Xr. Helm. In prinolPle IatIrte with Xr. tieln't view that the buftet 2;oorm1ttee oue,ht not to be a whitawashinii sgOnty. The trouble with the atria, of the troller ensral in that theresident removed Judge it.rwlak -And substituted a politioal appointee. It the buoget ,;ommi tee has the nerve to say thac, I am with it; tr, however, it tiari not and lkionek merely to pie k on the _;ountroller OtLerai tor being what he was appointed to be, I nalie very /Attie sympathy with Its oouree. The i'reeideht or the united Ntates haa eonti tently degraded the Treasar7 **reit,* from tte moment he took ortioe by making unfit sOpointments and removals in dtereiiard of the wishes Jr his own 4earetery ot the Treksury. There i.e pot 44 single antivity housed in the Tresaury building whoae effleien5 has not been undermined by this course. I realize that there is oxeye question whether you 40n afford to $ifiy thcP,e thin6s. I 44 inolinel to think, however, that unless you do so, oomon huwikhlty reqUIrta that you abstain rrom eritioising tr.* underling*, w,ho *re In the ahel** doing rather bet than aiy. one had * right to expeot vhen they were appointed. vI $y vote ou1t be in favor of Aotne the wole hog, but if that were the deolston. should feel that whatever ar. ROA chooses to Arite should be vrry narefully vts4d by several of us atfore oubitaation. I am son41ng a copy W. tido letter to Epp,. Dav$$c, Lindsay, StropiA and "Arburg, to who you oent ftoplea of yourm. Vary ouly yours (signed) 'John T.Pratt bg ilroadway 14/40. New Xork 'aty }two R. C. Leffingwell March IL, 3.91).3. gy dear Mr. LeffingA'ell: This is to advise that you letter of March 9, has this day been reforwardec to Mr. Strong at Colorado Springs, Colorado, for his personal attention. Yours very truly, Secretary. Hon. R. C. Leffingwell, 52 William Street, New York City. 5 2 WILLIAM STREET NEW YORK march 13, 1923 Dear Ben: I just learned through a letter of your secretary, acknowledging one I had sent to you at the bank, of your more or less enforced holiday. It is disgusting that I should have been so near and inattentive a neighbor during your illness. I remember now that you had to stay away from a dinner party of Luchen5 on account of a cold, but in the hurry and bustle of life in this town thought of it only as one of the incidents of a New York winter to which we are all subject. In the first place let me say that you may wholly ignore my Budget Committee letter. Having vented my spleen among my friends, I shall probably subside and let the politicians smash Up the Treasury organization without any Protest from me. At any rate the matter is not important enough to disturb you when you are ill. I do hope that you will devote yourself with your usual vigor and efficiency to the business of getting well. You are the one 'outstanding figure in the Federal Reserve System, and your personality is simply indispensable in the situation which has arisen, because of the gradual undermining of the Board in Washington. Therefore, it is your first duty as a good citizen and a patriot to take care of yourself lust now and get fit as 2. soon as you can. I know of no one else who can rally the governors of twelve banks together and through them develop ^ and maintain a policy for the system; and that is the thing which must be done if the system is to survive the concentrated political attack which the kepublicans are making upon it. The moral of which is, you will observe, that I don't have to agree with all of your opinions or decisions to recognize the value'of your personality in a critical situation. I should rather back you up even when you were wrong, than see the Federal Reserve System abandoned to the politicians. By all of which I mean to say that in spite of our numerous differences I think you are a national asset,and I want to send you with all my heart a message of admiration and affection,and best wishes for yo. Fait Benjamin Strong, Eso. Cragmore Sanatorium Colorado Springs, Colo. H-p early recovery. 11 :yours