The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
--F-Yvi 6
April 25th, 1916.
:4 dear Professor Kenmerer:
I have just received your note of the 14th inst., which
was delayed in reaching no on account of !_ly absence in 7:nshin ;ten.
It will be a great disapooint'nent if I amL not able to go
to Princetel next mont,h, as I would like to do2 particularly as I
feel that an obligation rests upon me to make my plans so far as
possible con2Jrm to yours. There are, however, two important
meetings of bankers associations which extend from :icy Cth to nay Nth..
Also, I
obliged to be in -:ashic_,ten the 1-tter -).^rt of this week
and it is barely possible, a portion of next week and then, as
you
Lay re?_.liza, in addition to all this, there is nearly three months
acounulntion of work to be disnosed of.
Might it not be bettor to postpone any attezIpt to address
the students uhtil next Fall?
If it would suit you just as well
however, for me to run over some afternoon and meet the members of
the 7acult:- in the evening and take part in such an infor.:231 discusL-dor as I unde:.stL.:
is hold at these meetings, I could do that
wiiont fooling allied to n'-e pPev5ou-, preparation and it uould
keep
r'Le ay from the office but a von/ short tivme.
could, also, tell you a few interesting
ab2.eqd.
strmd:;i;?
Possibly, I
trip
7:;en't yo,.1 ';r5 to me frnn;:ly, an'3).ng j77-;t how the matter
April 25th, 1916.
o
Professor E. W. Y.e=erer.
A recent letter from hr. Fraser, asking if I would obtain
-,me data fron the Comptroller and make arrangements to have it sent
egularly was received.
I took the matter up in 7fl.shington last
week and believe that everything can be arranged just as desired,
id advice will be sent later.
Witb kindest regards aad thanking yoa for your letter,
Very truly yours,
E. W. hemerer,
Princeton Universit:i.,
1Prefessor
PriTIceton, :T. (T.
BS Jr/ Ws
22, 1916.
14 dens i'rofe_ssor Kemmerer:
Thank you for your note of the 19th inst.
We will shortly have occasion to take on quite a
number of additional ken, in ffA:t, our force must be expanded constantly to meet the development of the System, and for
any men particularly interested in this type of bLnk work,
this would not be a bad time to start.
If Mr. Ainchman can arrange to call at our office,
6ailer, our Cashier, will discuss tne matter with him in
detail and then I 'cold like to have a few minutee with him before either he or we conclude that he is suitable for the work.
Yr. Ainchman will find the association in this office an agreeable one w,Ach, of course, is important.
Tank you very much for having us in mind.
Very truly yours,
Professor E. W. (enterer,
Princeton University,
Princeton, N. J.
BS Jr/VCM
.r
June 1, 1915.
ny deal' Professor Ker;merer:
I have been unavoidably delayed for a day or two in
replying to your favor of the 25h.
Our office reports that both your name and
that tf
Richardson, the Librarian are on our .mai)ing list and all
circulars have been mailed with the :,ossible exception of
some
infornial communications which are sent to nember banks but which
are not regarded as of sufficient importance or interest to justify sending them to "outside
names on the mailing list.
It may be that the instructions as to mailing the
cirdulars'are not correctly entered on our boo',LS and I am go-
ing to ask if you will be good enough to give us an exact.address to which to send the.
So that the Library m:,y have an accurate record of
evcrythin4,, that has been sent outv I have had one of the member
bank folders
a
completed in
every detail and that will be sent in
te,7 days with a complete set of all
cil'culars.
These circu-
lars are perforated so tlai they can be fieed in chrono/og-;cal
order in the folder
I an sorry to learn that the circulars
sent heretofore have not reached you.
am, zln, today In receipt of your letter of :.ay 20
and believe all of the sugg-st3o,ls in re:ard to the banks re
ports are good, and there will dobtless be little difficulty
in el:,tairing ther,.
-2-
To
Prof. E. VJ, Kenmerer.
June 3, 19.16.
0
It .:ould be a good plan if we could discuss this matter
a little further before arriving at a final d ision and possibly
you would care to give the time to look through the London Almanac
which gives a particularly complete list of the banks of the world.
I am not very familiar with the operations of the Borlinex
iy impression is that it is controlled by
cone of the larger banks just as the Deutsche-Treuhand Gesselschaft
is controlled b7 the Deutsche and Dresdner Banks, and that its op-
erations are very largely in connection with secarities, rather
than banking.
Very truly yours,
Professor E.
Kemmerer,
PrLiceton University,
Princeton,
J.
June 9th, 1916.
My dear Professor Kemmerer:
Your note of June 6th finds me in bed and just as soon
as I am able to travel, I shall leave for the West probably and
be gone for some time.
This is very disappointing to me for
many reasons and particularly because I was just beginning to get
my mind on the Work at Princeton.
I will see that instructions are given at the office
in regard to the literature to be mailed regularly to Miss Hurd
and to
you.
As to the collection of bank reports, etc. I shall be
in New York for two or three weeks yet and although confined to
my bed would be glad to have you drop in some day with the correspondence on this subject, notifying me first in advance, and I
will ask my secretary to be here and we will work out the whole
program so that the reports willbe forthcoming.
The Federal
Reserve Bank already has arrangements with many of these banks
to exchange literature; it might, therefore, be desirable to have
the first requests made by the Federal Reserve Bank in behalf of
the UniverSity which, of course, we will be very glad indeed to dn.
With kindest regards, I am,
Cordially yours,
Professor E. W. Kemmerer,
Princeton University,
Princeton, N. J.
BS
Jr/VCM
Estes lark, Colo., July 19, 1916.
Professor E. W. Kemmerer,
Menauhant Inn,
Menauhant, Mass.
;4r dear Professor Kemmerer:
You will I hope pardon the delay in my answering yodr kind letter of June 1-9t.h., wi:aich was occasioned by my illness and now I-regrst_t6 say I am
exiled out here in Colorado-for an indef ite period.
1 have every expectation howeVO of bein, ack home
and at m,,- desk
inside ./Z s. yek),w.
// //
I...his interruptie
r consideration of
bank literature is exceeu ntlj disappointing. I am
expecting las, searepav,hee\however in about a month
and could I be146Ve-e4eily\d4tinue to work with you
by correspon4e4co, if 'pipit r' 1 prove satisfactory.
On the other9land, shou,10. you require some one nearer
home, p1ease\dç not heSiA,ate to advise me and permit
Inc to_ratAre
'gm the/Cemmittee.
-- ____J
---.. --- /
/7 It occurs
--tti me that in order to obtain this
lif erature
larly
and in addition get copies of
rd rts for ,period saz/ of three years past, it
mi t be weiql
/to send a formal letter on the letterhea
P
rueton University, either over your signature
or p .3ailall signed by the members of the Advisory Committee. Some banks are negligent of requests of this
character, whereas others are ver7 conscientious in
answering them. By checking up those that were negligent I could arrange for the ::eserve Bank to follow
up the request and thereby insure getting the reports
complete.
The Anglo-South American Bank, while today in
much improved condition, has occupied nothing like the
position of importance and influence that some of the
other English banks have and I doubt if its report
would be of much value. The sooiete Generale de Paris,
as you know, has suffered a serious decline in the last
two or three years and except as an example of bad management I doubt if that report would be of importance.
42,
Otherwise, it seems to me all the institutions you
mention aro of sufficient standing to justify putting
them on the list.
I am,
What do you think of our new collection plan?
able summer,
Hoping that you have a most
Sincerely :ours,
/
Estes Park, Colo., July 27, 1916.
Prof. E. W. Kemmerer,
Lienauhant Inn,
Menauhant, Mass.
My dear Professor:Kemmerer:
Your letter of July 23d has just reached me and
I am most grateful for what you say in regard to my
membership on the Committee. It would possibly be a
good plan when the circular is sent o4t--ttr- ave a little
card index prepared, on which could b'e/-cfl4 off the
reports as received, each card beir4fheaded i h the
date when the reports are issued. (A you kno\v1 some of
the English and continental banks s1ll issue/semiannual reports. Union of London and Smith's Bank did
so until this last year, ValiA-thhare
:via authorized a change and hereaf.0y/the 116ortsLwil1 be issued
annually. The Library will experibilee the same difficulty I apprehend that mixit financial institutions do
in being unable to/rly 419n repor to being sent without
request.
I am glad to h
f the accession to the Fisk
Library.
*Peports frO the*fice indicate that our collection
vice is 4 ve1ping satisfactorily, although
during Ve first Weekter two it imposed a pretty serious
strain upon-theArganization.
Youl are entirely right about Secretary McAdoo's
policy. ITO .meet the situation in Boston practically all
of the 14rge banks discounted some of their paper with
the .=.eseli7fe Bank, all on the same day by arrangement.
This plan was adopted so that no comment would arise As
to any particular bank, or banks, having found occasion
to use the facilities of the eserve Bank.
The same, thing
would have been done in hew York had money rates continued
high for more than a few days.
I am somewhat disturbed by the attitude of the
Chronicle; possibly you saw last week's Editorial. It
seems to me they are wrong about the government deposits,
they are wrong about the note issue and they are wrong
In regard to the operations of the gold settlement fund.
have twice answered their statements and I doubt if
:4id good would result from our answering this last fulmination. Is this a matter in which you are sufficiently
interested to take a crack at them yourself? If so, I
would be delighted to furnish you with all the material
noce6sary, both as to the practical workings of the
system and data and figures in support of our position.
Their complaint about the hand.lini of the government
funds will be a short-lived affair as that matter can
be easily worked out without difficulty, or without
giving even the Chronicle cause for complaint, but I
am anxious to offset the unfavorable influelpe of their
editorials in regard to our note issue4"Hoping that you keep wel !Ind are
the summer's rest, I am,
.
rere-1\yours,
'Wing
Estes Park, Col.,
September 2nd, 1916.
My dear Professor Kemmerer:
Thank you for your letter of August 6th which I have
delayed answering on account of a slight indisiiilition and quite
an accumulation of mail.
I
I
I thoroughly agree with you tiiiiStrr-d cision about the
Chronicle matter and have decided/--3.e 1ater,0 to writ t some
articles on the subject of the/Videra ieserve note issue for some
li
of the papers, -king
no refernnoe, /f course, to the Chronicle
ed that Professor Patterson
peecifically.
\\ ,
Of the Wharton Scho 1 of Pinatc4 aa ready taken a crRck at this
Chronicle.
subject and, incidOn ally, al,/
Ai
would likur_y-mueh to see your new book when It is
/
off thiOpress, acrwp11 as the article on"Securitios As Secondary
Bank R\v!!!//ii
--
TE-6-time has come to educate the people of this country
to the idea that we are getting into a position where we can afford to have a scientific currency.
If there is any way in which I can contribute at all to
your work in these matters, please do not hesitate to call or me.
Mr. Hardy is an old friend and associate of mine..
Won't you please give him my regards and my ..est to yourself.
Sincerely yours,
Professor E. W. Kemmerer
Menauhant Innr---------Menauhant, Vass.
november 17th, 1C16.
Dear Professor
Kemnerer:
Your favor of tho 10th has juat
ached me and,
as you know, it will be a groat pleasure
me to take tnis
matter up at once and eneeavcr t
exits with all
ths institutions named in the list for furnishi
reports asked for.
To save time,
the uncertainty of my
absence, I will have the I
indicate that the r
addressed directly to the
'ibrary et Princ
hen I les
epared in =,ew York and
s
tel
I think we arranged
ave a careful record made of
institutions wh
or which do not send exactly
follow up the request with
perso
lettere end am sure we
can get just what is desired.
regards, believe me,
Professor E. W. Kemwerer,
Princeton University,
Princeton, N. J.
Els/vc1
November 29th, 1916.
Dear Professor 6,ammerur:
Thank you for send
rint of your
me
.A-ticle on "The Theory of 'oreign inves
which I have just read
What impre
nouncement made by
Princeton, N.
aeserve Board about
has made.
correct vi
Princeton Uni
gather from the an-
nterested in getting a
foreign loans?
Professor E.
oyed very much
Kemmerer,
sity,
December 7th, 1916.
Dear Professor Kemmerer:
Er. Fraser hae written ue that i itations
have been sent to Messrs. Strauss and Walk
have taken the liberty of wr
hem personall
urging that theaccept.
In this connec
uld warn you that
Mr. Walker is guile deal and
your associates
ought if you and
would make it
a little easie
oth these gentlemen
Hop
up to ex -lion
yours,
Very
Pro
Princ
or E. W.
,Princet
FIS/VCM
.
tmercr,
.
ty,
December 7th, 1916.
Dear Professor Kemmerer:
Er. Fraser ha e written e that i itations
have been sent to Messrs. Strauss and Walke
have taken the liberty of wr
urging that they accept.
In this conne
Mr. Walker is guile seal and
your associates
hem personall
uld
warn you that
ought if you and
t would make it
a little easi
th these
Pro
Princ
or E. W.
Prircet
BS/VCM
merer,
ty,
gentlemen
December 9th, 1916.
Dear Professor Kemmerer:
Your kind letter of December 5th jes
eaches me and
in order to express my views rather mo e frankl
than I ordina-
rily would be willing to do, will you kindly rec
and hold
this letter in confidence!
It seems to me that
ith perfect honesty
and sincerity has developed
conception of the present
situation and has taken mo
e Eneans to influence our
dere sound and con-
banks along lines w
serva'ive.
feeling
There se
in this country
that
amount of gold is a bad thing,
Second:
When
good
pr
he war is over, we
will be
flooded with
rid suffer an adverse trade balance for
ction against which a nigh tariff will
be necessary, and,
Third:
That the belligerent governments may default.
other words, people are taking counsel of their
fears rather than of their experience.
I firmly believe that
this accession to our gold holding will do no harm if it is properly handled and I just as firmly
belif:v
that belligerent gov-
ernments are not goingto default on their external debt, although
-2To
Professor Kemmerer.
Dec. 9, 1916.
some of them may be obliged to tax the income on their internal
loans for a period immediately following the conclusion of the
war.
As to our trade balance, while we are of course certain
to lose much of our export trade and probably
ports somewhat, I think adverse exchange will
develop as a result of large loans made to the
ncrease our immore liable to
Aid's debtor
nations by our bankers to enable th
pay maiuring
loans held by England, France and Germany.Under
sent con-
ditions, the strongest prótectit
r banking sys em can
obtain would be short loans
gn governments of un-
doubted goodness, or where the
have a longer maturity
than a year or two, by
re make the requirement
that interest and p
the holder in the
cipal shal/
e at the option of
rrency of the
rowing nation at a fixed
rate of exchange.
in proport
rapidly
ture.
structu
f we build up
41
the
ual ra
ur foreign credits roughly
o of credits to gold just as
gold is imported, the country is insured for the fuf we use the g
we are not
to build a top-heavy domestic credit
y not insured, but greatly weakened.
I think your understanding of thcse ac-
ceptance credits is not quite correct.
It is true that the
banks in New York which accept the drafts, make agreements to
accept new drafts for the purpose of paying those that mature.
No obligation rests upon the holder to buy these renewal drafts
and so far as the market is concerned, the drafts are all paid
as they fall due.
The important thing about these credits is
-3-
To
Professor Kemmerer.
Dec. 9, 1916.
that the money is nctually being emuloydd to pay for our exports.
In ordinary times I would consider that finance drafts of this
character were evidence of an unhealthy trade condition where
purchasers could not liquidate their accounts
months.
ri less than 18
Under present conditions, however,
this sort are justified and inevitable.
hink means of
Afte
draft has an important place in inter
ill, the finance
king, not as a
normal, but as an emergency instrument.
From inquiries made i
ast Winter, I gathered
that in normal times, the L
arried from one hundred
and fifty to two hundred milli
eral character,
ing of bills of this gen-
whereas
of unexampled import
,
the t
I finance drafts held
by the banks of th s country is 1
banks have carried
than 10 % of what
d see
effect this action by the Re-
will have, not as to transactions immediately affected
but as
the country'
tails f.
in credits,
course
licy in general.
understand that these are just my personal
With kindest regards, I am,
Very truly yours,
Professor E. W. Kemmerer,
Princeton University,
Princeton, /1. J.
BS/VCM
If it seriously cur-
fear the effect will be most unfortunate.
views, therefore sent you in confidence.
he English
normal times
wa
serve B
in the face of demands
Denver, Colorado,
December 23, 1916.
Dear Professor Kermerer:
I am writing you to thank you for sendi
me the Annals of the
American Academy, containing your recent articl
Which I had already
read by the way, with great interest, and parti
any for your kindness
in sending
me a
copy of your new book
cy Reforms, with
the nice inscription on the front page.
greatest possible interest and
which never before was
for lack of time.
08
Fisher's articl
bankers disagreei
war.
I find many New York
his arguments any way are so
abstruse and base
ring such
e because of his conclusions
ter
in regard to highe
war,
s with the
have been doinu a lot of
reading along these lines d
'possible
I shall re
tional qualifications, that I think
unexpected developments as our participation in the
am inclined all
e time to take the view that the first effect
conclusio
11 be a more or less collapse of speculative
of th
values i, piling up of reserves in New York and possibly
preceded by
maybe
or
coincident with
further imports of gold iron Germany and
other belligerent countries. This
period
will be the true neriod
wheels of credit 6et to turning more normally, then I believe we are bound to see a gradual and irresistab/e advance in interest rates the Jorld over. It is all sneculation, however,
of readjustment and when the
2.
To - Professor Kemmerer.
December 23, 1916.
but interesting nevertheless.
Wishing you a very Merry
New Year, and again with many
Christmas and a Happy and Successful
thanks for the be, I am,
Faithfully yours,
Professor Kemmerer,
Princeton Thiversity,
Princeton, :I. J.
BS/CC
Denver, Colorado,
March 16, 1917.
My dear Professor Kemmerer:
Modern
Roberts 7ialker has just sent
rick Strauss that he is also
Corporate Mortgage.and I lea
working on something' for th
be interested in, hearing from yo
e course in Economics. I would
how these two meetings were re-
auss are men of unusual
calved by your class
ments, as I know f
wit
them, but I would like to
now how they appd to you nd yr associstes.
With kindest
Prof.
Princet
Princeton,
BS/CC
iversi
attain-
October 29th, 1917.
Dear Profes,or Kemmerer:
Thank you for your note of the 27th advising
that you were sending me a copy of your book on "Postal
Savings," which has just been received.
I shall read
it with a great deal of interest and am most appreciative of the thought which Prompted you to send
Very truly yours,
Professor E. W. Kemmerer,
Princeton University,
Princeton, N. 3.
February 26, 191e.
Dear Professor Xemmererl
.
-
.,,,,,,.!,40.1140,m44K%
I have just read the statement in the Annalist of February 16th,
In the preparation of vhich no doubt
had a haw,..
of the doctrine of thrift is exceedincly r4ccec=rw.
stand this na0ect,o7
difficult,.
Constant reiteration
People must under-
o problem of war finance wili become Increasingly
But after all, are theoo probles cap1;.b1e of solution by edu-
cational lachods.?
aous
mnthods too slow in operatIon in a country
as oztaisive az hiB, are particalsrl
unorgenized abw aro for war pur-
pooes?
It strikes me that -a,z face too possible . ouroes:
(1)
reliance
upon educational methods to bri% about economy in the consumption of goods
and evuploymeat
labor, and nuriuG thicsaow nnd rathtr inefficiant procos
of eaucaUan, thd; uccustdt:.- fr
zation and control.
::ntpantion of bank credit t
By the lattr I mean actually
(2) organi-
sping this problem
of essentials Lnd non.ossentials courageously by some method to be adopted.
If the sullect is approached eoley from tho standpoint Of bank credit it
means, of course, exercisi/r actual supervision over ban. loans by discriminating beIwc,sn justified and unlustified borrowings, with the inevitable
consequence of u considerable reduction in loans and deposits, some unemployment and
:It.siderabie reduction in consumtion.
If control is exercised thoroughly and eztensively
risk a,devel-
()patent which might be almost as disastrous as expansion in its consequence,
end that is, widespread dissatisfaction vith the war and loss of po4.ular
support by the Government
#2
Profet,sor E. Z. Kemmerer,
2/ 26/ 18.
1:y awn opperienco durin; the last eight montha has pretty well
convinced ma that organization und control will produce better results
than education
that education will be too slow u procees to convince
one hundred million people, and that the same results can no accomplished
by controlling the otivities of, say twenty-five thousand ban:s, the
control, of cousrse to be developed no mom r.j..idly ti-n t ie possible
to organise 74ethods of controlling the trAnsformstion of inIns.ry and labor
TO war work.
It seal-s
.tii0Vahtli were atierWng to arivc A. machine, the
speed end direetiou of Lh arc contrelled by Et number of different levers.
They must all bc advanced in unison to ins-re that thc ms-,hine is not
stalled.
:hit approach to thls subject by a discussion of thr: purchasing
power of money ilapm-.ses ,e st throwinis light uDon the di:.ease that killed
the patient, wherea.6 what w:1 need
tqh-41e rf.strtion u;on the patient's
diot.
L4Ght it no,. be a :cad plan. for your zomlitte to ,Ionsider four
or fivo practical qucationS,
"first, The olaasification of esuoLtial end non,easential consumption;
3econd,
A mAhod of controlling basic credit:
Third, A method of employing exist in indusLrias w:wire plants
and labor may be employed without duplication of construction, power, housing, and without moviva labor
Yourth, 444tem of control of raw materials;
Fifth, An exhibition of the folly of price fixing when it has the
effect if restrietin production.
have recently been making soma steady of the ban< figures to try
Professor
Kemmerer,
2/2E08.
anl determine hair directly we may trace exransion now takinc: place, particularly in our note issue to Government borrowinze, and on the whole am 4a-
couraced to feel that it has not yet reached pro,ortlons presentiry any
anger to our Systr.r1 and probob17 will not for a sufficient length of
timo in the future to unable us to get methods of organization in opera
tion if they are undertaken promptly.
I hope, you will pardon thia long lotto?.
it is inteLdoct simily
..1.s an indioat on of my feeling.wnich is very strong, that what the country
needs is organised control ratherhmore than odaaational wOrk rhion does
not sink In promptly.
With warmest reards, I am,
Very truly yours,
Go-.'ernor. .
Professor E.
Xemmerer,
Prtncotor Univc,r6Ity,
Princeton, r. 3.
Warch 7th, 191P.
Dear Professor Kamerer:
Your favor of the 2nd reaches me just az 7 am
leaving for a ten dRyst or two ,,,!ees absonce Ind T hone
to virte you mere fully on my return.
Faithfully yours,
Professor E. v% Kerrerers
errs tyr"*"'°-
Princeton, N. J.
WPICM
-1-
163
karch 22nd, 1918.
Dear Sir:
In Governor Strong's absence, I beg to adknowl-
edge receipt of your favor of March 17th enclosing draft
of manuscript on the subject of inflation.
Governor Strong is expected at the office next
weak and his attention will be called to your letter at
that time and you will no doubt hear from him in the near
future.
Very truly yours,
Secretary to Yr. Strong.
Professor E. W. Kemnerer,
Princeton %iversity,
iartyyntectsh7117,317nuov,...,........
V:}1
-
April 15th, 1918.
Dear Professor Kemmerer:
Before sending you a draft of the introduction for "The
A B C of the Federol Reserve System", I m taking the liberty of
referring to one or two natter c in the text, principally tyrogranhical, which you may want to change.
Galley 3, "3aylk !!cite Flasticity", 14th line, the word "lean"
Should be "loaned".
nalley 11, 7th line from the bottom, you refer to the type
of domestic bank acceptance made eligible for rediscount as having not
more than six months to rum.
This should be 90 days to run, exclusive
of days of grace.
lalley 12, chapter VII, 9th line, the word "security" is misspelled.
rzalley 13.
/ am checking the table of security for Federal
reserve notes in which I think there is a slight technical error.
Galley 14, foot-note 5.
The article "e" is omitted in front
of the words "Federal reserve bark".
Galley 15, in the middle of the rage the word "the" is reheated.
Galley 19, middle of the page, the Federal Reserve Bank of
New York has made a uniform charge of one cent per item for collecting
Checks Which I Velieve is the lowest of any bank except Boston.
-2Galley 20.
"credit".
To
Professor Kemnerer
Apl. 15, 1918
Foreign Exchange, 11th line after the word
Would it not be more exact to add the words "under which
bills expressed in sterling were drawn?"
GaliV20. App4intments have also been teed° for Italy,
Japan and Holland respectively with the Bence, d'Itelia, Bank of JaPan
41
and the Nederlandsche Bank.
Calley 20.
Next to the last paragraph, it soma to me
that the quotation might be misleading without either a foot-note or
some reference to the fact that the law under which all bonds issued
since we entered the war provides for deposita of proceeds of both
bond
and certificates of indebtedness in national banks and state
banks and trust companies against certain approved collateral.
The
deposits which are cc carried are in fact made by the Federal Reserve
Banks es fiscal agents of the governnent and it might appear that the
account is in fact, the account of the Federal Reserve Bank.
That
is done more for convenience, hoeever, and the method employed is in
strict conformity with the terms of the law.
alley 21.
The first deposit of government funds made by
the Treeeery with the rederal reserve banks was on say 10th, 1917,
when certain special deposits 'ere mede in a number of banks.
Lat4r,
arrangenerts were made to heve the collectors of customs and collectors
of internal revenues in the twelve Federal reserve bank cities deposit
all of their funds in the Federal reserve banks and as a mater of fact,
for a long period prior to the passage of the bond bill which altered
the status of public deposits, the Federal reserve banks had been receiving the principal revenues of the government outside of postal funds
and had been paying a very large proportion of government checks and war-
rants.
The mason for limiting this fiscal agency service to collections
To
-3-
Apl. 15, 1918.
Professor Kemmerer.
of revenues and payments of checks in the twelve Federal reserve
bank cities was, of course, due to the inconvenience of extending
this operation to places where Federal reserve banks have not
established branches.
Federal
yet
The plan, however, actively employing the
reserve banks as fiscal agents had, as
I
said, been pet
into operation some time bore the bond bill was passed and was
an important and very active part of the work of the reserve banks
almost immediately that the arrangement was established.
I have read the manuscript with a great deal of interest
and enjoyment.
or
It will be most helpful, giving concise knowledge
the nee system to the public and I hope it gets a wide circulation.
The only possible suggestion for enlargement which occurs
to me is a more detailed description of the fiscal agency onerations
in connection with the war and goverrment finance.
That is, however,
a big subject and / hope will some day be made the occasion for careful study and another volume which possibly you might be
preparing.
interested in
I will write you again in a few days.
In the meantime, many thanks for letting me have the pleas-
ure of reeding the mmnuecrint end preparing the introduction.
Very truly yours,
Professor E. T. Kemmerer,
Princeton University,
Princeton, V. J.
BS')/17CM
April 17, 1918.
Dear Professor Kettnerer:
The tabulation of collateral in Federal reserve
notes, as of Unrch 1st, shown on galley 13 has been checked
and is correct. The enclosed memorandum, however, indicates
a difference of over 000,000,000 in the possible note issue
based upon the gold reserve of that date, but I presume you
were using only round figures anyway.
Very truly yours,
Governor.
Professor E. W. Kemmerer,
PrincetSR-Pal404,44,
7111haii;m, liew Jersey.
53/EL
NIX
COPT'
..,:,1410BANDUU REGARDING RESERVE CALCULATION
MR. KEMMERER'S BOOK GALLEY PAGL 13
Shows $3,000. millions federal reserve notes may
be issued
Should say $3,333. millions may be issued
$ 1,821.
Gross del)osits
Deduct
Uncollected items
Due from Federal
369
reserve banks net
12
Net deposits
381.
1,440.
Reserve required 35>;;=
504.
Lawful money available
60.
Gold required to complete
reserve
Gold holdings
$ 444.
1,777.
Total Gold available for note issues
$1,333.
Against which notes may be issued aggregating
$3,333.
April 19th,
Dear Sir:
Mr. Strong has asked Me to acknowledge receipt of your
favor of the 1Pth inst., and exrress to you his thorough approval of the changes which you suggested therein.
I am also requested to forword you the enclosed statement
relative to the figures about which you raised a question ."7hese
are the best figures obtainable in our office, but unfortunately,
are very incomplete as we have not sufficient details regarding
this data from the other reserve banks to give you anything like acomplete reply.
'From Item 3, you will readily gather from the
lists of liabilities and assets under that one heading how difficult it would be to give any very definite figures.
However, if
you will be good enough to send Fr. Strong a statement showing the
form in which you would like to have this information, he will endeavor to secure it from l'i!ashington for you.
Very truly yours,
Secretary to Mr. Strong.
Professor E. W. Kemmerer,
Princetm,Wversity,
Princeton, N. J.
1/CM
April 30th, l91P.
Dear Professor Kanmerer:
Thank you for your favor of the 29th enclosing the
letter ffom the Princeton University Press.
I feel quits conscience-stricken at my dereliction
but am sure you unlerstand how crowded the days are just now
and hope you will accept my most sincere apologies for the de-
lay in writino: that introduction.
It is simply a matter of
getting sufficient time to dictate it and this I am hoping to
do within the next few nays and will send it right or to you.
With kind personal regards, be/ieve me,
Very truly yours,
Professor E. V. Kemmerer,
Princeton University,
Princeton, N. J.
Vet,
may 2. 1918.
Dear Professor Kemmerer:
This is my first opportunity to write you personal-
ly in regard to the introduction to the book on the Federal
Reserve System.
I feel deeply mortified at the delay in
preparing it, but know you understand the reason and that it
is entirely beyond my control.
In a day or two I hope to get
at it, certainly the early part of zoxt week.
3inceroly yours,
Professor E. 4.4 Kemmerer.
,',)4'ineetou Uuiverulty,
Princeton, N. J.
3.3/xx3
163
May 9, 2918.
Dear Professor Kemmerer:
The Liberty Loan drive knocked me out a little
and further a4aved tlie preparation of the intro:illation,
but I have made a start on it and am hoping to finish it
4 very 3001.
I sincerely hope that I am not inconveniencing you or the publishers.
3inc3rely your?,
Professor 3. W. Kemmerer,
Princ9ton UtiversIty,
Pi4nceton. N.
Bs/msis
I03
'4'44May 28, 1918.
my dear Professor Kemmerer:
I am sending you with this what I have dictated as an
introduction to the"A. B. C. of the Federal Reserve System r:
Had
there been more time, I could have improved upon it oonsiderably,
but, as you know, I am tremendously rushed.
Let me emphasize two things:
I want you to make any and
every change in it that you think necessary or desirable and, besides,
that, I tope that you will read the draft over very carefully for
errors in diction, punctuation,aetc., Which I have not had time to do,
if I am to get it off to you to-eight.
Wishing the little book the greatest possible success,
which it fully deserves, I am,
Very cordially yours,
Professor E. W. Kemmerer,
Princeton University,
Princeton, N. J.,
BS/GB/NEB
June 18, 1918.
Jar Sirs:
havp just received your note of the 27th
instant,
enclosing copy and proof of the preface to Professor
Xemmererts
.......omsetommemmocteatewwwswiom
book, which I have read and rind no changes to suggest.
Thanking you for sehding it to me, I am,
Very truly your
Governor.
Princeton University Press,
Princeton,
New Jersey.
BS/XSB
Woods Hole, Mess.,
August 10, 1918.
Dear Professor Kemmerer:
just have yours of the 8th instant and es sorry to have delayed
I have read it with
returning the manuscript which is enclosed herewith.
a groat deal of interest and admiration and hope when the book is published
that you will give me opportunity to read the whole volume.
One comment you will not mind my making.
We are badly in need
of this country of elementary books on the various economic phases of the
war, written in popular style
and not too deep for general reading.
That
is one reacan why I was so enthusiastic about your book on the Reserve
System and why I have so greatly admired Withers' books.
I noticed one or two typographical errors that you had
caught, but
not
will not delay returning the manuscript to read again and
'Irk them.
With congratulations
on the enclosure, which
Ad thanks for letting me read it, I am,
Sincerely yours,
Professor 4.9_,A,Wemmerer
of New York,
Federal Rosorver
15 Nassau Street, Now York, N. T.
0.0
13S.ILS13
is really very fine,
Chrtir i, 1913.
Dear Professor Kemmerer:
1 deairo to express Rry appreciation for the
two copies of "The A B C of the Federal Recerve ,F:ystemn
*1473ch -Fere rceefa,ved tuday.
The extre. copy ir for tar. .
INI3ler of Itkcgiim.d to 1.341.m I promised a copy tilen the book
rn,r3 published.
The 7ourth Liberty Loan campaim is rapidly
dr,twing to a close, zlAci I feel confident that the Loan ,-.111
be fully subscribed for.
With eordial regards, believe me,
Very truly yours,
Profezoor E. W. K:emmerer,
Prf r.ce ton TORT; t y,
Princeton, N. J.
t
A
VA
e. .
V4
"...,
sl
.
el-5
0-
t'';....,,
..,
Novenbor 11, 1918.
4 dear Professor Kemmerer:
Your letter of Novembor thivid enclosing copy
_
of article 'Doing Something for Gold" is received in
lir. Strong's absence.
I expect mr. Strong to be at the bank this
Friday as he leaves Washington ThUrsday evening for
NaT York.
Very truly yours,
Secretary.
Professor E. W. Kemmerer,
Princeton University,
Princeton, N. J.
GB
F4A-Aitt
bun
,
91D
PERSONAL:
FEDERAL RESERVE
Lake George, N. Y.,
February 10, 1919.
BOK
Dear Professor Kemmerer,
'
This letter, which is written in the very best of good spirit and intention, to a personal friend, is the production, you will realize, of an amateur
economist and is addressed to a dean of that trade, with whom, I believe, I can run
the risk of exposing ignorance without loss of What little reputation I have for knowing something about this difficult. problem of war finance in its practical aspects.
I have just finished reading a second time the report of the Committee on
War Finance of the American Sconomic Association, articles four and five being the
ones in Which I am particularly interested.
(
Professor Bogart of the University of Illinois.
Article four, I understand, is by
In passing, I recall that the
University of Chicago maintains the largest department of economics, with the most
elaborate and thorough courses in that department of its work of any American university.
I um very strongly impressed
Bogart's report.
with
two outstanding features in Professor
One is its port-mortem character.
It presents an analysis of
things that have hapnened in very scholarly fashion, but few indeed are the suggestions
of a helpful nature for those Who must struggle practically with the problems discussed by his committee.
\
I mention this with some frankness because I recall hay-
ing written you suggesting a line of inquiry that would have been truly and constructeve
ly helpful.
The other impression is inevitable to any of us who have been trying to
work out these difficult matters.
'N
The discussion proceeds rather complacently upon
the assumption of 100% perfection and efficiency being possible in Government finance
in time of war.
3 state
Consideration is not sufficiently given to the human element
of the public mind.
A program of finance, in order to succeed, must, in
Sheet No. 2
Professor Kemmerer
2.10.19.
the nature of things, conform to the average view of the great mass of the people,
or popular
support is lost and failure is inevitable.
treasury is called upon to raise
eighteen billion
again by taxes in one year, he must issue
methods that will sell
indeed conform to
the
lhen a secretary of the
dollars by loans and half as much
loans that will sell and must employ
them, rather than issue loans and employ methods Which may
best accepted theories of economics, but Which
nor business men, investors,
capitalists nor working men
know anything about or
care anything about, and with Which they have no sympathy,
as they doubtless have been, they were
these principles by the
If mistakes
were made,
not so much mistakes due to ignorance of
officers of the Government, as they were mistakes in determin-
ing What would probably succeed and rhst
pelling influence;
neither bankers
would likely fail.
Tar is a rather com-
it would be grand if a war could be conducted and financed along
sound economic lines, but warfare, unfortunately, ignores economic theories and forces
the emnloyeent of all
So I think
sorts of measures that violets the most sacred principles.
the
criticisms of the work of Mr.
that it presents no constructive suggestions such as
Bogart's committee
are fair,
might have been used to ad-
vantage had the war continued, and leaves out of account the human factor entire-
ly, dealing with
the
subject upon the assumption that
theoretical perfection was
possible.
Referring in detail to his
rather grossly dogmatic
report, I
an some points.
think it is
distinctly
On page 76, he refers to
unfair and
anticipatory
loans as though the Secretary of the Treasury were able to do things Which, after
the most careful
or instance, to
and deliberate consideration, everybody agreed were impossible.
quote but one sentence, he says,
the Treasury at any stage of its war
borrowing, or by
the issue of
borrowing, or by
the
financing, by
"it would have been possible for
earlier recourse to funded
large loans, or by more frequent recourse to funded
issue of large loans, or by more frequent flotations, to have
suonlied itself with sufficient margin to have made anticipatory borrowing unnecessary."
This
stamps the Whole article as theoretical and impracticel.
For weeks
Sheet No. 2
Professor Kemmerer
2.10.19.
at a time I have seen the Secretary of the Treasury literally on his knees before
Congress begging legislation to give him more latitude and to give him more time
in Which to make his plans.
the
The first campaign was inaugurated practically before
bond bill had passed Congress and so,
ceeding issue.
unfortunately, has it been with every suc-
The legislation has been held up in Congress until the last minute.
That justification has Professor Bogart for stating what the Secretary of the Treasury could have done without taking into consideration vhat Congress allowed him to do?
The earliest possible recourse to funded borrowings was always the Seem-
? tary's policy.
No more frequent loans could have been issued without encountering
almost certain failure, and, by ray of proof, Professor Bogart, by inquiry, could
have learned the following to be the facts:
unanimously recommended by the banking and
In the first loan it was almost
bond dealing fraternity that all over-
subscription should be rejected so as to avoid immediate depreciation of the bonds
This was done.
below par.
In the second loan, opinion was
of the subscription only was accepted.
tions were
accepted.
lion dollars
divided, so
one-half
In the third and fourth loans all subscrip-
The amount rejected in the first loan vas, roughly, one bil-
end in the second loan eight hundred million, so that the answer to
Professor Bogart's criticism that there should have been larger issues is that the
issues, with the exception of $1,800,000,000, rejected in the first two loans, were
just as large as could be made by the subscriptions received.
loans-
As to more frequent
Four loans, aggregating seventeen billion dollars in round figures were
placed between May, 1917 and November, 1918, a period of eighteen months, and in
that period over four billion dollars of taxes were collected,
taxes of the fiscal year ended June 30, 1918.
including onIty the
That is, a total of twenty-one or
twenty-two billion dollars ma collected by the Government in eighteen months, a sum
so unprecedented and so far beyond any estimate every made of the investable surplus
earnings of the people of the nation that any fair judgment must accept the statement
that more frequent loans, or larger loans, were impossible and would be courting
failure.
2.10.19.
Professor Kemmerer
Sheet No. 4.
Another matter overlooked
It is
mechanical difficulties.
in Professor
Bogart's article entirely is
no exaggeration to say that there was not a:suf-
ficient supply of paper, ink, presses, expert engravers and clerical machinery to
prepare and deliver the bonds required upon any more extensive or complicated scale
than that 'which has been done.
The delays incident to the delivery of bonds in the
first loan created a state of dissatisfaction Which might have proved a serious
menace to the success of general popular subscriptions to later loans had that not
been met and overcome.
This VAS a matter of such considerable importance that I,
personally, went through the Bureau of engraving and Printing, talked
Crane, Who produces the safety paper used in
this
with senator
work, consulting with officers of
private engraving concerns, and, ultimately, was tartly instrumental in bringing
about the formation of a committee of engravers to see whether it would be possible
to throw the printingffacilities of outside establishments
service.
into
the Government
Thorough investigation proved it to be impossible, partly as a matter of
law, but oarticularly
because it
plants entirely in order to
would involve the Government's taking over the
avoid
risk of theft or loss of bonds 'phial were com-
pletely negotiable and saleable *hen the printing process was completed.
the difficulties of this situation, bonds
have actually
lb meet
been prepared in advance
of legislation authorising them in such fashion that the text could be added When
the
termspof the issue were fixed by Congress.
I have enlarged upon this apparent-
ly trifling detail to illustrate the extent to which
this report has failed
to
consider practical aspects of the Government's program, which had greater or lees
influence in determining 'that could be done.
In the next paragraph he refers to the overlapping of maturities.
That
has been strikingly absent with the Government's short borrowings until those Which
anticipated the lest two loans, and substantially so until the making-of issues
Which anticipated the fourth
of any
other
Comparing the record of this country with that
belligerent, it will be seen that our position is so remarkably strong
and free from bad practices
loan.
in this regard that
instead of being condemned, the
Professor Kemmerer
Sheet No. 5
2.10.19.
\
Treasury should be commended.
This is a matter that I have presonally discussed
at great length with officers of the British Treasury, and someihat with the French,
and it has been the subject of much correspondence and discussion with the Bank of
Tngland.
They are lavish in their compliments upon the ray in Which we have escaped
Of course I am not referring now to the
the dangers of a short maturing debt.
effect of short borrowing upon inflation, Which I shall do in a later letter regarding your report.
Again, on page TB, Professor Bogart takes a slam at the optional bond.
7
I can not for the life of me sae by What possible excuse of theory or practice or
imagination he is able to criticize an optional bond.
vantage is in favor of the Government.
Svery scrap of the ad-
Furthermore, his report was written While
the war was still raging, and overlooks entirely the importance of safeguarding the
future of the Government's
borrowing
program Which had an important influence bearing
on this optional feature of our issues.
as long as could be made
war
apprached a
date:
at
first
were made
The maturities of the bond issues
in order to ,allow margin
for
shorter issues as the
close, but not so long as to lose the salutary influence of a due
That program has been carried out with almost mathemeticel precision so as
to give the Government a series of maturities and with such amounts of bonds that the
Who
least embarrassment in refunding operations may be encountered in the future.
knows What financial conditions will be two, five or twenty years hence!
a
year
I joined
by bankers
and
years or less.
For over
with the Treasury officials in resisting the most determined efforts
others
to induce the Treasury to sell an obligation maturing in five
The inevitable answer was that those Who
believed in a short Tar, and the plane
advocated a
short bond
deliberately adopted contemplated the pos-
sibility of a long war, ard that theory alone could be justified as the sound one.
Bogart ignores the bearing which the maturity of our own
Professor
debt
may have upon the negotiations still to be concluded with foreign Governments to
which we have made
synchronize these.
"The fixation
loans as to
the maturity of theirs.
It may be necessary to
I am amazed to find such a sentence as the following in the report:
of a final date of repayment offers no guarantee of payment of the debt,
Sheet NO. 6
Professor Kemmerer
for it may be merely refunded."
2.10.19.
That an impractical point of view:
Bogart for a moment suppose that the United
States
Can Professor
Government, or any other govern-
ment, can expect to accumulate such a fund as would enable the repayment at one stroke
of the pen of a loan of two or five or ten billion dollars?
possible as the repayment
There is no such thing
of such a debt at maturity, except by refunding.
attempted it would bring on disorders of the first quality.
were it
The fact is, when I
read
sentences like that, I wonder What the report is driving at.
Also, on the
fact that it
top of page 79,
"Perhaps the most conspicuous advantage is
furnishes an earnest of the intention of the government to
payment of the debt as promptly as possible."
It furnishes /lathing
It means that the Government retains to itself a privilege of
funding). Which may be of advantage to the Government
to be
it
attack the
of the sort:
repeyment (that is re-
if conditions
more favorable for refunding than at some later date.
the
If it
indicates that the bond holder surrenders to the Government the
at that
date appear
indicates
anything,
right to continue to
hold an investment beyond a period of time When it is of advantage to the Government to
And instead of being an earnest of
permit him to do so.
ment to pay off a debt Which it will
is, in fact, an earnest
of the
away from the investor at
indorse this view.
be advantageous to the debtor to have repaid, it
a time When it may develop to be too good a bargain for him.
been sold instead of with en
price.
the Govern-
intention of the Government to take a good investment
Professor Bogart's general
at a higher
the intention of
conclusion is that
had bonds of fixed maturity
additional optional maturity they could have been sold
There is not e member of our organization in New Yoeigeeho would
Neither do I believe any officers of the Treasury would.
My
belief is that the maturity date had no influence whatever upon price or the amount subscribed during the campaign., The maturity has had an effect upon the market price stale
result of sup,tequent to the original issue, When market levels are established as a
ply and demand through the constant trading which causes equalization in values.
But it seems to me that Professor Bogart's argument on page 79 overlooks the one
Covious and important criticism Which might with some justice be sustained by argument,
Sheet No. 7
Professer Kemmerer
as to secretary rcAdoo's policy.
2.10.19.
It hat been claimed, although I don't see how
it can ever be proved, that had he been willing to recommend a someWhat higher rate
bond it might have prevented depreciation below oar to the extent that has been experienced, and it might also have tempted more investment funds from their hiding
place than was the case at the rates Which he finally did recommend.
If it could be
dhorn, for instance, that a higher rate on Liberty bonds would have enabled the
Treasury to raise
all
the money required without the necessity for the employment of
any bank credit at all, there would be no question
fixing the rates
that
were established.
Whatever as to the unwisdom of
My personal view is that a slightly higher
level of interest would have been justified and would, to some extent, have eliminated
a part of this
But it would have
inflation.
eithout having
been a negligible sum,
avoided the necessity for the so-called patriotic appeal, and, of course, it would
hews necessitated increases
has little
place
in our bank rates.
in this latter.
in the situation, he eould
I think
Thit is a separate discussion which
if Professor
not have made the gfudging
Bogert had
studied the facts
indorsement at
the top of page
80, but would have said that the Treasury pursued the only possible course in the
of
adottion of the typesAbonds Which it did.
-
is remarks on page 81, paragraph 2, also leave out of account one factor
in the situation Which has always been a most
has read
the Congressional Record and the
House Uormittees on the bond bills,
important one.
If Professor Bogart
reports of hearings before the Senate and
he will
anpreciata the force of this comment.
Secretary T!cAdoo had no power to fix the rates on loans - he could only
I think
recommend.
his recommendations might have been to advantage for a higher rate, but you
and I both know that had his recommendations appealed to
he would eimnly have invited the radicals
Uongrees as being too
high,
to imoose hecvier tax burdens upon the
country and people, such burdens as would possibly have been fetal to business enterprise.
Profet-sor Bogart may have known, although he does
during all of this period Congress
expressed
not refer to it, that
a singular and embarrassing distrust
of
Sheet to. 8
Profeeser Kemmerer
2.16.19.
Cecretary McAdoo in the exeroiee of the preat powers entrusted to him. The legisia-
/ tion he eskeefor wts in some cases moet grudgingly given, and While I know of
no
serious objection to the retos Which he proposed, yet I do knee that it would heve
been impossible at any time for him to secure the authority Which the British
Parliamentgives to the rritioh Chancellor of the ifachequer to fix the rata according
eo his best judgment; end that is ehat should have been done by our Congress.
The criticism of the retriotic appeal leaves out of account entirely the
tremendous advantare to the country of having had that appeal made in the way that
it was, educationelly and otherwise.
Na cempuign could have brought the war to
the attention of the people so forcibly, could belts stirred patriotic enthusiasm
so deeply, and no appeal could have produced the money needed other than that.
You muot agree that the judgment of those who actue ly placed these leen* is worth
oomething on this point.
The investment appeal, at almoet any rate of interest,
in my ooinien, would not heve succeeded as did the patriotic appeal.
I can not understand the caustic criticism contained in the second parsgreph on page 81.
Does Professor Bogart know of any attempt to maintain an artifio
cis1 price by manipulation of the market!
That is manipulation!
Can it be said
that en !et of ConFrapa authorising the Secretary of the Treasury to buy bonds, as
rev done in this eves, makes menipuletion!
miens:eery
It impreesed me as being an absolutely
eccompenyment of the plan to sell bonds by the appeal to patriotism.
On the ehole, it has not worked very well simply because the megnitude of our loens,
ceming in ouch quick succession, demonstrated that the investment fund loss well nigh
exhausted by the amounts raised and even more than eihausted because the loans
could not have been placed without resortto the policy criticised in the report,
"no rror, nnd Puy."
In general I am also astounded that en experienced economiet could prepers such t report as this one and elmoet entirely ignore the general subject of
convervation of materiels end labor. Of thet more later.
I would like to get from Professor Bogart, Whom I do not know, his
estimote of What the investable savings fund of the nation is. In my last teak rith
Professor Kemmerer
Sheet No. 9
2.10.19.
rou reference was made to a recent calculation placing it as high as nineteen
billions, of rhich about nine billions was the so-called
and someWhere about
replacement or up-keep fund,
ten billions the fund available for other
investment.
That cal-
culation is borne out by our experience, Which would indicate that there has been in
the neighborhood of five or six billions of bank inflation
in
the lest year and one-
half.
On page 83 Professor Bogert says, "As the dates now stand, the present debt
payment to be undertaken immediate-
is not well arranged for a policy of energetic debt
ly after the war."
repayment.
rhat I would like to ask him is how he would arrange the
debt
The maturities are 1928, 1938, 1942 and 1947, all for bonds issued prior
to the conclusion of the war, with
earliest maturity, of
optional dates of 1927, 1932 and 1933.
1927, left open a range of ten years
maturities might be placed in case the war
"TS not
Tithin rhich subsequent
terminated.
gan Professor Bogart
believe that without any certainty of how long the war would eontinue it
been rise or safe for
the
maturities!
As it now
has a range
of eight years
isting maturities.
Secretary of the Treasury to have
The
',mead have
accepted any earlier
develops, rith the Tar ended, the Secretary of the Treasury
within which
to fix maturities without conflicting with ex-
That would he consider
a rell arranged schedule
of maturities, and
What consideration does he give to the treatment of the seven or eight billions now
loened to allied
governments?
I can not believe that he has in
mind that
the Government could expect to
accumulate and segregate a fund of four billion dollars with which to repay in full
in Vey 1928 the entire emount of the third
in my opinion, and in the opinion of
loan.
The operation of repaying that loan
those with Thom
I have been associated in washing-
ion, should and can begin just as soon as the Government quits borrowing, and that
process should apply to all the
war loans and be
He says on page 84 that ten years must
becomes redeemable.
continued until they are all repaid.
elapse before the
The second 4s, in fact,
first one now outstanding
are simply redeemable eight years
from
Aset No. 9
2.10.19.
Professor Kemmerer
rou reference was made to a recent calculation placing it as high as nineteen
billions, of rhich about nine billions 'as the so-called replacement
and someWhere about ten billions the
fund available for other investment.
culation is borne out by our experience, Which would
the neighborhood of five or six
or up-keep fund,
indicate
that
That cal-
has been in
there
billions of bank inflation in the lest year and one-
half.
On page 83
Professor Bogart says, "As the dates now
stand, the present debt
is not well arranged for a policy of energetic debt payment to be undertaken immediate-
ly after the war."
The meturitiea are 1928, 1938, 1942
repayment.
to the
rhat I would like to ask him is how he would arrange the
and 1947, all for bonds issued
conclusion of the war, with optional dates of 1927, 1931 and 1933.
earliest maturity, of 1917,
left open a range
might be placed in case the
maturities
believe that without any certainty
been rise or safe for
maturities?
of ten years
war was not
prior
The
subsequent
Oan Professor Bogart
of how long the war would continue it would have
the Secretary of the Treasury
years
within which
terminated.
to
have accepted any
As it now develops, with the war ended, the
has a range of eight
debt
earlier
Secretary of the Treasury
within which to fix maturities without conflicting with ex-
at would he consider a well arranged schedule of maturities, and
isting maturities.
What consideration does he give to the treatment of the seven or eight billions now
loaned to allied governments?
I can not
believe that
he has in mind
that the Government could expect
to
accumulate and segregate a fund of four billion dollars with which to repay in full
in Vey 1918 the entire emount of the third loan.
The operation of repaying that loin
in my opinion, and in the opinion of those with Whom I have been associated in washing-
ton, should and can begin just as soon
Process should apply to all
He says on page 84
becomes redeemable.
as the Government quits
borroeing, and that
the war loans and be continued until they are all
that ten years must elapse before the
repaid.
first one now outstanding
The second 4s, in fact, are simply redeemable eight years from
Sheet No. 10.
nor, but I can not make out just
time.
2.10.19.
Professor Kemmerer
at he ie driving et.
Retirement can start any
Re says he veuld not have considered it to hare been a vise policy to issue
a serial bond.
He could not, horever, begin to appreciate the confusion, incon-
venience and expense that would arise from such a policy?
It as briefly considered
at one time end found to be physically and mechanically impossible.
Professor Bogart's comment on page 85 in regard to exemption from taxation
is so incomplete as to be rather unjust and misleading. I think I vas the only one
to urge upon Secretary licAdeo the harm and injustice of a tax exempt bond issue, and
this I did in April 1917.
tex.
It is absolutely incompatible with the graduated income
But if Professor Bogart rill read the Congressional Record I think he vill
be convinced that Congress res ignorant of these matters end mould not then have
authorized a tax exempt bond.
That is my recollection of the discussion at the time.
But, as a matter of fact, little injustice was done to anyone in issuing so small an
amount as two billion dollars at such a lo v rate as 34%.
Something over one-quarter
of these bonds have been converted into taxeble bonds end of the less than one and
one-half billion now outstanding, those eho are profiting by reason of the subsequent
increases in graduated income taxes are indeeda very smell proportion of the owners
A
of Government bonds.
I am astounded that these comments can be made without any
reference to the general bearing of the subject of taxation of the Government's debt
on our scheme of distribution of the loans.
The general theory about Government
loans and the injustices Vhich they create hes been that after ralr is over high taxes
are largely maenad to the reduction of the debt, meaning that the peorer closes,
ho ovn no bonds, are taxed to pay interest and principal to the richer classes rho
do.
This has ell been in our minds in connection with these campaigns and we have
sought by every means in our cover, including the patriotic appeal, to reach the
pooner and rage earning classes, to make them bondholders and better citizens, and
collectors of interest and principal rather than eimply payers of taxes. It has been
one of the main principles behind our rhole program, and it has been successful beyond
Sheet No. 11
2.10.19.
Professor Kemmerer
anything that Profecsor Bogart realizes, judging from the terms of his article.
ri the third and fourth loans alone bonds vere sold on the instalment plan with
euch success that we had a total of nearly 1,610,000 subecriptions in Ner York City
alone.
We have six or seven hundred clerks keepine the accounts of these two
transactions.
The people that bought those bonds ere very largely
keeping them
notrithstanding the rather considerable sales reported on the stock exchange.
They
are better citizens; they have learned to save; and they attach a sentimental value
to those bonds ehich rill lead them to hang on to them like grim death. Theoretically, Government loans in time of war should be apportioned upon the same his and
Till agree is not feasible. Au it
is not possible, the only alternative is to spread the bonds by active propaganda
end energetic selling over all classes. I um confident that there are nearly, if
principle as graduated income taxes.
That men
sot quite, thirty million people in this country to-day rho are Government bond
holders and roughly in proportion to their means.
What ansrer is there to the
.argument that this is the best and only ray to offset the injustices of Government
loans anyway!
On page 87 he says that
the practice of encouraging people to
in order to buy bends is to be depreceted.
queetion of short
borrow money
Leaving out of account entirely the
borrowings, you rill agree that
the'government
hed three courses:
To confine the sale of bonds to investors rho did not borror
To sell bonds to investors rho must borrow to come extent,
or, having somewhat the same effect, to sell them to the
cimmerciel benks
To raise the money by direct sales, to soma extent, to the
reserve banks.
len (a) involves the supnosition that the investable savings fund of the nation
aggregated, in the period covered, eighteen billion dollars, and that every dollar
of the fund could have been mrept into the national treasury. Such a conclusion is
unwarrented by
any facts that re have, and I believe is disproved by our experience.
Furthermore, it assumes that no part of the savings fund should, or could be employed
in other directions necessary to eustain and develop essential industries and for the
Sheet No. 12
2.10.19.
Professor Kemmerer
granting of private loans to foreign borrerers. My belief is that the savings fund
available for such investment hoe been regularly veil nigh exhausted through these
loans end that the difference between that mount end What the Government needed has
been furnished by volicy (b), i.e., by some sales to banks, but principally by sales
to investors Who borrowed from banks.
Throughout the four loans, the doctrine of
diecoureeine the benke from buying bonds but encouraging them to lend to customers
has been preeched consistently in the belief that only by that meens could the required amounte be rleced, end the results clearly Justify and prove the correctness
of thetbelief.
Subscribers Who borrow do so almost without exception through
regular banking connections, end those banks will be the means of inducing promjlt
liquidation.
In this personal letter, I feel Justified in recounting, in illustration
of our attitude, boy late in the campaign to place the first issue of bonds, (es I
recall e far days before subscriptione cleeed,) the netidnel bank examiner in New
Tork_eleme into my office with e telegram Which he had been instructed by the Come-
troller to tend to all banks in our district, similar instructions having gone to
the thief exerelners in all ether reserve districts. The telegram 'es almost e
direction for eech bank to subscribe to the lien to the extent of 6% of its resources
in order to prevent a failure. Considering the power exercised by ths Comptroller
over the banks under his jurisdiction, it res 8 direct invitation to the banks of
the country to produce just about two billion dollars of infletion. I took the
matter up instantly by telephone with Tashington, buttoo late to heed it off, although the text of the telegram was somewhat modified.
The Comntroller took this
action, I belie-a, without donsullation, with the beet possible intentions, but
without the slightest appreciation of the effect of his action.
-My men feelings
were so strong on the suhject that I took the responsibility of sending e dispatch
to every bank in our district asking them to ignore the Comptroller's advice. I
surmise I risked my position in doing so.
I have reason to believe that sub-
stantially the same action was taken by the other reserve banks, and the Comptroller's
method was strongly d4roved by the Federal Reserve Board.
The episode was never
Professor Teemerer
Sheet No. 13
repeated, although en attempt ras mzde to repeat it once, which was headed off.
The nearest approcch re have made to any operation of that kind was in the
last loan. Circumstances led inc to believe that for the first time TO faced a real
danger of failure. Corporations and individuals heva been loaded to the limit with
bonds of nrevione issues, and, on Thursday before the subscriptions closed (the fallowing 4eturieT1 to were about eno billion short of the amount required in the New
York district clone.
7earing this development, re did induce large corporations like
the life insurance cenoaniee and sine big industrial concerns with large incomes to
anticitete their incemes, enlarge their subscriptions, and borrow the money.
This
as infinitely better than falling bock upon the only and lest resort which was to induce the tanks to subscribe.
re had frankly told the big banks in New York thet ve
did not want them to subscribe, at least until we were certein of a failure.
But
figurer and plane 'ere fully prepared to effect a distribution, not only of the amount
short on the Fourth loan, but of all previous holdings of bonds, so that had ve ',Jaen
obliged to mcke ur a fele hundred millions on the Fourth Loan, that amount with previous
holdings rould have been distributed among all of the banks of the city upon an ecuitatle
basis, and with some encouragement from the Treasury that plans rould shortly be under-
taken to relieve them of the holdings.
That emergency measure was never needed, but
illustretes the determination on the part of all concerned to avoid these inflationary
measures by every means in our power.
admit that a large mount has been borrored from commercial banks by sub-
My contention is that it was inevitable, and there are many evidences that
scribers.
liquidation is conrtantly taking place, and most satisfactorily.
And now let me ask Where would Professor ;h)gart have raised the five or six
billions produced under plan (b) if not by the method Which we have adopted!
In no place in his report do I see any reference to the fact that the reserve banks, except through their discount operations, have been kept entirely clear of
Government loans.
The large item occesionally appearing in our statement consists
only of three items, one is a. email amount, rarely exceeding ten Million dollars, of
Sheet No. 14
2.11.19.
Professor Kemmerer
Treasury certificates purchased from nonmember banks and benkers under contract
by Which they are to repurchase them within fifteen days; another is the one-year
notes supporting the new bank notes issued to retire silver certificates; and the
bulk of the amount consists of special certificates, maturing in si few days, issued
to the Reserve Bank from time to time to cover what would otherwise be an overdraft,
and Which serve as a sort of balance Wheel to avoid sudden and unexpected withdrawals
from depositary banks wi*hout adequate notice.
They are regularly repaid as these
cons for return of deposits are made.
I do not believe that either you or Professor Bogart realise that ever
since the war started I have been urged (and sometimes abused for not responding
to the urging) that we should make money cheep by lending large sums directly to
the Treasury.
These urgings have come from some of the oldest and moat experience
end responsible bankers in New York, men Whose advice as practical bankers would
carry weight from one end of the country to the other.
Ay an example, one banker
of international reputation Who has very close conneetione in France and a vide ex-
perience both in this country and on the other side, came to my office in the early
days of the war and told ma with a grave, in fact with a panic stricken fece, that
if I could not induce the Treasury to issue hundreds of millione of its paper to
the reserve banks, to be made the basis of currency issues, we could not finance
the war and the banks of the country 'would "go broke."
have resisted that pressure in the face of mueh urgency.
I told a committee of bankers in Nay York that if needed
?or a year and a half I
Tinally, at one time,
cooperation in certain
matters wee not forthcoming, I would be forced to advocate to the Treasury that
they borrow e large sum from the Reserve Bank in New York, say e500,010,000;
would then throw
that into the arena and see What
we
that
heopened, pointing out the effect
A
would be sufficient to dispose of the question When they realized What a gorge of
speculation, inflation end price raising would result.
On page 98 there is a discussion of the holdings of government bonds by
.e303ber banks fact or the discounts of the reserve banks, which
is surprisingly die-
Professor Kemmerer
Sheet No. 15
2.10.19.
The few hundreds of millions of government bonds owned by the com-
ingenuous.
mercial banks and trust companies of the country is trifling considering the vest
amount of
the government's borrowings in such a short period of time, and particular-
ly the greet number of banks to be dealt with (no lesm than 30,000) who can not be
personally educated and controlled as to their methods
and policies. I
regret to
say that there are banks in our own district, in two cities particularly,
at first negligent in
complacently
promoting the distribution of bonds
who were
in their communities and
subscribed themselves rather than undertake the labor of canvass.
We have sent
These men have been sent for and roundly lectured in our office.
our own men out to these communities to dhow them how to organize (in fact we have
done that with all communities) but, nevertheless, particularly in the earlier
days, some institutions did
not
understand and purchased bonds which they should
have distributed.
Attempting to measure the extent of those purchases by our volume of
discounts, or of loans made to purchasers by our discounts, is obviously futile.
One can not earmark dollars in a bank.
( from his bank
If a subscriber borrows a million dollars
to carry government bonds, that bank may, and probably does in many
instances find it more
convenient to
recoup by borrowing from us on commercial
paper rather than go to the expense and inconvenience of shipping bonds.
Bogart displays a
rather superficial understanding of this matter.
In justice to
Secretary McAdoo, comparison of his record should be made
with that of Secretary Chase.
I have no records here
recollection, rhich is substantially as follows:
break of the Civil Tar,
at
Professor
Secretary
with Which
Within a few months of the out-
Chase was borrowing money
0 and s commission equalling 12% per annum.
to confirm my
from the New York banks
By January 1, '62, the Federal
Government and practically every bank in the country had suspended specie payment.
In the
earlier days of the war, most of the borrowing was done on short paper of
every conceivable variety.
He was
shortly
forced into issues of fiat money reach-
ing e maximum of *450,000,000, without a vestige of gold backing.
The Government
Sheet No. 16
2.10.19.
Professor Kemmerer
itself became a trader in gold at a premium, selling part of that produced by
the customs revenues in order to bolster up its income and balance sheet.
The
premium on gold rose to over 250 and the speculation in gold ves a mensnce to the
country's financial stability.
sold by the Treesury at
Before the conclusion of the war, 6% bonds rere
the equivalent of 45% of
par, gold.
The revenue from
taxation in the first year of the war, applicable to war purposes, as I recall,
was something like /30,000,000 or t35,000,000 only, and it was not until the war
wee over that the revenue from taxation,
applicable to war purposes, exceeded
The government's financing was farmed out to private individuals.
$300010,000.
The ill effects of
The banking community was uniformly hostile and uncooperative.
this unsound financial policy
The expansion
were not finally overcome until 1879.
and the elevation of prices, as I recall, was far beyond anything experienced in the
I remember my
present var.
flour and
Mother saying that she had paid /28.00 a
that the material for
barrel for
the shirts which my Father purchased when he got
married during Civil Val- days cost /1.00 a yard.
Compare this with the Treasury's accomplishments in the present war,
taking into consideration the difference in magnitide, etc., etc., and what a
magnificent record on the Vhole has been made.
One reason for these rambling comments about the report of Professor
Bogart's committee is my interest in
the economic courses at Princeton.
lustrates the danger of overemphasizing the academic point of
better say the intellectual and theoretical point of view.
the subject of study in our universities for many
It il-
view, or I might
Our war finance will be
years to come.
These committee
reports and studies rill, likely, be used as contemporaneous comment of more or less
authoritative character.
be more misleading
to
It would be difficult to prepare an
the student in
these matters in
future
article that would
years than the one I
have commented upon and for the reasons stated in the first part of this letter.
It overlooks
and ignores the human factor so completely, both as expressed in the
attitude of Congress and in the general
particularly
in
attitude of investors of all classes, and
the attitude of a greet public Which never had made an investment
e4eet
Professor Kemmerer
o. 1,
afore, that I think it should be
expunged from
2.10.19.
the
literature on the subject com-
pletely.
Very nearly one-half of all the money raised for war purposes, including
the short loans, was raised by an organization in
head.
our
district of Which I an the
No article such as this one should have been written without the author tak-
ing the trouble to make a first-hand investigation in
employed and the reasons for them.
No article of this
New York of the
methods which we
They were largely copied in other districts.
nature could have been written, and do justice to the subject,
without dealing with the
a little side light on
practical aspects of government loans and financing.
this matter,
Professor
templating an attack upon the policy of the
Sprague wrote me that
As
he was con-
Treasury but did not want to do so with-
His letter reached me
out getting at the facts from the prectical point of view.
when I was in Aiken.
,I wrote him rather briefly of some of our difficulties and
urged him to await my
return
Ner York;
we spent an
to New York when we could talk it over.
afternoon and evening in going
He came to
over the Whole problem and When
we had concluded 1 think he fully agreed with me that the Treasury Department, the
reserve banks and
Which they did
the Liberty Loan organization were
not create.
of our Government,
either
the victims of a situation
Their policy was a necessary consequence of the
by consumption taxes or by
failure
other means of restraint to
impose economies upon the people of the country.
Shortly
after this Professor Seligman called upon me with identically the
same story. He was Proposing the next day
the Treeeury Policy.
to
prepare a magazine
I spent the afternoon with
told him the Whole story.
hie at
He agreed with me entirely;
article attacking
the Metropolitan Club and
said that he would dismiss
his stenographer and play golleinsteed.
I want thaw's/ those boys Who go to Princeton learn
theory of these matters, and, likewise, something about the
something about the
practical
possibilities.
If a student is told that it is a mistake to raise money for war purposes by methods
which induce expansion, he should, at the same time, be told that if
a nation can not
professor Kemmerer
heet No. 18
be induced or
or if
'.10.19.
required to save enough money to finance
its e'er without inflation,
the savings fund does not exist, or is not large enough, rar must be in
part financed by some plan of inflation rhich mortgagee
future savings.
Other-
wise, one might as well say quit fighting because the money can not be raised.
I am sorry to be so disturbed by this particular article.
am not so disturbed concerning your article, which I
later,
after having a reply to this letter.
balanced, conservative and temperate.
entrance into the
capacity.
I think your on
rar can be attributed to the
"Ye might term
article is well
the extent of inflation and the damage
One is the extent to Which the
curring coincident with the time
am going to write you about
It leaves out of account, however, two
factors of great importance in measuring
rhich it has done.
Frankly
When the
inflation occuring since our
net addition to our gold
reserves )c-
nation was vastly increasing its productive
that "ligitimate" inflation.
rar, upon the success of which the stability of
If the demands of a world
liberal government depended required
this country to vastly increase its production and if that production took the form
of exports for rhich payment was made partly in gold, and partly by credits Which
could be sefely supported by the added gold reserve, then I
say that from every
standpoint, economic, practical, political andhummitarian, the expansion was justified, necessary and sound.
Another point
overlooked, as I see it, is the extent
to Which the inflation was apparent and not real, by ehich I mean that a very
large
amount of currency has been hoarded in this country by rage earners, foreigners, and
others, causing a temporary appearance of inflation Which hes had little, if any,
affect upon the price level.
If you will
deduct
from
the figures of bank
as ghown by bank reports, the probable amount supnorted
inflation,
by our gold imports, which
may be classed as ligitimete, plus the amount represented by hoarded money, I think
it Will be found that the inflation occuring since April 1917 has been so moderate
as to be a source of congratulation to the country
able comment.
as a whole, rather than unfavor-
2.10.19.
Professor Kemmerer
Sheet No. 10.
It is hardly fair to write this long dissertation without some suggestion of my own viers.
They are briefly as follows:
I
believe that as nearly
as can be estimeted the inflation has been largely limited to the deficiency in the
savings fund and probably not much more than that.
moderate, as compared to
that imposed upon the
other
I believe that it has been so
nations of
the world, that our
strength is but slightly impaired and that our future tribulations arising therefrom will be, by
comparison, moderate.
changed policy by the Treasury and
I believe that
the adoption of a somewhat
and for which
the reserve system later on
I am proposing to struggle, will insure during the next year or two a
very con-
siderable liquidation of our bank position, a discontinuance of government borrowings at a reasonably early date and a considerable decline in the price level.
also believe, however, that this must be accompanied by some rather serious losses
because our increased prices have
prosperity in Which
for
very
in a country enjoying exceptional
merchants and manufacturers have unfortunately maintained too
large stocks of goods as
this period will
occurred
compared with
their foreign
competitors.
be accompanied by a considerable degree of unemployment, but not
long, and that after a year or two of discomfort,
losses, some disorders
caused by unemployment, we will
vincible banking position, with prices
embarrassment, oome
emerge with
an almost
in-
more nearly at a competitive level with other
nations, and be able to exercise a ride and important influence
world to
I believe that
in restoring the
normal and livable conditions.
One must have a theory of these things to rork on, and at least the
courage to
practice
and state it.
Please accept my apologies for this effusion.
It is written with a purpose, and a very serious one, and I hope you will take the
time to,ansrer it, and unsparingly.
With warmest regards, I am,
Professor g. V. Kemmerer,
Department of Tconomics,
Princeton University,
Princeton, N. 3.
raithfully yours,
Sheet No. 20
P. B.
2.10.19.
Professor Kemmerer
In re ding over this letter I observe many points that had importent bear-
ing on our plans to Which I have not referred at all.
poet script.
One I must include us a
That consideration do you suppose Professor Bogart has given, in
connection with the frequency with Vhieh loans can be offered in this country, to
some very practical difficulties.
Throughout the winter mad early spring
large
part of this country is absolutely Inaccessiqe cnd impassable for a campaicn of
this character; then there ere two seasons of the year then the people of the
country are so preoccupied with planting and crop gathering that allowance must be
made for that condition.
t is also desirable, if possible, to take advantage of
that period Then Crops have been marketed.
largely paid in 1918 in one lump.
The revenues of our Government rare
If one considers these factors, together with
e good many of minor consideration, it will be found that those portions of the
yesr Whieh are not pretty well filled up are quite limited.
Lake George, N. Y.,
Febraary 19, 1919.
Dear Professor Kemmerer:
gl"
With this I am enclosing a private letter, addressed to
you, rich explains itself.
In this connection, I 'ould very
much like to have those figures rich you quoted to ma some months
ago, giving a rather recent estimete of the saving porer of the
people of this country, and if you can give me those figures, together rith the authorities 4n vhich reference may have been made,
it rill be helpful.
rribt sort of reception hes "The A. B. C. of the Federal Reserve System" tied!
I rill be interested to knor something of the
results.
Cordially,
Professor E. t".. Kemmerer,
Department of Economics,
Princeton University,
Princeton, N. J.
BS.VSB
Lake Gene, N. Y.,
'arch 1, 1919.
Dear Professor Kemmerer:
Thank you for your letter of the
twentyrseventh.
I
regret
/'
I thought Professor
to notice in my letter to you an error of fact.
Bogert was connected with Chicago Univereity, but I believe it is the
University of Illinois.
At the first oerortunity I want to go to
give some time to getting
economics.
a better understanding
Princeton and really
of the courses in
There are a lot of matters in connection with them thet
interest me;
among others, Tor instance, I don't see ehy it might not
be possible for Us to work out
an arrangement by
Which some practica
summer courses for those that care to take them might not be given
the Federal Reserve Bank.
re
satieftctorily
worked
out,
being worked out by the
might be coupled
something that
with
elreys need additionel'men for summer
we would pay them, if
work, during vecation time.
according
bank.
to a system of
Cordially,
Denirrtrtntt"Tr15;;;;;:scs,
Princeton University,
Princetin, -. J.
BS.MSR
This
to discuss with you
tion.
Professor 44 "*. Kemmerer
the plan could be
classification now
And, under suitable direction, the work
lecture courses.
I rould like
at
is just a thought, but
for
future considera-
Lake George, N. Y.,
February
et
Lake George, F. Y.,
arch 1,', 1919.
Deer Prof rear Kemmerer:
1 um returning the osninhlet concerning the savings bank
discussion, ivih contains EVMO interesting materitl.
I bed alretdy
read tie report of your paper.
So many of those things that Ere intererting must ba deferred
until after trar finance is out of the roy, that I can see soma
Yesra still ahead of us.
with corditl regards, I am,'
Sincerely yours,
Department of conomice,
Princeton University,
Princeton, N. J.
interestinP
March 18,1919.
Dear Profs sor Kemmerer:
It was a great pleasure to have a visit with you on Sunday and I
hope to repeat it in the near future.
This i5 simply an acknowledgement of yoars of the 13th which I have
read with great intere7t and appreciation. You are right in my use of
the word "disinganumen which was careles dictation as muck as anythng,
although I de feel thst if a report of the character of Dr. Sogart's
is published without an explanation of the fact that it is not based
upon first-hand information obtaired from authoritative sources such as
department officials, etc. it has the appearance of beLng authoritative
when it really is not, and is therefore misleading.
As to Professor Hollander' s ublished article I am very anxious
Would it be unreasonable for
possible.
indeed to see it as soon as
me to ask If you could obtain an alvanced proof.
I am convinced that
Professor Hollander is in danger of doing exactly what Professor Bogart
did and that his published critical study of this matter is made without
I have inquired here as to
having really fall knewledse of the facts.
the extent of his investigation and am frank to say I cnnnct fin' that
it has ben thorough and sufficient enough to justify publishing this
criticissa
I must defer further discussion of this subjedt by correspondence
on account of aressure of work but hope to be in Princeton before very
long and We can talk it all over as well as make a little study of
the Princeton's course in Economics.
I av
Very sincerely yours,
Profe:sor E. W. Kemmerer,
Princeton,
New Jersey.
October 14, 1919.
; dear Professor Kemmerer:
1 wish it might be pos ible for no to accept Mr. Gard..:eri.
invitation to prepare a paier for the
an Economic AseocitiOn
)I
Amerr'
meetLat: at Louifyille, but my time really does not permit ,;uot
now
an indulgence of this kind, whicn would otherwise be a ple,%sant
task.
1 am mot anxious to have a ch,at with y.0 about your
exeriences in Guatemala. P-ssibly I will be in Prince.-on before
lone, and will
ve o
ortunity to do so.
and Ber, is plannine, to make
My two hcy: are there,
raid u_o, the cour.e, in economics.
"ith kinet re rd., 1
Sincerely yours,
Profeor E. ikuji,wwmaNwpoiso,
Department of Economic:, Social
Institutions,
Princeton Univereity, Princeton, N. J.
Sept. 28, 199.0.
My deg.:- Profesor Kemmerer:
The copy of your book "High Prices and Deflation"
was received today, and you may be .aseureJ that it will be read
with much int,Ireet by Mr. Strong on his return from abroad.
With many thanks,
Yours very truly,
Secretary.
Professor E. W. Kemmerer,
Princeton Unitierity,
Princeton, N. J.
Februnry 8, 79P1.
My dear Profesor Kemmerer:
Your thoughtfulneso in sending me Ei copy
of "The Federta Reserve System and the Foreign Ex-
chulges" by Albert Strtues, is very much appreci.Aed.
1 rd the prizphlet rith keen intereFt and
pletsure, %ne wiFil to thank you for the courtesy.
Tith kind roiprds,
Very sincerely,
Profecaor E. W. Kemmerer,
Princeton. University7"''
Princeton, N. J.
GB:MkcC
March 28, 121.
My dear Professor Kemmerer:
Thanks for the issue cf The American Economic Review,
which contdne the report The Taxation of EXCOS6 Profits in
Great Britain," prepared for the Committee on Wpr FinInce, of
your association.
shall endeavor to read the rel,ort at the first
opportunity, Elld ap recite your °curter in sending no a coil.
Yours very truly,
Profeasor E. T. Ke=ergx,
c/o Princeta Univarsity,
Princeton, N. J.
April 25, 1221.
My dear Pmfessor Kemwerer:
The pamphlet "Six Lectures on the Federal
Reserve
Syctem," given by you t the Federal Reserve
Bank of Philadelphia,
last October and November, has been received.
I shall read it
with interest, and thank you for sending me a copy.
Sincerely yours,
Edwin W. Kesuires., Esq.,
c/6 Princeton University,
Princeton, U.
December 7, 1921.
Dear Professor Kemmerer:
Sometime ago Mr. Strong wrote you that he would be willing
to talk to the students of the Department of Economics at Princeton
University, on the first Friday afternoon that would be convenient
for him.
I am sorry to say that there is considerable doubt of Mr.
Strong being able to follow o,ut his wishes as he, unfortunately, has
been ill and is slowly convalescing and not expected at the office
for some time.
trust
that his
inability to speak win not
interfere with
your present program, and that it will be possible for Mr. Strong to
arrange at some
future
time to make the address he promised.
With kind regards,
Yours sincerely,
Secretary to Mr. Strong.
.-...essor E. W. Kemmerer,
c/o Princeton University,
Princeton, N. J.
GB:Mi
:
qtfe.
1(4,71,1
I,
January 1m, 19.?2.
Dear Professor Kemmerer:
It was only a day or two ago that Mr. Strong was able
to read your kind letter of December 12 addressed to me, and
which was an answer to the one I sent to you on December 7, ad-
vising of his illness.
know that you sill be glad to learn that Mr. Strong
is continuing to maks fine progress and that we are looking
forward with pleasure to his return to the bank within a week
or two.
I shall keep Mr. Strong in mind of his promise to
address the students at Princeton and hope to be able to send
you some definite word within the near future as to the probable
date.
Yours very truly,
Secretary to Mr. Strong.
Professor F. 1. Kemmerer,
Vo Princeton University,
Princeton, N. J.
PERSONAL
February 2, 1922.
Dear Professor Kemmerer:
only noo am I able to ',rite you in response to your kind letter of
January 17, and I do so with some temerity because I feel that for a good while
nast I have been most neglectful of my obligations to, and my interest in
Princeton,
and the courses in economica.
This is just a brief personal word of explanation to you, however, so
that you will understand that my situation is and has been.
from
Arhen I returned
Europe in January, I was at once pi.ecipitated into a combination of the very
difficult banking situation in Nei York, and an even more difficult political
situation in Nashington.
These matters engaged my attention continuously; in
fact, the political part of it kept me in 4ashington almost continuously
the spring and summer.
throughout
On my return to the bank I received a visit, which was kept
unknown to people generally, from the Governor and two of the directors of the
Bank of England.
That kept me tied up for nearly a month.
Immediately upon their
sailing I return d to Yashington, and upon my return from Yashington was taken
So you can see what a wasted year I have spent.
I want to go to Princeton just as soon as the doctor will allow me, and
make a talk.
I would like to
talk about the public debt,
not from the
standpoint
of the Treasury, for which I cannot officially speak, but from the standpoint of
the field workers, who are the reserve banks.
My illness, however,
as occasioned
by the necessity for an operation on my tongue, and for some little time I will
be absolutely
precluded from making
anything in the nature of a speech, even of
so modest a character as before the students of Princeton.
f2
February 2, 19?,2.
One does not write so frankly as a rule
about these matters, but I
thought you would be good enough to explain
the Situation to one or two of your
associates so that they would not feel that
I
as remiss in discharging an obliga-
tion which it is always a pleasure to me to
undertake.
I hope your trip to South America mill
be a most agreeable and he/7)ful
one.
Please let me know if there is anything
that I can do to further the
object of it.
Yours sincerely,
Professor E. O. Kemmerer,
Princeton University,
Princeton, N. J.
January 12, 1922.
Dear
.)fesor 'iammerep:
thank you for your letter of January 17, tOvising that you #i17 13,3S3 for South kmerica on February 1,
and do not expect to be back until the latter part
. Set-
ember, and suggesting that under the eircumstInoes it would
be advisable to postpone lovernor Strong 's visit to Prinoet:,n
until some time in the fal'.
This arranement I am sure
viii he agreeable to Governor Strong who iv now recuperating
-
at ktlantic City for
week or ten dayL.
Nith sincere good rishes for a moot pleasant and
enjoyable trip, believe me, with warm regards,
Yours sincerely,
Professor E. 4. Kemmerer,
Princeton University,
Princeton, N. J.
GE.M14
September 32, 1c'22.
Dear Professor Kemmerer:
am delited te learn of your safe return after so
narros an escape from 9. terrible traetecly.
Ness reached us:
soon after the accident that you had escaped, but I really had
no kn,:'vledge of hoe very serious the accident NEIS nor hot narree
T&8 your escape until reading the nesspaper this morning.
4e
are all delighted that no calamity overtc.:)k your family or any
member of it.
I supp.:.se you lost all your belongings, but that
are those in comparison with AAA you might have suffered?
/le have been heving quite an active correspondence about
the library lately, and I think it iould be helpful if ee bad a
talk on this subject after Mr. Gerould returns frem Europe, and
I shall certainly make it a pint to run dosn for a day or two
alct atty time: when yeu or he a.dvine me that it will be conven-
ient. I prefer to 4 sit: until after the opening of college, if
possible.
lith kindest regards, I am,
Very truly yours,
Profess,..,r E. V. Kemmerer,
Princeton University,
Princeton, N. J.
BS. RAH
October 27, 1922.
Dear Professor Kem;flerer:
I have decided to bring over those papers that I recently
went over with Professor Sprague, so that we may go over them
together.
'nurs sincerely,
Professor E. P. Kemmerer,
c/o Princeton University,
Princeton, N. J.
BS. MM
November 1, 1922.
My dear Professor Kemmerer:
Thank you for your kind note of October 30.
I am obliged
to be in Troy on the evening of the 13th and as uncertain as to how
soon I can reach Princeton on Friday, - it will probably be pretty
late in the afternoon - so I shalt try to send you that document a
day or two in advance asking you to consider it aE exceedingly
confidential, and thea possibly we can arrange to talk it over
E.,aturday itiorning before the Foot Ball Game.
I will arrange with you at that time about when it will
be possible to address the graduate students.
Prior to the leth
I ex: tied up with a series of engagentents which seem to make it
impossible.
Rah nest regards, I am,'
Yours sincerely,
Professor E.
Kemmerer,
De7artment of Economics,
Princeton University,
Princeton, N. J.
BS.Nt
November 3, 1922.
Dear Professor Kemmerer:
Some engagements which I cannot veri well change will delay
my getting to Princeton until Saturday morning, the 18th, but I shall
be there over Saturday night and Sunday, and will send you those
papers LI advance so that we can at least have sometime for a little
chat.
Possibly
I could arrange to see Mr. Gerculd also ber2ore
I return.
Yours very truly,
Professor L. W. femmerer,
0/0 Princeton University,
Princeton, N. J.
BS.MY
November 13, 1922.
Dear Professor Kemmerer:
With this I am enclosing that very confidential memorandum that
I spoke to you about and which I assure you it is necessary that no one
but you shall read.
I am hoping that you will have opportunity to read
it before I go over as I would like to discuss some features of it with
you.
?lease bear in mind that this was prepared by ore of the men in our
office without my having any obportunity to direct it6 preparation and is
somewhat too elaborate on some phases of the situation and I regret to say
deficient as to some of my personal correspondence which was not accessible
to him when it was prepared.
This is the only copy of theo.'ocument, so I will ask you to preserve
it carefully until I can get it from you at the end of the week.
Yours very truly,
Professor E. W. Kemmerer,
c/o Princeton University,
Princeton, N. J.
BS. W
Eric.
November 15, 1922.
Dear Professor Kemmerer:
Thank you for yout note of the 14th.
I thought I would take
advantage of the probable presence in New York of some of our friends from
various Universities to have dinner and a little chat about sore of the
matters in which we are all interested.
There will be eight or ten of
us including Mr. Jay.
I shall reach Princeton early Sal,tvd
mprning, and my plans
while there are in Ned Spaulding's. hands: but I will expect to have time
for a visit with you and Mr. Gemuld.
Yours sincerely,
Pro fesbor E. W. Kemmerer
c/o Princeton UnTVeriiitt
Princeton, N. -J.
BS.VW
Nevember 21, 1922.
Dear Professor Kemmerer:
You uore good enough to say that you would send me a lecture
which you had rerently lelivered uon t4e theory of exchange end 7,arld
prices. I should like very much to road it and this is simply a
reminder of your promise.
It
plevsure to heve a visit 1.1th you and Ir. Ger)uld and
,ith
Prefeasor Tiixon, and on Sunday I 1130 nad an opportunity for k
Pres1-lent Hibhen.
I 1m very sure thvt ,e no Ji onderstend
have
in mind anout the library.
If the oraught on my income bscow-eLo
ec
he'tt any time I will simply let you Inoe and ifs cvn 10 don, but
tte point 15 to lot me no -hen the unexpended celanue ie
sb that I cen restore it free tie to time.
If romeone could map out a progran for hunting out the ori inel
material such as we discussed and lot a:e see it, I could very easily
indicate in what directions I would be able Le help percenily, and.
will be i;lexi to do so.
Finally, whet is your impre:sion, on the whole, af the
attiLude of the Aea 'lark Reserve
it
re6hrd to the subjec-,:, of ex-
pansion, the subject of inflation, and retee, Government borre,ing,
ete., as expLained in he meorandum wh.:en I s6nt you.
Please
bear in mind in this connection that from the vory boLeinnini; I
alln-rs contended that no polio/huh e undort-,3,1
be
unless it were accompenied by an extension of the r%tioning syetem so
as to control oonsomptioa.
(1
4ith wamet eegards, believe aio,
Ver./ sincerely yourc,
Profeet,.or E. L.
Princeton University,
Prineeton, i. J.
BS.MSB
December 15, 1922.
PERSONAL
My dear Professor Kemmerer:
Thank you for your letter of December 11.
I am hoping to be
in Princeton for the Departmental lecture on January 19, and will
shortly write you something of what I hope to say.
have to do with the question of control of
exercised by the Federal Reserve
may not be
It probably will
credit and how it may or
System.
But I will
let
you know definitely a little later.
As you say, I think I shall probably stay with the Spauldings,
but greatly
appreciate your kind invitation, to visit you.
Ned Spaulding
and his wife knew of my plan to (vine to Princeton to make this talk and
I told them that I would take the opportunity for a little visit with
them.
With kindest regards, I am,
Yours sincerely,
Professor E.
it
iismtrAr.
c/ó Princeton liversity,
Princeton, N. J.
.135.P.1
December 18, 1922.
PERSONAL
My dear Professor Kemmerer:
Thank you for your letter of December 11.
I am hoping to be
in Princeton for the Departmental lecture on January 19, and will
shortly write you something of what I hope to say.
It probably will
have to do with the question of control of credit and how it may or
may not be exercised by the Federal Reserve System.
%t I will let
you know definitely a little later.
As you say, I think I shall probably stay with the Spauldings,
but greatly appreciate your kind invitation, to visit you.
Ned Spaulding
and his wife knew of my plan to come to Princeton to make this talk and
I told them that I would take the opportunity for a little visit with
them.
with kindest regards, I ar,
Yours sincerely,
Professor E. W. iittimagrue..
c/ó Princeton Liiiiversity,
Princeton, N. J.
135. MY
December 18, 1922.
PERSONAL
My dear Professor Kemmerer:
Thank you very much for your letter of December 12, with which you
returned the memorandum that I
left with you.
I wanted you to see it because
it may develop that these matters will receive more public discussion hereafter
than they have in the past.
I naturally would like to have my own views that
were concurrent with these developments fortified by the opinion of students,
and you and Professor 'Sprague have been most helpful in discussing the whole
subject with me and writing me so fully about it.
Now permit me to make the following comments:
During the war period Federal Reserve f,,olicies in the main
necessarily must have conformed to the Treasury's policies; otherwise the
Reserve System would be little less than a super-government in finance.
Responsibility for war finance rests with the Congress and the Secretary of the
Treasury, and our responsibility in the matter was limited (1) giving the frankest expression of our views to the Treasury, which we always
accepting
did, and (2) in
their final decision and carrying out the plans submitted
to us. Any
other scheme would, of course, be an invitation to Congress to have our powers
modified - a perfectly
unthinkable and most dangerous possibility.
As to the various mistakes of policy which you refer to.
The
levying of new taxes is a slow and difficult matter to accomplish by legislation.
On the whole, I felt that the tax program was a courageous one; -certainly the
best we have over witnessed during wartime in this country - but that it should
have been
directed more towards a
restraint upon consumption.
Had those taxes
been effective in restraining consumption they would have been ineffective in
Professor E. iT. Kemmerer
A2
producing revenues.
December 18, 1922.
Therefore, in that matter - as in all of these other matters -
what was required was a nice balance between an effective restraint upon consumption
by taxation and at the same time an effective revenue producing measure.
The
consequence of restraint would have been to keep prices down and in turn reduce
the necessity for revenues and loans.
The failure to adopt a vigorous rationing policy 1 thinl, Justifies
but I am in doubt as to whether the chart which you showed me - and
comment;
others which we have at the bank - confirreethe belief that much more could have
been done by a more extensive rationing policy than was done.
could have been done, but how much is surmise.
Of course, more
As I recall, prices advanced
about 70 per cent. before we entered the war; 18 per cent. during our participa-
tion in the war; and 30 per cent. subsequent to the Armistice.
Certainly the
record during the war period was the best of the three periods.
In any event,
in the absence of a thorough-going plan of rationing which would include consumption
taxes on luxuries, the "borrow and buy" policy was necessary.
It could not have
been escaped, in my opinion, without loan failures.
1 have always felt that it was a mistake to issue any tax exempt
bonds.
The rates on the government's long time loans were, I believe, AO"
a
little too low' and I certainly think that the Reserve Bane rates were to that
extent correspondingly too low.
But I do not think - as some have stated - that
simply higher interest rates could possibly have been relied upon to produce a
reduction of eonsumption, and that nothing but a reduction of consumption would
have enabled us to escape the inflation that took place.
Does it not all get
back to that?
All that you say in the second page of your letter is, of course, true
enough;
but I still feel that you failed to put your finger on the practical
operation of the Treasury, which brought on the inflation during and subsequent
to the war down to the spring of 1920.
It really was not the long time bonds
Professor E. W. Kemmerer
December 184 1922.
that were the chief instrument of inflation, but the short time borrowings from the
banks.
Until the spring of 1920 he certificates of the various issues could not
be sold in the market without a lose by the banks that subscribed ter them;
were, in a sense, hung up with them.
they
At one time I think that 30 per cent. of all
of the issues were in the hands of the banks ce.7' the country, and, of' course, the
impairment of reserves resulting from those transactions necessitated their hprrowing from us.
ee simply kept the books.
Had the oars been let down so that
trading in these certificates could have taken place freely, the banks could have
distributed them, and the distribution would have had the effect of cancelling
assets against liabilities; that is, reducing deposits and investments both. It
may be simply coincidence, but, as you point out in ypur letter, the turn ip the
4
ty.i4
ee:e of prices actually took place just about the \sae time that the market developed,
and so was freed of all restraint in the certificates of indebtedness.
Ae you say, I think in the main we ore quite in agreement in these matteree
although possibly 1 attach greater importance to the absolutely essential foundation
for a sound financial policy during that whole period, resting upon restraint upon
consumption, and restraint upon consumption could not be effected only by the
interest rate without working havoc in many directions.
havoc which did develop was the worst that could result.
You may feel that the
I am not se sure thet
that is the case, and even the chart which you shoed me is rather convincing on
that point.
Again many thank to you for writing me so frankly.
hope, have opportunity for further discussion of the matter.
Yours sincerely,
professor E. W. Kemmerer,
c/O Princeton University,
Princeton, N. J.
3S.Mel
I will shortly, I
January 5, 1923.
My dear Professor Kemmerer:
Governor Strong has unfortunately contracted a severe
cold which has settled in his einu end has so affected his voice
that he can hardly speak above a whisper.
He I-Aas been confined
to the house for about a week and only to-day returned to the
office for a short period.
On the advice of his doctor he is obliged to cancel the
engagement for January 19 to address the students of the Finance
Department of*Princeton University as he has been cautioned not to
use his voice to any extent for the next few ireeks.
I know you
will thoroughly a.prireciate the circumstances under which Governor
Strong is compel'Aed to defer hie visit, but he hopes to again set
a date when it will De mutually convenient for him to address the
students.
Yours very truly,
Kemmerer,
Professor E.
c/o Princeton University,
Princeton, N. J.
G3.104
Secretary to
Mr. Benj. Strong.
January 5, 1923.
My dear Professor
emmerer:
Governor Strong has unfortunately contracted
a severe
cold which has settled in his sinus and has so affected his voice
that he can hardly speak above
a. whisper.
He has been
confined
to the house for about a week and only to-day returned to the
office for a abort period.
On the advice of his doctor he is obliged to cancel the
engagement for January 19 to address the students of the Finance
Department of*Princeton University as he has been clutioned not to
use his voice to any extent for the next few weeks.
I know you
will thoroughly s.pnreciate the circumstances under which Governor
Strong is compelled to defer his visit, but he hopes to again set
a date when it will De mutually convenient for him to
students.
Yours very truly,
Professor E. 71. Eemmerer,
c/o Princeton University,
Princeton, N. J.
Secretary to
Mr. Benj. Strong.
addresc the
January 4, 1412:3.
Dear Professor Kemmerer:
I am :just cleeaing up a little mail at my apartment, and
I want to thani; you for your aote of January 2.
It! voice has almost
comdletely gone back on ma ind I was obliged to ask Mr. Beyer to
notify you of the situation ard of my probable inaYlity to be in
7=rinceten on the .1. th.
It ie too baa thRt I should be afflicted
aith thin wretched throat, but it seems to be recurrent and T cannot
esca;De it.
linen you come to New Iork if I 'am not at the office, would
you mind trying my 6partment Plaza :V54.
yours sincerely,
Hrofessor E. W. Kemmerer,
c/o Princeton University,
Princeton, N. J.
February 21, 1924.
Dear Professor Kemmerer:
It surely exhibits the extent to which you have been busy in travelling,
and the extent to which I have been on the shelf, that I am only now answering
your letter of December 1, 1922, and returning the manuscript that accompanied it.
There are one or two places where I think you may find it desirable to
make some changes in the text, after possibly further study.
I refer especially
to the practice now pursued by Reserve Banks in handling gold and the subject of
currency shipments and the domestic exchanges, and the fact that our wire transfer
system has now practically eliminated premiums on exchange throughout the United
States.
Your letter referred to the price movement then actively under way, and
I am prompted to ask you to think about a matter that has been puzzling me for
some years, which I have discuesed at length with Snyder, and concerning which I
think we disagreed.
The last considerable advance in the general price Level culminated
about last March.
Since that time, \with some slight fluctuations, the tendency
has been for prices to decline.
This is in the face of continued very heavy
gold imports and a great enlargement in the total of bank credit.
Astonishment
is being expressed abroad as well as at home that gold imports and the large
volume of bank deposits have not resulted in a continued advance in prices.
I
sin gradually coming to wonder whether the influence which has not been given
proper value in price movements may not be the state of mind of the people, whibh
at times converts a greater amount of our currency into dynamic currency, and at
2
Professor Kemmerer
times converts& greater amount of it into static currency.
February 21, 1924.
A similar phenomenon
has been developed in France;-without any material increase in the circulation in
the Bank of France, prices have been soaring and the value of the franc via:a-vii
the dollar has had a perpendicular decline.
following example of what might happen:
hoard
My thought is illustrated by the
If - let us suppose - the French peasants
a very considerable portion of the notes of the Bank of France, and then
fright induces them suddenly to convert their francs into goods, the prices of
goods will advance and a larger proportion of the currency becomes dynamic and
affects prices.
If in this country we should have a large increase in bank de-
posits, and the amount of currency in circulation should double over night, it would
have no effect upon prices if the mood of the people were such that they hoarded
bank
the currency and did not use the/balances.
In fact, prices could decline if a
wave of pessimism inducedithem into a state of apathy which led them to refrain
from buying goods.
Of course, I realize that growing out of such an occurrence
will come secondary effects - possibly the most important being a reduction in
interest rates, which in turn would induce speculation, which in turn might lead
to the development of enterprise and gradually to production and consumption aFain.
Some such development, for instance, as Professor Fisher describes in his discussion
of the influence of true interest upon the course of prices.
On the other hand,
I cannot help but believe that on the minor movement of prices, at least, the
effect of the state of mind of people exerts a profound influence, and that it may
last for sometime.
On your return from your most interesting trip abroad, I muld like to
have
&void
a chat with you about what we are actually endeavoring to do in order to
an inflation in this country.
We are learning much about the Federal
Reserve System as we grow older, and as its operations are being conducted more and
more under conditions which are free from the abnormal immediate influences of the
war.
With best wishes, I am,
Yours sincerely,
Professor E. W. Kemmerer,
Princeton, N. J.
n
Vey 18, 1924.
Dear Professor Kemmerer:
T was greatly disappointed to miss seeinc you in Paris, but as
they told you, I wes a bit knocked out and had to etey in bed and could
not have callersfor a time.
I find on gettirg home 9nd aubjectinq myeelf to the usual
examination ordeal that I am really in pretty Eood shape, but must be
careful about overwork or overexertion for sometime.
There seem to be a thousand things thet I would like to talk
over with you and T ,m wondering whether you sre free to come to New
York for the purpose somEtime soon.
My idea would be to have 5 Viet
uptown sway from office interruptions.
Th=nk you very much indeod for your letter.
Yours sincerely,
Professor F. %. Kumnerer,
Princeton University,
Princeton, N. J.
BS. MM
May 16, 1924.
Dear Professor Kemmerer:
I was greatly disappointed to miss eeeinE you in Paris, but as
they told you, I wee a bit knocked out and had to etey in bed and could
not have callers for a time.
I find on gettirg home 9nd eubjectin
yeelf to the usual
exemination ordeal that I am reelly in pretty rood phape, but must be
careful about overwork or overexertion for sometime.
There
eem to be a thousand thine that I would like to talk
over with you and I em wondering whether you are fret GO come to New
York for the purpeee sowtime won.
My idea would be to heve e visit
uptown sway from office interruptions.
Thank you very much indeed for your letter.
Yours sincerely,
Professor F. '4. .4emmerer,
Princeton University,Princeton, N. J.
BM&
Miy
1gP4.
Dear Professor Kemmerer:
I was obliged to be in 6ashington last teek and must
again the latter half of this week, so I fear our meeting must
go over for another week.
I hm very anxious indeed to see you.
Yours sincerely,
FrotWor F. 7.)Kemmsrir,
Princeton University,
Princeton, F. J.
June 2, 14.
Dear Professor KeAwpr,L___
Much to my regret a series of trips to Washington has
interferred with my'making plans for a visit with you.
be there again the latter part of this
t,- eek.
I M4St
Won't you drop
me a line telling me how you are fixed for time during the rest
of this month.
Yours sincerely,
Professor E. W. Kemmerer,
Princeton University.,
Princeton, N. J.
BS.MM
June 5, 1924.
Dear Professor Kemmerer:
Governor Strong has asked me to acknowledge receipt
of your letter of June 4, and to say that he is just leaving
for Aashington old will eend you a personal reply on his return
the early pcat of next week.
Yours sincerely,
Secretary to
novernor 3tron-
Professor F. F. KemTerer,
Princeton UniverstU,
Princeton, N. J.
June 9, 19f4.
My dear Professo/ Xemmerer:
Possibly the beet we can do in arranging
meetinE is to
rely on your giving me a telephone call when you are paesino through
New York either on the fishing trip or before leaving for Furope.
hope you can arrange to do so dr5 T want, very much to have a little
visit with you.
Youra kincerely,
htAimarer,
Professor E.
Princeton Universitl,
Princeton, N.
BS.M14
August 25, 1924.
My dear Professor Kemmerer:
Won't you write me something of your plane for the rest
of the bummer and fall.
There is a matter that I am anxious to
talk to you about and if you are near New York, possibly we can
urrange a meeLing.
Failing that I will write you particulars.
Hoping that you keep well, I am,
Yours sincerely,
ProleL,sor E. W. Kemmerer
Princeton University
Princeton, N. J.
41tek
rj.,)
February 17, 1925.
My dear Professor Kemmerer:
On my return from u holiday in the South I find
press notice that you have retur ed froa your Afristtn visit,
and it prompts this note to inquire if there is any likelihood
of your being here in New York soon, when *e might htve
chat.
Later on I f,.m proposin::: to go over to Princeton to
see Dr. Gerould, but I fear it wi11 not be for a while, ao if
there is a chance of your being here, I hops you will plan to
come in ta the Bank and ha:vs luncheon and a tlk wit.h mc.
In any avant, I shall appreciate a word at your
convenience as to wnet, if ny, plane you have which may
include iiew York in the near future.
It will certainly he
fine to sae you again.
Very eincerely yours,
Professor E. W. Kemmerer,
Department of Lconomice,
Princeton University,
Princeton, N. J.
146b
This article is protected by copyright and has been removed.
The citation for the original is:
“South Africa’s Return to Gold Basis.” The Wall Street Journal (New York, NY), February 14, 1925.
/4(
6)\i/V1
March 17, 19E5.
Dear Professor Kemmerer:
Everyone enjoyed your talk last evening very much indeed,
and it, was distinctly instructive to all of us as to what hae been going
on in South Africa. I hope it is not a burden to you to give us this
help now ..,nu then, and that you will not hesitate to call on us in similar fashion whenever we are able in any way to reciprocate.
I read the testimony of Vr. VanDerfium last night and f,ta re-
turning it with this. lou tiay imagint t-at in some way e it tot9 rather
amusing. Of course, the name of the witness being so distinctly Dutch,
is inconeistent with *hat he it ICOO1G8C, s.eesserting 60 ii,v)rouoly in
regard to the advantage of tying up sterling; at least it makee him
appear to be an honest witness am quite free from any national or
political bias.
There is one point in the questions asked him where I sin not
sure that I follow the infereeces of the .i.peetiOilies. It is that a depreciation in the exchange value of the pound cannot take place without
some inflation in England, silo if the South African pound is tied to
sterling, South Africa will, in consequence, suffer inflation if
sterling depreciates.
Lo you think that this sueaostion is capable of clemonetra.tion
either historically or by arsument? Is it not necessary to examine
somewhat particularly as to 4hat fuight cause a depreciation in the exchange value of the pound before we are safe in assuming that it will
be accompanied by
s general inflation in the british orice level?
I have rather aeaerned that the sterling fluctuations with
conditions of greater stability in trade developing throughout the world
would be more in the nature of erratic fluctuation of the currency due
to temporary external influences, one movement compensating the other,
without necessarily any great price fluctuations, that is, any general
change in the general price level resulting.
Sometime when *e are having a meeting, 1 would like to dis-
cuss this a bit aith you.
Sincerely yours,
Profeseor E. W. Kemmerer,
Princton University,
Princeton, N. J.
Eno.
http://fraser.stlouisfed.org/
Federal Reserve Bank of St.ES.LS
Louis
March 24, 1925.
My dear Professor Kemmerer:
Many thenks for your note of the twenty-third.
I am anxious to reed the testimony when it comes through, and
will be gind to have one of the printed copies.
Of course, I understood the position the Commission
1568 in with regaYd to its report, and personally at vry glad
that it made the report it did, and that its recomendation
was adopted.
I have not yet been able to finish resOing the report
on recount of pressure of work, but when I do, I may wIite you
smile comments if it seems worth while.
Some time I will neve an interesting story to tell
you about some of these south African matters.
had you noticed that filackett hae come out with a
definite statement that it is more in the interest of India to
have a stable domestic value for the rupee in India than it is
for it to have a stable exchange value with the rest of the
world?
My best regards to you.
Sincerely yours),
Professor E. 'W. Kemmerer,
Princ ton. University,
Princeton, N. J.
BS. S
April 14, 1925.
Dear Profeaeor Kummrer:
rur note of the) thir-
I hc.va juA
teenth, end am sorry to find that I have lucheon
ongegemente both Thureday end Friduy. And to
it
worse, Ihave dinnr ongegomente both of thorie
ni6hte.
Could you not cr:ange to to at the hank 601,16
time anyway? If you ecAild tolephom; we on arrivel,
could namd an hour whioll I hope will
onvtnient for
bott, of ue.
I
I Ii4oulc 'low very much to liove, a oat Aith you
and Sr. '4r1ght.
Cinoorc y youro,
Proteosor t. W. 4emmerer,
Princeton Univarelty,
Princeton, N. J.
136. 6
April 15,
1(..)25
Dear Profeaoor Kcimmerer:
y 1tor f yooterday,
egelnti
teleihoned today to
him
liri4.-Litt_
y that any time on TI,hredky .00ld edit
or the mcetine; your ?ropc6ed.
As I
exqszement and c. 7e3t1n6 of our dirextore tht
a l'incLoon
ternocn,
I wonder if you cannot )1:3,-a to come in tne morninz, sky at
1100 o ' clock ( earli er if it 'uit.e your eacy,v,aitant 6ett er) I
I have airoy tent,Atively eug,;e3t3d to ifir.
#right
crnin apointment, .*ith the undertezdina;th
upon receipt cfadvice from you I will let him kno.:4
definitely what the hour will be.
Sir.ce.rely yours,
Profeeeor E.
Kemmerer,
Princeton Univervi Ly,
Princeton, b. J.
414.0-0(
Mpy 11, 1925.
Ny dear Professor Kemmerer:
I think you once spoke to me about the
possible dangers of largo sales of German securities
and paper in thia market.
watched ofCerings made in this country
pretty clo'5e1y without, of course, attempti:v to exercise any supervision whatever, as he have no authority
to do eo; and the results of our invetigation as to
German loans are embodied in a letter which I am just
writine to Dr. Stewart, a copy of which I m .ending
to you for your confidential_informAion.
-----
Don't you think that the publib has been
somewhat misled se to the extent of these loans?
Sincerely yours,
Professor E. A. Kemmerer,
Princston University,
Princeton, New Jersey.
Enc.
MPy 11, 1925.
My dear Professor Kemmerer:
think you once spoke to me about the
possible dangel'a of ltrge sales of German securities
and paper in this market.
*e watched oft'erings made in this country
pretty clo,3ely without, of course, attemptin; to exerCibe tny supervision whatever, as Ne have no authority
to do so; and the results of our invstigetion as to
German loans ars embodied in a letter which I M just
writine, to Dr. Stewart, copy or which I
ending
to you for your confiGentisl_informAion.
Et
11
Don't you think that the public has been
se to the extent of these loans?
somewhat misled
Sincerely yours,
Professor E. W. Kemmerer,
Frinceton University,
Princeton, New Jersey.
May 20, 19E5.
My dear Profeoeor &wearer:
YOUFB of tLe nineteenth i
(tEet received.
Of course, I agree with you that, et, to goodnee_, there ele loans
and loan
eome bee, eome indifferent, some good. The important thing ie, from
our ,,oint of view, that we shoul2 not ateempt to cct up suierviton in this
metter which eaeumee reeponeibilitiey for the oode e et toieign loeus, r-e a
metter or Oorerneent polioy or heeerve Feank policy. It eeeme to me teet in the
long run it mould be r!isstroue. We must rely uron tt,e good Jitney cd our henkare,
and on the whole, Alla there .ei else excepttonz In Level: mettere, I think that
they :e
pretty dood eense durire.3 thit - leiiod or 14 months or so, then
large foreign hoTrewin/e hfve Wren plAno in this mertat.
I em gled to learn of the eueceeeful eunelueiom of your plane for the
Chile trip end that we were i4 solo Amy able fe) seeist i
eeking tnat out.
think it is e pod thing for Jo:suer-eon t ee, en: it ie particelerly gratirying to
ua to think you feel thti he on eid the WYK. f,onit yo e let
know ir there is
anything further tact we cen do. I eurely hope to eee yea te:ore you let,ve.
ihoee cocumente you wieh from England will be here in e rev deys, -rd
will tee thet you get thee et once.
Siuce,31., youre,
Profeeeor E. W. Kemmerer,
Frieceton Univereity,
Princeton, N. J.
=rm 1228A
W. ESTEkaNi UNION
Cg. M
'14
WESTERN UNION
isage
TEL'
,i'Lotter
.id mark an X oppodiass of service desired;
,ERV'tg THE MESSAGE
J. BE TRANSMITTED AS A
NEWCOMB CARLTON, PRESIDENT
FULL-RATE TELEGRAM
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Chock
AM
Time Filed
GEORGE W. E. ATKINS. FIRST VICE-PRESIDENT
en'tl the following message, subject to the terms
on back hereof, which are hereby agreed to
March 17, 1926
Professor E. II. Kemmerer.
Princeton University,
^sansw.
Princeton, N. J.
Letter fifteenth
Please telephone on arrival reserving morning for appointment.
Governor leaves for ten days that night
Bleeoker
Charge Federal FteaerWe Bank of New York.
Secretary
111P
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No employee of the Company is authorized to vary the foregoing.
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Accepted up to 2:00 A.M. for delivery on the morning of the
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Night Letters shall be written in plain English. Code language
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No employee of the Company is authorized to vary the foregoi
Hotel du Cap d'Antiben,
Antibes, July 18, 1926.
PERSONAL
My denr Professor Kemmerer.
Your letter of July 14th reaches xe here just as I mi getting ready
to leave after my holiday.
There is considerable uncertainty about o visit to Poland.
It depends
a good deal upon how much time other matters take and somewhat upon how T am feel-
ing, as I have not been very well since reaching Europe.
A
I m informed, the
trip nt this reason is a long, hot one over the plains, and it might possibly be
fatiguing.
T. will communicate with you later, as soon RS my plans are more cert-
ain, and as I shall not be returning home until.September, it may be that your
work will have progressed considerably before we meet, either in Europc or at home.
I wish you every possible succors, cnd with many thanks for your letter,
I WI
Sincerely yours,
Prof. F. W. Kemmerer,
c/o Ministry of Finance,
WARS', Poland.
PRINCETON UNIVERSITY
1-Y9ww, eAammy
Lri
ECONOMICS AND FINANCE
E.
a
PRINCETON, N. J1
W. KEMMEREE.
hr.
11 all 2, 19 16
enj Strong, Jr.,
Governor, New York .riede7_sa1 Reserve bank,
New York City;
My dear Governor Stron:
Your 'dna letter of the first is at hand. The date
you sugest of Wednesday hay 10th wi.4.l suit us very well.
The conference which will be held in the s-.ball conference roord
of the Graduate College will be very infoal. The attendance
will probably be between tvent.T.
And thirty and will consist of
/
from eiht to twelve ile:Lbcrs o4ho faculty, about a ozsn
-uata students, a fo-: 1-.nderaduato seniors who are socializinL
in econoics, anC, a fel jnirjtoj Lxests like Edward L. ::_owe .of
the Princeton 7an, Albert /. Atwood, the financial writer etc.
/
No rer:orters. will be prel4nt and no account of the conference will
I
be published excel:t the Vsual notice in the Univorsit:; F,ulletin
that such a conference 1:s/ being held. hot a WQrd has over found
itself into the ne.:76-;:4r3 fro.: an of these conferences.
Evening clothes arclinot n:ieded. Everybody wears an acadeic
i
,c,,in at th., eveninj pAals at the C3ra6.uate Co7.1e6o, an..:L these
gowns are fv,rnished I ll guests. OZZice clothes are as good as
t
any other foz theseioc?,asions--th are coveed ur by the L,owns.
If you will let' 1.;:e know ul-,on what tr-?.in tu o:.loct you I will
ieot yo-,i at the train.
1,curs
if-44°61,4
PRINCETON UNIVERSITY
PRINCETON, F. J.
DEPARTMENT or
ECONOMICS AND SOCIAL INSTITUTIONS
_May 29, 1916.
/41
CY:
49/ei
Mr. Benjamin Strong, Jr., Governor,
Federal Reserve Bank,
New York City, K. Y.
My dear Mr. Strong:
I have,gone.over again the list of banks mentioned in your letter
It seems to me that we ought to have the reports of all of
the banks you mentioned. In addition to those, I would like to have
of May 22..
your judgment concerning the Berliner Kassenverein. This, as you know,
is a rather unique type of institution, Which carries on an important
business in the line of clearing,, and particularly in the line of
providing for the custody and the transfer of ownership of securities.
When I was in Germany a couple of years ago, I had the privilege of
going all through this institution, and was rather strongly impressed
with the work it was doing, and with the lessons some of its operations
afforded for present problems in the United States.
.
For some time at Princeton we have been much interested in banking
and currency problems in the Orient and in South America. Several of
our students have been making a. special study of currency and banking
problems in the far East, and recently some of then have taken up a'similar
study Of :certain South American countries. In that connection, it seams
to me it would be well for us to add to the list you mentioned reports
of the following banks: The Hong Kong and Shanghai Banking Corporation,
.
The Bank of India, Australia, and China, The Yonkohoma Specie Bank, The
Russo-Chinese Bank, Banque de '1 Indo Chine,Deutsche Asiatische Bank,
and Deutsche Ueberseeische, Berk.
In this connection I agree with you that we should run the reports
back at least throe years. If practicable, it might be wise to ,run them
back a few years further, for one needs a period of several years in
order to obtain a normal base with which to compare via.' conditions.
In the course of next few weeks, I hope to make several trips to
New York, and shall try to drop in and see you for a few minutes, and
talk the, matter over with you.
Cordially yours,
Kfx
PRINCETON UNIVERSITY
PRINCETON, N. J.
DEPARTMENT OF
_....,,ONOMICS
AND SOCIAL INSTITUTIONS
June 19, 1916.
Mr. Benjamin Strong, Jr.,
903 Park Ave.,
New York City, N. Y.
My dear Mr. Strong':
Your letter of the 9th was received at commencement time, hence the
delay in answering.
I was very sorry to hear that you were not well; hope that by this
time you are feeling much better, and that the trip you are planning will
do you the world of good.
When I wrote you last, I expected to make several trips to New York
before leaving Princeton for the summer. My plans, however, have been
somewhat altered, and the work I was expecting to do in New York has been
accompliihed by mail. We are planning to leave Princeton on the 22nd for
the Massachusetts coast, where we will spend the summer.
I have arranged
for a study there, and am taking my work with me. My address will be
Menauhant Inn, Menauhant, Mass.
I have gone over again the subject of the selection of banks for the
collection of bank reports for the Pliny Fisk Library. We have not the
London almanac here, but I have used the special foreign bank section of
the London Statist, which covers all of the leading banks.
It is somewhat'
diffioult to know just where to draw the line. Our machinery in the Library for classifying and indexing this material is already perfected,
and from our point of view, it is not much more difficult to handle a
substantial number of banks than a small number. Furthermore, a student making a special study of banking in any country needs the records
of a considerable number of banks to feel at all sure of his conclusions.
On this
My inclination, therefore, is to broaden the list considerably.
subject, however, I am not at all certain but that I am going too far; and
should be glad to have your judgment. The banks that it has seemed to
me wise for the present to add to the list we have already agreed upon,
are the following: National Bank of Mexico, Anglo-South American Bank, Ltd.,
Banco Espahol del Rio de La Plata, Australian Bank of Commerce, Ltd.,
Bank of Australasia, Commercial Bank of Australia, Ltd., Royal Bank of
Scotland, and the three presidency banks of India, i.e., The Bank of
Bengal, The Bank of Bombay, and The Bank of Madras, The National Bank of
Egypt, The Russian Commercial and Industrial Bank, Petrograd; Banque
.
2.
Internationale de Commerce de Petrograd, Banco de Esparia, Societe Generale
de Paris, Banque Nationale de Copenhague, Danemar3i,National Bank of Switzerland, The Bank of Norway, The 41ustro-Hungarian Bank, the Sveriges
Riksbank9 Stockholm.
In view of the growing importance of Canadian commerce and finance to
this country, I would raise the question whether it would not be wise to
include in our list a large number,. if not all, of the Canadian chartered
I believe at present they number only twenty-four or twenty-five.
banks.
Doubtless all of them would be willing to cooperate by sending us their
reports.
Cordially yours,
PRINCETON UNIVERSITY
ECONOMICS AND FINANCE
E.
PRINCETON, N. J.,
W. KEMMERER
4,e4 ex-c.
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,
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Ti
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Li
PRINCETON UNIVERSITY
PRINCETON, N. J.
rWCONOMICS AND SOCIAL INSTITUTIONS
DEPARTMENT OF
Nov. 25, 1916.
Governor Benjamin Strong,
400 Montview Boulevard,
Denver, Colorado
My dear Governor Strong:
I have your letter of November 17 and want to thank you cordially
for your cooperation with the Department in applying for the bank
reports.
I have taken the matterAp with the Librarian of the Pliny.
Fisk Statistical Library, and dae isgarranging the check list of the
banks to which you are writi
and will follow up, as you suggest,
any failures to receive the reports on schedule time.
Hoping that your soj urn in Colorado is doing you a world of
good,
I am
Cordially yours,
K-K
PRINCETON UNIVERSITY
PRINCETON, N. J.
DEPARTMENT OF
CONOMICS AND SOCIAL
INSTITUTIONS
41z
Dec. 5, 1916.
9,
Mr. Benjamin Strong, Jr.,
4100 Montview Boulevard,
Denver, Colo.
Dear Governor Strong:
Your letter of November 29 is at hand. I have not had much opportunity
to talk over with economists and bankers the recent announcement by the Federal Reserve Board concerning foreign loans. Last week, 1.1r. Vanderlip gave a
departmental. lecture here and in the course of the lecture, and subsequently
at the conference at the Graduate College, he criticized the action taken by
the Federal Reserve Board. Such echoes as have reached me from New York seem
to be, upon the whole, unfavorable, either to the Board's decision or to its
method of announcing it.
I have heard it intimated several times that Mr.
Warburg probably dominated the Board and that this ruling was an expression
of his strong pro-German feelings.
Personally, I have not yet arrived at a very positive conviction upon
the subject. The ruling rather surprised me both because of the publicity
with Which it was announced and of the fact that the British treasury notes
appeared to be particularly in the Board's mind in making the announcement.
I had rather expected that the Board would take some action in a quiet way
against such paper as the French notes secured by French treasury bills,
which the National Bank of Commerce had been accepting in such quantities
under an agreement to renew five times. This paper, which was virtually
eighteen months' paper, seemed to me to be a very undesirable type of paper
for commercial banks to take and .a type of paper contrary to the fundamental principles of the Federal Reserve Act for banks to accept.
On the
other hand, as I understand it, the British treasury notes carried with them
contracts to renew them at maturity, and I had understood, from reliable
no
sources, that the British government was maintaining very large supplies of
gold in Ottawa and large supplies of =,;merican securities so far unpledged in
Under the circumstances, I had thought that while these treasury
New York.
notes would probably be renewed from time to time, the British government
would none the less be in position to pay them if payment were demanded at
any maturity. Furthermore, short time paper of this kind appeals to me as
being a very useful type of paper for Y,merican banks to hold in reasonable
quantities, as a means of controlling the outflow of gold after the war when
heavy demands may be made upon our large gold accumulations. My offhand
judgnent is that the Board would have acted more wisely had it quietly expressed its objection to the banks to their accepting foreign notes to which
it had permitted
contracts were added calling for several renewals, and
a considerable accumulation of these English treasury notes and when the time
came to discourage their further purchase to have done so with a less flare
In this judgnent however I do not feel at all sure of my ground
of trumpets.
if
and like you, am looking for light.
of the situation.
your judgnent
I would appreciate it very much to have
Cordially yours,
i)
PRINCETON UNIVERSITY
PRINCETON, N. J.
DEPARTMENT OF
,NOMICS AND SOCIAL INSTITUTIONS
Mar. 22, 1917.
144rg
Mr. Benjamin Strong,
1400 Mount View iilvm.A R 2 7 1917
Denver, Colo.
ir)!Vr14'
I WI'
.,4
My dear Mr. Strong:
I have your letter of the 16th inquiri
Kg-to just how Mr. Roberts Walker
and Mr. Frederick Strauss were received by our students and by the members
of the departmental faculty here at Princeton. In reply, would say that
Mr. Strauss has not yet been here. The day scheduled for his lecture being
April 13. Mr. Walker was here on March. There were a number of other
university affairs competing with him at the hour of his lecture, and this
fact, together with the somewhat technical character of his subject, prevented him from having a very large audience. Most of the faculty of the
Department were present, however, all of the graduate students and a
considerable number of our more serious undergraduates, in addition to a.
few outsiders. Although the subject was somewhat technical, Ir. Walker
had a very good delivery and made a dist,inctly good impression. In the
evening conference at the Graduate College, he also made a good impression.
I think the general feeling was that he knew his subject thoroughly well,
and,to use a college slang expression, was able "to put it over". I think
there was a little feeling that he had to a considerable extent the Wall
Street point of view on economic questions, as contrasted wtth the broader
public point of view, which a university community is likely 'to have.
This, however, was expected from a Wall Street man, whose profession is
that of a lawyer, and on the whole I should say that Mr. Walker proved to
be a much broader minded mall in his general economic philosophy than the
average prominent lawyer from the financial district of New York.
I consider that his lecture and conference were very distinctly a success, and
we are hoping to have him come to Princeton again in the not distant future.
You may be interested to know that this week Friday Mr. Arthur J.
Eddy of Chicago lectures here in our departmental courses on the Open
Price Agreement Plan; that on April 20 John Mitchell lectures on the
Philosophy and Ideals of Modern Trade Unionism; and that on April 27
Jeremiah W. Jenks lectures on the subject of the Trustsand Prices.
Our
non-resident lecture course this year has proven eminently successful,
and its success has been in no small degree due to the cooperation of the
Advisory Committee. We are certainly very grateful to you all for your
assistance.
I hope that by this time your sojourn in Colorado has done you a
world of good, and that in the not distant future we may see you back in
New York in first-class physical condition. With all good wishes, I am
Very truly yours,
K-K
PRINCETON UNIVERSITY
ECONOMICS AND FINANCE
E. W. KEMMERER
PRINCETON, N
J
Oct. 27,1917.
Mr. Ben Strong, Jr.,
Governor, Federal Reserve Bank of New York,
New York City.
My dear Mr. Strong:
I take pleasure in sending you under separate cover a
copy of my little book on Postal Savings just published by the
Princeton University Press, which I hope you will accept with my
compliments.
Cordially yours,
Pr
'V
wor
Ilk.,
OCT 2
197
FET.rirL PEST27VE
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
Oti.-ECEIVFlt
MAR 5 191$
DEPARTMENT OF
,Jar. 2, 1918.
ECONOMICS AND SOCIAL INSTITUTIONS
Benjamin Strong, Governor,
Federal Reserve Bank of New York,
New York, N. Y.
MAIL T,LLER
I
HIER& RESEVE BAIII
at
Neve YOICIC
My dear Mr. Strong:
Your letter of Feb. 26 is at hand, and I have read it with much interest.
i agree with you that we cannot expect to bring about necessary economies in
the consumption of .goods by voluntary action on the part of the public, brought
about through an educational campaign; although I do believe that a considerable
amount of good has been accomplished already by our educational work, and that
something more can be accomplished in the future. At best, as you say, however,
this plan is not one that gives very large immediate result. An immediate remalt is what we need now.
I believe that all six of the members of our Committee
on the Purchasing Power of Money in Time of War would agree with you in your
general proposition that more drastic action is needed to compel the public
to economize. The poiniewhich you mention,. appeal
to me as so much worth
while that I am taking the liberty of havingicopies of your letter made and sent
to each of the six members of our Committee, so that at our next meeting on
March 10, we may be prepared to give them a very full consideration. How far
we shall be able to go in considering the definite point3that you mention I
do not know.
.
Our Committee is one of rather limited powers. We were appointed by the
American Economic Association at its last annual meeting to make an investigation and report on the subject of the purchasing power of money in time of war,
and the personnel of the Committee was selected with particular reference to
that subject.
I have been greatly interested lately in the subject of currency and credit
inflation in time of war, and have been making some statistical studies in regard to our present situation. In the course of a week or so I shall hope to
send to you some rather definite material upon the subject, including a photographic chart, which may possibly be of interest to you.
The following facts
I think are rather suggestive. I have prepared an index number to represent
the growth of business since the war began.
In that index number I have used
twelve different representative items, none of which include any prices at all,
i.e., I have tried to eliminate entirely price items which themselves would
represent results of inflation. The twelve items include the following: Number
of tons of pig iron produced in the United States; number of bushels of wheat
produced; number of bushels of corn produced; number of tons of bituminous coal
produced; number of tons of anthracite coal shipped to tide water; number of
tons of copper produced; number of tons of freight carried on a group of representative railroads, etc. Each of these items has been figures out on a
percentage basis, and then the average of all twelve items for each year has
been obtained. The surprising result is that since 1914 the total increase
2.
in business represented by this composite figure is only 12%, wherews the money
in circulation increased, since July 1914, 4,
that is,up to July 1917.
The depositin National Banks, including individual and government deposit, at
the average of the five or six comptrollers' calls each year, increased 57%.
The total individual and government deposit of National Banks, State Banks,
and Trust Companies, and government deposits in the Federal Reserve Banks increased 56% during that time, while the total clearings of the country increased
98%, and wholesale prices 87%. The evidence appears to be very strong that there
was very little, if any, inflation prior to 1916, but that inflation set in rather
strongly in 1916, and has been very pronounced indeed during 1917.
I am not one
of those persons that believe that all inflation is an evil.
I think that it has
certain useful features, but on the whole,it seems to me,that we are carrying it
rather far, although I realize the serious difficulties in the way of curbing it
very much under present conditions.
I am not convinced of the practicability of making a definite list of essentials
and non-essential industries for the reasons given in the short memorandum which
I prepared a short time ago for our Committee.
Cordially yours,
II
I
ICI SIM Du4V3.
The naxinur
x400,61*
OIT-Tmr..
if ef2ecti1te
on
1.1 TAJO BY.
t the front, with cenerus
equinnont is the
Ailitary
Sw'lios of food, munitions,
To withdraw fron
17,0 to in the war.
need
if
we
imperative
ni/itary service millions
for
active,
tural and industrial pursuits
industrial army at home saveral
7rov1de
an
and.
to
of our fittest non,
At the front by the )roduction
ort
the
Arny
largejto
3t11
times As
other war supIllies
ships/
and
nun:IA.2one,
of ta:onse quantities of
..-x)aco)make
and A44.4.*
5:7,all scale
which we prOdUce anly on A
in tine of
and,capital equipnent. :But
labor
force
upon
our
tranandous demnds
In the coas of botn.
is
limited,
,rld
caA.tal
the sup217 of labor
Limit:: 1,e son
axpaqsion,
AA
for
there exists some ea9acit7
InPoesible or danGerouo twhich
it
is
reached beyond
hours
work 3.:
laborers
can
rn tines of gre'A m:ely;ency
work 3UritlAy3 and holithey
can
the
nace,
o-.ch day, they can hip up
larcer quantities.
of wonen can be nix utilized in
days, and the labor
is dancerous and
in
these
ways
labor
force
But straining of the
intensive work
a7nornal1y
costly if lonc continued. Lone hcwre mna
working an
30
lierrine
and
eficiency.
impair health
Sundays 'and
Fngland hnve am!lhasizod.
hall-
daye--n fact which reeent e:1,:.-:,rionces in
would othevAse be idle
on
)
who
also
of
The labor of uonon ( as
obtained from this source. Those
little
can
be
can be utilized but
idlers in tilo,of war,
likely
to
be
::eace
are
who are idle in times of
croelt, were far from 'beinG
said
to
t!leir
wonen,be
It
mst iterioan
as arduous and
hone
is
often
work
of
the
lale before the war. The
office and the factory.
field,
the
that
of
the
time-consaninc as
TO Intensively in time of Gre:A
more
. up and can be wored kgingnr hours
:ious units. The wear of the
Ininory can be
t hero tr) there
9.-rfert
each dt
nachvIerY is increc.sed, bres.%-downs liecome =ore frequent, and, the life
the nachinos iz shortened.
Whilescuothinc, may. ho Gained, therefore, by s:.:.in a uore inten-
sive uce of our labor an ca)ital sur)ray, there are clearly limits
ana not very distant ones bey.ild which this increasinsly intensive
utilisation canl'ot co.
The other recouwse for obtaininc war cu: liesand the more
tcr)ortant ono-- A that of substitution, to do the more inortant
thin Gs a7c do them roll at the ozponso of leavinc the less important
undone, in other words,
t our itat2nd labor and canital
kf------44efo in over inermusi
ran induztries that arc nonc.
Aa7. for the purosez of the war to those that are ocsontial.
7;!.
1.im1tod resources tqfodialtely avallabTh we ;:lust a , .ly Dramptly
an.-riGorously to the thinGs that count most for vinninL the var.
But rhat ind*stries are ez:ential,and what
are non-essential? This.
',ion is not an easy one to nylowe'e
;s0,4.11:4
es
A rev Gu1d17
-
'75100,
bi)iefly st
jO 31j: lino can bo dr between assent :al industries and
.mtial industries. There ar-, very for Industries
Which are not
to some extent
no
010,ti
-7.0ped
of rar, rhile some products of the
'tial industries are frequently non-essential. Strictly
-re not ossential and non-ocoentita but rely
.ore or
7ten very
in t
Gr
4,4
na.
rtr.;
tat.,
be
3
are 122a es,claL. Luxuries nupt be sacrlficed for war necessities,
but as the wnr continues :Any of tho necessities of today must bg,come
t1c luxuries of tloorrow.
An a :: rontly eosantial .oroduct becomes a non-essent'
'
used in excess of no needs of a rigid war
economy.
Th.
:-,,,,
.
buys
a new auit when his old ono could be made to do reasonably wel: is
divortinG labor and ca'pital to a '.,1 essontial--frem munitions to
drossineasT- and, ta thnt extent, la neLinG the clothinG industry a
non-esoential industry. He is doing an un atristic st.
Products --Slic!-I. -.
oimple form aro essential of
a 'ody elements
that are ncirontial. Simple clothes, for exmple, ao osentials,
but not expensive ones involvinG n large anc4Int of .o-erimanship .and
vostly materials. DurinG the strain and stress of
71,7.1:, .eo:Ao need a
nodarate amount of recroation. To a reasonable extont.?theatres, moving,
Icturo ahoy-7/
automobiles :lay be essentia/s; but recrwtiom:
in tAace
bo of a slm-ao aad inoxoensive sort. These
-
'
are not tin- f fri
-nd traD-Ingo. An industry producin
esJenti4
Iroduct is J. non-essontial inaue,ry to the extent that it levotes labor
and capital to thoseinon-essontial qualities. The man who
-:!ch
77rAuets is not measurinG up to his fUll duty as n citizen.
If the emoumor refuses to buy non,essentinls the producer will
stop producins thcm,.and moot of the labor and =Ix nIch of the catal
released will be turned to the factory manufactorinG military supplies,
to the farm and to the shipoiyard. Mh.ny consumers have resnanded Gencroub.
ly to tho Government's -7710s1 for oconony in eunsmm:Itien, others will
respond 7,hon they arc 77.-f1e to realize the urGency of the call,selfishly
sone/Till
entlnue
indulGe themsolv(7,2 rogarer9so of V= t'act that nothing less
than demccraily itself it rtI s wiry doubtful
vleterther voluntary
I. There is a gr,ninG
http://fraser.stlouisfed.org/
that V_
Federal Reserve Bank of St. Louis
044a tO
-)0 Cqq2e
4
onerGetie nearrares. o this end f...t :lay be called u- ;on to. enfo:--ce
rt1nin
11$
ollcy in the ttar of certain 'foods, and to nlace-oJitive
uon 2r0duction itself in the Car10 of certain no1-es,.entli-1s
*lose 775r,...)duction is tyinG un largo labor forces :.:nd also in ::any eases
equi..-nent Useful for ursent77.e.r work. The Government has a lame
power over non-essential ';ndustries through its control of railroad.
transportation trith the lower to Give ric)rity rivileGen in the
by
movir.kr7,- of froio.ht, and theewstt Its influence
tl-wouGh the federal
reserve systen over the country's credit :.--.ach.inery. Restrictions upon
'inen-elsential industries should obviou.loy be i o .ed cautiously Ethel
only when clearly dcznded in the imbl'ic interest, 30 as to reduce
resultInG
t,) a minim:: thc, .1 fin:1311711s to both. labor and
Pl-zits now
'7,roduct1sig nan-eszaritials
blig often be adalyte,-7,:er -the :iroduction
of essentials and !.12uch of the zresent labor fe celyetained. The
govornment, -loreover, through its variou.s CriploLuent aGOTICi013atd
otherwise CM (10
to or,-yedito the -rompt redistribution of released.
labor. Such roadjust.n.en4, at beet, however, will cause hardship and
los7.! V- 7-ny
thee the pi-ice to be paid is a Teal one, but not se
larze knillionq are cheerfully -laying on the battle frOrt for the orIzeie
Great cause.
PRINCETON UNIVERSITY
PRINCETON, NEW JERSET.
45 ;; fE VEtt
p^R 2 MB
DEPARTMENT OF
ECONOMICS AND SOCIAL INSTITUTIONS
April 1, 1918.
Mr. Benjamin Strong, Governor,
Federal Reserve Bank,
New York City.
MAtL TeLLER
3mt
ROM. tataVE
ICOrt
Q
My dear Mr. Strong:
,
This note is to again thank you informally for the splendid gift to
Princeton in the form of the war paper money collection, which you intrusted
I showed the collection to Professor Fetter and to
to my care Thursday.
Professor Gauss, the Head of our French Department, as soon as I arrived in
Princeton, and, they were both very enthusiastic about it. A brief note on
the subject will appear in the next number of the Princeton Alumni Weekly,
and we hope to have a fuller account at a later date. -;?) are planning to
make a special exhibition of thb collection in the Exhibition Room of the
Library at commencement time./ Then I looked over the collection in your
office I was very much impressed with its value and possibilities for usefulness, but I really had no idea how complete it was until I returned to
Princeton and had an opportunity to examine it carefully. We certainly
appreciate very keenly you thoughtfulness and generosity in making this
In due time you will
collection and turning it/over to the University.
receive a more formal acipowledgement.
I an sending you,junder separate cover, a copy of the revised manuInflation. Will you kindly return to me at your
script of my article
leisure the rough cop which you now have?
Cordially yours,
PRINCETON UNIVERSITY
ECONOMICS AND FINANCE
ot Apr0103,1918.
PR'N.ET030.436010)
E. W. KEMMERER
nor Benjamin Strong, Jr.,
Federal Reserve Bank,
New York City.
1
*MU
.m..01.
c
stall
tett%
pow°
Dear Governor Strong:
Your letter of the 2d is at hand also the first copy of
my rough manasc:-ipt on Inflation.
-
Please do not feel at all perturbed
about the necessity of postponing the preparation of the Introduction
until the latter part of this week. That time will be entirely
satisfactory to me.
Let me again assure you of my sincere appreciation
of your kindness in writing the introduction.
Cordially yours,
D
PRINCETON ,.115LtliERSI
PRINCETON, NEW JERSEY
DEPARTMENT OF
ECONOMICS AND SOCIAL INSTITUTIONS
April 5,
1018.
Mr. Benjamin Strong, Jr.,
Governor, New York Federal Reserve Bank,
New York City.
My dear Mr. Strong:
Your letter of the second is at hand. I do not want
you to feel at all conscience stricken over the delay in preParing the introduction.
In times like these the Government
certainly has the right of way, and considering the urgent and
responsible work you have been doing in connection with the Liberty
Loan drive, I do not see how you could have done differently than
you have.
I congratulate you on the success of the loan in the New
York District.
Cordially yours,
yours,
PRINCETON UNIVERSITY
ECCNONICS AND FINANCE
E. W. KEMMERER
PRINCETON, N. J.
to
r
iogt!'
a
Mr. Benjamin Strong Jr.,
Federal Reserve Bank,
New York City.
April 12,1918.
SL
11P
`3)
45)
\k.
"1"
,....
,r
41.
My dear Governor Strong:
TED,
:T
In the preparation of an annotated balance sheet for all
federal reserve banks as of March 28,1918, to be used as an appendix
in the A B C of the Federal Reserve System, I find myself rather
uncertain as to the exact meaning of certain items. Will you kindly
give me a brief explanation of the following items:
"All other earning assets.
.
.
.
$3,523,000"
"Due from other federal reserve banks--net
.
$26,945,000"
$3,724,000"
"All other resources
Cordially yours,
7,61-414.
fad_ 77taaco
Annendix A
VE PEDFRAL RESFAIVE BANKS, MARCH 28 1918,
BALA CE SHEET OF
IRIEF MPLANATIONS OF THE VARIOUS ITRUS.
AT
Resources.
.
Gold coin and certificates in vault
Gold settlement fundfederal reserve board
489,948,000
399,568,000
.
..... ...... .
3
Gold with foreign agencies
Total gold held by banks
4
Geld with federal reserve aEont
942,016,000
852,192,000
.5 fund ........
Gold redemption
Total gold reserve
52.500.000
0*
. .
21.496.000
1,815,704,000
6
Legal tender notes, silver etc
58.359.000
1,874,063,000
Total reserves
7
Bills discounted for member banks
8
Bills bought in open market
Total bills on liana
U.S.Government long-term securities.
10
U.S.Government short-term securities
All other earning assets
583,228,000
304.965t000
.
58,190,000
.
252,579,000
11
Total earning assets .......
Due from other federal reserve banksnet
Uncollected items
887,293,000
13
0
12
1,201,56500(+0
26,945,000
339,130,000
14
Total deductions from Orbs deposits
336,975,000
Five per cent redemption fund against federal reserve
bank notes. 15
537,000
16
All other resources
Total resources
3,724,000
3,445,984,000
PRINCETON UNIVERSITY
'Jo
ECONOMICS AND FINANCE
E. W. KEMMERER
PRINCETON. N. J.
Ap1'3.l8,1918.
Jr.,(
.:(rE
Governor, Federal Reservslp
'Mr. Benjamin Strong,
New York ogilyty.
-16)
My dear Governor Strong:
I want to
thank you cordially for your letters of
the 15th and 17th. All of your suggestions have been incorporated
in the proof.
I was under the impression, from the wording of the fifth
section 13 of
paragraph of/the federal reserve act, that domestic acceptances
with maturities up to six months were rediscountable at federal
reserve banks, and I am glad to be straightened out on this Point.
My error in figuring the possible note issue of federal resorve
banks was due to the failure to deduct from gross deposits in
my calculations the item of "uncollected items". I have changed
the figure in the galley from $3000 millions to 43,333 millions.
Concerning your suggestion for the small paragraph in the
middle of galley 21, I would like to have permission to insert with
a
fevlaight verbal changes the excellent statement contained in
the second and third pages of your letter. This would mean that to
the paragraph as it now stands would be added the following:
Events pointed clearly in this direction prior to our entrance
into the war. Governor Strong of the New York Federal Rerserve Bank
writes me: " The first deposit of government funds made by the
Treasury with the Federal reserve banks was on September 4, 1915,
when certain special deposits were made in a number of banks i Later,
arrangements were made to have the collectors of customs and
collectors of intornal revenue in the twelve Federal reserve bank
cities deposit all of their funds in the Federal reserve banks,
and as a matter of fact, for a long period prior to the passage of
the bond act of April 24, 1917, which altered the status of public
2
EWK/BS
deposits, the Federal reserve banks had been receiving the principal
revenues of the Government outside of postal funds, and had been
paying a very large proportion of government checks and warrants.
this fiscal agency service to the collection
The limitation of
of'revenueland payment of checks in the twelve Federal reserve bank
cities was , of course, due to the inconvenience of extending this
operation to places where Federal reserve banks had not yet established branches. The plan, thereforlof actively employing the
Federal reserve banks as fiscal agents had been put into operation
some time before the first bond bill was passed,and fiscal agency
work for the Government became an important and very active Dart
of the work of the reserve banks almost immediately after the
arrangement was established.'1
-
-
The first sentence in my following paragraph I am cutting out
entirely.
The insertion of the above Paragraph from your letter
serves the additional purpose of
placing
a little more stress upon
the important fiscal agency work for the Government the Federal
reserve banks have been doing. I found it difficult
to
say much
more about that work than I did, unless I were to go into it
with considerable detail and that would have compelled me to give
more space
to it
than I had available. I agree with you that
subject is one deserving
inclined to
of
that
being written up carefully, I am
think, however, that the
task is one
that can only be
well performed by some one like yourself who is thoroughly familiar
with the workings of the Federal reserve system from the inside.
Under separate cover I am sending you the second and third
publicity notices of the Committee on the Purchasing Power of Money
in Time of War.
Again thanking you most
cordially for
your
valuable cooperation in the preparation of The A B C of the Federal
Reserve System, I am,
Sincerely yours,
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
DEPARTMENT OF
ECONOMICS AND SOCIAL INSTITUTIONS
April 27, 1913.
La.. V. 0. 40Laren,
Secretary to Governor Strong,
Federal Reserve Bank,
Iew York City.
Dear Sir:
Permit me to thank
you
for your letter of April 19, enclosing
statement relative to some figures about which I wrote Governor
Strong a few days ago.
I
These fiuures'served my purpose very well.
appreciate very much Governor Strong's having them prepared
for me.
Sincerely yours,
PRINCETON UNIVERSITY
/
3
03
ECONOMICS AND FINANCE
E. W. KEMMERER
ony:NCET ON, N. J.
April 29,1918
iro/A
r.491ei
Er. Benjamin Strong,
Governor, Federal Reserve Bank of New Yorki,New YcV__ Ck45.0'
11\00,i#
My dear Governor Strong:
The enclosed letter was received from t (i)S/ rinceton
University Press this morning. I know that these days in
midst of the Liberty Loan drive must be very busy one*,
t
Va'
OSO004
0
wrou
and feel that government duties should have priority rights to
the time of all of us under existing conditions. I am sending
you this note therefore merely to ask you to let me have the
introduction as soon as you conveniently can. The publishers,
I understand, are anxious to get the book on the market before
the dull summer months if possible.
Cordially yours,
INCETON UNIVERSITY PRESS COUNCIL
OFFICERS
CLARENCE B. MITCHELL
B. TAYLOR PYNE
ARCHIEULD D. RUSSELL
ARTHUR H. SCRIBNER
URGE A. ARMOUR
,ERT BRIDGES
CHARLES SCRIBNER, PRESIDENT
W BURLEIGH
C. WHITNEY HARROW
PARKER D. HANDY
CHARLES SCRIBNER
JOHN G. RIBBER
CHARLES SCRIBNER, JR.
CHARLES W. MC ALPIN
AUGUSTu TROWBRIDGE
ANDREW F. WEST
M. TAYLOR PYNE. VICE-PRESIDENT
CLARENCE B
MITCHELL. TREASURER
C. WHITNEY [DARROW. SEC, AND MANAGER
Princeton, New Jersey,
April 29, 1918
Dear Mr. KemmererIs Mr. Strong's introduction ready for us?
I
under-
stood from you that we could probably expect to have it last week,
but I have not heard from you,
and I should like to
ask, therefore,
that if the copy is now in shape you will turn it over to us as
soon as it may be convenient for you to do so.
We are anxious to
get your book out as soon as possible, for the spring season is
already well
lose
advanced,
and I fear if we delay much longer we shall
the benefit of a considerable sale.
We are ready to go right, ahead as soon as we receive
the copy for the introduction.
Yours sincerely,
Manager Princeton University Press
Professor F. W. Kemmerer,
Princeton, N. J.
T-F
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
RE (
1\1!"
DEPARTMENT OF
May 29, 1918.
ECONOMICS AND SOCIAL INSTITUTIONS
MAIL
FEDERAL IL.
QC Now
Mr. Benjamin Strong, Governor,
Federal Reserve Bank of New York,
Equitable Bldg., New York City.
My dear Mr. Strong:
e Federal Reserve
The Introduction to the A B C of
as I told you when
System was received this morning, an
you read it over to me a couple day ago, it is satisfactory
you for your kindness
in every way. I want to again th
in writing this introduction.
gee in the phraseology of
I have made a few petty c
the introduction. I am reque ting the Princeton University
e proof when they send the
Press to send you a copy of
I will take ca e of all typographical corrections,
copy to me.
and there is no need of yo,r returning the proof that is
sent to you unless you should wish to make some change in
I am taking the precaution of
the form of presentation
having the copy sent to you so that in case any of the
petty changes I have made should not be acceptable td you,
you would have an opp rtunity to modify them.
I am sorry tha I shall not be in Princeton to see you
at commencement t e, but am looking forward with much
pleasure to the oFoortunity of being associated with you
and my other fri:nds in the Federal Reserve Bank during
the summer mont.-.
Cordially yours,
PRINCETON UNIVERSITY
ECONOMICS AND FINANCE
E. W. KEMMERER
PRI NCETON, N
J
MA1
Governor Benjamin Strong Jr.,
Federal Reserve Bank of New
1)1)
iroT14;kL, REMIVE BANK
New York City.
My dear Governor Strong:
The enclosed copy of an article which I shall probably
future may possibly interest you in view of the
growing agitation on the subject. It seems to me that the time has
arrived for some vigorous Protests.
publish in the near
Cordially yours,
"Doing Something for Gold."
,,......--.... ekeeeeeeeseeeskeeataaa.,,,aaaaaaaa,..
*
1>e,,,..a,
eIN
.:.
,3,5
\A
ea
*
Professor of Economics and Finanee in Princeton Univera#ky. ee
(
By E. W. Kemmerer,
-
/je,
From 1873 to 1893 the average annual gold price of fine silver pe14(;.
1~
ounce foil from $1.30 to 64 cents. A number of our western states in 'bleh
eilver mining was an important industry were greatly disturbed over this
decline, and a vigorous campaign was instituted by representatives of
these states, both within Congress and out, demanding that the Government "do something for silver"..
This demand was the chief force leading
to the passage of the Blandeallison Act in 1878 and the Sherman Purchase
Act in 1690. It was an important factor in the campaign for sixteen to
one nations/ bimetalism, under the leadership of Xr. Bryan. We are now
oonfronted with a similar agitation, aminating from the same mineral pro-
ducing regions, only this time it takes the form of a demand that the
Government "do something for gold".
The argument as it is usually advanced Is well expressed in the
preamble of a resolution submitted to the anerioan Bankers Association
at its recent annual convention in Chicago the last week of September.
This preamble, as quoted by the Daily Awaker and Stockholder of Chicago
under date of September 27, 1919, was as follows:
"Whereas, the gold production of the World is rapidly decreasing,
having declined from $469,000,000 in 1915 to $430,000,000 in 1917 as
the World's output. Of this decrease, the United States declined from
101,000,000 in 1915 to $84,000,000 in 1917, and it is predicted by
those conversant with the facts, that the decrease in the United States
this year will be much larger in proportion, it being estimated by
government officials to be 411,000,000, based upon the production for
the six months ending June 30, 1918.
"Whereas, this decline in production is due entirely to the fact
that the cost of producing the gold ounce) as a oammodity has exceeded
the fixed price of 20.6718 per ounce, and
1,-,,
1--,\
2.
"Whereas, the only form of relief that will
effectiie\end can
be applied propptly is action by the United Statesprove
government
ia Such
form and by such methods as may be eeemed fit and pr unler to,'
oirvenstanees, and,
"Whereas, geld is the standard of value and thele
t. s ili
atliiedit,
al important to the financial and commereiAa
is vitally
ife.of
thenation
and of the world, and,
e e.
es
"Whereas, the Secretary of the Treasu,1 of the UnitelkOt4s
heik
stated that, next to food and ammunition, gold is the oneekst needed*
essential . ."
te
the)
tO
ee
From premises such as those the conclusion Is drawn that the United
States Goverulent should "do something for gold". A number of plans have
been suggested but the two that have received most favor ares (1) that
the Goveraaent buy all new geld presented to it at a substantial premium
over its present fixed pals's, namely, ::;20.67 per ounce of fine geld and
410.60 per ounce of Lmerican standard gold .900 fine; or (2) that the
Government give the prodeser of new gold a bounty in proportion to the
amount of gold produced. Milder forms of government assistanee have
also 1100/1 suggested, either to be used alone or as supplementary to
stronger forms. Among the milder forms of relief that have been suggested
as to
may be mentioned priority privileges as to transportationiAthe
pureness
of raw materials, the hiring of labor, or the obtaining of credit; ellief
from certain tax burdens, or more liberal allowances for depreciation in
oomputing income for purposes of federal taxation. 6e need nut take up
here the disoession of these and other mild methods of relief suggested.
The only methods that are being strongly advooated amount in substance,
ur)lAtevor they may be in form, to a government bounty on the production of
These proposals are apparently finding favor in high places. A few
of murky possible eitatione on this point will be sufficient. An American
3.
erl
-1
gold conference was held at Reno, Kevada, August 12, 13 and444 aud
sioloir
es"
--:)
conferenoes have since been held at Portland, Oregon, and 8p4ee, Wes/1144n.
-a
,v
---",
aoli
,____ ot
These conferences all favored government aid to gold mining. weao3posispe
e),
0?
confereace of September 12, 13 and 14, held under the aaspices ofIle
.,'
>-
Northwest dinine Assoolation,with former United States Senator George
Turner presiding, passed resolutions calling for priority rights for gold
mining concerns in the matter of transportation, labor and credit, and
for a government bounty on every ounce of now gold produced, a bounty
sufficient to enoeurage the minine of gold bearing ores by insuring a
reasonable profit therein. The first clause in the preamble of the
resolution of the Portlant conference declared: "Vihereas, Secretary of the
reasury, William G. lioAdoo, has called the attention of the oountry to
the necessity of the largest possible output of gold in order that the
credit of the country may be stabilised . ." etc.
A comlittee appointed by Jecretary Redfield of which Ix. Hereon
Jennings, a mining engineer of the 3ureau af 'alines, is Chairman is
making a study of possible methods of stimulating gold produotion.
now
The
eommeroia/ and Financial Uhronical, our beet knven American financial
weekly, in an editorial on "Eneouragieg Gold Production" In its issue
of September 28 (pages 1228-29) said: "Why then is there not a duty in..
oumbent here to study the question of how to increase the output of gold?
At all events why not encoerees gold production, an a mere precaution,
while we are encouraging everything else, from fixed double prices on
wheat to a spoonful of sugar a meal for saving?" The American Bankers
Association in national convention in dhioaeo the lest week in September
1. aee Oommereial and Yinanoial ahronical, sept.'21, 1918, p. 1141.
.
4.
PIC?-4
passed a resolution to "respectfully request and urge upon the GovOmmentr'.
of the United States the desirability of maintaining the production tip"golerd
to at least its pre-war volume, and ask that steps be taken immediate'
that end .
.
.
0
."
In England also the subject of "doing something for gold" is being
agitated.
The British Treasury has recently appointed a commission to
investigate "the war's effect on gold production in the British Empire",
and the commission's instructions call upon it, among other things, to
suggest a plan designed to show how the production of gold can be stimulated.
(See New York Journal of Commerce, Oct. 15, 1918.)
Proposals with support like the above must be taken seriously.
The Use of Gold in the Arts.
Of the world's anti-sal gold production, part goes into the arts for
the manufacture of jewelry, plate, etc., and part into monetary uses.
'J]stimates differ as to
the proportions of the
net annual production of gold
that goes into tnese two groups of uses, asleely, aerohandise uses and
monetary uses.
The proportions, moreover, vary from year to dear.
For
a normal year one would probably not go far astray in assuming that onethird of the new gold produced goes into the art and two-thirds into monetary
uses.1
The proportion of America's annual gold product that goes Into
the arts is probably somewhat larger normally than the
world's gold product so used.
For 1913, the
United
proportion of the
States
Director of
the Mint estimated the net amount of new gold bullion used in the arts to
represent 42.2 per cent of the total gold produced in
the United. States.
For 1914, he estimated it to represent 36.6 per cent.
1. See on this subject Andre Touzet; Emplois
Paris, 1911, p. 116-128.
IadustrIeles des Ataux Precieux,
,y?1,
For the past six years the annual gold production of tht,worlAand,00'
of
eee
el
,the United tates by calendar years have been as follows, acodfding-4o
=-
figures of the Director of the ;dint:
World
Millions of dollars
q---,
U. S.
4illions of dollars
0
',.4
Peiventagir of
totathreproienteCv
by 0.4!Lproouction
1912
466.1
93.5
20,71
1913
459.9
88.9
19.5
1'314
455.7
44.5
20.7
1915
468.7
101.0
21.6
1916
457.0
92.6
20.3
1917
429.0
84.0
19.6
Under the pressure of war economies, there has probably been a great
falline off in the proportions of the world's new gold produced since 1914
that have annually gone into the arts, but on this subject no comprehensive
statistics are available. This curtailment of the consumption of gold
for jewelry, plate, etc., since the war broke out has probably mueh
more
than compensated for the small reductions .hat have taken place in the
world's annual peoduction of gold.
b.s, in itself, woule mewl at more than
normal increase in the amount of gold goiag into the monetary uses,.
Yurther-
mere, wiXdly heralded patriotic appeals in belligerent countries have led
to tae turning over to the (,4wernment for monetary uses substential quantities
of gold in the form of jewelry and otter ornaments.
La the United States there has probably been a fulling off in the consumption of gold in the arts since we entered the war. Figures on this
subject are not available. if there has not been such a falling Off, the
Government should bring pressure to bring it about, for these are nut times
to permit the tying up of labor and capital in the production of gold jewelry
.
6.
leeN
and plate on any considerable scale. A reduction of one-half in ou;raormal
peace-time consumption of gold in the arts would release Spough,qold
the monetary uses to much more than compensate for the deoll4e iAmertest
gold production that has taken place since the mar broke out.a
tew
-,o
.
aa
Sionetary Uses.
r..1
Let us now pass to a brief consideration of the proposal to stimulate
the production of gold for monetary uses.
Assuming the maintenance of the gold standard, eold is the only commodity
in America whose price never changes. If the supply of potatoee, camper,
stool, or anything else decreases relative to the demand, their price; rise*.
If, on the other hand, the supply increases relative to the demand, their
priog fall*. Not so with gold. If the gold .supply of the world, or the
gold snonly of the United States under its present gold embargo, should
suddenty be multiplied five-fold, the price of an ounce of standard gold
would still be 48.60, while if the production of gold in the United States
and its importations should suddenly be stopped, the price of gold per
ounce would not advance one iota. The reason is obvious.
We are on a gold
standard, and our mints will coin freely all gold brought to them at the
rate of 25.8 grains of gold .900 fine to the dollar. At any United States
mint 258 grains of geld .900 fine can be sold for ten dollars, while a new
ten dollar gold piece when melted down yields gold bullion to the amount of
258 grains .900 fine. The bullion and the coin are practically equivalent
in Value because they are interchangeable without appreciable expense to
the owner.
Our unit of value, the gold dollar, is 25.8 grains of gold .900
fine when minted into American coin, and all of our different kinds of money
are maintained at a parity with this gold dollar. Therefore anything that
411Ai,
7.
the value of gold affects the value of the dollarnd aa mat
affects the
aa
how much gold is produced, or how little, no matter how 1ar
a P4Opor
,a
ege,
of our payments are made by means of bank checks and bank not4ma orehew
Mall, the price of 25.8 grains of gold .900 fine at the mint t';'e
Won° dolla
<a.
and the price of an ounce of standard gold is $18.60.
aa
3at to say that the price of gold in the United States does not change
is not to sag that its value does not change. These are very different
propositions. The market value of gold, like the market value of any other
oommodity, is expressed in its command over goods, namely by what it will
bring in the market in exchange for other goods. While the producer of
gold unlike tile producer of
any other oommodity in America can always count
upon a fixed price for his product regardless of how much he produces or
how little, he oannet count upon fixity in his expenses of production.
The more bold the:tie thrown on the market relative to the demand,
the less valuable gold becomes in
relation to
other goods and the higher
the price level for other goods rises. An increasing supply of gold on
the market relative to the demand does not reduce the price of standard
gold below $18.60 an ounce, but it tends to push up the prices of everything
that the gold producer must buy, plant, machinery, tools, zinc, °topper,
cyanide, eta. This rise in the expenses of production is the natural
economic force that comes
into play to discourage excessive gold production,
just as a decline in price is the natural economic force to prevent an
excessive production of things other than gold. Rapidly rising prices
in a gold standard country are an expression of the depreciation of the
gold monetary unit.
In the United States they register the feat that the
market value of the gold dollar, namely its purchasing power over other
8.
kinds of goods, is rapidly declining. Dollars of rarlaY dedlinteg ptoOkesing
power are dollars whose supply is increasing faster than thAedemand, fostthe
market value of dollars, like the market value of everything 4;10e, AS a
resultant if the forces of demend and supply.
The purchasing power of the gold dollar in the United Statesbas been
r
decal/line almost oontinually sinoe 1896, and this decline hiab foundoespreatioe
*-71
in the rieing cost of living which hap agitated the public mind for the last
twenty year*.
If one measares the market value of the gold dollar by its
purchasing power over the two huedred to throe nundred womoodities whose
wholesale prices are covered hy the index number of t4e 'United States 3ureau
of Labor 3tatistios, and if one calls the dollar of 1096 (the year When the
present upward movement of prices began) a 100 per coot dollar, then the
dollar of 1913 was a 67 per oent dollar and that of delgust 1918 was n 33
per cent dollar, e!he depreCiation of the dollar hes been particularly striking
eine() the mar broke outs 4to puronaeing power over msolooele caneodities,
having been out in half sinoe July 1914, and its pursing power aver retail
comeodities, ouch as constitute about 80 per cent of the average laboring.
mania family budget, having boon out down about onelethird.1 Vever before
in r000rded history would an ounce of gold buy so few goods es it will today.
Mere has been a similar deprecietion in the units of value during this
perios in all cold standard oountrios which have maintained the Gold stendard.
The general rte in prices, in other words the deproolation in the
merket value of the Gold monetary unit, in cold standard oountries tnroughout
the world between 1.996 and 1913, vies due to a number of melees; bat the onief
044180 in the judgment of most aoleatillo economists was the Dirge gold production
of those years. Accoording to oomputations bused on the figures of the
1. See pamphlet on War Tim Changes in the Cost of LiVing, being research
report No. 9, August 1918, publiehod by the Uational Industrie' :einferenoo
30ard, re 78.
9,
elk
United States Lireetor of the mint, the avere40 annual production of @fit.
,,-
--
,
throughout the world by five year periods from 1890 to 1917 iii, aw:SollOrift
Value
Period
(millions)
Percentage awe*, el-
0''ei,
1890-1899 0 100;,'
1890 - 94
$147.0
100
1895 - 99
246.1
167
1900 - .04
297.6
202
1905 - 09
418.5
285
1910 - 14
459.8
513
1915 - .17
451.6
307
1.°1
tv,i-4
*v,
(3 years)
here ,in a little more than a quarter of a oentery,is a three-fold
increase in the world's annual production of gold. SO great has beeu the
preduution in recent yawls that the produotion from 1890 to 1917 amounting
to 9,199 million dollars has exceeded by 15 per ueut the total estimated
production for the period from 1493 to 1889 (namely 7,985 million dollars).
The world's total supply of gold today is more than double thet of 1590.
The &amend for gold has been inoreastmg, but nothing like as rapidly
4.c.t
as the supply, and this feet has bow registering itself in an almost
continuous depreolation in the purchasing power of gold from 1896 to 1913.
The average aneauLdepreolation in the parehasingpower of veld over
wholesale eummodities in the United States during the period. 1896 to
1918' measured geometrically wee 24 per cent. This downwer,:i movement
merket
in theAvalue of gold was greatly eel:tolerated by the war, the average
annual depreciation in the United Staten from 1914 to 1917 having boon
about 13 per cent.
Since 1914 the world's anneal gold produotion ha a been maintained
10.
at high figures, although somewhat lower ones than those of eh
eas0.0inn
tele'
stP
preceding, but the world has been economizing gold en an unpreoe4tede*cale0;06
es we have seen its use in the arts ha
0
en.earttiled, hoards havirt,been
/t
depleted and dumped into government treasuries, and gold jewelry and ornaments
have been transformed Into money. In belligerent ooantries gold coin has been
almost entirely withdrawn from oircalation and transferred to government treasuries and oentral batiks, its place in eative circulation haveieen taken almost
entirely be paper money and circulating bank credit.
In government treasuries
and central berate this gold has served as a basis for a large and rapidly rising structure of circulating bank credit and. paper money. In the vaults of
own federal reserve
central banks gold does its most efficient work. In our ,,(.2,C,"
tree&
-(eereeee
-Le
,for
for 42.150 f federal reserve notes or fo-er$2.86 of deposits of member banks,
reserve money: while each dollar of member beaks' reserve deposits provides
the legal reserve on the average for about eleven dollars of bank deposits.
The average dollar kept on deposit in a commercial bank turns over many times
a year through the oheoks that are drawn against it.
The United States has today over three billion dollars worth of gold
money, representing a net increase of about e billion dollars since the
leuropeen war broke out, and representing W far the largest supply of gold
gold to be found. in any countey of the world. The great balk Of this
over two billion dollars of it,_ isheld by the twelve federal reserve banks,
where it serves as an ultimate gold reserve for nearly two billion and a
half dollars of federal reserve notes and for something like fifteen billion
Led
dollars of deposits st nromber banks. The federal reserve system has 00M0
into being since the war broke out. it has made wonderful improvements
%-
..fe
U.
ee'''
e
el*
0
,4
in our banking system, and in doing so hes effected great econe*iesla the?i
N.
e''e 'use of gold, making a dollar of reserve money support a much largeir
otreotufe%
k,.,:-.
,
,
of oiroulaling credit than it would before. ell this hes teaded ttleakee
ee
....-'.
gold cheap and prices high.
ee!e.
in the light of these facts, is it reesoneble to attempt to stied/Its
cold prodection by means of a goverment bounty? Obviously the money to
pey the bounty would be obtained beeediately or ultimately from federal
taxes collected throughout the entire country.
The burden would fall upon
the tax ewer. The proceede of the bounty would go into the vaults of a
few gold producing concerns.
Tee peyment of the bounty would tend to
inorease the production of a commodity whoee surely is already so ereat,
reletive to the demand, that its value measured by its purchasing power over
wholesale commodities bee been approximately cut down one-half in four
years' time and nearly two-thirds in trenty-two years, time. It eeuld be
encouraging the production of e oaneadity wise rapid depreciation expressed
in the rising cose of living has bee causing end is still causing great
hardship to millions of people end to theusends of (meowed. institution
throughout the country, WAOSO inoomes heve not kept nS.09 with rising living
costs.
?he proposition is one to tax the people to provide bounties for
stimulating an industry whose stimulation would boost still higher the
high cost of living
r which these same people are at present suffering.
There in no reason to believe thet tee new supplies of cold whose
production would be stimulated by a bounty would not be used as the
present ones are being used, namely, chiefly as bank reserves for a son,
tinually rising structure of circulating credit, a structure that I rising
much more rapidly than in the physioal volume of business to be done.
*'7-3,
'1...
12.
It is not more money and. circulating credit that the nation needs, for wf,s
sA
are already unduly inflated. The sosoat need is for military applies,
1,7,
simple food, ships, and fighting
men.
-*
P
These are the essentialsIf twirl
They are not obtained by mining more gold.
,26
ei
ss
,2
The gold bounty, even if adopted, would probably fall to aocomiNkish"."
;;If
its purpose. If the bounties should stimulate gold production, the insreased
cc
gold production in boosting the general price level would boost the prioes
of the machinery, supplies and labor used by the gold mining concerns; and
these advanoes in prices would in turn lead to demand for additional bounties,
to cover rising expenses, and so forth ad infinitum.
For years there has been discussions among scientific economists eon,
oerning the question of the advisability of bringing about by international
agreement a curtailment of the world's gold production, so as to hold back
the upward movement in the (lost of living with all its resulting hardships.
This is the very opposite of the idea of stimulating gold production by
a bounty at a time when the cost of living Is rising at rates unknown since
the greenmbaok days of the Civil ear. Professor Irving Fisher in a letter
published in the providence Journal, under date of September 28, 1918, said
that he knew of no economist who favored the idea that gold_ production
Should be maintained at a maximum. "On the °contrary", he said, "economists
are, no far as I know, agreed that the present high cost of living As largely
due to the enormous importations of gold which the war has caused, and are
further agreed that any increase in gold production at this time would, by
monetary inflations raise prices still further to the great embarrassment
of the publio."
It is unfortunate for the owners of gold mining plants that the war Is
13.
,n
4 the,ir
labor
and
supplies,
while
the
price
putting up the priaes of their
\i .ithreatening
to
force
some
4tue40
product remains unchanged, and that it is
es
id
temporarily to shut down their plants. It is likewise unfortunate for;*e ,A
owners of many other worthy enterprises the demand for whose products thk:4
war has greatly cuttailed or whose supply of labor, fuel and credit it haSVA
narrowly limited. But this is one of the unfortunate costs of war whiCh
concerns producingithe leaf; essential things must pay. These are times
hen great sacrifices are called for, and the gold producer must bear
Ms share, perhaly a large one. There is no adequate reason why he should
w
be singled ou+ for a government bounty. There are strong reasons why
the product' ion of gold should not be stimulated.
07!.
1:1
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
DEPARTMENT OF
ECONOMICS AND SOCIAL INSTITUTIONS
DTp; ..4)
1918.
FEDV.TaL
Governor Benjamin Strong,
Federal Reserve Bank,
New York City.
My dear Mr. Strong:
Ji propos of the meeting of the Advisory Committee of the
Princeton Department of Economics and Social Institutions
Saturday evening of this week, I am sending you enclosed a
You
copy of the Departmental Announcement for 1917-1918.
will find on pages 19-22 a description of the undergraduate
courses which were being offered in the Department prior
to our entrance into the War, and on pages 23-25 you will
find a description of the graduate (courses together with a
reference to the undergraduate courses which are open to
graduate students.
Anticipating with pleasure to seeing you Saturday
evening, I am
Cordially yours,
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
DEPARTMENT OF
ECONOMICS AND SOCIAL INSTITUTIONS
Feb. 27, 191J.
Jr. Benjamin Strong,
Lake George, N. Y.
Dear Governor Strong:
You letters of Fe >'1O 10 and i4b...19 were received a couple
days ago. dI appreciate very much your giVing me such a full and carefulT§51tTession of your judgment concerning Professor Bogart's report.
AS soon as I have an opportunity to study your criticisms carefully
and compare them with the text of Professor Bogart's report, i shall
It may be a.
write you in detail my reactions to your suggestions.
few days before I can do this, as at present I am in the midst of a
large pile of examination papers which I must take care of before I
undertake anything else. You will hear from me on this matter, however,
in the near future.
The figures I quoted you some months ago, concerning recent
estimates of the saving power of the people of the United States, were
the estimates of Professor David Friday. These estimates you will find
summarized in tae article which I am enclosing. A more detailed statement of Professor.Z.idu!..Livesticiation is to be printed in the _larch
number of the Rmerican Economic Review, which is now in press and
The review is printed at Princeshould be issued within a week or so.
ton and I shall try to obtain an advanced copy of the proof-sheets for
There is
this article, and will send it to you if 1 am successful.
considerable difference of opinion among economists as to the value
Personally I am rather doubtful of
of Professor Friday's estimates.
a considerable number of his assumptions. r.hey are, however, the only
comprehensive estimates on the subject that seem at all worthy of
careful consideration. With all their faults, they are the best we
have.
You ask me concerning the reception waich the A B 0 of
the Federal Reserve System has had. In reply I am clad to report that
the book has received a very favorable reception. The reviews that
have so far been printed are all favorable. :he sale of the book has
The first edition
been large, considering the type of book that it is.
of BOO copies of the cloth-bound volume has been exhausted and -a. second
edition is now being bound up. The Princeton University Press tells
me that orders are coming in daily, and that the sale of the book seems
to be increasing rapidly. Of the pamphlet editions, there ha/also
The Philadelphia Federal Reserve Bank
been a considerable sale.
2.
Cr
distributed among the bankers and business men of its district 20,000
The New York Banl; as you know, bought 2,000 copies, and I
understand that smaller numbers have been ordered by otner banks. The
University Press does not sell the pamphlet edition in smaller lots
than 100 copies.
Several of the other federal reserve banks have been
inquiring concerning the pamphlet edition, and
are still hoping that
there will be additional sales. Some time ago one of the Deputy Governors
of the Boston Federal aeserve Bank told me that the Boston Bank had
decided to purchase 10,000 copies for distribution, and would plan to
distribute them in January.. Apparently either this official was misinformed, or there has been a. change of opinion, for the Boston order has
not yet materialized.
copies.
The'Princeton isaculty is now considering seriously the problem
of a reorganization of our entire curriculum.
number of the changes
contemplated will materially affect our department, and there is a good
prospect that next year the economics work will be given both in the
sophomore and freshman years. -Je are expecting that this increase in
work will lead to a substantial increase in our teaching staff.
If we
are to handle the new work at all successfully, we shall need to have
I have never known the students to
our numbers materially increased.
be so interested in the field of economics, as they are now since their
return from war activities. The attluntioh we receive is unusual, and
the enrolment in our classes is large. Only three of the ten members
of our departmental staff are now back teaching, the other seven being
still in war work. Our enrolment is so large that the three of us are
he
now carrying about as many students as the ten ordinarily carried.
It is unfortunate, of
have now nearly 700 students in our courses.
course, that we must handle the men in such large sections, and we are
hoping next year to do much more effective teaching than this year, for
The
we hope to be able to handle the man in much smaller sections.
increased interest in the work, however, offset5to some degree the unfortunate circumstance of our being compelled to handle the men in
large classes.
'
I hope you are enjoying your vacation at Lake George.
Cordially yours,
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
DEPARTMENT OF
ECONOMICS AND SOCIAL INSTITUTIONS
Mar. 13, 1919.
Governor Benjamin Strong,
Lake George, N. Y.
Dear Governor Strong:
I have read with much interest and profit your good letter of
Feb. 10.
With a large number of the points you make, I have always been
in full sympathy, and with a number of others I find myself in agreement,
although I held a different opinion before reading your letter.
Had our
Committee had the benefit of the side-lights you throw upon a number of
questions during the process of its discussions, I am sure that our judgment would have been different on a number of points.
Before taking up specifically any of the points you raise, I
want to make a few general statements.
In the first place the fact should be mentioned that the section
of our work dealing with public credit was first assigned to Professor
Henry C. Adams.
Professor Adams, as you know, is our leading American
scientific authority on the subject of public credit.
His book on Public
Dsbts although written a generation ago is still considered a classic on
that subject, and is by far the best known discussion of public debts in the
English language.
Professor Adams acted upon our Committee for a short time,
and we counted upon him carrying the work on the subject of public credit.
Unfortunately, after the work had progressed somewhat, he was called into
the government service in Washington and resigned his position on the Corn-
2.
'rnittee.
There were two other members of the original committee who had given
considerable attention to the subject of public debt.
They were Professor
Sprague of Harvard and Professor T. S. Adams of Yale.
Professor Sprague re-
signed his position on the Committee because of other duties, and Professor
Adams resigned because of his official position in the Treasury Department.
Professor Bogart is not a man of the standing in this field of these other
men, and was called in to assist us somewhat late in our proceedings.
At
the time he was appointed on the Committee he was very busy with finance work
in Washington, but consented to help us out of our difficulty.
He was by no
means the first choice of the Association for this position, and was handicapped both by the pressure of other work and by the fact that he came on
the Committee rather late.
The second point I wish to make is that while the report was approved by all of the members of the Committee, and while it was read in the
general Committee and discussed by those present, the different sections
none the less represent to a very large extent the opinioloPof the chairmen
of the respective sub-committees.
Professor Bogart's section was modified
in a number of particulars in the general Committee, but in the main his
report stands as he prepared it.
The chief modifications made in his report
were the addition of certain sections dealing with certificates of indebtedness, which were prepared by Professor Jacob H. Hollander of Johns Hopkins
University who was a member of Bogart's sub-committee.
Professor Hollander
has been working for some time on the subject of certificates of indebtedness,
and spent some time, I understand, in Washington obtaining first-hand information on this subject.
He had a book on the subject about completed at the
time we were holding our sessions, and inasmuch as he had devoted so much time
and attention to it, we assigned much weight to his opinion.
.3.
The very limited time available for the preparation of the report, together
with the fact that the chairman of
occupied with the preparation of
each
his
sub-committee:' was
so fully
own report, made it necessary for the
Committee to depend very largely - too largely,I fear - upon the conclusions
of the chairman of the respective committees for the treatment of their particular division of the field.
The members of the Committee were all keenly con-
scious that the report was full of shortcomings.
It was prepared hurriedly
under the pressure of war demand by men whose time was heavily mortgaged for
for
their regular teaching duties and,a large amount of additional war work.
We
reasoned, however, that a report of a group of men who approached the subject
from a purely scientific point of view might be of some value even though it
were prepared hurriedly and it were very incomplete in its scope.
Your first general criticism is that Professor Bogart's report has
a post mortem character, and that it presents an analysis of things that have
happened but gives few suggestions of a helpful nature for those who must
struggle practically with the problem it discusses.
I think your criticism
is a valid one, but that it applies to a larger extent to Professor Bogart's
report than to any of the other reports of the Committee.
there is one Important fact to bear in mind.
In this connection
It is this: our entire report
was practically completed and a substantial part of it, as I recall, was in
print when the armistice was signed.
The report was drafted with particular
reference to war conditions and a large part of the treatment' was based on
the assumption that the war would continue for some time.
The sudden sign-
ing of the armistice changed the situation completely, and a hurried revision
of the entire report therefore became necessary.
was to be submitted to the American Economic
Inasmuch as the entire report
Association in printed form at
.4.
its December meeting, there was very little time for a large Committee of this
kind to avail itself of, for the overhauling of the earlier report and the
adaptation of it to the new conditions.
In the process of readapting the
report, a substantial part of the earlier report was cut out and little time
was available for the consideration of reconstruction finance.
This explains
the rather poorly proportioned discussions in many parts of the report and
also explains in part its post mortem character.
Had the armistice not been
signed early in November, I think the report would have been a much better one
and would probably have been more useful to the administrative authorities.
Your second criticism is that the discussion proceeds upon the
assumption of 100 per cent perfection and efficiency being possible in government finance in time of war and that it pays too little attention to administrative and political difficulties.
This criticism, I believe, has weight,
but I think that you overemphasize it.
It is obvious that the more knowledge
a scientific man may have of the political and administrative obstacles in
the way of carrying through any programme the better.
are not his special fields.
But after all, these
They are the fields of the politician, the govern-
ment official, and the practical financier.
The scientific man suffers great
disadvantages in his aloofness from practical politics and from the details
These disadvantages he may overcome to a certain degree,
of administration.
but never fully.
His energy must be devoted largely to his scientific work.
This necessary aloofness, however, although it has many disadvantages also
has some advantages.
view
He can , problems from a distance.
He is not so likely
as the practical man to fail to"see the woodsbecause of the trees': He can be
an idealist, and, I am inclined to think, that to a considerable extent ought
to be.
It is in this way that he can perform his greatest services.
If he
5.
can discover and elucidate the broad genera/ principles and can set up the
he
scientific ideal
will,
in so doing, perform a valuable service.
istrator needs to have an ideal before him.
The admin-
He needs to know the fundamental
principles involved in his problem, even though they may be stated rather
abstractly.
The administrator then with his knowledge of political and ad-
ministrative obstacles can figure out how nearly it is reasonable for him
to attempt to attain the ideal which the scientific man is setting up.
is a place for division of labor.
Here
The work of the politician, the administra-
tor and the scientific man should supplement each other.
Either one is in-
complete without the other. A reasonable co-operation of the three make for
efficient
sound policies and,administration. VI am not disposed to dispute the point
you make at the bottom of page 2.
In the light of what you say on the
following page, concerning the efforts of the Secretary of the Treasury to
obtain more latitude, it appears clear that Bogart's statement places undue
responsibility upon the Treasury.
to anticipatory loans
This part of the discussion
referring
was contributed, I believe, by Professor Hollander.
He had made rather extensive studies in this field and had spent considerable
time in Washington investigating the subject.
His conclusions and the ground
upon which they are based are discussed in detail in his book on War Borrowing, which is cited at the foot of page 76.
the Macmillan Company.
This book is being published by
I do not know if it has yet appeared from the press.
I have not read the entire manuscript, but did read certain parts of it.
I
would suggest that you will probably find in this book, when it appears, the
grounds upon which the conclusions here discussed are based.
Do not
the fact that one billion eight hundred million dollars of subscriptions were
rejected in the first two loans, and that the subsequent policy of the Treasury
6.
was to accept all subscriptions made give color to Bogart's conclusion that had
a different policy been followed at least part of the anticipatory borrowing
might have been avoided?
Some of the members of our Committee took the position
that had the interest rate been enough higher on these loans to prevent them
from going below par immediately after the campaigns were closed, larger subscriptions would have been made in the case of subsequent loans, and that this
likewise would have helped to reduce the amount of anticipatory borrowing.
If my memory serves me correctly, a substantial part of leading New York bankers
tried to persuade Secretary McAdoo at the time of the First Liberty Loan that
it would be utterly impossible to float a loan of two billion dollars.
The point you mention on sheet 4 concerning mechanical difficulties
involved in the work of engraving a larger supply of bonds was not discussed
by our Committee.
Those were times in which exceedingly impossible mechanical
achievements were being accomplished every day.
It seems to me difficult to
believe that with the number of private engraving establishments in the country
at this time this mechanical work could not have been carried out if the larger
programme involved seemed to be an urgent matter of war necessity.
Was it
absolutely nedessary that the bond should be completly aegotiable and saleable
when the printing process was completed?
Could not an extra process in the
government plant, or an extra signature have been required to complete the
process?
On this subject I am completely ignorant, but it is hard for me to
believe that a mechanical difficulty of this kind would have been absolutely
insuperable in time of war.
It seems to me inaccurate to say, as you do(on page 78) that
Professor Bogart takes a "slam" at the optional bond.
As I read his statement,
he is here merely giving the conventional statement of the pros and cons of
the optional bond, and he concludes by saying "in the main, therefore, no
7.
serious criticism can be urged against the choice by the Treasury of both the
- optional and the straight bonds, with a preference on the whole for the former
category."
The statement you quote on the last line of page 5 Bogart might better
have left unsaid.
first sight.
But I do not think it is quite as absurd as it appears at
Bogart is thinking of our American experiences during the eighties
and the early nineties.
During those years we were paying off our bonds when
they matured and were hying them up at heavy premiums in advance of maturity
In order to get rid of our heavy surpluses without impairing our protective
tariff.
Again,during
the thirties of the last century, the problem of the
surplus was a serious one, as you know, in this country.
We have,I believe,
frequently paid off substantial issues of bonds at maturity without refunding
them, and it is experiences of this kind from American history that Bogart
had apparently in mind when he made this rather naive statement.
He certainly
was not thinking of paying two or five or ten billion dollars off at one
stroke of the pen, and he was not apparently
_
thinking of making such pay-
fund
ments by means of the old-time sinkingApolicy; out of proceeds of a slowly
accumulated sinking fund.
This comment is meant to apply to the discussions
in the first two paragraphs of page 6 of your letter.
Although Professor
Bogart maintained that had bonds of fixed maturity, of,say, twenty or thirty
years, been sold they could have been sold at a higher price,
understand him to be advocating such bonds;
thinks, more than offset this advantage.
I do not
for the advantages, he apparently
Personally I think that the govern-
ment acted wisely in selecting the optional bonds, but I also believe that
bonds of fixed maturities of twenty or thirty years could have been sold
8.
at a higher price than the optional bond.
I believe that most thinking men
expected the interest rate to decline after the war, and this being true
the market would have been disposed to bid materially higher prices for bonds
of fixed maturities than for bonds that could be paid off or refunded by the
This
government at the end of comparatively short periods.
,canclusion of course
would be greatly strengthened had the government offered a higher interest
rate on its bonds and depended to a somewhat less xtent7 on appeals to
patriotism for the sale of the bonds.
It is my judgment that the government
should have done this, for I believe that it was a mistake to place the
interest rate so low as to cause the bonds to drop below par as soon as the
campaignsfor the liberty loans were closed, and, as you know, I also believed
that the low interest rates were directly and indirectly to a very considerable
degree responsible for our excessive inflation.
On page 8 you say that you are surprised that Professor Bogart should
ignore the general subject of conservation of materials and labor.
It would be
my guess that his reason for doing so was the fact that this subject had been
stressed by another Committee of the American Economic: Association, namely,
the Committee on the Purchasing Power of Money, which had devdted a considerable
amount of attention to this subject and had given it wide publicity.
Bogart's
chiefly
report, like the report on the excess profit tax and the income tax, wasin-
tended to be for the benefit of the government rather than for the education
of the general public.
You say, on page 10, that you would like to ask Professor Bogart
how he would arrange the debt's repayment.
this and some of the other points?
Why do you not write to him upon
Tell him that you have written to me on
the subject and -,hat I have referred you to him.
glad to give you his judgment.
I am sure that he would be
When this part of his report was before the
Committee, I made the criticism that it ignored the fact of the War Savings
Stamps becoming due in substantial quantities in 1923, and I understood that
he would make a reference to this fact in his discussion.
overlooked, however, in the final revision.
It was apparently
I think his answer to your question
would be that when this report was first prepared it was not realized that the
Fifth Liberty Loan would be of short maturities and that a period from 1918
to 1927 was a rather long one to permit to elapse before any of the large bond
issues would be Eedeemftiale=ow refundable.
Professor Bogart is primarily an
historian of American economic history, and he probably had in mind throughout this discussion the difficulties the United States has had through the
issue of bonds of unduly long maturity.
He probably feared that the govern-
ment might be confronted with a situation like that which confronted it in
the eighties, when it could not retire bonds for which it had ample funds
without buying them in the open market at substantial premia.
I am sure that
all of the members of our Committee would agree with you in your proposition,
that the government should begin to retire its war loans just as soon as
possible after it quits borrowing.
With reference to your comments on pages 10 and 11, I would say
that all of the members of our Committee were thoroughly and enthusiastically
in sympathy with the governmentspolicy of ..trying to obtain a. very wide dis-
tribution of bonds among the poorer classes.
We took that for granted.
I
am sorry that Bogart's report failed to make a favorable comment upon the
government's success in that matter.
The Committee was also, I believe, unan-
imously in favor of the desirability of not exempting either federal or state
or local bonds from taxation.
Of course in this opinion they were viewing
the problem from the economic point of view, and they realized that there
was a debateable constitutional question involved.
'10.
On page 11 of your letter you comment on the statement given on page 87 of Bogart's
report to the effect that the practice of encouraging people to borrow money in
order to buy bonds is to be deprecrated, and you mention three courses open to
the government.
I think that there would be no disagreement between us that the
first course you mention was by far the most desirable one and should have been
resorted to as fully as possible, and that the third course you mention was the
least desirable one and should have been avoided as far as possible.
The second
course, namely, that of encouraging people to borrow money in order to buy bonds
is a more debatable one.
To the extent that these borrowings would be liquidated
within a reasonable time out of funds obtained through economies in expenditures,
the plan was clearly desirable.
To the extent, on the other hand, that the loans
were to be carried for long periods of time by the banks, and were not to involve
economies in consumption On
the part of the borrowers for the purpose of liquieven then
such loans, it seems to me, were to be deprecated, although,\under
'
dating them,
certain circumstances i appreciate they may have been desirable.
At the hdight
of the Liberty Loan canpaigns I fear that a great many banks in their enthusiasm
encouraged people to borrow in excessive amounts in order to buy these bonds,
with the implied understanding that they would carry the customers almost indefinitely at a rate of interest that would involve them in no loss.
I have
heard numerous instances of this sort of thing, and frequently have seen notices
posted in banks encouraging tneir customers to borrow to the limit, in order to
buy bonds,without any statement at all as to the desirability of liquidating the
loan at a reasonable date by means of economies in expenditures.
One acquaintance
of mine, for example, whose salary is about 44,000 bought 410,000 of Liberty
bonds in the second loan, borrowing the entire amount from the bank and is,
believe, carrying all of it or most of it as a loan to this day.
I
You are
doubtless familiar with the figures on this subject contained in tne pamphlet
prepared by the Savings Bank Section of the American Bankers Association, a
Cm copy of which I am enclosing.
Now I realize that such excessive borrowing
for the purchase of Liberty bonds was not only not encouraged but was discouraged by many persons in high authority in the federal reserve system, and
in the banking world generally.
None the less, in the enthusiasms for the
Liberty Loan drive there was a very large amount of encouragement given to
excessive loans, loans that by no reasonable prospect could be paid out of
savings for long periods of time.
Liberty bonds purchased in this way might
just as well have been purchased directly by the banks, for the result was
essentially the same.
The banks received the bonds as collateral, the
customer paid the same rate of interest on his loan that he received on his
bond, and the bank made a good return so long as it held
government deposit
the resulting
Later it passed these bonds on as collateral
for 15 day loans to the federal reserve banks and there they served as a
basis for bank notes and bank deposits expansion, resulting in a reduction
of federal reserve bank reserves.
So long as the personswho borrowed to
buy the bonds did not economize to liquidate their debts, but went on buying
goods as fully as before, there was little good from the transaction.
The
federal reserve banks carried the loan in reduced reserve; measured percentagewise.
I can only see three grounds for justifying such a procedure, the first
is that when a liberty loan drive was started for a definite sum, tilere were
psychological reasons and military reasons why that sum should have been obtained.
A failure to obtain the amount sought for would have had a.bad effect
both at home and abroad.
Rather than have the government fail to obtain the
amount it set out for, but only as a last resort to that end, such borrowing
was justifiable as likewise would have been appeals to banks to purchase
heavily out of their own funds.
A second argument might be advanced that the
12.
inflation resulting from such a policy, by forcing up prices, forced economies
C. on the part of the public.
On this subject my own philosophy was expressed in
the last paragraph in my article on Inflation in the American Economic Review.
That paragraph is as follows;
"The pressure that inflation exerts is often cruel and very
Probably the benefits of inflation can
inequitably distributed.
be obtained by methods involving less injustice - methods such
as the curtailing of transportation facilities to non-essential
industries, restriction, through the instrumentality of the
federal reserve authorities and the proposed war finance corporation,
on loans to non-essential industries and on the flotation by such
industries of new securities; the inauguration of a rationing
policy and the resort to taxes in an increasing degree as comInflation
pared with bond issues as a means of securing funds.
as a deliberate national policy should be tolerated only as a
last resort. But the labor and capital resources of the country
be applied vigorously and to a rapidly increasing extent
must
The public must economize and
to the serious business of war.
economize riglrously. Non-essential industries must be cut to
the bone. If inflation with all its cruel injustice for this
generation and with its menace of injustice for succeeding
generations is a necessarY means to that end, then inflation
must be tolerated. Economic justice to individuals and the
distribution of the war burden is an important desideratum;
but the nation is more than the individual, and a higher ideal
than temporary justice in the distribution of economic burdens
is the preservation of democracy."
A third possible justification might be found in the fact that after
perhaps
the loans were made the banks might bring increasing andiunexpected pressure
upon borrowers to economize and liquidate them rapidly.
I fear that many
banks at the present time are not doing their full duty in this direction.
I participated in the discussion of the Committee on this part of
Professor Bogart's paper, and I believe that what the Committee had in mind
was the evils resulting from loans made for the purchase of liberty bonds
out of all proportiono what the borrower might be expected to pay off within
any reasonable time.
The Committee had in mind the resulting evils of
13.
inflation, and the fact that such inflation helped the government very little
because, while it provided funds for the government, it put up the prices of
most things that the government would be compelled to buy, so that the government although having more money by reason of that policy needed more money by
reason of the same policy.
To your comments on the bottom of page 13 inquiring where would
Professor Bogart have raised the five or six billions produced under Plan B
if not by the method adopted, I do not know what he would say; but my own
reply would be that greater emphasis should have been ;placed upon Plan A, and
to
that less funds would have been needed had Plan B been resorted to a less
extent.
You say at the bottom of page 13 "in no place in his report do I
see any reference to the fact that the reserve banks, except through their
discount operations, have been kept entirely clear of government loans."
It
seems to me that the policy of the federal reserve banks of thus keeping free
from the direct ownership of government obligations was a very commendable
one.
The exception you mentioned, however, namely, the amount of government
paper they held as collateral in connection with their loan and discount
operations, was a serious one, and the difference between direct ownership
the
andAholding of obligations as collaterals for notes was not from the economic
point of view a very great one, as the ease with which a collateral loan
could be changed to a purchase with the re-purchase clause illustrated.
At
the time our report was written, the members of the Committee, as I believe
also many of the officials of the federal reserve banks and many bankers, were
ly
greatly worried at what seemed to be a necessariArapid increase in the amounts
of government paper that was finding its way into the federal reserve banks.
Furthermore, we did not have figures as to the amount
of such government
paper that was held by all the banks of the country.
As I recall it, at one
time the paper held by federal reserve banks as collateral and held by direct
ownership or as collaterals by the member banks that reported weekly, all told
amounted to nearly four million dollars, and this did not include that held
by the large number of banks for which no reports were received.
Considering
to have been
the situation as it was in November , 1918, it would hardly seem to me,advisable
for a scientific committee like ours to emphasize the fact that the federal
reserve banks held little government paper under direct ownership.
It would
have opened the Committee to much criticism.
On page 14 of your memorandum, you refer to the figures cited by
It
el
Bogart on page 88 as being surprisingly disingenuous.
Those figures may be
somewhat misleading, but I hardly think that they are open to the charge of
being disingenuous.
That is a rather strong expression, and I am sure there
was no one on the Committee who was not desirous, above all things, to state
the truth clearly as he saw it and to be as heldful to the government as
possible in the emergency.
You say on page 17 that you had conferences on these subjects
with Professors Smagu.e and Seligman.
Both of these men, as you know, were
originally members of our Committee.
Professor ;;prague,however, resigned
before any work was done, and Professor Seligman continued throughout as
Chairman of the Committee.
Bogart's section of the report was the least
satisfactory section of the entire report, and Professor Seligman himself
devoted a great deal of time and attention to revising and remodeling that
part of the report.
I will reserve comments on the parts of the last pages of your
letter concerning my section of the report until I receive from you your
letter dealing with that subject.
I am greatly pleased to know that that
15.
part of the report in the main appeals to you as being well-balanced, con, servative and temperate.
Inasmuch as my philosophy of the influence of gold
on inflation was cut out of the report for the purpose of brevity and as this
philosophy is discussed more fully in my article on Inflation in the American
Economic Review, I am sending you another copy of that article, as also a
copy of the article on the proposal for a gold bounty which contains further
treatments of my ideas on this subject.
In conclusion let me say that this reply to your letter has of
necessity been written hurriedly and without the careful deliberation which
I should have liked to give it, and which the importance of your letter
justifies.
I have furthermore spoken frankly and freely, accepting your
invitation to answer your points "unsparingly".
May I take this occasion
to tell you what I may have told you before; at any rate what I have told
many others, that in my judgment no man in prominent financial position
during the war has been more eminently sound in his economic philosophy or
has exercised a larger influence in the direction of sound financial theory
and administration than you have.
My judgment in this respect has been
strengthened and my admiration for the services you have rendered been increased by a number of the points you mentioned incidentally in your letter.
I am particularly pleased with your fearless actions, with reference to the
comptroller's telegram directing the banks to loan to the extent of six
per cent of their resources, and with reference to your actions in the
direction of discouraging in every possible way the purchase of government
securities directly by the federal reserve banks.
I hope it will be possible for you before you return to New York
to carry out your desire to come to Princeton and spend a few days here,
looking over the situation in the University.
This is a critical time for
16.
Princeton, as everything here is at present plastic and is likely to be moulded
(6)) into rather definite form in the near future.
at present rather serious.
Our departmental situation is
It looks as if four or five men of our teaching
staff of ten would not come back, because of financial reasons, and that at
a time when we are expanding our work and planning to increase the size of
our staff.
Of the twelve men we shall need in the Department for next year,
only five are at present in sight.
The Economics Department at Princeton, as
well as in many other institutions, is facing a serious situation.
The
demands of the government and business houses for well-trained men in the
field of economics during this period of reconstruction are unusually heavy,
and the salaries paid are so much more attractive than are university salaries
in this time of the high cost of living, that our men who went away during
the war are not coming back, while the new men who are coming on the scene
of action are being drafted into government and business work and passing by
the numerous academic positions that are open all over the country in the
field of economics.
I am glad to say that as a result of the activities of
our Advisory Committee and of the letter which you wrote to President Hibben
on the subject, the President and also many members of the Board of Trustees
realize the seriousness of the situation in our Department and are doing
everything in their power to help us meet the difficulties.
Cordially yours,
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
r^s-,
DEPARTMENT OF
October 11, 1919
ECONOMICS AND SOCIAL INSTITUTIONS
11)
oct
Governor Benjamin Strong, Jr.,
rederal heserve Bank,
New /ork City.
14,"9
My dear Governor Strong:
President Henry B. Gardner of the American
Economic Assockiation has just written me that he is
inviting you to give a paper on foreign investments
at the forthcoming meeting of the Americanpconomic
Association, and suggests that I write to Ou seconding
his invitation. I am very glad to do so. 4.he subject
is one in which economists are greatly interested, and
concerning which they are looking for light. I know
of no one in this country who can speak on this subject
with more authority than you can, and i. am sure that
your message would be valuable to us and would tie very
highly appreciated by the members of the Association.
i hope you can join us at the Louisville meeting.
ed
1 return to the United States about three
weeks ago from my summer in Guatemala. It was a most
interesting experience, and the problemsthere presented
were quite different in many respects from any I have
collie in direct contact with before. At the first
opportunity 1 want to talk the situation over with you,
for I believe you will be interested in the peculiar
monetary and banking condition that exists in that
country.
uur work at Princeton
off with about a fifty per cent
merit in OUT economics courses.
of the departmental faculty and
off very well.
this fall has started
increase in the enrolwe have six new members
the work has started
Cordially yours,
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
DEPARTMENT OF
Dec. 12, 1921
ECONOMICS AND SOCIAL INSTITUTIONS
JAN 101922
;
Mr. George Beyer,
Secretary to Governor Strong,
Federal Reserve Bank,
/iew York City.
Dear Mr. ,Beyer:
I was very sorry to learn from
your letter of December 7 that Mr. Strong
is ill, and I sincerely hope that he will
Of course we are sorry
speedily recover.
that he cannot be with us at Princnton at
an early date, and we shall look forward
to having him with us at some future time,
that will meet his convenience.
Please
express to him my sincere hope that he
may speedily recover his health.
Cordially yours,
Gat ERNOR'S
SECT
DEC 13 3921
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
DEPARTMENT OF
Jan. 17, 1922
ECONOMICS AND SOCIAL INSTITUTIONS
ACKNOW1 EDGED
JAN 19 r22
Mr. George Beyer,
Secretary to Governor Strong,
Federal Reserve Bank,
New York City.
Dear Mr. Beyer:
I was very glad to learn from your letter
of January 10 that Mr. Strong is continuing to make
fine progress and that he is expected to return to
the bank within a short time.
.7,
My undergraduate course in money and banking comes to an end about the first of February and
I have obtained leave of absence for the second semester
It is 11* intention to spend
of tne current year.
practically the full time, from early February until
the latter part of September, in South America studying financial conditions in some of the leading South
am sailing from New York with
I
American countries.
Under the circumstances, I
my family on February 2.
am inclined to think thd.t it might be wiser for us to
postpone Mr. Strong's visit until the early fall, if
Of course the oftener we
that is at all practical.
can have Mr. Strong with us at Princeton, the better
If we cannot have him both this
satisfied we are.
spring and next fall - and I fear that would be too
much to expect - we would prefer to have him in tae fall
wnen tne students are paying particular attention to
Our undergraduate coui;sesin finance
banking problems.
next term will be primarily concerned witn problems of
taxation and the public debt.
Wishing you all sorts of good things for the
New Year,
I am
Cordially yours,
dist;
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PRINCETON UNIVERSITY
ACKNawl,EDGED
PRINCETON, NEW JERSEY
NOV 1
1922
DEPARTMENT OF
171.
Oct. 30, 1922
ECONOMICS AND SOCIAL INSTITUTIONS
'-
Mr. Benj. Strong, Governor,
Federal Reserve Bank of New York,
New York City.
My dear Governor Strong:
I will be glad to see you any time Friday
afternoon or evening November 17 that may meet your
convenience.
Sunday forenoon would be equally satisfactory to me if more convenient for you.
I am glad to know that you will bring with
you the papers which you recently sent to Professor
Sprague.
If practicable, I would like to have them
a few hours in advance of the time we get together,
so that I will have opportunity to read them over
carefully.
We are very anxious to have you give us a
talk this fall, and will try to arrange it for any
Friday that will suit your convenience.
If practicable give us a couple choices as a few of our departmental non-resident lectures thia fall are already
scheduled.
Sincerely yours,
-ocr 32
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
ACK NOW LEDOED
FEB 2 I 1924
RS.
DEPARTMENT OF
ECONOMICS AND SOCIAL INSTITUTIONS
Dec. 1, l22
Governor Benjamin Strong,
2edera1 Reserve Bank of New York,
New York Oity.
Deaf Governor Strong:
I have been in either New York or Washington
a good share of.the time since your letter of November
21 arrived in Princeton, hence my delay in replying.
The lecture I spoke to you about was merely
one of my class room lectures in the course in Money
It is of necessity rather
and Banking here at Princeton.
elementary and I fear, upon looking over it, that it will
contain nothing of interest tol'you. However, I am sendThe
ing you my rough manuscript covering a few pages.
parts I had in mind are those on pages 48-51 and 75-84.
This material, after considerable further revision, will
be incorporated in my forthcoming book, and I should of
When you are through
course welcome any criticisms.
with the manuscript, kindly return it to me. The accompanying pamphlet on "The Theory of Foreign Investment", you
may keep if you find anything in it that interests you,
Mr. Gerould, Professor Dixon and I all enjoyed
We all appreciate more
the chat we had with you Sunday.
than we can tell you the splendid way in which you are
cooperating with us in connection with the.LAbrary. I
think we understand what you have in mind, and we shall
do everything in our power to carry through satisfactorily
Mr. Gerould is working out a plan
the plan agreed upon.
along the lines we discussed for the collection of original material, and you will hear from us later in this connection.
I want to thank you again for your hospitality
Opportunities like that to compare
last Thursday evening.
notes informally with men who are interested in our subjects
and who approach it from different angles are exceedingly
He
I ha& never met Sidney Anderson before.
valuable.
struck me as a man with a good mind and an excellent balance
wheel.
cp
192a
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2.
I am still rather concerned
over the possibility of another inflation movement in the near future,
despite the optimism of several of our friends from the
West.
The Bureau of Labor statistic's wholesale price
index numbers have shown already this year, I believe,
a rise of about la per cent - one of the largest advances
we have ever had in the same length of time while on a
gold basis, except during the war period.
Under present
conditions I think the price index numbers will deserve
very careful watching.
I will return to you within a day or two your
manuscript with reference to federal reserve policies
during the war and early post-war period.
At thP3 time
I will write you a few of my general impressions with
reference to the policy pursued.
,d_th cordial regards and with keen appreciation
for your splendid cooperation with us at Princeton, I am
Very sincerely yours,
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
DEPARTMENT OF
ECONOMICS AND SOCIAL INSTITUTIONS
December 11, 1922
Gov. Benjamin Strong
Federal Reserve iiank of New York
New York Oity.
My dear Governor Strong:
In accordance with our verbal arrangement
wnile you were in Princeton, we nave scheduled you for
a DepartMenfai lecture, Friday, January 19.
Kindly
let me nave your subject as soon as convenient.
AA--
Mrs. Kemmerer and I would be delighted to
have you stay with us while you are in Princeton at
that time but we recognize that your own people, the
SpEdings, may have a prior claim upon you.
Our latch
string, however, is out.
Mr. Gerould is makiilg substantial progress
in his arrangement for collecting original material
on War Economics from abroad.
He will write you further
concerning the matter in the near future.
cordially yours,
T
-
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
DEPARTMENT OF
ECONOMICS AND SOCIAL INSTITUTIONS
December 12, 1999
Governor Benjamin Strong
Federal Reserve Bank of New York
New York City.
My dear Governor Strong:
I am returning nerewith by registered mail the
memorandum you so kindly loaned me on "Rate Action of 1919,
Federal Reserve Bank of New York."
From our conversation while you were in Princeton a
few weeks ago, and from our previous conferences and my
writings an the subject, you are familiar with my general view
of tne financial policy pursued during the war.
Your position in favor of a high discount rate policy
during 1919 I think was a thoroughly sound one, and I think it
was a great misfortune to the country tnat your recommendations
There are widespread
inthem)particular were not carried out.
differences of opinion among economists as well as among
bankers concerning the wisdom of v'arious financial policies
pursued during the war but I think the opinion is practically
unanimous . at least among economists of standing - that a
great mistake was made in not adopting a much higher discount
rate policy shortly after the Armistice, certainly not later
than May, 1919.
I agree with you that during the period in which the
United jtates was a belligerent nation the Federal Reserve
authorities were compelled to make their policies conform to
those of the rederal Treasury.
The one great job was to
win tne war and the responsibility for carrying through a
program to this end rested squarely upon the shoulders of the
Federal government.
The Federal Reserve Banks, therefore,
had no choice but to make their policies conform to those of
the government.
In my judgment certain of the Government's financial
policies were unwise, among which I would mention the policy of
granting tax exemption privileges to .incomes from Government
bonds, the weakness of the Government's tax policy as regards
the levying of excise taxes upon luxuries, the failure to
adopt early a policy of rationing to be made increasingly
rigorous as the war proceeded, the "borrow and buy" loan
policy, and the low interest rate policy, from which the low
discount rate policy of the Federql Reserve Banks inevitably
From our frequent conversations and from the
followed.
position you take in the rate memorandum, I infer that there is
not much difference of opinion between us upon any of these
0
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points except the last one.
As to interest rates upon War loans I have been from
the beginning in favor of the policy of making the interest rate
upon Government bonds conform closely with the market rate of
This would
interest for similar high grade securities.
of course,mean that most bond issues during the war period would
have had fairly short maturities, thus making it possible to
refund at lower rates of interest, after the stress and strain
of the war was over.
In time of war the supply of capital
tends to be depleted, or, if it increases, it increases at a
much slower rate than in time of peace, while the demand for
The interest rate ie the
capital increases inordinately.
equilibrator of the demand for capital and the supply of capital.
If permitted to take its natural course, it will advance during
any great war - in fact it will advance whether permitted to
take its uatutti;course orpNot e4
rtut
in tne latter case the:
e
hei
advance,/ laltirough
down,beCausethe actual or
purchasing power 'tate of interest advances.
Man cannot repeal
a natural economic law.
lconomie energy may be diverted but
Tnere is a fundamental economic law
it cannot be destroyed.
that says that when demand for capital increases more rapidly
than the supply of capital the rate of interest will rise.
All
of the efforts of all of the belligerent nations of the wotld
could not nullify this law.
If the forces of demadd and supply,
in connection with capital, were such as to result in a six per
cent interest rate
for United States Government securities of
a given tenure, the Government could not float them at four per
cent (except as it might do so by appeals to patriotism resulting in a form of gift to the Government) without adopting a
policy of inflation.
Temporarily, of course, the Government
can make any rate of interest effective if it will loan money'
to the public directly or indirectly in practiealiy unlimited
quantities at that rate.
This spells inflation, and means that
the Government is borrowing money of decreasing purchasing power,
which it will be compelled to pay later, both principal and
interest, in money of a greatly increased purchasing power,
after the inevitable period of deflation occurs - and it must
occur unless the currency is to be permanently debased - and this
means that the actual purchasing power rate of interest the
Government must pay is much larger than the nominal rate of
interest called for in the bonds.
If the tax payer who subsequently provides the Government with the fund for paying the
bond, principal and interest, is a different person than the one
who originally bought tne bonds and continues to hold them,
the injustice is very great.
This was the situation that developed after the Civil War and led to much critidism of our
Civil Wal financial policy.
As I said in my little book on "High Prices and
Deflation", "We bought our low interest rate on Government papers
We kept
at the price of very high prices for commodities.
interest rates down by a policy that kept pushing the price level
up...When the discount rate was artificially pushed down prices
The Government, it is true, paid lower rates of
bulged up.
interest on its bonds, but it was compelled to pay higher prices
war supplies it bought, and was therefore compelled to
for the
-3-
float more bonds.
It paid lower interest rates by reason of
this policy, but it paid and will pay more intereat.7
These artificially low interest and discount rates
encouraged excessive borrowing by private individuals - a
borrowing which was stimulated by the rising prices which
the "low interest rate - inflationary" policy caused.
Wholesale
prices increased about a hundred and fifty per cent down to
May, 1920 and the cost of living much more than doubled.
A
substantial part of this increase - how' much of course no one
knows - was due to this "low interest rate - inflationary
policy."
The evil effects of these tremendous price changes, with their
varying degrees of lag among different commodities and between
prices and wages, were. enormous during the upward movement thf
Inflation and the subsequent downward movement of deflation.
They #ave played havoc with the equities between debtors and
creditors and have been a tremendous engine of wealth re-distribution which has acted blindly and not according to any rule cr
prinoiple: of social justice.
They have taken much of the hard
earnings of Society's most deserving members and given them to
the least deserving.
They have done untold damage to the cause
of education An the United States and have robbed millions of
people of a large percentage of their savings and of the values
of their insurance policies upon which their dependents must rely.
Even the nominal or money interest rates were only temporarily held down by tnis inflationary policy and could only be held
'down so long as inflation was progressively continued.
As soon
as it was stopoed the natural interest rates began toassert themselves.
Tne actual interest rates since 1920 of course have bean
much higher than the nominal ones, because of the increasing value
of the dollar in which interest and principal were paid.
We have
had, therefore, wide fluctuations in interest rates and also these
extremely wide fluctuations in prices and wages.
In my judgment a frank recognition by the Government at
the beginning of the war of the fact that the market rate of interest
must go up and go up substantially and perhaps continually during
the period of the war, would have had less evil consequences
than the policy pursued, although I recognize that this policy
would also have had its evil results.
The higher interest rates
would have discouraged much private borrowihg which was harmful
during the war, and which competed with Government borrowing.
They would have encouraged saving and a save and buy policy on
the part of the public in connection with the public debt.
Prices
would not have risen anything liKe so much as they did, and the
Government would not have needed to borrow anything like so much
money to obtain the same quantities of supplies, etc.
Since orices
would hot have risen to anything like so great a height as they
did they would not have had to fall so far as they have.
In my
judgment, the changes in interest rates that would have taken place
would have been nothing like so serious or far reaching in 'their
consequences as were the changes in tne price level and the wage
level that resulted from the policy actually adopted.
.
4R>
Of course the policy of high interest rates should
have been accompanied by a policy of rationing and of vigorous
taxation including heavy taxes upoll luxuries.
Such a policy could doubtless have been carried out
more effectively, if it were adopted by England as well as by
tne 'United States, but I do not agree with those who maintain
If we
that we could not nave aaopted such a policy alone.
had adopted it alone interest rates would have ruled higher than
England would have
in England and prices have ruled lower.
paid higner interest rates for wnat she borrowed here but lower
Any dangerous flow of capital
prices for what she bought here.
from England to the United States under such circumstances T
Rising prices in
think could have been readily controlled.
England would have tended to keep capital at home because
of the increasing profit which they seemed to imply.
Tie subject is one containing unlimited possibilities
for honest differences of opinion, and what I have said merely
suggests the general line of reasoning by which I have arrived
at the belief tM.t a high interest-rate policy would have been
When you come to Princeton
the wise one for/war financing.
next month I hope we can have a further talk over this subject.
Cordially yours,
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
DEPARTMENT OF
ECONOMICS AND SOCIAL INSTITUTIONS
Jan. 9, 1923
Governor Benjamin Strong,
Federal Reserve Bank,
New York Oity.
Dear Governor Strong:
I waS very sorry to learn from Mr. Bayer's
letter of January 3 and your letter of January 4 that
you were again having trouble with your throat. The
only tning for you to do is to give it tne very best
ore possible.
We are, of course, disappointed tnat
you cannot be with us on the 19th, but we shall look
forward to having you at a later date.
I sincerely
hope that you will be in ship shape again very soon.
When I am in New Yolk iand fail to find you
at the office, I will be glad to remember your invitation to try you at your apartment.
/Sincerely yours,
vq)
"
192.3
PRINCETON UNIVERSITY
ACKNOWLEDGED
PRINCETON NEW JERSEY
Department of Economics
and Social Institutions
1,1AY 1 G 1924
May 10, 1924
Governor Benjamin Strong,
Federal Reserve Bank,
New York City.
Dear Governor Strong:
Upon my return to Princeton last week I found awaitI have just learned
ing me your good letter of February 21.
I have rather inthat you are soon to be back in New York.
teresting material in connection with Germany's currency experiences of the last year, which I think has an important
bearing upon the question you raise in your letter of February
21.concerning th'e influence of the state of mind of the people
on currency circulation, and therefore upon the price level.
Germany's experience of last October, November and December
I think represents a very illuminating chapter on this subject.
Changes in business confidence I'think have a great influence
upon the rate of monetary and deposit turnover, and it is
through this influence that changes in the state of mind greatly
You are also probably familiar with
affect the price level.
the discussion in my book on "Money and Prices" of the relationship of changes in business confidence to the ratio of bank
The evidence was very strong during
reserves to bank deposits.
the period 1879-1909 that the ratio of bank reserves to bank
deposits varied directly as business distrust, or invertly as
business confidence, and in my little book on "Money and Prices"
you will find figures and a diagram showing the remarkably close
This is a point that
correlation between these two movements.
I think Irving Fisher and I think many other believers in the
quantity theory of money have unduly neglected in their stateSome time in the near
ments and interpretation of the theory.
future I hope to have an opportunity to talk with you about this
subject, as also about some of my recent experiences in Europe
in connection with the work of the Dawes Committee.
I was sorry not to have been able to see you while
Most of the time you were there I was in
you were in Paris.
Spain, and the day I returned General Logan told me you were
The following day I left for
ill and not receiving callers.
I hope that by this time you are in good health again.
home.
Looking forward to seeing you soon in New York- or
Princeton, I am
Cordially yours,
PRINCETON UNIVERSITY AckNowLE00FD
PRINCETON NEW JERSEY
Y 2 C 1924
Department of Economics and Social Institutions
At'y g4,
1924
Governor Benjamin Strong,
Federal Reserve Bank,
New York City.
Dear Governor Strong:
In reply to your letter of May 16, would say that
at the present time I have no regular routine work in the
University, so that my time is pretty well under my own
control.
I
could come to New York for a conference with
you almost any time you would care to fix.
Cordially yours,
PRINCETON UNIVERSITY
ACK NOW1...EDGED
PRINCETON NEW JERSEY
JUN 9 - 1924
Department of Economics
and Social Institutions
CI R.
June 4, 1924
Mr. Benjamin Strong, Governor,
Federal Reserve Bank of New York,
ew York City.
My dear Governor Strong:
Replying to your letter of June 2, received this morning, would say that I expect to be
in Princeton until June 12. The evening of June
12 I leave for about ten days in Maine on a fishing
trip with my three brothers, returning to Princeton
about the 22nd of June.
I expect to stay here fon
five or six days, after which I am going abroadv,to
be gone until about the middle of August.
I hope
that we may be able to fit our plans in such a way
as to enable us to get together for a short time
before I go abroad.
Coredially yours,
E.W.Kemmerer
,
O
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
AUG
1924
DEPARTMENT OF
ECONOMICS AND SOCIAL INST
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PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
DEPARTMENT OF
ECONOMICS AND SOCIAL INSTITUTIONS
Sept. 27, 1924
OLA
Governor Benjamin Strong,
Federal Reserve Bank of New York,
few York City.
My dear Mr. 3trong:
Upon my return to Princeton from Guatemala a few days ago, I found awaiting me your
letter of August 25, which I think was answered
by Miss Hurd.
So far as I know now I shall be
in Princeton all this fall and winter, and would
be glad to see you here at any time that you may
I
be coming this way.
shall be in New York frequently this fall and will come in to see you on
my next trip to the City, which will probably be
Thursday of next week.
I hope that the end of the summer finds
you in good health.
Cordially yours,
E.W.Kemmerer.
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PRINCETON UNIVERSITY
PRINCETON NEWJERSEY
Depa'ment ofEconomics and Social Institutions
tS
Feb. 19, 1925
Governor Benjamin Strong,
33 Liberty St.,
New York City.
My dear Governor Strong:
Many thanks for your kind invitation to
have luncheon 'with you on one of my early trips to
New York, and to talk over with you a number of
matters in which we are mutually interested. Nothing
would give me more pleasure, and I anticipate accepting your invitation in the very near future.
I had a most interesting time in South Africa,
and am looking forward to having a chat with you over
the South African situation.
Your cablegram was very
helpful to us, for reasons that'I will explain to you
later when I see you.
Cordially yours,
E.W.Kemmerer.
o
30VERNOW3 OFFICE
RECEIVED
4 PM
itd 2 1925 12
PRINCETON UNIVERSITY
PRINCETON NEW JERSEY
DepL
.%ent of Economics
March 2, 1925
and Social Institutions
READ AND NOTED,
Di5 7s
Governor Benjamin Strong,
33 Liberty St.,
Yew York City.
E. a
Dear Governor Strong:
I will be very glad to accept your invitation for
luncheon at the Bank at one o'clock, Friday, Larch 5.
There
are many things about which I would like to talk with you,
particularly matters in connection with my recent South African materials, and this opportunity for a quiet chat with you
is much appreciated.
With all good wishes, I am
Sincerely yours,
erer.
pi" It Ifti
tilAR 5 1925 12 i4
RECEIVED
30VERMR'S OFFICE
PRINCETON UNIVERSITY
PRINCETON NEW JERSEY
Dep.
sent of Economics and Social Institutions
40'
CY
,
March 23, 1925
(3
1/4V
Governor Benjamin Strong,
Federal Reserve Bank of New York,
New York City.
Dear Governor Strong:
The point you raised with reference to Mr. Van
Der Hum's testimony is a valid one, I think, so far as
that particular testimony is concerned; but I think that
our Commission in its report and particularly in the
questions we asked many of the witnesses made ample allowance for the possibility you have in mind.
Cf course
it is perfectly possible that sterling remaining a nongold standard managed currency might be for some time more
stable in value than gold itself, and that therefore South
Africa by deciding to tie up with gold instead of sterling
might bring upon itself greater currency instability than
she would have brought by tieing up with sterling. While
this is possible, I doubt very much if one could say, ir
the light of past history and present economic and politiConsidering the
cal conditions, that it is very probable.
world's past experiences with paper currency and considing the political pressure under which the managers of
paper currency will probably be compelled to act in the
future, it would seem highly improbable, if England should
fail now in her strenuous efforts to clinch gold parity
this year, that her currency would be more stable during
the next few years than gold.
At any rate, we were under
obligations to make a recommendation then and there involving a definite commitment by the South African Government for
the future as to whether it would tie up with gold or tie
up with sterling, and the probability seemed to us very
strong that should England be unable to clinch the gold
standard this year, sterling would be more likely to be
unstable in value during the next few years than gold.
Both England and South Africa have been for some time definitely committed to return to gold parity at the earliest
practicable moment, so that our decision did not involve
a question of permanent policy, but rather a question as
to what should be done during an unknown transitional period.:
I would like to talk with you further about this.
The full reports of the testimony should arrive soon and
2.
Je)
I will send you a copy as soon as they arrive.
I enjoyed every minute of our meeting Monday night.
While I have many good friends in various banks down town,
there is no place I feel so much at home as in the Federal
Reserve Bank.
You have a splendid lot of officers, and, so
far as an outsider can see, there is a fine spirit of cooperation and of institutional loyalty.
Cordially yours,
,
30VERIIOR'S OFFICE
RECEIVED
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KEMMERER
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GOVERNOR'S OFFICE
RECENED
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re 1925
apr
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PRINCETON UNIVERSITY
PRINCETON NEW JERSEY
Dept
,ent of Economics and Social Institutions
April 13, 1925
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APR 1!_, 1925
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Governor Benjamin Strong,
Federal Reserve Bank,
New York City.
Dear Governor Strong:
1
The last time I saw you I told you that
Yr. Ben F. Wright, the Auditor of the Philippine
Islands and General Wood's right-hand man, was to
be in this country in the near future on leave of
absence from the Islands, and you expressed a desire
to meet him while he was here.
He has just spent
the week-end here with me at Princeton, and tells
me that he will be in Yew York this week Thursday
and Friday.
I am dropping you this note to ask
you if you could have luncheon with Mr. Wright and
myself either Thursday or Friday noon.
Mr. Wright
knows more about recent currency and banking developments in the Philippines I believe than any other
living person, as he has been in intimate touch with
the situation for a number of years, both as bank
examiner and auditor.
Cordially yours,
GOVERNOR'S OFFICE
RECENED
MA
pArt I-4 025
ID
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EDERP
PRINCETON UNIVERSITY
PRINCETON NEW JERSEY
Department ofEconomics
an ''cia1 Institutions
A
May 19, 1925
rtn 4
Mr. Benjamin Strong,
33 Liberty St.,
New York City.
My dear Governor Strong:
It was good of you to send me a copy of your
letter to Stewart with reference to the extent of loans
made to Germany recent%, in this country.
The figures
are smaller than I thought they would be.
One of the reasons for the widespread opinion
that very large German flotations were being made was,
I thins, the heavy request for German loans in our market
immediately after the Dawes Plan loan had proven such an
minent success.
At that time I talked with several of my
investment banker friends on the subject, and they told
me that the success of that loan had brought great numbers
of applications for German loans in the New York market,
and that they feared that the result would be a dangerously large amount of such loans.
I am glad to see that
the figures do not apparently justify that fear.
It is my recollection that in our conversation
on the subject of the possible danger L,f.large foreign
loans in our market, my fear was expressed chiefly with
reference to Latin-American loans, and in that connection
particularly with regard to Brazilian loans.
I
still
think that this field of loan operation needs to be watched
very carefully.
We are planning to sail for Chile June 11. The
Commission is now completed and I think that we have a
good group of men.
There will be five commissioners and
three secretaries, in addition to such legal and clerical help
as we may get in Chile.
I hope to see you again before
we sail.
I appreciate very much your granting leave of
3bsence to Jefferson.
jincerely yours,
RECEIVED
30\ fr: ,,,tnnto
iLRKUR OFFICE
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PRINCETON UNIVERSITY
PRINCETON NEW JERSEY
Departn
of Economics and Social Institutions
March 15, 1926
Governor Benjamin Strong,
Federal Reserve Bank of New York,
New York City.
Dear Governor Strong:
I want very much to see you some time this
week and have a good talk with you with reference to
the Polish situation, and to plan5for the organization
of a commission which I am forming to go there this
Summer.
I am planning to be in New York all day
Thursday, arriving about ileven o'clock and leaving
on the eight o'clock t
n.
I am ree all day except
for luncheon at one,- 'clock, for which I have an engagement of a c.ouple weeks back.
If it would be convenient for ye"Ei. to see me Thursday, I will be glad to
come to th 'Bank at any time that may suit your convenience.
Cordially yours,
E. W. Kemmerer.
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0VERNOR'S OFFICE:
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