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September 1, 1921.

Dear Mr. Secretary:
On August 18th Herr Bergmann advised me that he was in
receipt of advice from Berlin that the full milliard would
be paid before August 31st without the necessity of drawing
on any heichsbank natal reserve. This was cabled to you the
same day (our B-548). Notwithstanding this information, as
appears from my subsequent cables to you (B-549 and B-554),
83,000,000 marks real gold had been shipped to the United
States; 80,000,000, Herr Bergtann's office now informs us,
was drawn by the German Government from other sources. This
way due, according to Herr von Oertzen, Herr Bergmann's assistant, to an unfavorable change in the market of foreign bills,
which was aggravated very much because the Belgian Government
insisted upon payments being effectuated in a few well-defined
currencies - Belgian francs, pounds sterling, dollars, and to
a limited extent French and :Aviss francs, although the German
Government had available a considerable quantity of l'utch florins, Scandinavian crowns, and Swiss and French Francs.
The Belgian representative on the Finance Service of the
Reparation Commission explains the refusal to accept the 300,
000,000 French Francs offered by the Germans as due to a typographical error by which the figure "3,000,000" French Francs
which the Belgian Treasury agreed to accept was reported to the
Subsequently the Belgians did agree
Germans as 300,000,000.
to accept 62,500,000 French Francs on the understanding that
Germany would buy back a part of them in exchange for European
currencies more acceptable_o_Belgium. He further explained
that the Belgian Treasury--eoeld-nei accept other European currencies and insisted upon:thmsrhipment 'of gold because the
Belgian balance of trade wish Great Britai and the United
States was unfavorable, creating a ueru4d'?or sterling and
dollar exchange, so that it was desirable to secure sterling
and dollar values without market transactions, which would lead
to the further depreciation of the Belgian franc.
It is apparent, however, that the Belgian refusal to accept
Frenon francs and insist upon gold was due to a desire to protect
French francs as weal as Belgian francs from further depreciation.



It is suggested that the foregoing letter may be of
interest to the Treasury Department and Federal Reserve.
Faithfully yours,


Hon. Henry Y. Fletcher,
Jnder secretary of State,
Uashington, D. C.



be readily adjusted under the suggested plan.

I am satisfied that sooner or later, curing the approaching
Disarmament vonference, the position of our foreign loans is bound to
come up and may have to be used as an essential trading. point.
I think
we should be prepared for this a)ntingency and have some plan worked out
beforehand which, while not of a disadvantageous character to us, would
nevertheless meet the requirements of the situation.
Our Brit
other Allied friends are certain to have such a plan fcrmulated beforehand
and past experience has shown that,if we are not prepared to meet this
with a well considered alternative plan, we suffer.
I have attempted
to draft a plan to obviate the usual"suffering" process.

As stated in the memorandum I have also endeavored to work
out the scheme so as to reserve our special position of influence which
I am confident we would entirely surrender if we converted our foreign
loans in long term paper without any consideration of the Reparation
In other words, we should treat our loans with more respect
than do our debtors.
I sent this memorandum in a personal letter to Fletcher and
suggested that he show it to Eliot Wadsworth. In my letter of transmittal
I wrote approximately what I have written to you in this letter. Fletcher
or Eliot will probably speak to you about this matter but I believe it
would be better if you do not indicate to them that you have received
similar information from me.
I realize quite fully that my solution is only a piecemeal
treatment of the question. However, in this whole matter we are faced
with economic factors of such unknown consequences that I believe it
advisable to approach the solution by echelons. Mille this plan might
meet with some opposition from the Allies when first proposed, I am
nevertheless satisfied that ultimately they wuuld be glad to accept it.
I would like however so much to have your personal and confidential
views as to whether or not the proposed scheme is based on sound premises
and 4,,f so whether it would be workable.


THIRD.- Copy of a letter dated 22 August which I sent to Mauclere,
President of the Committee of Guarantees, together With copy of a note
to the :inutes Service of the Committee of Guarantees, dated Sept. 2nd
in which appears the statement that I have made at the meeting when my
I had tb handle the matter
letter to Liauclere was under consideration.
with a good deal of tact in view of the existing political situation.
I was not therefore able to say all that I really felt' Ty endeavor
was to force a business, rather than a political, treatment of the

-3-German Reparation settlement.
I personally feel that Germany
for the next few years by deliveries In kind and payments in cash
can meet Reparation payments to about 2 billion gold marks per year
or, in other words, take care of the service of 12 billion Series
"A" bonds and 22 billion Series "B" bonds.c.ITDe Rpliadule_. of

Payments provides for an issue of 38 billf67F-IrdVeliTi1, 1921).
I believe that within two or three years she can confortably carry additidnal "B" bonds.
I would therefore like to see the Schedule of
Payments amended so as to provide for taking as of November 1st 1921
"B" bonds only to the value of 22 billions and then echeldming the
issuing of the remaining 12 billion bonds sew during the next years.
I do not take the "C" bonds very seriously and it would take a brave
and foolish Commission to say at any time within the next seven or
eight years that Germany could carry any of these. However the
latter represent an honest indebtedness of Germany to the Allies and
the treatment in this particular accorded her by the Schedule of
Payments is sound.
The Committee of Guarantees is leaving Paris for Berlin
on the 20th to hear the Germans.
I am going with them in my unofficial
capacity and if I find the situation as I believe it to be today I am
going to work for a solution along the lines above indicated.
present position I am satisfied is impossible.
have actually asked
Germany to hand us cash and values before Liay 1, 1922, in the amount of
2,650 millions. As of September 1st she has paid on this account
1 billion in cash and 200 million by deliveries in kind.
The working
of the Loucheur-Rathenau Agreement will undoubtedly be delayed so we
can only reasonably expect an additional 400 million as representing
deliveries in kind up to Lay 1st and probably not to exceed 100 million
coming through the working of the Recovery Acts, thus leaving Germany
faced with a deficit of some 900,million to meet engagements up to Lay
1st 1922 alone. During the period Lay 1, 1922 to Lay 1, 1923, her
obligations, in accordance with the present Schedule of Paymants, will
be in the neighborhood of 3,300 million.
In other words an impossible
situation during the next few years. Please don't conclude by the
foregoing that I am mesmerized by Keynes for I am not. Keynes' trouble
is that he is always about 125,.. correct.

Faithfully yours,

l4-- 46E
The Honorable Benjamin Strong,
Governor, Federal Reserve Bank,
New York City.




St W4 A


ititat w-,




My dear Governor:

T enclose for your bonfidental information
copies of paraphrases of two lablegrams from Mr. Boylen,

dated August 25th and August 30th, 1921, as to the August
31st reparation payment.

These cablegrams were only to-

day brought to my attention, and I am sanding than to you
chiefly in order to complete your records.
Very truly yours,

Benjamin Strong, Fsq.,
Governor, Federal Reserve Rank,
New York, N.Y.

2 enclosures








Dated August 30,


4:40 pa.

Secretary of State,

Washington, T.C.
B -554.

August 30, 3 pm.
Reference our R-552 and B -553.

4erman payments August

26, collars 1,500,000; Drench francs 17,500,000; Belgian francs
25,00',000; pounds sterling 2,000,000.
50,700,000 gold marks.

Total value these items

Payments announced for August 29, dollars

2,250,000; French francs g2,500,000; Bel aian francs 42,500,000;

pounds sterling 750,000.

naht and one-half m'l'ion void marks and

thirty million Austrian aoli crowns valued 68,000,000 void marks consigned New York August 26; 3,000,000 gold marks consianed New York today.

Rills of lading. to -oe delivered Belgium August 29.

Final payments

August 31, dollars 4,000,000; pounds sterling 75,000; Swiss francs

All above items for credit Belgium and complete first mil-

liard under art'cle five schedule payments.



September 22, 1C121.

Dear Kr. Gilberts

I acknowledge with thanks receipt of your letter of Sep-

tember 20 enclosing for our confidential information copies of
paraohrases of two cablegrams from ir. Boyden, dated August 25 and
August 30, regarding Reparation payments.
Very truly y ura,

J. H. CA.)F,

De-uty Gorerm)r.

Honorable S. P. Gilbert, Jr.,
Under Secretary of the Treeeury,
fiashiagton, D. C.





September 26, 1921.

Dear Governor Stron,;:

I enclose for your confidential information cooies of three letters dated .c.uLust 22, klue,ust

29, and September 1, 1921, transmitted to the Department of State by Lr. James __. Lo6an, Jr., ..ssistant
of the United States on
the Reparation Commission, all
German reparation Payments.

reference to the
It is rxtrticularly

interestin.- to note the doubt expressed in Jell-in-

forlred quarters as to the ability of Germany to met
tY,e conditions imposed by the sche uule of reparation

Very truly yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
Yew Yoric., I:. Y.

3 enclosures.


--: ---- --


/2123CaL AND

.Lianil MAL

September 29, 1921.

My dear Logie:

`.71e enclosed is a oopy of c letter which I am writint3 to the Under
Secretary of tibc Treasury, which is inspired b;,, the oorresponcienoe ,hioh You
recently .:rent to 2lotoher under date of August 29 and September 1.

It is nrcroly

expression of rrry own personal Vial,* and represents

no other vieci.e whatever and is not official.

I have been intending to %write

you .long this lino for son.: tiLle 'Jut have nut had an opportunity to do so.

I ainoefely truot that the results of your efforts My be to bring some order
out of this ona.btdo Ad thorouLtly vicious situation.
Supplomentin.; the enclosure and philosuphiz rk.; a bit about condi-

tions of the '.:orld just non , I hope you and your associates have just staple
°conceal° facts in mini. The development of the world and civilization ha.s

run parallel 1.1th the oapeoity of the peul,le of the ..orld and the different
222.tione of the torld to trade with each other. It is by such trade that

standards of living rise, that education auu social or,;anis-tion aevelop.
A continuance of the pre gent conditions in ;ernsny, such conditions in fact
as have reached their economic conclusions in -iussia and. ace rapidly toing

so in Austria, Poland and other Iii.rts of oontral Europe, will have the effect
of throaktc ez oh nation back upon its can oeollomiti resources, will reduce

standard.. of living, till reduce op, ortanities for education anti improvement,

will give rise to instaJility in governments, and do morn than unything else

for the solidifying 0.32d orjstallizing of puJlio opiniun in this country that
we oan have no -tr:.ffio polit ioa _1., with l:urope gnu will be vole to have

little traffic economically as these conditions develop beocmo aocentuated.

coura6o vill be needed saner:here to take the steps necessary

to educate public opinion in :;urope, espoci,ly in France.
If I wero a mmaJer of the Lop .ration Commiscion, thdt thank HeLvens

I c not, I wouln insist upon sole wadi proGrasinv as the above or quit, and
incite periectly clear to the pudic Uhy I lx,d quit.

This is all sent to you very privutely uad por:,,onally and ocafiuenr
with best rei.;ards, I au,

Sincerely y

Col. John
16 rutJ

Logan, Jr.,

Paris, loance.

PE j011,11 AND

September 29, 1921.

Dear ;.:r. Gilbert:

Your favor of the 26th instant in relation to reparation payments
and the various enoloneres have been duly received and formal



I Should now like to make the following purely personal comments
upon the ccntents of this ommesponuence and oertain oJler material which we

received from time to ti.:e on the ;seneral subjoot u2 th- schwa; of =4-

inG rt.y.l.r%tio,:; payments


LeLvin_ out of consideration entirely the diaaraoter of the pay
to be made;


that is, Whether they are those stipulated by the London ultima-

tum, Whether they are in settlement of the so- called clearinghouse Ualanzes,
or to defray the cost of the anodes of occupation and of the various cOmmile-

sions, it is a fact that the amount of these payments required to be made by
Germany bear a definite relation to Gel
they are within Germanyt



oapacity to pa-d.

In other cords

moans or they .ire beyond Germany's menus to pay.

disturbance of the wcrld's Guar:farce Lm0 finance rc.sultinL, from

the i) resent disordered exdhangee, is a plain indication to the v. or id that Ger-

.Aany is being required to make payments oeyond crtpacity, and that the whole
:grid is liable to suffer in consequence.

3u Ch a situation is no leas than

monstrous, and influences should be brought to bear to insure that business
men 4nu. their gow: rnmaite aro proteoted against .,ccurences which may IA311-

nigh bring btactkruptoy in some directions an, cause almost insupportable losses

and hardships in other directions.

My personal view of the present plan is roughly the following*

Germany's eunacity to pa, is measured b, her proauction.



and that the sueject on be effectively dealt with.
If the allied govern,:ents or the -eparation, Commission will set up

an organisation, not necessarily supervisory b-ut certainly of a oharacter to
obtain the fullest possible information in regard to GerMany's trade and Germany'c

40od for raw

eaterial, etc., it should be possible to ascertain fairly

accurately Germany's capacity to pay out of the proceeds of her foreign trade.

Such an organis-tion very uoll direct its efforts to exercising a certain


of supervision over the borrowings which Geruany effects in foreign

countries. Germany should not be permitted to attempt to make payments in ex-

cess a2 %hat this organisation determines after careful investi,ation is possible to be maae without evil canuequenoes.

The necessary complement to such a provision is a more absolute


of Geri:wallet. change and exchaz.e.,e Op.; r_tiens in foreigm suesets than ucw

prevails. As I LZU1.:rstaaci the situation there is practically no coatrol at the
pro sent time oZ those Liens-4i exporters and traders who accumulate foreign
tir30 S, uuch disposition of i,he teelances as they se

fit and, of course,

usi:k; such portion as they require for the purchase of raw material.

The Gelman

Government might well set up an or,,anis tion to determine just what raw nalterials
should be La ported.

It :3e3M8 to me that some such organisation as we establisheu

during the war under the prLvision of the ",, with the Enemy dot;' by which

every dealer in foreign exchange w s required to secure a license from the
Federal Reserve Board. and was required to report all transactions in foreign

currencies, and epon failure to do so lia.le to fine and irapriaonmeut, w
could. -ell be applied. in .k)rmany with ood effect.
One of the: violets developments

of the pi.tst

few months has been en

extraordinary Speculation in Gamin e. ohunge which has, no doubt, greatly exag-

gerated the (depreciation L. the suits .e estimate at the Federal Reserve B..dfic

-4that the domestic purchasing pmer of the m-rk is probably dcuble its purobanr.
ing po Or in foreign countries;

th.A is to say, that the number of marks re-

Jared tt7 ,lvan quantity of ,;cods in Germany would only buy .bout one half
of that

mudnt when converted into dollars and applied to the purohami of el..-

liar Goode in this country.
The rel..son why the speculation in mars has had &A:. an exaggerated

effect upon the value oft)) morn, in my opinion, arises from
whioh is unique in foreign exdaanoo.

a circumstance

Ordinarily the speculator who sold mem'

for future delivery and bolcht foreign currancios, would be obliged at some
date in the future to buy bLok the marks and, in turn, to sell the foreign

Juan a speoulatien, either in fo vigno_change or in comliodities

or in securities frequently has a stabilising effect;

that is to ems, fr.,pplios

eLchango wlies the demand is exceesive and absorbs 0.1;chu4;42 when the supply is
The reason. why t1


preeent situation is unique arises the

fact that the Gorman Govornmvat is "shcrt" of foreign currenoice for such a
vast amount that all covering transactions 434.,n be effected by selling' to


German Government, which sits pk,rfectly helpless in a position where it must
absorb offering's of foreign currencies at any price anc'A play for them by issu-

ing marks at a oonstant1;; lowerinG prime.

In other words, the stabilising

effect of the world's eleoulatien in forolgm currencies is entirely lost beoause

Gormany,is in a position whore the must buy from these speculators, n


hov hibt elpreseed in foreign currencies cur hod low sprossed in the depreciated

In summary of the above hastily dictated ounmmte my suazestien v;oAd


2hat an arran,;ottont must be made prollptly for the

enlargement of ,ayment of reparation by direct
shipment of ra.teriels,


'.fiat the Reparation Commission should take steps to
eatheritively asocrtain 1iihat Germany's eapseity.
to 14.nikr be,, Measured b4 Airman foreign trade.


That Ins Reparation °Omission almild exercise DOM
enpervision Onr Germany's attests to seoure
lofts in foreign markets,


That the German Government necessarily under the
supervision of the ::eparat141150111114.11110n, shc.uld

teAs steps to effect a mere absolute oontrol of
all dealings in Ox0hAade by German citizens,
whether individuals or oorporatiems, ana by any
forelum de.,lors within Gernany.
If some en& plan could lx developed to the elc.ont 4hiah it has not

alreAy been deviloped, within the neat six months, and in the meantime the
payment nit due be somemhat deferred or held in suspense, I believe the effect
upon Germanyle ....ohanae would be lastantaneous, Old there might be sums p011si-

alit/ of those who

demanding the impossible returning to their senses.

I he you have no objection to ear sondina a copy of this ommunioation to Col. Loan, who is a personal friend, to vaam I on stating Oat this
is no more than an wpression of personal views and represents no other view

Whatever than my OM.
Tory truly yours,

Honorable JO P. Gilbert, Jr.,
Under fteretary of th,.; Tro-surY.

.aohington, D. C.



October 3, 1921.


My dear bogie:

The pressure of various matters made it impossible for me to read
the pap'ers which accompanied your letter of September 10 until after I had

dictated my letter to


Gilbert yesterday, and any lettir to yon which

accompanied a copy of that letter.

This is rather striking because you will

observe that, without having read your immorandum "to be inserted in the
minutes of the Commission," I had arrived at almost identically the conclusion
which you arrived at and suggested almost identically the same procedure that
you suggested.

4 letter to 1.r. Gilbert and the one to you which accomi.Anies it,

commented as fully as required on certain features of the present situation,
with the exoeption that it contained no reference to the baleful effect of
violent fluctuations in exchange values upon our export trade.

This has all

occurred to you, no doubt, but I should like to have you consider the following:

All trade, and especially international trade, is subject to

two major risks.

One ie the risk of decline in the market value of the goods

between the time of purchase and the time of re-sale.

The second is the risk

of the goodness of the credit of the buyer in case the goods are sold on credit.
In normal times these are the principal risks of trade, as one is able to insure
against such other risks as fire, marine and transportation loss, defalcation,
etc., etc.

With the bxchange market in its present chaotic condition

we have a third major risk added to trade; namely, the risk of loss in exchange,
and that risk exerts a strong restraint upon trade so long as rates of exchange

So. 2

October 3, 1921


1Ir are not stabilized within dependable limits such as formerly existed when gold
was being freely shipped; namely, within the so-called "gold shipping points."
Ae there is now no limitation to the ,ossible fluctuation in rates of
exchange, hog does that affect the ability of a nation like ours with a surplus
of production to export goods?

I think it may be made clear by the following


The seller will always endeavor to place upon the buyer,
and the buyer will likewise endeavor to place upon
the seller the risk of exchange loss.
Let ue
assume for the purpose of illustration that our
position is now such that we can put all exchange
risk upon the foreign buyers of our goods.
is naturally so with the exchange strongly in our


Our exporters secure insurance against loss in exchange
by requiring foreign buyers to pay in American
dollars instead of accepting payment in foreign


If a foreign, say English, buyer contracts for our goods
when sterling is st$3.70, and undertakes to pay at
the end of three months in antici:ation of making
a 10% profit on the transaction, he will make no
profit whatever in case sterling declined to $3.33
when he buys his dollars.


Suppose the same English importer rurchased the goods
and paid cash for thee when sterling was selling
at the rate of $3.70 per pound, but some competitor
buys these same goods at the same price and at the
same rate of exchange, except that he buys on three
months credit.
The latter may have the good
fortune to settle his three months credit at a tine
when sterling has advanced in value to say $4.07 a
pound, in which case he can undersell the first
purchaser by 10% and still make a 10% profit.

I am giving these illustrations to bring out the point that even if
the world were able to pay caah for American goods there would still exist a
a,eculative and hazardous situation which would tend to restrict trade, because
the volume of trade depends for its existence upon reasonable certainty of profit
and the elimination of the possibility of large speculative lose which cannot be
"bedded" or guarded against.

tide fluctuations in exchange create a eieculative

and competitive situation which tends to contract trade.

No. 3

October 13, 1921

Bow, what influences our export trade most adversely is to have the
general trend of exchange in our favor; that is to say, to have the ,-remium on

dollars constantly increasing, because under the influence of such conditions
foreign buyers of our goods will only buy such amount as they can cover by
immediate cash payment, fearing that the entire lossible profit on their purchases will be wiped out by loss on exchange if they buy on credit.


cannot protect themselves against a competitor who has been more fortunate in
buying when exchange is higher than then they boueht.

This leads me to the

general conclusion that further desperete efforts by Germany to complete
reparation ,ayments at the

resent rate and volume will continue to exert a

depressing effect u.on all the exchanges, cause violent fluctuations and result
in constantly increasing 7remiues upon the dollar, and oonaecuently increasing
restrictions upon our export trade.

Further than that, as you seem to realise

fully, we are placing our American market in constantly greater degree at the
e'rcy of production from countries where depreciating exchange gives then increasing advantages in cost of production over our producers.

We estimate, for

instance, that the German mark to-day has more than double the buying power in
Germany than it has in the United States.

The effect of this will doubtless be

a tendency to promote sentiment favoring constantly higher protective tariffs and
that, in turn, will make it increasingly difficult for us to collect the allied

It lay be that finance ministers abroad are looking upon their countries'

indebtedness to us with a certain amount of mirth.
to continue their

If we _lormit the exchanges

resent course we must prepare ourselves to look with complacency

upon the complete inability of Europe to pay us what is owing.

I do not wonder

at the mirth, with things going as at present.

In conclusion, a few words about the plan which you propose for the
inter-Allied debt adjustments.

This is most confidential.

The plan which you propose is almost identically the plan which I discussed with

Colonel House and Lord Grey in 1919.

I thought there was good sound

P.J. 4

October 3, 1921.


basis for it, and you must recall our having talked it over on more than one

The facts are, hoeever, th t politically there seems to be a most de-

termined opposition to any such programme, although I believe the opdosition co es
from a comparatively small, although suite influential, section of the Senate.


iE not a matter on which my e;inion is worth very iuch beceuue I know little about
the wey these political mattere develop here in Washington.

I think you may con-

clude with aesuranoe, however, that tt the present time no such programme would
have much hope of suocees either with the Administration or rith the Congress;
weich does not wean that I should not like to Gee something constructive attempted,
but that I simply regard it. as out of the question at the eeeent.

Wy own view is, that with opinion, as it new exists here, the best plan

would be to bring about a more generous and modest scheme of reparetion payments,
and coincident

with that a moderate and reasonably generous plan for deferring for

the present repayment of the Allied debt and the interest on it.

What is really

needed here, however, is s thorough education of the public on this whole subject.
The difficulty seems to lie in the feet test there are some men up at the Capitol
who assume that any proposal for deferring

codifying, reducing or foregoing the

debt is nothing less than a scheme of send designing bankers and capitalists to
defeat the governeent in the collection of a just debt in order that ;rivate debts
owing to citizens in this country and floated throut,t American bankers eay DO

I believe that absurd charge has been privately discussfk, although I

nave not seen it in the public press.

The chances are that in the course of the next month or two the whole
subject will come up for dieoussion in the Senate when some better line may be
obtained on the political sentiment at the Capitol.
Please hold this letter in strict confidence, although you may wish to
show it, under equal protection of confidence, to Boyden.
Lty best regards to you.

Sincerely yours,

Colonel Jaeee A. Logan, Jr.,
 rue de Tilsitt,
Paris, France.
Federal Reserve Bank of St. Louis


October 8, 1921.


Lly dear Governor:

I enclose for your confidential informa-

tion a copy of a paraphrase of a cablegram from
Paris, dated October 6, 1921, which repeats several
telegrams from Col. Logan at Berlin as to the German
budget and the reparation payments, with particular
reference to the German foreign exchange requirements.
Very truly yours,

Benjamin Strang, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.
1 enclosure.



Dated October 6, 1921.

Bead. 11:13 P.1,

Secretary of State ,
.-ashington, D. C.

578, October 6, 4


At Logan's suggestion am repeating telegram from him at Berlin as

October 3, 2 P.M. .Cor Boyden number 1. iollowing German figures

presented guarantee committee showing their budget fiscal year's -pril 1st,
1921, to March 31st, 1922 and their fiscal year same month's 1922 to 1923
all figures expressed pape r marks unle ss otherwise indicated.

(). Budget

1921-1922 actual and anticipated receipts all sources estimated 48,500,000,000
may possible reach 60,000,000,000.


On basis 48,500,000,000 following deficits

Ordinary expenditures 10,000,570,000; extraordinary and non-recur-

rent charges 27,000,600,000 including railroad and post deficit, cost con-

struction miners dwelling, food subsidies, et cetera. Reparation payi..ents
29,300,000,000 based. on exchange rate 14 paper marks to one gold mark; clear-

ing house; cost armies and, other peace charges 12,000,000,000 based on exchange rate 15 paper marks one gold mark.

Total deficit 79,470,000,000.

,.ssuming and calculating anticipated receipts at 60,000,000,000 and converting

reparation, clearing office, armies and, costs, et cetera at to-day's exchange
rate total deficit budget Larch 31st estimated at about 100,000,000,000 paper




Page 2.


marks. (8).

Budget 1922-1923.

Paris #578

ordinary expenditures 65,000,000,000, ex-

traordinary and non-recurrent charges, railways posts, et cetera
18,600,000,000; reparation payments based on committee guarantees estimate of
3,300,000,000 gold marks calculated at one 3old mark equals twenty paper

marks, 66,000,000,000; armies occupation 11,600,000,000; other treaty charges
clearing house, commissions, et cetera 12,000,000,000.

Total expenditures

Germany's receipts according to their estimate will be
This figure represents increase of 9,500,000,000 paper

marks over receipts 1921-1922 including customs and excise 19,700,000,000;
taxes on property and transport 62,100,000,000.

Deficit 90,900,000,000.

Foregoing budgets being studied in detail by committee; certain items can
and will be reduced.

n tne other hand under operations present schedule

payments prospective requiretents foreign exchange so great rendering imnossible to make any forecast future gold value paper marks.


promise to explain shortly how deficits both budgets to be covered.
talk of internal and foreign loans and increased currency issues.


In latter

connection interesting to point out that during period -arch 31 august 31,
1921, treasury bills issue increased by 35,00L,000,000 and bank note issue
by 8,400,000,000.


octobdr 4, 10

For Boyden, number two.

"Following German estimate their governmental requirements foreign exchange

until May 1st, 1921 as at present seen by committee guar,tees (figures
expressed in gold marks
(ti). Outstanding payments acci.nt first billion, viz; Yendellsohns

loan originally 270,000,000 of which 120,000,000 repaid since September
first leaving 150,000,000.

1,oan raised by pawning Beichsbank silver


Paris #578

Page 3.

originally 58,000,000 of which 18,00u,000 silver metal sold outright
leaving 40,000,000.

Grain credits for which funds collected were applied

to first billion 200,000,000. Total 390,000,000.



1, 1)21, viz. further sup-

plies gain representing 800,000 metric tons (in addition to 700,000 tons
.i.oans contracted by Reiohs-

covered by 200,000,000 item 1-4bovo ) 250,000,000.

bank with foreii banks during and after war now due 90,000,000. Clearing
office advances 250,480,000. Various other treaty payments 100,075,000.
Due under China peace conference at 3,007,000.

outstanding debts food,

purchases -snerica, Norway and Holland 97,250,000.

Payments d-e deliveries

maize last year 54,500,000. Foreign Office expenses; ii:ternal revenue

postal telegraph settlement, etc. 6,320,000. Total 854,000,000.
(0 ).

gt.rding re, 4retnen tt; se t forth (.0.) above ue mans informed

cuiLaittee they endeavoring to extend doe date YeLdellso'nn loan and silver

Re gprding ite.0 in (1.1) committee Aues tions its covering pay-

ments account past and prospective deliveries foods but generally accepts

other figures. Figures obviously padded and with correction should reduce

total 854,000,000 by at least thirty per cent.
i:'ollowing is estimate total German req,irements foreign exchange both
governmental and reparation before Lay 1, 1921: (A). Repayments account

first billion 390,000,000; (i3) for governaiental requirements at thirty
per cent reduction from figures given by Germans 600,000,000; (C) balance
reparation payments 1,018,900,000.
Total 2,008,900,000. Lo an.

"October 3, 3 Y.M.

For Boyden.

Paris IF 578

Number three.

doll owing

Gorman expose of their national trade balance fur
figures e x-

°urn: n t reparation ;Aar pre sente ci committee guarantees.
pre sae d gold 12:a4CS unless o

rmar, statement.



d.soential food ousts 2,500,000,000.



the raise indicate d )

imports raw material; home a =sump ti on; re -exports s.ime variety; finishing

trade and re duration purposes, 2 , WU. 000 9 000
unavoidable account into rn--.



Iz ports manufao tared ar ti ale s

trade .....rrangemsnts and including

from 41.1sace 1,urraine under treaty 750,000,000.

land) to dote under economic sanctions 250,000,000.

( inte re s t )

de tailed data submitted

se is

however increase d as result deficit Germany 'L.

other treaty charge s,

( 3 )


ts. German

d imports ( Rhine -

Germany's foreign

14 °caber 1920, debt,

trade balanoe ,


Reparation charge Lame



, oust,a armies and vce:e /outs

Total liabilities 109150,000,000.

exports estimated on basis Ley June and July

four milliard.
Lie mans estimate

Re. the na

tual ore di to res dLing


pending Louche ur

-greevient raising value deliveries in kind to one milliard.

'Total apse to five milliards.
( One .

Deficit 5,150000,000.
Under ksso is are fallowing i teiaz n.) t possible

piece ipts from claims Germans against

office settlements.


freight on goods in

German claim


transit and proceeds from

Assets under one and two

and offset by small debits each one shown under liabilities.


foreigners outside clearing

T'do . Various receipts, banking transz.c ti ons ,

ran es payments, accruing from


aceurate es

(E )


Pa. OS

Paris r578


xlve milliard deficit includes estimate of deliveries in .rind


at one milliard. ihich depends entirely un willing mess of ::ranee if deliveries
to amounts stated.

.)r o'userv,...tions Gerluan state:lent.

Jbjections placing value food and raw material imports at figure stated.

under liabilities and placing German exports at small figure stated under

assets. Value deliveries in kin:i under most opt is tic schedule

,n1.11 not

reach figure stated by Germany this year and this particularly account continued depreciation of mark with resultant effect on f301a marx v1ues such

deliveries. ;2,xcf3ption teen to tz-tOments and conclusions paragraph (I))
lingua tiuni-blzi

maw; s invisible balance


no' only through sources

nAntioned but also ocean freight charges, various private transactions, eto;
very much mu re subs ti


ttea by Ge rinc.Lns anti. generally assumed

by outside economic Laid financial 7trIters.


Detailed study being made tills

'October 4, 12 noon. l'or Boyden. iitunber 4.

x'rom figures L.A./ before committee following is basis and estimate of
amounts foreign exchange requizU. exclusively for reparation payments due from
Carmany before Lay 1st, 1921 under operation present schedule ps1,1.knts.

figdres expressed in gold marxs.

"Dlie for current reparation year t.': billion fisld annuity plus
two quartc:rly installments, variable, each tit 273,000,000 or estimated

546,000,0u0 (value actual exports first cit.i.rter this reparation year months
May, June and July ten fifty million of which n t;-y- -s ix per cent or two

seventy-three million due .1',Iuvember 15), total therefore twenty-five forty

six million.

?age 6.

Paris #575

Lstimated tl:e-t Germany will have following credits foregoing


account this current re-_..)aration year, viz, one billion under Which cash

fifty million conservative figure receipts under recovery act five hundred
million conservative fim.ire. value deliveries kind (no allowance made these

calculations for possible credits accrue this reparation year through




total credits above fifteen fifty million from

which receipts recovery act and value deliveries kind last half month
estimated 22 point 9 million automatically deducted and credited on


15th variable installment of next December reparation year account.
current reparation year therefore 1527 point 1

t credit


2546 million (.a) minus 1527 point 1 million (B) leaves total of

1018 point 9 million which must be forthoominc, in foreign exchange from
Germany this reparations ye ar

Based on aoove estimates and assumption that payments variable

installment February 15th same November 15th and flow receipts recovery acts

and credits deliveries kind remain constant Germany will have to financ6
and pay foreign ezchante under schedule vayments engaged to, viz.


15th zero payable as recovery act and value deliveries kind will more than
offset variable installment due.

January 15th 383.4 million lebruary 15th

227.1 million April 15th 408.4 million, total 1018.9 million.
2re sent ins tructions committee to Germany contemplate two monthly

advances of one thousand each putting in due dates for payment variable
annuities on February 15th and May 15th.

Believe such system advances un-

workable and that instructions will be amended so as to only require payments

Page 7

Paris #578

rents on schedule due dates. In remote contingency such amendment not
being made schedule given "D" above subject slight rearrangement figure
shown r'ebruary 15th and prior dates and to increase amount due after

iebruary 15th.
(Y) :it the request of .1.e.anany and with a vie?! to steadying exchange

in the present highly s)eculative market, committee issue d communi,kue
announcing that value anticipated deliveries in kind plus receipts recovery
act would offsct any cash poyraent d-4r3 fr.-cra Jermany November 15th under
ache dale







18 rue de Tilsitt,
Paris, October 15, 1921.

Personal and Confidential.

Hon. Benjamin Strong,
Governor New York Federal :Reserve Bank,
New York.
My dear Ben,

I have just returned from Berlin and find your two most interesting
In accordance with youll11=,-Thave turned them over
letters awaiting me.
to Mr. hoyden who is now studying them. He is very much interested in having
your views. I have on1yhad a chance so far to read them superficially so I
will wait for a few days and until I have a chance to study them, before replying.

I sin enclosing for your personal and confidential information, copies)
of five telegrams which I sent from Berlin to Idr. Boyden and which he has transmitted to the State Department. I also enclose a copy of "Memorandum containing
views of Mr. Logan, Unofficial ,imerican Representative, Committee of Guarantees'
This I have filed as a formal position of record. I
dated October 11, 1921.
believe it will'interest you and I hope it will accomplish some good.

I had some difficulty in forcing the Committee to make a formal
report to the Reparation Commission. The length of the entire intestinal
tract of my dear colleagues is about eight inches, rather than the thirty-three
feet as usually estimated in the guts of the ordinary individual. Unfortunately,
"due to a shortage of typists" (?) the final draft of the report was not ready
for signature before we left Berlin, though the contents and arrangement of the
report had met with unaniJous approval of the Committee. I was afraid that
upon our return to Paris, my colleagues might have a change of heart and would
I therefore felt it necessary to tie my memorandum
refuse to sign the report.
up with the report so as to force the latter to the light of day. This accounts
for the matter contained in the third L..aragraph of my memorandum.
The Belgian Delegate, Mr. Bernelmans, supported me right through.
wrote the original draft report myself, but in view of my unofficial capacity,
let Lr. BemelmAns submit it as his handywork, thus putting me in the position
where I could subsequently draw the conclusions I have stated in lay memorandum.
Is not the thole situation most absurd and fantastic?

Hastily but faithfully yours,





Received 9 4,1,i

OCTOBEic 4, 1921


Berlin, October



41 actober 3/2 £M
polli/wing German figures presented Guarantee
Committee showing their budget fiscal year tipril 1,1921, to Li arch 31,1922,
and their fleck 1 year same months 1922 to 1923. :,11 fikures expressed
paper marks unless otherwise indica ted.
Budget 1921-1922: Xotual t.nd Entioipated receipts all sources
estimated forty-eight milliard five hundred million, rig: y possibly reach
For Boyden.



sixty milliard. On basis forty-eight milliard five hundred million following deficits foreseen. Ordinary expendithres ten milliard five hundred ani
seventy million; extraordinary and, noniorecurrent charges twenty-seven

milliard six hundred million including; ri.ilroad and post deficit,cost corr
strut Lion miners dwellings, food subsidies, etc. Repa r« tion

nine milliard three hundred

million breed on

payments twenty-

exchinEe rate fourteen piper

house cost kamies Occupi tion, other re ace
charges, twelve milliard based on exelv nge to fifteen paper mErks one
marks to one

old mark; clearing

gold mark. sot} --1 deficit seventy-nine milliard four hundred ind seventy
million. ssuming and calculi ting rntioipEted receipts Lt sixty miiliird
and converting reps Lion, clef ring office,Lrmies Occu)K tion,coots,
at today' c, excht nge ri to total deficit budget Larch 31 ,estimated about
one hundred milliard paper incrica.



Copy of .1.'elegrum


ssy, .tt ris

Received 3 pm
October 4 1921


Berlin October 3, 1921

42 October 3/3
For Boyden.

No. 3.

Following Gerliwn expose of

their nrtionr 1 tr de bE.1fnce fur current repar: -Lion iFiar
presented Committee Guarantees.
(x.11 ficures expressed
gold marks unless otherwise indicated).

(a )

Germ n statement:
LIE bilit les. Essential food imports two

milli. - rd five hundred million. h;ssentiE.1 imports raw
material: home consumptions; reexT:orts same v: riety;

finishing trade and rear} tion purposes two millard five
hu,.dred million.
Imports rnunufLetured articles unavoidable account intemtional *Ikeda arrangements End including
imports from .i.113Ece Lorraine under treaty seven hundred.
fifty million. Undesired imports (Rhineland) to date
under economic sanctions two hundred fifty millions.

Germany's foreign debt (interest) detailed date submitted
Brussels December, 1920; debt, however, increased as result
deficit GermEny's trade balance, seven hundred fifty million.
Reparation charge three millard; clearing office, ousts.

Armies ()coup! tion and v= riuus other tree ty charges four
hundred million. 12oti 1 libilitieb ten milli rd one

hundred fifty million.
(b) 1 ssets.

Gorman exports estimE ted on basis

y, June and July four millard.
Germans estime to aotu$ 1 credits resulting from pending

creement r: ising value deliveries in
kind to one millard. total assets five millard.
(c) Deficit five millard one hundred fifty millions.
(d) Under Essets are following items nut possible
accurate estimation: (1) Receipts from claims Germans
against foreigners outside ulearing office settlements.
(2) Various receipts, lonking transactions, insurance
payments, accruing from freight on ; oods in trE nsit nd
proceeds from travelling foreigners; Germ: n clr im assets
Loucheir-Rz chenau

under 1 & 2 unimportant and offset by smz.11 debits not shown

under liabilities.
(0) Five !Allard deficit includes estimate of
deliveries in kind it one mint rd which depends entirely
on willingness of Prance to recompense deliveries to amounts
sts ted.
2: Committee observations Germt n statement.
Objections placing w lue food and raw mr terial imports

at figure sta ted under liabilities f nd placing Germtn
exports at sm 11 figure sta-ted under assets. V/ lue
deliveries in kind under most optimistic schedule will not
reach fi,ure stated by Germans this year and this particularly
account continued depreciation paper II3Lrk with resultant

offeo t on t old mt,rk v: dues such deliveries. Arception
taken to stt_ temente nd conclusions ii ragraph 1).
Unquestionably Gormtny's invisible b: 1; nee geo( not only
throuh sources i-lmtioned but lt-ao ocean freight charges,

various priv to trEnsaations, etc., very much more subsV ntial
Fnd generally r ssumed by outside
economic <nco fin! nciE 1 writers. DeV iled study being admitted by Germ'

mde this phase.

LOW, kl

:R J1

68111 1,:r Doyden October 4 1921

'Spy of to egrtm reeL ived 9 IdA Oc tober 4 1921
Berlin, October 4, 1921



43 October 4/10 Alf

For Boyden.



Following :!ermtn estimate their

governmentu 1 requirements foreign excik n, e until :

y 1, 1921, as at

present seen by Uommittee Gut rantees (figures expressed in gold marks).

(s) Outstanding payments account first billion viz:
endellsohns loan originflly two hundred /rid seventy million of which

one hundred twenty million repaid since beptamber 1, leaving one hundred fifty million.

Loan raised by pawning Reichsbynk silver original-

ly fifty eight million of

hich eirhteen million silver metf I sold out-

right leaving forty million.

Grain credits for which funds oollected

plied to first billion t o hundred million.

'2 °V 1 three hund-

red ninety million.
(b) ,,ther public requirements until I;uy 1, 1921, viz:

Further supplies grain representing eight hu dred thousand metric
tons (in addition to seven hu dred thousand Ions covered by two hundred million item above) two hundred fifty million.

Loons contract-

ed by Reichsbank with foreign bunks during and Lifter war now due
ninety millions.

Clef ring office advtnces two hundred fifty million

four hundred ei(hty thousand.

Wrious other treaty pt ymente one

4uldred million seventy five thousand.
ference three million seven thoum42d.

Due under China
Uutstandin- debts food pur-

chases :=merica, Norway vnd dolli nd ninety seven million two hundred
fifty thousand.

zyments due deliveries mtize last year fifty four


Copy ui Telegri m Received ci AM October 5,

Octo3er 4, 1921


44 October 4/12

'Jo. 4.

if um figures now before committee following is basis and estinate of f mou Is foreign exchunge reFor Boyden.

quired exclusively for

-Lion payments due from Geris ny before
May 1, 1921, under ()pert tion present schedule payments. 1.11 figures

expreL:sed in gold marks.

reps -ration year two billion
fixed annuity plus two quarterly instz` llments vt riF Ale each at two
seventy three milli,.)n or estinrk-ted total of five furl,y six million
(a) Due for current

actual exports first quarter this reparation year months y,
June and July ten fifty million of vihich twenty six per cent ur two
seventy three million due iwvember 15) total therefore twenty five
forty six million.

ted tiff t Gorr-171v v.111 have following cred-


its foregoing account 13th instant current reparation year viz: one
fifty million conserves tive figure recoil, ts
billion ultimo turn
under recovery act five hundred million conservative figure value
deliveries kind. (no allowance rrade these calculations fur possible

credd is accruing this repart tion year through Loucheur-Rathenau acree-

ment) total credits above fifteen fifty million from which receipts
recoovery act and v lue deliveries kind 'last half month April estinine million / utow ideally deducted Lnd credited on May 15 w:riab_te instf llment of next reparation year account.


ted twenty two point


Lind plus receipts recovery et would 'filet r ny ash pr yrneni, due
from Germans November 15 uaeler schedule.

sent Yr. Boyden October 5 1921.






Dated October 14, 1921.
Recd. 11:50 p.m.

Secretary of State,
595, October 14, 7 p.m.

Following telegram received from Logan, Berlin.

Number 5.
"45, October 12, 4 p.m. For Boyden.
Final Report
Committee now preparing for comtission practically comprises figures
and pictures situation given my telegrams No. 1, 2, 3 and 4, October
3rd viz:

Estimated deficit 1921 - 1922 budget 118 millior.(billion
paper marks, treaty and other foreign expenditures based on 30
paper marks equal one gold mark today's rate.
Estimated deficit 1922 - 1923 budget 138 billion Paper
marks including receipts for new taxation proposed by government to
Reichstag and assuming certain items of external expenditures now
carried or budget aggregating between ten and fifteen billion paper
marks to be cut off in accordance with views of committee.

Germans figure estimated
Second. Reference m;,. telegram ho. 2.
requirements foreign exchange until May 1st, 1922, reduced to one
billion gold marks plus one billion four hundred eighty million gold
marks account treaty commitments or total requirements two billion
In other words approximately three fifty million
four eighty million.
gold marks per month October tth May 1st, 1922, must be found by Germans
or ten billion five million paper marks per month it today's rate
If present plans German Government contemplating making
of exchange.
issue export licenses contingent upon exporter placing foreign bills at
the disposal of government, and if given estimate of receipts this
source of 85 million gold marks be allocated monthly requirements gold
mark': automatically reduced to 265 million gold marks or seven billion
nine hundred fifty million paper marks at today's exchange rate.
Committee estimates deficit
Third. Reference my telegram number 3.
under German national trade balance at four billion gold marks instead
of five billion one fifty million as stated by Germans.
Committee in letter October
Fourth. Reference my telegram No. 4.
10th to the German Government drew attention to provisional character
certain figures and conclusions set forth in its note number one to


- 2-

Germans on July 28, 1921, and particularly to provi
latter conclusions that payment under schedule prob

to fall any time not only on account of reparation settlement but primarily
on account of disquieting reports of Upper Silesian decision. Wirth
admitted only solution he saw reparation settlement was proceeds of large
long term industrial gold loan subscribed by Germans also tutch, Fwirs,
Scandinavian, British and American bankers. Have heard various estimates
of amount proposed loan generally about 200,000,000 dollars. Personally
On demand committee Wirth definitely agreed to
think hope optimistic.
devote entire' proceeds any industrial loan to reparation payments, in
other woods'effects of loan only results in postponing date Germany's
default and therefore speculative and without real constructive purpose.
Today Germans reouested special consideration advances or instalments
due January 15th of 500,000,000 gold marks less 90,000,000 estimated value
deliveries kind and proceeds recovery act or 410,000,000. Monthly
guaranteed payments beginning November 15th. Provisions Article 7 schedule
require, (a), proceeds customs and import duties estimated sixteen onehalf million gold marks; (b), 25 per cent levy value exports estimated
90,000,000 gold marks. Germans state they can secure any foreign currencies
not to exceed sixteen and one-half million gold marks per month pending
Committee refused to seriously
conclusion loan negotiations above mentioned.
consider German proposal but offered to accept sixteen and one-half millions November 15th and postpone first payment 25 per cent levy to Lecember
1st when Germans hope to knew result negotiations. Germans claim payments
foreign Currencies required under Article 7 would drive mark exchange down
to 200 to the dollar and break all negotiations and plans looking to compliance reparation program.
Under Committee's demands advance payments of guaranteed funds will
approximate following: November 15th sixteen and one-half millions,
lecember 1st ninety millions, iecember 15th one hundred and six and onehalf millions, January 15th one hundred and six and one-half millions
plus ninety millions gold marks uncovered balance.
Foregoing also does not cover any advance payments that may be later
demanded by committee account variable Instalment 275 million minus value
one month's deliveries in kind and recovery act due February 15th sixth
Continued application existing schedule payments impossible
obvious to all.
and in German present nosition breaking point apparently matter few weeks
though may be delayed if industrial loan succeeds. Allies apparently
basing great hopes latter loan, some with view to immediate division
spoils, others on hope that loan would relive pressure on Germany for
few months and thus all considered better counsel to effect changes in
schedule. While committee by its letter to Germans have taken formal
stand under schedule due political pressure from Japan, they have nevertheless not pushed German position further than providing partial guarantee
for January instalment advising Germane that "a further communication
will be made as to guarantees required to cover existing deficit this
In unofficial capacity have taken position that our inquiries
here have proved conclusively that present schedule payments absolutely


unworkable and that further efforts tc enforce its provisions can only
jeopardize amount total reparation values Germany able pay Allies, and
that obvious duty committee is to so report to commission. Unable to
get committee to adopt this view but they have consented to make report
unanimously of existing German situation to commission on practically
identical lines with ratter contained in my previous reports to you.
This action in effect puts the question of amendment schedule up to
Suggest this be transmitted to Lepartment. Logan, Cresel ",


MISC. 4.1-120 M-1-20








Mr. Snyder




Governor Strong

Attached is an exceedingly confidential communication from Paris, which
I wish you would be good enough to study, without showing it to anyone else.


studying it, I think you will be convinced that it will be interesting and illuminating for us to know something about the German trade of the last year, and the
possibility of its being a source of supply of foreign exchange.

If the contents of

the enclosures of Mr. Logan'e letter can be briefly digested and summarized, together
with soiw. thing of the Lrade figures, it would be helpful.

I am obliged to have

this back for my confidential files as no one else is supposed to see them.


Berlin, 11 October 1.1:1,

MSKORAMMe containing views of er. Logen, Unofficial
American Representetive, Committee of Guarantees,

During the meeting of the Guarantee Committee this teornine

I felt it incumbent upon me to state ew views an the possibility of
Germany's fulfilmeet of the conditions of the schedule of Payments
and on the responsabilities

duties of the committee of Guarantees

connected therewith.

Although I fully appreciate the special situation of MY
Leaverneeet in this regard, I nevertheless desire to make my position

of record ao is to obviate ell possibility of mlsunderstending.
Turin& this morning's session the Committee considered the
Ter/ able graft report prepared by
Oemmittec to the Separation Commission.

Banelmans for cubmission by the
I regret that due to the

ahortage of personnel it was impossible to type the re-draft as edoptea
by the Committee to trensmit it to the Reparation Commission before

we loft Beelin.

It r ill be rememberee thet

r. Demelmans, draft ees

adopted subject to the re-arrangement of certain chapters :Id to minor
charges in verbiage,

used in t

_fie figures stated end the method o

report sore approved by the Committee,

I, of eourso, uneersteed

thet the last two or three paregraphe of the draft report concerning a
recommendation by the eommittee to the Reperetion Commission as to the advisability of the latter going to Berlin did not meet Pith unatimous approval
and is subject to modification.

Lie report of the Committee admits a deficit in the German
Budget 19e1-19ee of approximetely 1:.)0 milliard paper marks,

increased deficit is admitted for the Diet 19L2-1925,


In calculating

theae deficits, budgetary items of gold expenditure have been estimated on
the basis of 50 paper marks equal 1 gold mark, which is extremely
Optimistic in view of the present merelemert of paper mark value.


just end ;:rope criticisms have been mods by the Committee an items of



as to require participation not only by German industry but also by parti-

cipation by finaneial interests utside tirmany.

I hold V* opinion that

conservative foreign cooperation is improbable in vies: of the unworkable
conditions now imposed upon Gereeny under the

ohedele of Paymerts.

If such

a loan cee. be floated in the foreign spectietive merkets it eu:t necessarily

be of long term add if possible at a reasonable rote of interest.


experience hoeever has shown that foreign monies are only fcrthcoming by
the payment of exoeseive rates of interest and the ear-merking of aseets to
a value far in excess of the total amount of the loan.

Assuming a large

loan with a high interest rate, the position, as I see it

eould be the

following. S woulc. first have a substantial sum to be eeplied to the
eervice of the borax, the effects of which eould be superficially advantageous.

Ale*, soeetime next year and the yeers thersefter we would be faced

eith releasing from Reparation oherges very considerable values of foreign
exchange necessary in meeting the high interest and amortization charges
on accouet of the loan.

I em uonvinoee thet we would also fled a great part

of the best assets ear-marked an account of this loan and thus protected

unavailable as a further Repar tior source.
All of the foregoing in my vie constitutes a ()leer end conviecing

reason for the immediate modification of the existing echedule of Payments
so as to reduce the tainual demands on dormany to an amount ehloh she will be
eble to meet.

In th© foregoine i have endeavored to reeroach the situation from
purely practical point of view and have made no effort to go into the broader

economic features of the presett situLtion hloh are epparent to all.

I fully

appreciate the politioal difficulties which fade the veri2us ,'o .ere represented

on this Committee but sincerely hope thet in their fen interest such


may be errived at as will result in according a business treetment to the
eeperetion question and thus assure the greetest returns to the Tsperation


LOU., Jr.,




Called :fratn- his des in private!

life to hekeolrninistity of munitions
Dec. -15, 1,316,

ttz4 Lc sgr t

with him


peraanal tellre'V'experience and
ahilitty to',get -results which had,
oizie of the world's!
stamped hini
greatest .,ineliistrial leaders and as
one of 'hisielry"s..great'war!ministers.:


Ten lAilt
pe$iled, M. -Lotichetir .Was found re-

esnting Franae at the peace con-:.
,ence-with all its connected and inC camplek negotiations:
of the comparatively few
geitnent figures who, ..having ent-

.-pUbtio-.service during * war,
l*en'chosen to help pilot France
pug n- the shoals of peace.

o 'emimerata here the results he
-tained in posts of -trust he has
7:Would. he to repeat what are
Stets Of public record. It,'Js surf
,congratulate France on
havingchtisen for this great work of

Mr. James


Jr., -da

introduces tai,rjtitirre recide

reconstruction, which has the sym.,
pathr Ilk only of herallies,but of the

M, Louis LokicheutlaVencti-iminist
oft the liberated regions.

whole world, a man of the sound

common] sense and tireless energy of
M: Louis-,Loucheur.


Following on thezernisittge.

entber .11, 1918, tliefe sbel*'41A 5
M. Loucheur. was born at. Roubaix
in the histOry of .111Aatice-lcnixidIi.:held
He left the Compagnie des
Chemins defer du Nord wherS he wasands..dfinderS:
promise of dif.ffottiles
employed- to study electricity at the
equal to those- Wlik,lialtg.44e01-,Overle' Polytechnique.
coMe during the fdtir-precedink,S'rears.
in 1873.

e spent fifteen years o. Avs.r idioms,- it might be.,
To reVet. t developing
industry of electricity and tiedell'irhead.a6VW!
said .that France, hydro, .His,,.tridefa,tigable energY' before it the
of armistice terms, lied
Min 'at the ,`carne" time to bnlljd ...ns.w
task- of Ttass+k Wing ata
the Balkan
s in Turkey awl
s, particularly consolidation meant more than
This Serbia.

the draFing' up of treaties with ex-

enemy powers and the
ring tile NN'at hd organized large settling of
accounts plants whicill
itions, works and with friends. It Meant teorganization, ieduitrially.
ed out material for .heavy art and .'soclal-

At the ly at home and the enormous'undertime 4if the ministerial
taking. of reconstruction.
nine of Dec:, ft 1916, he became
muniunder secretary of state for***
s. In this capacity, he exhibited aa
-Reconstruction, when speaking of
wonderful organizing power F
France, has a special meaning, It
DL Ribot asked him to retain
means the, material regeneration of
'at) cabiugt.. 4'Aleo M.
great areas rendered unproductive
tOe or. in part, agriculturally,
whollyrinietnietslip of

P ions.

sliecbeded M. i.
clustritrily -and^ vonmeralelly-and...the.:
-ss minister 'of



understands thn
.,:,.11.-..11- 2rriel1C.241.1.,,e.fter...hti.atig.",111"Taiti-.. Oi! hoop Spr

tained him intrection is entrusted him one reitiles .
this post, to France that
atarmistice time with the portfolio ofplaced in M.
whatconfidence it has
industrialjeconsffi 1 ion.
Louis Loucheur in making him minOne of thel7Frilichs the liberated regions, and it
ister .of lent tentiaries
at the pea,c6 N.cdollcerencerhhaving had the opporis only after
foremost part in the debates
tunity' and prii,liege of judging M.

ultimately hecarrit ' minister of contact that one
Loucheur by pesonal
Many kee
understandS 'how fortunate France is
servers ti. ilk M. Locieheut -P arnnnit ftx sons Olir.
,,r+in, him
to p&rforfn further great
friends compare him wr,.,..they say,. -Ins.
partly'deVellmet*. He lL,


having- been born a# Rot

these 'perplexing and vexatious

4.1es in private

stry of munitions
'experience and,
ts which had

Might with

e of the world's'

eadiirs and as
at war'rninisters.
r munitions distir was found re-

t the peace cononnected and in-


Mparatively few
ho, .having entBurin the war,
help pilot France
f peace.

e the results he

s. of -trust he has
epeat what are

ord. It.,is sulk




is great work of
ch has the sym'..

r allies, but of the

n of the sound


reless energy of

or the liberated

born at. Roubaix
Compagnie des
rd where he was
lectricity at the

taste- of -tconseiiiiating 145 ..11AW-posiIions.

This-cOnso1i(lation meant more than

the drawing up of treaties with exenemy pewers and the settling of
accounts with friends. It Meant re-

he became

for muni-

e exhibited

Pa iniefstAir, of

cceeded M.

of mun-

trusted him
portfolio of

h too


ster 'o
y kee


regif in N.

revttrt to..war idioms* it might .be

ants which
heavy artilministerial



head atffersaid that Fiance, Tin
ofi armistice :terms, had before it the

anized large

m to retain


in' the history of grance-whiek..beld
promise of clifffetailes and;Alni,41v
&Punl to thosi 131.1Q0:1;0000vercdrne (luring the our precedinears.

efatigable energy
- time to Mild
d the Balkan



Following on trite -armistice of 0aV'.
outher 11. 1918, theri-be rim.-a

ears developing
city and hydro-



introduces lo The Trilunie
M. Louis L,oitcheur,-1, rchcti

organization, . industrially and :social-

ly at honie and the enormous 'undertaking, of reconstruction.
Reconstruction, when speaking of
Frange,' has a special meaning, It
means the, material regeneration of

great areas rendered unproductive

wholly or. in part, agriculturally, industriallyand commercially-and the
nrortrlettabil4tation- -ot- -populations


tlistrivaelittene,- understands the
tYisTpr(iblert-L- of Pecons.:;iski

nliction is to France fhat'oile
what_confidence it has placed in M.
Louis Loucheur in making him minister of the liberated regions, and it

is unly after having had the opportunity" and privilege of judging M.

Loutheur by pesonal contact that one
understands how fortunate France is









Paris, 18 rue de Tilsitt.
3 rovember 1921.


ay dear Ben,

LIAM '1M Fill

I enclose, for your confidential information, copy of the report
of the Committee of Guarantees to the Reparation Commission concerning the
general German position vis a vis the Schedule of Payments.
It was quite
a struggle to force the report up to the Reparation Commission, and while
it contains much matter with political coloring, it is nevertheless a pretty
good paper.
I do not personally agree with all the conclusions but I was
forced to soft paddle my own desires in the matter. Included in the report
you will find a copy of my "personal" views which should amuse you as I
have stolen a great deal of your thunder which I propose treating as if it
emanated from my own little brain.
The Reparation Commission itself is going to Berlin within a few
days to look over the situation itself.
This is the direct result of the
report and cannot help but have a good effect. It was a hard struggle for
Boyden to get the Commission to agree to go, but he accomplished this in
that quiet and effective way of his.
Loucheur to-day asked me to stop in his c,ffice which I did.
intimated confidentially that he held about the same views as I hold concerning Germany's ability to pay, but that the internal French politidal
situation was extremely difficult and that it would therefore take considerable education of the people to see the situation as it is and thus permit
the Government to follow a sane policy in this question.
I am going to take
lunch with Loucheur in a day or two and will keep working on him. After ate
had finished the German question, Loucheur referred to the Cebtral European
situation stating that, in his opinion, unless help was forthcoming within
the next few months the biggest financial crash of history was bound to
arrive. He told me, under the seal of confidence, that he intended to
leave France within the next few weeks for America to see if some help
could not be made forthcoming in our country.
I suspect that he is really
going over to replace Ix. Briand on the Disarmament Conference and hopes that
the scope of that Conference will De broaden so as to permit consideration
of the various outstanding international fina:cial questions.
I kept my mouth shut. Mile I don't altogether trust my good friend Loucheur,
he is unquestionably the widest awake member of the present Government.

I enclose herewith a clipping from the Chicago Tribune in which
I rendered my tribute to Loucheur. He is very susceptible to such attentions.


To return to the German situation, it is quite clear that Germany
will not be able to meet her Januar; 15th payment of the "fixed instalment"
and if something is not done before-hand she will be forced into default
at that date. Under the present arrangement two advances on this fixed
instalment have been requested by the Committee of Guarantees, the 1st on
November 15th of 16 million gold marks - this Germany can pay; the 2nd
on December 1st of 91 million gold marks, which she will not be able to
pay in full.
It will therefore be optional with the Governmerts,if they
don't change the Schedule of Payments, to force Germany in default on
December 1st or to wait until January 15th.
I hope our Allied friends
will see the light,

Faithfully yours,



The Honorable Benjamin Strong,
Governor Yes York Federal Reserve Bank,
New York City, N.Y.

P,S.- You will notice a slight difference-Jn the budget
deficits as forec9,Sted in copies of cables which I sent
you in ay letter of October 15th, and those now stated in
the report of the Committee of Guarantees.
These differences
are not essential. As a matter of fact with the present ratio
in value between the paper and the gold mark, the prospective
deficits are higher than stated in may cables.




Dear Loff;ie:

I am working on a reply to your letter of October 15, which contained
and illuminating information, and really deserves some

some very interestin

I think your memorandum, which is one of the enclosures, is fine., and

expresses so much my own view that I envy you the opportunity of having prepared
it, and at least secured its submission to the record.

With this I am enclosing a rather pathetic appeal from some one in
Austria, who seems to be in dire need, but wholly unknown to me.

Possibly you

would he willing to pass it along to your representative in Vienna, and if it
is a needy case invest a reasonable number of dollars in relief for me, and let
me knot{ how much I should send to reimburse you.

Very confidentially, I Just received a telephone call from Dan Wing,
President of the First National Bank of Boston, who is a friend of Boyden's,
advising that Bergmann has been there, after a recent visit to Washington, and
has laid before him (Wing) a program for borrowing a considerable sum from the
banks in this country to enable efforts to be made to stabilize the fluctuation in the
value of the mark; the idea being, as I caught it,

to get the Reparations

Commission to agree that repayment of this loan will anticipate further payments
on Reparation Account.


an very skeptical of the possibility of anything like

stabilization of German exchange.

The reasons for my holding this view are

too long to express in a brief letter, and

you may

letter after I have had a talk with Mr. Bergmann.

anticipate a further

It seems important that

November 3, 1921.

you should be advised of this, and that it is treated with the confidence that
it requires.

Another resent development is Vanderlip's arrangement with the
Austrian Government to send a delegation here to discuss some adjustment of the
Austrian debt to the Grain Corporation, along the line of the plan proposed
last May for Austrian rehabilitation under the protection of the League of Nations.
This visit would be rather inopportune, and I have some reason to believe that it
If you have any information on the

has been stopped, but am not yet sure.
subject, I should appreciate it.

There is just a remote chance that I may have to be abroad within the
next six months, and being posted, by your courtesy, from time to time about what
is transpiring over there, would enable me to have a much more intelligent discussion of these matters with you and with Boyden if i do go over; hence my
appreciation of your letters and their enclosures.
With best regards to you both,
Yours sincerely,

Colonel James A. Logan, Jr.,
18 rue de Tilsitt,
Paris, France.



Honorable W. P. G. Harding


November 4, 1921.

This domestic irsue of bonds would be paid for by subscribers in foreign
currencies, in dollars to the extent that dollars are now held by German nationals,
and in other exchanges which the German Government would, at least in part, convert
into dollars, if required, for repayment of the t50 million loan negotiated in this
It is his opinion that very large amounts of foreign currencies are now


held in Germany which cannot be dislodged or made available for the German Government for reparation payments eu long as the mark is declining and so long es the
present Oanicky feeling prevails as to the ultimate value of the German currency.
de expects that his government may induce large subscriptione to such an 186110 of

bonds, partly by the rise in the value or the mark, resulting from the American loan,
and partly uy offering certain tax exemptions upon the Bold mark loan, principally
those relating to the present inheritance tax and income tax.
It is my belief that the only basis upon which such a loan could be placed
in this country would be upon WI express reeuest by the Reparations Commission, or
at least upon their authority, with the necessary subordination of reparation payments to the repayment of this loan.

Were such action taken

Commission it is possible that a loan of some site, possibly even t50 millions,
could be placed with, and through, ahr banks and bankers, and the effect might be
substantially that which Ur. Bergmann expresses.
There are three ways in which a loan of this character could be effected:

one would be directly by the bankers of the country, without intervention
on the part of the Federal Reserve Bank; the second would be by an arrangement
actually promoted and iniated by the Federal Reserve Bank, but without any participation on the part of the latter; and the third possible method would he for the

Federal Reserve Bank to appoint the Reichbank its agent and correspondent in
Germany, and make the loan direct to the Reichbank, taking commercial bills of
suitable amount from time to time to represent the amount loaned, and having the
loan supported by a guaranty or obligation of the German Government.

November 4, 1921.
As to the first method; I very much doubt whether Mr. Bergmann, unaided,

would be successful in interesting American bankers.

As to the second method;

it is possible that certain of our leading bankere would join in placing such a loan,
provided it was understood to be agreeable to our government that it should be dune
and that the necessary cammitments might be made by the Reparetione Commission.
This, however, is S. personal opinion, without support or expressions from our
bankers themselves.

As to the third method; there would be little difficulty in

arranging the deteils end making the loan, but I am somewhat impressed by the

possibility of criticism of the Federal Reserve System's undertaking business of
that character at the present time.

On the whole, it would appear to me to have an important and favorable
sentimental effect upon the exchange situation, and generally upon the reestablishment of international relations between this country and Germany.

This bank would not feel justified in undertaking to promote such a transaction on any of the three bases described, except it first received the .assent of

our governm nt and

an indication that it would not be Jisapi,roved, if the terms

and conditions were satisfactory, by the Federel Reserve Board.

Anticipating the .ossible need for dispatching a cable to Ir. Boyden before
an answer is possible to this inquiry, I have taken the liberty of drafting a suggested form of dispatch, which is enclosed herewith.
It is now generally understood that the crisis in Germany is a critical

one, and that it may iead to more or less serious consequences unless this scramble
for foreign currencies is arrested by eowe plan which will allay apprehension there.

Benj. Strong,

Honorable W. P. G. Harding,
Governor, Federal Reserve boaro,
lashington, D. C.

outline of Cable

Bergmann proposes a six months $50 million loan by German
Government payable in gold if not otherwise met for purpose of stabilizing
mart exchange and if possible restoring to what he claims is domestic value
of mark somewhere from the equivalent of 1 1/2 to 2 cents.

Suggests that

assurance of repayment of loan at maturity shall be afforded by agreement

of Reparations Commission that such payment shall take precedence over
reparation payments in form and manner to be determined.

Proposes that

within six months German Government shall issue a domestic long-time loan
payable, principal and interest in gold marks, figuring paper mark at
equivalent of dollar exchange value, such bonds to be afforded complete
exemption from inheritance tax and partial exemption from income tax.
Believes these exemptions together with advance in mark resulting from
placing of American loan will lead to large accumulation of foreign currencies by German Government, as subscriptions for bonds will be made payable
in dollars or equivalent of dollars in other foreign exchanges.


has been referred to Federal Reserve Bank of New York for investigation
prior to which they desire some indication of possible attitude of
Reparations Commission regarding proposed subordination.










November 7, 19f)1.

Dear Go verno r Harding:

Replying to your favor of the 5th instant, it appears from
all that we read in the newspapers, 84-1d from otter sources of informa-

tion, that conditions in Germany are now becoming really desperate.

It may be that this is no concern of curs, and that the outcome of
recent developments will make any transaction of the character suggested
by 7ir. Bergmann wholly inadvisable.

C.n the other hand, the time is approaching, in my opinion,

when participation by this country, either ofqcilly or unofficially,
in the situation in Europe may become imperative if our export trade is
to be protected and maintained.


be helpful to have some indication of the attitude

of the officers of our as promptly as possible.
Yours very truly,

Honorable W. P. C.2.Harding,

Governor,Federal Reserve Board,
Nashington, D. C.

benj. Strong,


I 00b4 1.20





Mr. .Tay




Nov_._ 1, 1921

German Floparations.Paymenta

in August

I have just been able to obtain from one of the participants a
confidential account of how the money for the German reparations payments,
due last August 30, was obtained.

The amount to be paid was one thousand million gold marks, or
Of this the Reichsbank had been able to acapproximately 243,000,000.
cumulate in exchange, up to the end of July, only to the amount of about
t60,000,000, leaving something like 135,000,000 to be raised.
This was
done through loans in various centres.
Something like !,:'20,000,000 was
obtained here, the five participating firms being the 0;quitable Trust,
Speyer, Boissevain, Hallgarten, and Goldman, Sachs.
Part of the security
was the Reichsbank's silver.
Another loan for about b5,000,000 was obtained in London from
four or five participating parties; the same way with a loan for about
40,000,000 Swiss francs in Switzerland, or about t5,8,000,000; another loan
This with
made by Iendelssohnt Son through Dr. Mannheim, in Holland.
what additional exchange the Reichsbank was able to accumulate up to the
end of August, made up to about l'65,000,000, requiring the balance of about
Some of this gold, by the way, is
ft15,000,000 of the Reichsbank's gold.
still being received.
These loans were of short date, running from August 15 to the
On the first or October the Reichabank had been able to
first of October.
accumulate only a very small amount of exchange and had to ask for an extension of most of the loans for another six weeks.
In these six weeks
they have been able to secure enough so that the American loans, at least,
will be paid off on the 8th.
It is of interest to note that even the large
Paris banks were sounded, and that they said they would be glad to participate except for the political difficulty that lay in the fact that practically all of these payments was to go to Belgium and England, and almost
none to France, but that on the next payments they would be in a receptive
It was also stated definitely that the Reichsbank, which means the
German Government, had not been selling marks below .80, which is a point
of extreme interest.
The security for these loans,outside of the Reichsbank's silver,
was Reichabank notes, kept good to within 10 per cent. of exchange value.
This means that the increase in the .eichsbank's circulation has not gone
into the open market, but has simply been used to increase the security reApparently, from my informant, the collapse of the
quired on these loans.
by the German Government.
mark has not been due to
foreign selling
If this be true, it seems to me that it renders the situation far more difficult than it has otherwise seemed.

MI00.3.1 00M-I-20






Mr, Joy__


Nov. 7, 1921

German RoparationAlipayminis_

in August

____Mr,S.nri Snyder

If the selling of marks has been wholly from the outside, then
practically nothing ti-lt the German Government could do directly would have
saved the situation or will help it now.
I should add that my informant is a German of 26 years' banking
experience in London, and now two years here in Hew York.
I was very much
struck with the fact that when I talked with him about the general situation
six weeks or so ago he seemed to be in a fairly optimistic mood, while now
he regards the situation as very dark and feels that unless something can be
He feels that
done a violent uprising or even a revolution might result.
the manufacturers cannot go on under the present conditions, and that if they
should shut their factories it would ,recinitate a worker revolution.
he is not in the least of the alarmist type.




'saris, 18 rue de Tilsitt.
7 November 19.21.



dear Ben,

In one of your rece
letters you made some reference to
the Clearing Office questioirr. For your personal information I am

enclosing herewith C.G. Document No. 144 which is a German ex-parte
statement of the operation and results of this clearing system.

While it is somewhat colored ih tone, I nevertheless
believe it to be a substantially accurate portrayal of the existing

Faithfully yours,


1 incl.

The Honorable Benjamin StronE,
Governor New York Federal Reserve Bank,
New York City, U.Y.




rovember 14, 1921.

Dear Ben:

I find in looking over the files that you have never re-

ceived a copy of cable B572 of October 14 from Boyden.

I am, therefore,

enclosing a copy for your confidential information. You will note that
this embodies a telegram from Logan in Berlin and relates to the
Budget of Germany for the years 1921 and 1922, and 1922 and 1923.
Always yours,

Honorable Benjamin Strong,
Federal Reserve Bank of New York,
New York, N. Y.


November 15, 1921.

Dear Eliot:
Thank you for your
dispatches from Boyden.

note of the 14th instant,


I shall write to you about them se soon

as I have opportunity to study them.

A little later, I am going to take the liberty of
addressing Lu Ole Treasury a brief

discussion of some

features of

the economic situation in Europe, further developments of which,
I believe, will have a serious reaction in this country, and hope

they Lay

receive consideration

by toth the

Treasury ;::_ncl the Secretory of State.

Yours sincerely,

Honorr.ble Eliot

Assistant Secretary of the
Treasury Department,

Waehington, D. C.


Secretary of the



November 18, 1921.

Dear Ben:

I have your letter of the 15th and shall be much interested in reading the communicp.tion which you propose to address to
the Treasury.

In this connection, the following cable received

from Boyden in confidence will be interesting.

"Pursuant to suggestion of finance conference August
13th erticle six reparation commission invites governments including United States to nominate representative national bank of issue to form committee to consider measures to prevent Germany's reparation payments
ceusing fluctuations in exchange.
Committee to conRifler advisability of inviting German representrtive.
Governments to nominate representatives as soon as
Suggest consulting Federal Reserve. Believe
it important United States be represented."
Governor Harding is sway but will be back shortly and
we will talk with him.

Meanwhile, I have talked with the State

Department very informally.

They are so busy, hmover, just at

the moment,that it is almost impossible to get their minds on anything of this sort.
it a little later.

I hope to be able to have a conference about
How does the plan strike you?
Sincerely ygpres


art Secretary.

Honorable Benjamin Strong,
Federal Reserve Bank,
New York, N. Y.

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roveaber 19, 1921.

Dear Ben:

The following is another cable received by the Secretary
of State, relative to the appointment of h representative of the
Federal Reserve on a Commission to consider technical financial measures:
"Finance service Reparation Commission specially requests
appointment representative federal reserve and recommends commission request committee consider technical financial measures:
(A) Prevent German reparation payments disturbing international
exchange; (B) Reduce risk of loss on exchange while such payments
administered by commission; (C) Secure that maximum foreign resources Germany made available for reparation and generally advise
Commission as to financial conditions for and probable financial
effects of accumulation transfer cash from Germany as contemplated
schedule payments."
Alwitys yours,

ronorable Benjamin Strong,
Federal Reserve Bank of Yew York,
Lew York, Y. Y.

1 )92i


November ?8, 1991.

Dear Waddy:

Replying to yours of the 18th and 19th,

I am sorry to be laid up for a

few days and unable to send you the promised statement on reparation matters.


soon as I am back at the office I can write you fully; meantime may I make these

There are a number of courses which our Government may follow

in re-

sponse to this suggestion; they are, in inverse order of merit, probabl) the

(a) To decline the invitation, which might be satisfactory to those who
fear any form of European commitment or entanglement, but in the long run would not

be in our on interest.
(b) Send or authori7e the attendance of an unofficial adviser.


influence would be impaired by his position or lack of position.
(c) Send an official representative, which might be a source of some
political irritation at the Capital, but is what we should do, unless, still better,
we are willing to

(d) join in a conference to deal with the whole subject of reparation,
allied debt, foreign exchange and all economic matters.

If the present conference;

is a success, and leaves good feeling in the air, plan (d) would accomplish something,
I should think, and help to bring some of Europe to ways of con on sense.

In case of such a conference, it would be essential for our Government to
make a simple preliminary and private declaration to the other nations, with caution,
on certain points, i.e.

1. We cannot finance the world while it indulges in wholesale inflation.

i',43 will adjust and defer debts but cannot cancel without limit.

7. German reparation must be dealt with decently.

November 2e, Mi.

4. They must quit printing paper money, tax their people and put
their budgets in balance.

The danger of such a conference is that it might be the forum for
promoting every scheme of every visionary to regenerate the world with our money,
and make enemies of cur friends Alen we decline.

A good preliminary platform

would or should cure this.

But in any event let's get come one over there who ie competent to

Yours sincerely,

Honorable Eliot Wadsworth,
Assistant Secretary of the Treasury,
Treasury Department,

Washinton, D. C.



Paris, 18 rue de Tilsitt.
28 November 1921.


14 dear Ben,

With Boyden's permission, I am enclosing herewith copy
of a personal letter he sent to one of his family in America
concerning the recent trip of the Reparation Commission to Berlin.
have seen on the present Reparation
It is one of the very best exposés
problem and I believe it will interest you.
In my opinion Reparation bonds of Series C never have been
and never will be worth anything. On the other hand, I doubt if public
opinion, in France particularly, would allow any consideration today
of the question of their cancellation. The possibility of the ultimate
issue of C bonds prejudices the value of the A and n bonds, this phase
is extremely well presented in Boyden's letter. Were the C bonds out of
the way, Germany could work out ncr interest and amortization payments
on the A and b bonds. She would have to be given delay or other help
in meeting immediate payments but this would only be a matter of a couple
of years during which time she should be forced into making an honest
effort to balance her budget. At the same time the Allies should wholeheartedly endeavor to aid German exchange difficulties by accepting substantial deliveries in kind and other modes of payment not requiring the
purchase of foreign monies with the paper mark.
I believe the desired goal, i.e., cancellation of the C bonds,
cannot be reached at one jump. Boyden, I am sure, holds the same view.
The question therefore is: What is the practical step to be taken
within the next few months so as to ward off an actual default on the
part of Germany?
Fundamentally, forcing uermany to borraw foreign monies for
immediate payment on reparation account constitutes an admission, on
the part of those forcing such a measure that the payment demanded is
in excess of Germany's capacity as contemplated by the Treaty. This
statement is not altogether incontrovertible but basicly is sound. As
explained in Boyden's letter, the Commission, or in other words the
various Governments, feel that the political exigencies of the situation
require Germany to make the most earnest effort to meet her January 15th
and February 15th payments, under the Schedule of Payments, by resorting
to a short term loan forced by the 'erman Government through the medium




of German industrials,
The ulterior motive held by all the Allies
except France is that it would demonstrate Germany's good intentions.
It is admitted that the re-payment by the German Government of such a
short term loan would have to be given priority over future reparation
payments by the Reparation Commission. However it is believed by all
except France that this will convince the French as to the necessity
of a revision in the Schedule of Payments, as it will be obviously
impossible for Germany to meet both the re-payment of the short
term loan plus reparation instalments due during the period of the
short term loan,

Most of us are convinced that Gernany will not meet the
January 15th payment.
In this latter event the Commission itself
will be forced to a decision under paragraph c, Article 16, Annex II
of Part VIII of the Treaty and co-related articles. Under these
Treaty provisions, the Commission itself by a majority vote can
postpone totally or partially all payments of instalments falling
due between llay 1, 1921 and the end of 1926 inclusive, up to but not
beyond the end of 1930. Neither the iritish nor the -)elgians want
a default.
The British tell us confidentially that the Italians
will follow them.
Therefore, if the question arises on or before
January loth of Germany's default, there is evidence that there will
oe a majority of 3 to 1 against the French in favor of postponing
payments of instalments.
Faithfully yours,

1 incl.

The Honorable Benjamin Strong,
Governor, New York Federal Reserve Bank,
New York City.

. -I, -0 ".4

F7-- 7.

',..- r:-'
l tL


in tae da Tilmitt, Paris.
22d :alvomber, 1921,


it %as the first
The Commission returned yesterday from nerlin.
trip of the Iommlssion there, thoegh% it ought not to have been, and I
hone it will not be the last. it is very imvortant that tho on dealing
with teeem thine should know each other, an: get down to some basis of
:31artly been se of oonaltione, partly b4403USO it east the first
trip, it was not a tremendous ausles. Arth did not, aa he should have
done, take advaatage of tho opportunity te im-aroev it 'Gest hie oen determination and good-will upon the dommleclon. 134 confined himself to carefully prepared, brief statements even when the Commlesion tried. to give
:Jo all
him a ehanee frank any deeandin an interview with him alone.
got the imrreeeion that he USA afraid even of the members of his own aabinot
and did not sere to say anything Tibia had not been agreed upon in advance.
The condition:sof German polities probably account for this, but it was unfortunate, for it was easy for anyone inclined that way to got An impression of vaollation and lack of good faith even on his part.

The disouesione were confined wholly to the January and February
popswits, .hieh the Commission -,ras unanimous in insistine ought to be
smile and which I think ':firth and the most sensible of the Industrials
In Ole first place, there is an ilTresalso believed oneht to be made.
sion eiTarently pretty well founkled that a very considerable amount of

Gorman capital has found its ma *broad and would be available If its
maaers were properly ready to auprort the Governmrnt in paying the indemnity. Though this lapital, ehatever its amount is, fires on abroad partly in the form of legitimate operatietforolgn balances for finanoing export business, and ought not to be regarded as available for reparations,
nevertheless the general Lneresaion is that there is a great deal not ineluded in this oatsgory. But the fact le that this remaining eapital,
'Mich might properly be regarded as available for veneration's. has been
exported for the express purpose of avoiding taxes, reparations and the
anticipated fall of the nark, and the pepple who have done this naturally
do not propose to disclose or to give it up voluntarily, and no one has
yet rugeested a practical method for forcing it out of them.


The policy of incieting on the January and ebruary payments aGt
my approval, and ass a unanimous poliay.
Of course, some based this
:volley on the belief that Gamma could paa her obligations in full, and
that thi* being the fact it was absurd to have any doulta about the January and February paymente. Others, bellevina that Germany oould not pose
eibly meet her Obligationn, or carhops believing that there was a Chance
that she might meet them if she were granted something in the way of a
moratorium to one tle her to fix up her budget and get in better shape to
proceed with reparatione, neverthelese believed that it was unwise to
have the crisis brought on at once bj an immediate default, and that it
was better to erovide oven at great sacrifice for the January and February payments to give time for consideration
dieoubeiona to have Germany meanwhile show her good faith by going to the extreme limits of possibility, anti to rhor ttat tbea taeaeelveu aa.; their
(.1V4iP40,14;;C, before
urging a revision or moratorium, had on to the extreme Limit of practical pressure.
'hether :lemmas will ,het tae lama aavessary for the January and
Fobruary payments even if she makes a U4St honest endeavor to do so may
be regarded as someahat Oeuhtfel, taiallsh haul:ere save atae a somewhat
authoritative stateeent to the effect that under present condition they
did not propose to subscribe noaoy to be aced for raparatione, and that
trey even ereposed, because of areeent aonditiona, to curtail their ordinary (matte to aermany, apparently tallevina that a aontinuanao of the
present cbligatione of the :ohadulo of ?mymentr, and pressure for their
falfillment inlet inevitably have the resalt of making unsafe all credit to
I a rather inclined to think that the chances are that, by the
use of foreign resources and some credit, the payments will be made, but
I have net any P:alid foundation for hope, which is base& mostly on the
theory that both Germany and -nglisti and other 11 sod beaavre and neutral
bankers will finally come to the couelusion that in some alley this comparatively email and teerorary loan Ian be au& safe, and is, for tho roaeons
stated above, the best method of approaehing revision or a moratorium.
iron the indemnity was fixed at 1Z2,000,000,000, which, under the
conditions of this treaty, ana certainly a rea2onable valuation of the
dames, and aim the Sohodule of Payments was adapted ahieh settled the
fixed annuity at tea milliards of gold marav, .uii tho variable aneeity at
teenty-six per cent of Gorman exports, I had no doubt that it vas wise
It lag the best she could get, and
for lermany to swept the decisions.
it as ep to her to show good-will and hope that the Allies would be
senaible if events proved that the annuity (fixed era variahlo) ads too
personal opinion ems that it eve too high, but I could not regard it as a certainty and had hopes that it - irht prove not to be. I
have no doubt now.
-Irobably you have read .0y.nes' articles which slave appeared in the
suppose also in the hanabester (7uardian, in which he
discussed the -;oltedule of aamente and its probable vorking, and predicted
a default by Germany some tine nest year.
Athout sapresAag agreement

London Amos, and

with all ho wtid, movertheless the bread lines of the way in ehioh the
Schedule of Payments would operate, its relation to Germany's exportea

end its reperoussioa ea Germotre budget, were certainly sound and were also
espeeesed in language ahieh oae not a trained economist eon readily understand. : :e see here a good many studies on the same line from Cho Inelde
and fram the outside of the Commission, and tether they are optimistic or
pessimistic', they, coMbined with the financial history of aermany since
7.aty, and vartioularly the course of the mark, have, as I have said, removed
mu doubt.
.'.110 hies* a good deal of a oonspiraoy on Iermamyte part to force rePerhaps
vision by allowing herself to drift into voluntary tothruptcy.
there are a few Gomm also would reseed this us sound policy, but I see
not the least indication that it is either a national or a governmental
In fact, I got rather a definite impression when I Nos in Berlin
that everybody there ,mho had any genre regarded the fall of the nark as a
calamity, even if it and accempamytmg oemditiems did lead to revivion.
But the fact is that the Important ceases dila have led to the fall of
the mark aro obvious, and there is no need of searching for a came so
tar-fetched as a definite Garman oonspiracy to this sad*

Germeny has not done her best to mmet her obligations. This bed
statement of a real ;act might mean so mama things, and the most unfavorable interpretation of it might lead to rulh drastic action, that it
needs definition.
What is her best? The ideal would be a united national effort,
booed en the recognition that the payment of the indemnity is the one supreme issue. Polities' differenees, 111e; other hindrances to united effort, wou1,4, be distorted.
%verything would be iaabordinated to work and
sacrifice, production and econoey, both governmental and private. f:lackere
110014 be as unpopular SA in war.
In short, we should have a supreme
national effort nompareale to the war effort of a nation enthusiastic for

I pause a moment to mention that I am far from sup-oeing such an
Weal to be practically possible. But it is easiest to define Germany's
-best- by describing the ideal, and then saying that ans.:mar s best is the
"'serest approaoh to that ideal whioh is praetioally possible in the absentia
of so effective an incentive as ear onthuslaem. :Ter "bests, is a per cant
of the 100 per ()ant ideal.

She has fallen far short of her best. Aar weariness; some underfeeding; resotion efter the long strain; the new siglit-hoer law; inefficiency
of labor; difficulty in transforming fernier civilians from soldiers to
artisans; still greater difficulty in transferring former soldiers to licefal employment; lank ore, raw material: ac'. money and credit to buy them; loss
of territory and resources; loss of her merchant marine; adjustment to new
etiengimle relations; you can add at yo: r plea:ell-0 to this incomplete list of
difficulties, of wAch zome rare peculiar to lermany and others are naturally
worse with vanquished than with victors.

The ohanee from autocracy to democracy, whatever maw be its present
or future good, lz for the present a groat handicap to united effort and to
It would be so anythere and le peculiarly so in Germany,
perelylllooance of the habit of looking to come cuprone authority for guide
anee, partly because the states, always jealous of Prussia, are not really
national in spirit, partly bemuse there le a strong minority, formerly in
control, uhich does not believe in democracy. They °isn't be efficient for
they are learning' the adminietratort are new to administration. Their
politics are a abed nese. every cabinet is a group of raised abides of
opinion. "Arth, a real democrat of the best Intentions. dose not seem to
have good control even of his cabinet, and the cabinet probably does not
know whether it is most afraid of the Reactionaries or of the Left or of
the Industrials.
ell this soot:mate for a Fen xl dealt -:std indicatec what Lt great

stimulus it needed if thee aro to be come efficient for reparations. Their
capsoity under existing conditions to nowhere near their potential capacTheir "bonne volont6', which mcanr their desire to pay reparations
is about all neer the ideal as is their actual capacity.
.bat is to be done?

I have no sympathy witb the puerile theory that eermany, having
been lleeed 2.1-,d having signed the Treaty, ought to uneereo a revival conversion, aohneeledge its sine repent, and rejoice in the opportunity to
pay the emcee of ein. I don't sewage any sensible person expecte it, but
quantities of people talk and weite it. They can't teem to realieo that
most Germane hone:Oil believe they fought a defensive ear and are prepared
e believe to strongly
today, and will be for years to come, to prove it.
in the righteousness of our oaese that you (=not turn the case round and
ask ehetber we would have repented If we had been liceed, but this reversion of the thought helps illtn-trate how little effect repentance is likely to have on reparations.

And the thought of our attitude, if we had been licked, is mighty
.hat etimules
useful if you are trying to get reparations out of Germany.
would have get us to eork to pay off innemnite obligations )
Of aouree, without ferns or the threat of forge, we eoule never bade
paid a cent; so foroe is a neoessity, but with the kind of force in use
today. i.e., a gentlemanly civilised military oclupetion eou would not by
eemelleal get you aea me to rork very hard for victorioeeGermeee. The
methods of eallonstoin and 2114 on the eontrary eoule nave coneieerable
If we were not too
offset an ey nateral dislike for personal exertion.
civilized to say that unless certain results were forthcoming, (mob a city
would be razed, or bombed, or poison -gassed, or so any people would be
selected by lot anA hung, or so men, eirls would be deported, we could got
sews pretty good rocelto cut of Germany. Rut we are too civilized.
elth the exercise of imagination, which has so far been
lag in our use of force, we could devise throats whioh meld be
bounds of decency, and yet more effective than our present use
which costs terribly an produces nothing which could not have

wholly lack,
within the,
of force,
been obtained

change from autocracy to demooraoy, Whatever may be its present
or future good, is for the present a groat handleap to united effort and to
effectiveness. If would be so anywhere and is peculiarly so in Germany.
pArtlyltecauze of the habit of looking to some supreme authority for pada.
awe, partly because the etates, 4ways Jealous of Prussia, are not really
national in spirit, partly because there is a strong minority, roman,' in
oantrol, whieh does not believe in democracy. They can't be efficient for
they arc learning, the aaminIstratore aro new to administration. Their
politics are a mixed mess. -very cabinet is a groap of nisei shades of
Opinion. 7irte, a real democrat of the best intentions, tees not seem to
have good eentrol even of his cabinet, and the cabinet probably does not
know thether it is most afraid of the Reaotionaries or of the Left or of
the Industrials.

All this accounte for a gave deal* Lhd Indioutem what a great
rtimnles is needed if thee are to become efficient for Isperations. Their
capacity under existing meantime is noehere near their potential capacTheir "bonne volont6e which means their desire to ay reparations
is bout ac neer the ideal as is their actual capacity.
:hat is to be done?

I have no sympathy with the puerile theory that eormany, having
been lieeed end ;laving signed the Treaty, ought to undergo a revival conversion, aoknowledge its sin, repent, and rejoice in the opportunity to
pay the wages of emu. I don't suppose any sensible Towson eepeete it, but
quantities of people talk tail welts it.
They can't seem to realize that
most Germane honestly believe they fought a defensive liar and are prepared
today* and will be for years to come, to prove it. ' "e 'believe co strongly
in the rig) teousness of our oause that you cannot turn the ease round and
ask whether we would have repented if we had been liceed, but this reversion of the thoeght helps illavArate how little effort repentance is likely to have an reparations.
And the thought of our attitude, if 114 had been licked, is mighty
:hat stimules
useful if you are trying to get reparations out of Germane.
would have sot us to work to pay off ind emnity obligations

Of esuree, without Toros or the threat of force, es eoul! never hate
paid a cent; so foroe is a necessity, but with the kind of force in use
todey, i.e., a gentlemanly civilised military oclupetion elu eould not by
jags alma gat you aae me to eerk very hard for victorioes (Armee. The
methoda of :Allonstoin and Ally on the eontrary eoule eve consWerable
If we mere not too
effect en my nataral dislike for personal exertion.
civilized to say that unless certain results were forthoeming, such a city
would be razed, or hashed, or poison -gassed, or so many people would be
selected by lot well hung, yr so mane girls would be deeorted, we could got
84,119 pretty 600a roculto cut of lemony. Rut we are tco civilized.
with the amaze:lee of imagissation, Which has so far been wholly lack-

ing in our use of fore, we mule devise threats vhich malt be eithin the
bounds of deoemey, axe yet more effective than our present use of force,
which costs terribly and produces nothing which could not have been obtained

right direotioa

The total 1.1132 milliards bonds, SS WS bonds,1121n0bondeo Soso ar
of is milliards (ellninatiag eittosimorasio asopeoed
the proposed annuity ubleh is about enough to pay lallemort on th
plus 1, annually en their prinoi)sl. Tho 0 lianas ds nut b000ms
early intermit, assupt as fast me the annnity Gan tale oars of
variable annuity intro/wee, o r when sad if the
amortisation r
lbin armament is something in mitigation, but it holds
hood Apr an lnietinite periel this vast blank of 0 bonds. if G
viase herself of the possibility of paying the annuity, ere woul
There are ther
of her OR almost imNemminable ported of slavery.
?lilt, the foot t
to the owsation of Up
at mind.
she onset pay the vboy
all se has no inoeutive for tryin
off.** :Monde the 146 aistinuation off the samult, resulting
C bonds are to be issued whenever the annuity is able to take ca

Just to illustrate of thew it and, without monolog at all t
final solution, I believe that if the 0 tondo more eltaLastad,
toads and tile annuity retaleed (even in 'heir present shape) th
Wm sexes immolates* with my belief that the amani
pull out.
anon* to take oar* of the and I beads, is too Largo. Boa yea
supposed have the insentivo - the passibility of imam.* -Idlink
You mould thou have await to help the situation, 'thigh is Nov l
no audit Maio the betel is as great as new. A
arssay oan
foreign debt, and great potential capacity. Poshaps eves then s
nom would here to be alloved by the All ins, but I animalism&

orbit wall take WO of that, the Oesmmiee flumes are indol

zed you have also to presippose ash sr SIMIONSO by whisk Gomm
to oaks Ivry substantial papunds in kinh iruttemi of in foreicn
also that the customs barriers mhialt the stupid is general segos

to raise againat (Masa worts mould not roost&

8noh a salsas really would be based on desopes potential
future, but this 'mild not tom at first eta* to be trur, and it
sabers to have it *m on its for t
to the attraotivemssa of u
amy's finanolal art eeeneuts eenaltieno bervere, 'he Aillos ar
the isprweemont. This msaas probably a moratorium Coelho. moo
pima' in 'Ana), to LAvio 0011p a glonall to Set her asionses
as amenity based on Oelanses emprolty aseamproied by same sobom
to later Whoa' in hrionitlf

0$110 you adapt OP a baste primiplo aormones oarboity yo
It has new been dab. lie treaty requires t
stair Clemoires °enmity, gives it ecnopover of pestpeasmosto b
osmoollatiou without unanimous eomsent (of the govermensts, I t
it to Insainity of the GwraVamanta sr the dolagsiss name noprae
the Osboinie of Perverts is basal ea the prinsiplo of a arid sm
able amoulty, the latter basal m a pursuits., of voinne of expo
anssot of the flied aansity. the mN of the exports as an inaex,
was alplantai artitaarliy oat of the air, taro only principle
was as moilexate ass/Klima so you oemillsot at t.e moms*.
step imiadvanso.

to WWI* that am eeemealot or finamator bad over Whow,ht or

the pereemtape oa emporia is obviously a rattan arrenrorant

to restriot the wry mane by which norm'', mat mu paysont.

-7the tordenoy (which 1 ocnbat ) is even *trees to Leland* in :Imports payrents in
kind (on account of revarationsfa Actetiber that at present value of the pner
Twit Clerrotoo is fornishiog land -horue eomi at about 1.25 to 1.40 par ton, and
then consider that every ton adds one quarter of the 1.25-1.40 to her variable

annuity. The Coma lasion %%OA havo done molt better to base thoir variable
annuity on a peroentage of the Oust= buttoot. I don't claim this index which
IMV :r:e

t 1188 13133/1 nonrection with inoreaoe in p rasp KV., but I hove a pro found

conviction that it would do store to reform levant. Mottoes than air other one

thing, emeept the cessation of der:1=1s noon a411/11111107 which inevitably require her

to boot ik aI

ourrenoy with :caper merits instead of exports.

So unless you adopt some ouch sohemo as the oonoelliasz of the 0, bonds, you

have (if you really want maration ant think tho prosont arrottotroont trill

Orive Gamow bankrupt without oprogioaing anythinc oubstantial tor the Allies
oxcopt the glisaetroos consequences o f Go
's ban;wiritcy) before you a moratorium, .his rams a ooniglete or partial let lip in dorsals to give Germs
a ohonoo to oe t ho r finanoeo in order. Tho would Ibllow naturally a fixation
of /mutt los. Thin mio-ht o tooceivably 17X) on a doss lei atl on definite annuities v or

a definito Enmity oorl, a 'tor/able, )r inotoal of a -pacsetent decision, you
miont oot a deoLsion for a temporary period, sittjoet to Waive at the end,
The forasr is bettor for definitorsses is preferable fbr the ond in -flow, via:
to get (lemony to work wholo-hooxtOdly. If oat/tatty to pay were the r000iotized
baste 9 then either schisms is ad inr 10 Verlte Ilt an Iressont condition, but reservation of the ;x or to adjust read e that SOMO 0120 is to aeoide lator whet the
capacity its, and I don't bolion you Can ,art no right state, of mind on Ciformarre
part, or credit front 011toide wfraioh is aloo n000ssary, unless you have oesething
final and definite which both Gowan,: a* her possible lenders believe istproottcable. Also any sohenn ..vhion tries to get for reparations all of 4er-oozy s
futoro imorease in oopoolto 1c1:112 tho incentive.

The possibility of sone sulostantial ems 'Aeration. of the utter is &Mealy
impmved in nor mini by the foot that Polooaro in his Let current review in the
,evuo des Ieux laendee implies etroncly that a moratorium may be


combines his intimation wits criticisms o f lerosov e efforts to dale, completely
justified if you assume that (*.german,/ could be eopeeted weer the °auditions to
do her best, sod justified to a substantial oxtent evert under present conditions
becalm C-eroany cuolit to haw done moro to eat down her expenses and the deficits
of her post office =I roilvows, to Impose laws, r taxes, to bidet upon private
000/10tftri, to prmront conoonirnut of resources shroud, to atop olocolation in see-

oharre, to arranoe credits far the January and iebroary pegments, to facilitate
restitution ._in1 roiaration in kind under the treaty, aid to push f° r opportunity

r greater del ivories in :dad an? for use o f Gerona 1 $tar in i:`ranco mid Oelgiuss,
ate, Ohs; ouriat in o t,o r words not to have laid herself off. on to jos ti fiable
oritiAsia for thiwa tab., ix' you have a ter-492ov that way, can readily give

support for the boliof that s:o resists reparation in every possible way, anti

that the derooleintion of the wart 1u ise-ro, part of the Oorsopireney to onset the
lion. ,i.a1 she oujit to have talked time Ocavinoingki. But %flint aim ritlit
ant ought to have done would no have ol.raiged much the funtUrc :dela of the

o to rious eountries hove not ammo very non:
situation. 'Strong tpvenurents
the idool in pt121 is filo:nee, ant when you t,!ink of this ma? ,ire weak democracy
in a defoated country, you are not inclined to be ,;agssaYle, wit certainly caoht

not to lie extravoomnt, in assertions about whet she could nave don).

Ono thing WhiOU is atrongly in .- cincture's mind .And tie minus of m..ny

others is thet there met be no further reduction in Germany** total debt.
If you went to keep Germany Qbaito tale iu an efisetive way; if you want to
g t as mush as possible for reparations, it seems absurd to anyone who thinks

Acme the

linos 1 n'ave taken in Lida

and do ni,t reed to elaborate


lei -lamer* wants further security, eustans control, etc. a sort of
I ceet follow this as an effective means of
getting reparations. I mdJtt possibly think of some specific things that I
would insist on, but if Gel,inw over bats in tits flood, they
acme automatically, and if she doesn't, they would have oomvuratively little effect.
There eilI be many to insist on occupation of the Ruhr or eamethlue similar,
but Aoineare did not lay stress on this, and I get the impression that the
responsibilities end expense rtieh thin: s crt cl thing involves, an the
possible offeet it miLlzt have (e.g. Bolshevism in other parts of Gervtzny, if
tre oeuuLtlan Ather try Its pewheloLic-, rffoct, or by iota 1 ..1vortion
of the prouuots of the Ruhr from other parts Of Germany produeed econamio uisanmployrent;, .:ro seine more, oleLrly reelined, z,nd that the
rooeiverublp talk which has blooms quite prevalent lately is duo to the search
for sone substitute whdah will setie:4 -be monetert,publie opinion,-umallY as
a mAtur of f of better satisfied if he is fed on the simple plain diet of commen :40460.
:Alt the militry cseture is Ve no.tur:.1 one, the oublie have been
tau6ht to bulieve in and to aspect it, :and it will take courage not to indulge
receivership ole.e 60=4,144,

in it.

The rosult of Brisile$ trip to the "tatted :Itetes v.ill hives
influanoe on all this. The test that everyone reeognized the real need by
Franoe of e servioeuble army, Ind that AlglrInd encl. the United :t:tee led
loport if neede,;., will tend to help the French consider
them to iv), e for
the indemitj Tius1,11n fror th finnnuiAl point of view, A.thout hiving
their judgment disturbed so much by the spectre of att-idk if Germany is
.1.1ov:ed to prosper.

r.)ne eimrat ect7 how they 7arn

oiVriated by this

thought, but the feeling is universal that it has treeendous influence on
tnair opinions and policy.
mIstAke n: )t to
I have talted ,bont renerations, bit it is
mind the other obligations of Germany, army coats about 400 millions
marks per year, cost of the lerious oommiesiens under the treaty, which
tho' not tremendous are not netilcible, anie the monthly payments which
Germany is mAkin:-., on amount Of eXeringeheuee haleness. *doh means the
settlement of private are -war dents *Wee* German ()Meese and citizens
of the Alien. These debts have to as paid in geld. It woad bAdkrupt
the German debtors to ao this, so the OernmeMe provides a p._,.rt at avast,
the l por m.lric -n0 the
,ina I think thy whole, of the uifferenee be
en arbitrury il;ure of
;;old payment. The payments .ere now rennin_
Then we
33,180,000 Aold mAres ner month, subject to final edjustmeat.
nave repayment of the temper:try foreigi loans by means of which about half
one millierd payment was effected. Thil expedient is one of the
of ti
important reasons why the effect of the !..):4Mont of the milli :rd on roveicn



<Tic:sheave was eat eattespariaseln with the per :A to the
Fos t caned till maps ratively resent ly.

but was


The foot that f3ovorzument fino.ncon of caw


and tie aoowimio 0011-

dition an3 economic otroaoity of on7 wuntry are craito 411'ff:went things is
illustrated in avow ootintr, in .mope. iits7atioro is it ionwe amsreat ti on in
Gorsizety , whose maemificont predictive plant is co nearly intact mil es comohittooys,
pared with man/ other mentrie, in active °p artition.. ita ieMi

so often referred to, the divitionds, at°. rive an artifleia1 ingiession o f prosperity ivhich serves as so argument that (*ramp on per any savant. No real
fact is that thoy are playing the game larcly with ohipe which have no value
se not propose to wish tb at the and of the gatki). vjOre
bacomese the beet cur
those that cosi* from pert, not all, of their oxporteof the chime are roal,
hut Vine rust oh ion store Irastuelly or better rapidly, beine fed to the kitty.
373311 a woe ealet last long. Gsrmarst, more polls** than some o ther countries,
has tit; to haws real oafs. She hie gist to buY lards (imonnt Soo of food
abroad. Soo is in memo a reflang country, i.e. are Irina* work tut
pzesperity depend* on importing rent notarial* 11114 exportizig finis red product,
for which real chips are koaeseery. in other was sne IMO of to hare a soma

financial position, And alms can't have sound fix o$ dews disoretion is

ezeraleel in taking tisi real &dim away from her, although as I said abovo a, fah
the (mil day.
wit ism) (tone bettor on fihaioes and a o you
Ow do ro I levy is ol,v Loos, vis s that 6.sliverios in tint sad denuai labor
ought to be utilised for reparations as Mali as pOesiblia They amid be so
utilized aa to minimise $ affect of reparatiais co tit* real alaira.
utiliAatim ou the devastated replants veald trip Qarrna in the eyes of France

and tho world.

!ale ir utilisation in this ,7 helps to pre eat the

rearatiag tree ::,ornaw at Import advantaos ilea to depreciation. of the ?nark. itioleation on this line of the w:At he been al tae, the
eaosoaio die t." orb

it people have now flat the Idea.

But its remotion' appliosticet Is still

retarded by Objections widish 41,0 trivial in oo.3vorisors with the main point,
ant by inerillirraose to nate concession* on this point until ootifo;:.onstitino,
omoossims on other iin.:;tora moko obtained.

You will xvife.ily go,on that it is pure accident taut ate medal be you
all this, I s,:arted. to writ° yen caJcs,:t Idniasto dawn thoo4it 1.1.31Valli be
boson tat-nine
Interested in iny Darlin trip, coo than get *tarts" on vutt

over in wia.t I eel IV zaiaal., ate hog 1441114ed eseeti 10 to put on paper for loy
smart rise h I
benslito with eertt0.11 tateriOr )ayttreiet aims ti you tniv

tefrain fig ilisaloeim.

tisi confidential. r no, of t al Le Not that
You sst ciohn
teo lzens arcs either new o r e mfidontioa, bin that ti* use of my nom, or

azirthinsl vrilah would connoot tilers with Dle would. be noel; Isifortunrte,

Yisin9 truly.

ci..2Z I

- No 4268

Noverrber 23, 1921.


It seems that there is one quest ion which at present ta:es

vrecedence of all others, and that is tie problen of ensuring
or the January 11 and February 15 instalments.
t2.ese -Lair...-euta the Ten s ~r


i0V3 1:11.713nt

In order

find about 400 mil-

lion .flld marks outside of the normal reso-_-xces of the Cetz,!onwealth.
The method contemplated. by the German Government is a loan

granted by the 7,e rma.n Indus tr ial is ts to the Gov ernrnent

The industrialists themselves nay raise this sum either
from their deposits of foreign currency abroad, frail the proceeds

of a short term loan granted on their future exports, or fror2 the
pmceeds of a long term loan secured by German 'nits tries,
eit the present moment, however, the industrialists seem

to be considering only the 3ast solution, and they point out that

it is very difficult to -.%gotiate a loan staler present conditions:
foreign banks are not especially anxious to loan considerable sums

to the nationals of a country of which the priority debts are extremely indefinite.
In case such a long term loan should be found impossible

to negotiate within a short time, I consider that it would be essential to inform the '.1erman Government that:

German nationals possess deposits of foreign currency

abroad which ilerr Havenstein hirreelf estimates at two milliard gold
marks, which Herr Bergmann estimates at four milliards at least, and
at-110h in reality probably exceed. these figures.

In the course o f a

conversation Herr Havenstein gave this figum of two milliard. P-old

mar's, stating that it did not include the considerable sums in -fbrindustrialists, but by snail merchants
eign currency possessed, not
and employees.

For the lest few months tine latter had been idvesting

their savi.zs or their wages in foreign currencies, and ne mi:yation
of capital, has thus become general throughout all strata of soeisty



rate January and February pa,yrrents may therefore be

met by the voluntary cooperation of German nationals, if not

by means of a short or lozg term loan, at least by means of a
levy on the deposits of foreign currency which these nationals
possess abroad at the prese


If therefore the January and February payrrents are

not met, Germany, if not the ,German Governeent, will be considered

as being voluntarily in default.
If the policy outlined above, the object of which is
first and foremost to provide for the January teed pebruary instal -

ments is such that the reparation question in its entirety may
be considered now. without further delay, it is a reasonable

If however it merely indicates a williikeaess to look to

the imAd.iate future and to leave tiee inevitable difficulties of

the more distant fItture to be settled by some chance or other, it
is a very dargerous policy.
If the Crierean Government is able to meet the January

and February payments, the solution of the general problem will
be postponed. for five months or lonr:er, according to whether the

forels are obtained by a levy on foreign deposits or by a short or
long term loan.

The final solution will not hcwever be rendered

more simple, but vastly more difficult. ih.e repayment of the loan
contracted. by Germany in order to pay the first milliard is now
weighing heavily on German finance, ani is considerably hampering
the raiment of oiligations :1133

41 further loan will only increase

the difficulties for the fetere.
If, on the other hand., the German Government does not

meet these payments, either discussion on the entire problem will
open at once, or else discussion will be confined to the irtned. iD. te

future, and means of coercion will be resorted to which will affect
especially the in3.ustrial!kists and. will teal to force them to lend.

to the nation the available portion of their assets abroad..


raaans of coercion are extremely difficult to find, and even if they




The Jqn3ary and J7ebruary payrents may therefore be

met by the volnntary cooperation of Gerran nationals, if not

by meals of a short or long. term loan, at least by means of a
levy on the deposits of foreign c-Trre?.-,.3:c.,* which these nationals

possesS abroad. at the r.resent tithe,

If therefore the January- and February parren.ts are

not met, Germany,. if not the 7erman, will be considered.

as bein7 voluutarily ire (

If the policy outlined above, the object of which is
first and foremast to provide for the January and -February instal-

ments, is such that the reparation question in its entirety
be considered



:it:lout further ,telly, it is a reasonable
If however it merely indicates a willingness to look to

the immediate future ail to leave the inevitable difficulties of
the more distant future to be settled by some chance or other, it
is a very dangerous policy.
If the German Government is able to -meet the January

Febrtary pwrents, the solution of the general problem will
be postponed for five mouths or loncer, acconlinz to w'nether the
fa3.d.4 are obtained by a levy on foreign deposits or by a short or

long term loan. The final, solution will not however be rendered-

more simple, but vastly more difficult. The repayment of the loan
contracted. by Gennany in order to pay the first mil lard is now
weighing heavily on German finance, aid 1.s considerably immpering

the payment of elligations due.

41 further loan will only increase

the difficulties for the future.
If, on the other hand, the German Government does not

meet these payments, either d iScussion on the entire problem will
open at once, or else discussion will be confi ned to the in-aecii.c.:te

future, and means Of coercion will be resorted to which will affect

especially the imlustrialAists and. will tend to force them to lend.

to the nation the available portion of the it assets abroad. such
}'sans of coercion are e:::tremely difficult to find, and even if they

l.1,2t_ it




a faa,2te,41

w&gl.' rather than yield, follow tudr capital abroad.




a211., on



(..);:rle.r, 1

They wIll
'Cie 1.r

one 12....1-11. b







r77. o, ha


j11 n3t, 1):11Lt:ice

is t


4268 - 4

a long covei-i; the nizt iretaliTe-qt-os. Lsz....Ara.ices to this
effect were 7:van by dm of-the. 7reatezt 7-trir.7.ors

tbe situation if tle reparation problem did_ not receive a
funclarrental s ol.ut ion which V7013.1.0

te,',:e account o f economic facts.

Article 231 of the rfreaty of Versailles proclaims
rjermany's respons it ility for all tie loss and damacre to which
the .allied aid Associated Governments and their nationals have been
subjected as a conseauence of the war ii nosed upol. them by the
a-_,ression of Gerneny &ed. her allies.

If this article had not

been modified by the followin7 one, Germany would have been res-

ponsible for all the loss and darage, including the costs of
war, a-nd


would probably have reacted the fabulous

fi;,34re of 1000 milliards.

In view of the obviously absurd sitintion Mat would be
created by requirinz a country to p gy- such a sun, it was decided

to insert Article 232 and it -43u1d have been logical to

expect this article to be based on a pre-war estimate

C43 riliczlv S

ability pv; such was not ti case. To a certain ed.out,
Article 232 arbitrarily reduced the theoretical debt mentioned in
Art ic 1 e 231 and placed to the charge of Germany, the d.alareset
forth in Annex I, fcr sentimental or nolitioal reasons, without
it being- possible to maintain in a.y I.7ey that the reparation,of
these da:1-azes represented Germany's abilite to pray, from the
economic po int of view.

on :Ley 1, 1921, tie Coy nis si on announced Germany's

debt, it re-dials

it advisable t o reduce still furner t3e

total damages estimded according to Article 232 aid Annex I;

this would constitute a seccnd reduction of the theoretic ;:1 .lebt
without constituting thereby an accurate estimate of Gerr. Iv' s

ability to pay.
:Finally, at the t ire of the drawins un of the schedule
of Payments intended to ensure the iaynent of this theoretical
debt which had readar2ene several reductions, yet another decrease_

was introduced; even if it were executed, the Schedule of Payments would not produce 132 milliards.


I tLareforo


t ire h

e -22ractical jest1c r, of 7fer!-:.-,',

have .2a:!..2.
rt CIA.;




1.7.1 is abil

2,7111itz, to

1,"as a v--cial)le Ntor at.

t'ir.aata(1 befo7ehaml; it was fa axed t11.1,



^ountr-j a1 fat

e sane ti,la t

uue 1-2,71.w -es it



ra,.2 3:

e since,


:;r0rItZtilei l.





Ap 4

7e.Lj z-ears

it for okin:





t=t3f o -7


is 'Lrefo e 1e1(.1;

it I.




...1._171.ga7.) le --,Tater,-.7az7.7,,





De 11,,-



;1e s






o Ua




a of)

77.-o -

f37,:cr (me

re as ,v

3.-21(1.1 t



a:.)5.1 7





.7y-11 bar

IT of a co-,A7.,tr17

I: nil



10 "I.:.









(11.7; :0





o f L,i, anti.











:7 a


Lt ro ?.a.




awol.y.f. of



7or.-P,scrif s present


t iCU Of

re re'. a ills the



a tiAr,,,

f -e 7)e c.,;.onsi,le.rea




C (Alai !T. 1..)





ill cash,





of tho loan 171.7loso

-r:.;,:.7.,,rat o



1 1,

1)alance wii,11.1..1 a rea,.; cn,7,1,1(-1

T.i..lribg the per lois to r


fii -,. t.

are aU



cal 'T_E;








- 8.


To reca:2itulate, it 77111 1)e 1.1ecessar/ to choose

between two pollcies



'Lhat of der-ardire the hiaxirrium in

order tp obtain the. rrilX I ran, a 17411v of taeakne as and rec,re t table

concession9, ancl. whic'r_ each :Tear leads to a crisis during cfnJoh

the. frtenfiship of the Allies is threatened burdening r`Terrieaw with the threat or itsossible ivrtent§, ruins
her credit and prevents her from contracting lows by means _of
which she !Disht reasonably fulfil 3-er obligations

and again,

to -der.rani the inaxi7rum in order to obtit.n. the minimum" eras It


k to SHE
ieserve Agent Is Expected to Sit in Paris or
London Meeting.

to Prevent Slump When


eparation Payments Are
Made May Broaden Later.
,cpeeitti to The New York Tthsee.
'ASHINOTON, Nov. I:H.-The impor-

nt anneunceinent was mado at the

easury ,'Department today that the
led States probably would be repro-1

0.1 by an agent of the Federal Ite-1
rye Board at an International gaffing to be held soon in Paris or Lonto consider means to prevent the

;lent fluctuation of exchange rates
her. reparation payments are made.
T:bile the American appointee would
os an unofficial adviser and without
thority .to make decislons,, where the I

te:csts of this nation are concerned,
e fact that the United States Is con
daring a proposal lo co-operate


a ,meeting in any capacity .at-


(ted much Interest.
It was said at the Treasury Departant th4t an invitation to send a repsentative had been received through
e State Department. and while no





it was probable that an agent
the Federal Reserve Board would

named. The point was emphasized.
ewever, that tills did not mean that

United State.? Government, as such.

RS prepared to enter Into a general

nternatioirti discussion which would inthe 'readjustment.




Tara.tions and the war, time indebted.:

Ylitancisl experts who 'have taken the

ition : that the United states could
of long hold elf from participating In
rohlema, of. Europe were economic
rferences which involve the elated by the
veloptnents. Added Interest has been

situation by the stateVanderlip and
ents niad" by Frank.
amen Simpson of Marshall Field & Co.,
yen to the

ho, after a personal study of Euro-

aan conditiona, expre4vnl the belief

r t drastic steps tnust -be taken. with
nerican co-opc-ation, If economic and

inanclal chaos are to, be averted


Administration officials. how,yer, have refused to comment upon

s-ese statements.

Move by Reparations Commission.

l'he meeting to be held In Europe, It
understood. will be at the instigation
I the Reparations Commission, which
'terminal that it wits onsentikt to
oppetnt an international tvannitten of
fiJanbers, representing the great banks
best means
t 1z.14,, to advise on
fp 4.14g


k c Till104*or'Y



t,ittlre ; en.4, ti,.

rt ner not I






,ments /mule ey Frank A. Ve.talerlip and
James eirnption of Marshall Field & Co.,

who, after a personal study of Euro-

pean conditione, expressed the belief

that drastic steps must be taken, with

American co-operation, If economic and

{.financial chaos are to be averted


Administration officials. how
over, have refused to comment upon
ese statements.

Move by lteparatIone Commisaton,

rho meeting to be held In:Europe, It
understood, will be at the instigation
the Reparations Commission, wheel

itermined that it was oesential


appoint an international committee of
[bankers, representing the greet banks
'esf Issue, to advise en the best means
,T sir :preventing future reparation fay)1,K:its-from scriesetety affeetinte,interna-1



Treasury Deparenient officials 'lid not
retake public rnforrnatton concerning the
,ource oe the Invitation eeterided
.ho Viniteet,Sta.tereetrut said Jnesr,ay that
itt,,yriky from FurOpean Intel-wee', The
.1 toesiend an agent .if tie! Federal

ve Board Iy baeed Upon the feet

the Federal Reserve syeitem repro-

one of the great banks of lesite
the ex-

/filch is Interested vitally
Change coeditions.

Germany has heavy reparation naYbiente te make in January and Febru-

ary. and It


believed that



serious Monition will be confronted
then. The committee now to he eelected,

with an agent of the lrede.tal Reserve

1toard sitting as 'an nnoffielal observer,
will endeavor te find some ineene of
preventing the exchange markets from
going ,to pieces again.
+Vivi-0es which have been received front

eliroed are that efforts will he made to
keyp the proposed deliberatione within
this rtNizicted.:7-coptl. This fits In with
continued on Piise Two.

Continued from Fare 1. Column 1.

the bellqf of the Treasury Pepartmeet
as to what should be done. The point
was neide today, for instance, that the
proposed gathering was in no sense an
official international gathering to take
up the provisions of the 'Treaty of Versallies and tile whose problem of German reparations.
For a long time, there has been a
'persistent effort on the part of certain
European officials and bankers to have

trice Is making toward a possible bal'pies of .XpOl'ab atm inee.e
Due, to ,many political currents that
flow through all this area, there eeerne
prospect that these things could
be brought about by political action.
Yet r some effort in these directione is
et least worth a plan at the hands of the,
great Wades of issue, for against them
no one can bring the charge of other
interest than that of economic stability
to the world as a whole."

Arnericen participatem In conferences
!,deelaag with tne oilancial and economic
derooients or Lurope. rra.nee and 'Puy
lwere anitioua that these matters should
the taken up by the Conference for Linn'.teition of Armament but these susigesttot4 vre overruled by the Ameelcan
eielegat ion.
ayM Lead to Other _Meetings.

The importance of today's announcement lies iargely therefore, in the poes1'bility that the proposed gathering to
eionaider means to prevent disastrous
iluotuation in exchange rates when
4,eparetion payments are made. may
'tread to other meetings in which America
will be represented. There are some
tenterts who believe that this is inevitabte and that within a short time a
,Modification of the reparation terries will
In connection with the proposed meet-.
Ang let Europe a-recent athireiss by le.ere
of Commerce;
pert Hoover, ASeeretary M en u fac tu rens'
ale r lean
pears Association, was recalled with
-.merest. Iii that address Mr. liouver


.e.,. ee

German Payments Soon to Be Gor.
WASHINGTON, Nov. 29 (Associeted
Press).-Germany is required to pay
500,000,00U gold marks on Jan. 1, licele
and about e83.000.000 merke on Feb,

the latter payment being the querterie
instalment of the 26 per cent. On the
estimated value of Gummn exports dur
Mg the last quarter of Hil. Theee
payments will be due under the repara-

tions agreement between the Allies and
Germany of last larch. , Of tide amount,
France Is to receive 52 1 er cent., Great
Britain 2d per cent. and Italy 10 per
cent, the remainder going to the smaller
allied and asauelated States.
The German Treasury, according to,
authoritative statements in Berlin, retie
Itself able to cover these payments, but
doubts whether Its resources will be sueficient to meet Instalments' of the 'same
amount due April 1 and May 15, 19=,
Authoritative opinion in the Frenele
armament delegation is that, while the
meeting of representatives of the battle
of issue may give temporary assistance
to Germany on the question of ex
change, something more comprehensive
must be done early to the new year to.
re store the value of the German mark,
abroad or Germany may not be able to
meet subsequent Instalments.
The only aulutton, It is felt, that might
be adequate would be one arrived at by
an international conference in, to,
tesure success the, United States, as ,thel
dominant financial power must takes,
part. The desire . exists to
American Government cell s
The Iteltleli arms conferen
lion tin ,e,1 an authorized


tf :"PG.









--""'"'"*., as-e.l f th Ceders:11
lot 40
vo Moats/ le hewed upon the fact
thePederal Reserve syaprn renre-1

eta one of the great banks of Lump;


interested vitally
change conditions.


the ex- I

Germany has heavy reparation Pay-1

merits to make in January ant
ary, and It is believed that the float

serious situation will be confronted
then. The committee now to be feiectell.

:with an agent of the Federal Reserve

'Board sitting as an tenoffleial observer,
taitl endeavor tt:' find roma mans of
preventing the 'exchange markets front
gotn; to pieces again.
arivines which have been received from

bro;oi are that efforts will be made to
keep the 'proposed deliberatione within
this restricted scope. This fits In with
Continued on Page Two.

tries is making toward a possible bal.

trice or execua, :site
AMERICA" TOto Inanythin.in1).,r..N. seemei
political currents that
flew through all
area, there

little prospect that these things could'

IN AID TObroughteffort inby political action.'
EXCHANGE directions is
Yet 'some

at least worth a plan at the hands of the
great banks of issue, for agaiest then
no one can bring the harge.-of other;
Continued from Page 1. Columneconomic %labilityinterest than that of 1.
to the world as a whole.,
the belief of the TreaaurY Department
Garman Payments Soon
as to what should be done. The point to Be Due,
was made today, for instance. that the 2.1 (Aasoclat:d
rOposed gathering was in no sense an
Press).-Germany is required to pa,
official international gathering to takeon Jan. 1. JUili.
600,000,000 gold marks
and about, 'Treaty of l'erKl,tion000 infyeks
[vp the provisions of the tetyar.ilt being ther,quarterly
the hitter
r.eailles. and the whole problem ofad per cant. en the
instalment of the t;ere
-man- reparations.
estimated value of German exports Miring there quarter
or a long time,the last. has been aa WI. ThcEd.
payments part be certain
latent effort en "er.)13%:'etrn nof between the 13'2 fg'Ilr't-;
peen of ficials and bankersMarch. 'Of thisIIamount
to have
Germany 10 confertuses
erican partieipatioii is of last
France to receive, ra 'or cent., Greet
oe xinaacial and even nth: Britain 20 per cent, and Italy 10 or.
teens of ii.urope. the
cent., .hrance and Italy
a anxieus that these remainder going-to the annt len
gilled andmatters should
asstaeiated Statee.
ell up by tIle Conference Treasury, according to
The but thesefor LinnOf ArmamentGerman suggea-in Berlin; feels
authoritative statommta
were uverruled by thecover these payments, but
itself able to American
doubts whether Its t,:sLtlirees will be Sure
May Leadfieient to meet instalments of 15, Fame
to Other Meetings.
amount due April 1 and May
Authoritative opinion in the Frenelk
e importance of today's announce-that, while thin
armament delegation is
lies largely therefore,representatives of the banlis;
of in the possithat the meeting may give temporary ariShitAIK.4!
of. issue gathering to
meansto'...,06rmany on the question. of exe.
to, prevent disastrous
on in must be something, in thecomprehensive.
. exchange rates ' more nt-4, yrfpir to.
done early when
On pftyllkeitts are value of the German, mark,
redone the made, may
to ether meetings in which America nut be able to
abroad There are some
or Germany
be re;naesenteit. subsequent histMay
{Meet that
0 :who believe onlythis LS intvit- felt, thatrnighti
The a short time is
and thatbe adequate would he one arrived-at b',
within solution, It a
fication of the reparation terms will
eeessKry, an international coriferenea! In which .6'.
n with the proposed meet- assure success the 'United States, as the.
e a-recent address by Her - dominant 'final-mitaextsts toMust' take,
Secreta ry of Coen rmre e, part. The desire
American Government cell $
American Man iffitau r.irie
ciation, was recalled a ith ferenca.
The firitth
that address Mr. Hoover tIon through arms conferee
an authorized
today took occasion to state
banks of team) are the again that there was no In
stability In currencies. It the part of the British Grove
: to nie that those, Institu- bringing up the subject of in
deral Reserve, the 'Lanka trelebtednesit at the conteretae
of Franee. of Amsterdam, said- that the conferenceept
of Spain, could Well con - strictly to he agenda an-i
within their pro:Vince to be observed.
unofficial plan leading to
Declaring willingness to
enment of this 'primary limitations placed by the atii
me:attic. life, Their anti- the subjects to be conelde
rvlsion. Indeed. might en- conference,
Ohly local capital but such through a spokesman toda
n capital as might be a lively interest in the poem
currency, rehabilitation in
And through such action sulseequent economic op
the fttanctsl sit
e guidance In flaca Poilelor eiderItalian spoiteiona
hose countries that are the This for the beliefbasis
of stability. This is nearer people might be
fpolealbiiity today than it such a project
a year ago, for grad- Made in New
cai:Ort es _ those CO1,111,




paragraph above, though not necessarily at the figure of 1,200 million
gold marks per annum as cash payments but somewhere near it and on
the same basis as it being inclusive of other Treaty cash ooligations.
In general, I am very much more hopeful of a practical
solutio# of the whole problem than I have been for some months past,
and this particularly due to the obvious change in attitude of the
more serious minded leaders.
Please excuse this somewhat gossipy letter but I believe
it will give you a very good picture of the situation today, which
I hope will be of interest.
Faithfully yours,

1 incl.

The Honorable Benjamin Strong,
Governor, New York Federal Reserve Bank,
New York City.

Paris, 18 rue de Tilsitt.
3 December, 1921.

Dear Ben,

In one of your recent letters you mention Vanderlip's
proposal to the Austrian Government to send a Delegation to America to
discuss some adjustment of the Austrian debt to the Grain Corporation
along the line of the plan proposed last May for Austrian rehabilitation under the protection of the League of Nations.

This is the first information I have of this Vanderlip
I saw Vanderlip while he was here and while he talked in
a general way of the situation, he made no mention of this phase.
(Confidentially I was not very much impressed with any of Vanderlip's
Some two or three months ago, the Austrian Government
proposed sending representatives to America for the purpose indicated.

Frazier, our Commissioner in Vienna, for the same reason as you,had
advised against their going. We did the same thing here, and the
State Department came back with a reply to the effect that while our
Government had every sympathy with the Austrian situation, it was
powerless to do anything without Congressional approval. The
Government intimated that while it had no objection to the proposed
visit, that it nevertheless felt that any visit prior to Congressional
action was inopportune and that the time of the gentlemen going to
America and the expense of the trip would in all probability be
I politely informed the Austrian representative here of
the foregoing reply of our Government, and my understanding was - and
still is - that the project was abandoned.
Vanderlip may however have
stirred up the question again, so I an sending a confidential telegram
to Vienna asking for information as to the status of the question today.
Upon receipt of the reply I will advise you further.
It may interest you to know that the following constitutes
advances made for relief to the Austrian Government since the Armistide
and primarily covers the value of foodstuffs which have been delivered
and consumed:

United States of America

A24,066,798. 56

United Kingdom of Great Britain and Ireland

A16,000,000. 00
5,650,460 pounds sterling
8,863,960 Italian lira.


A16,000?000. 00
513,410 French francs.
36,388,340 Italian





154,785,340 Italian lira.


14,407,200 florins.


24,075,680 Swiss francs.


1,631,620 Kronen.


1,255,100 Kronen.


100,695 Kronen.

All of the foregoing advances have or will be covered by a type
of bond similar to the enclosed copy.
In accordance with may understanding
all of the Governments above mentioned have waived payment for 20 years
except ourselves, we neing prevented by law from doing this without
congressional authority. Needless to say I consider all the paper
covering the foregoing advances as practically worthless.
In view of the recent disturbances in the city of Vienna
you may be interested in the attached copy of report dated November 28th
1921 which I have just received from one of our agents there. I judge
the report as to these disturbances as published in the American press
was greatly exaggerated.
The Austrian and particularly the Viennese
population are entirely too docile to really create a big row.
As far
as I can make out tne mob's attack, more or less spontaneous in origin,
and principally directed at the foreign schiebers and other exchange
profits who have beeninfesting tnat country and indulging in financial
grave robbing.
I admit that I have some sneaking sympathy with the mob.

Faithfully yours,

2 incls.

The Honorable Benjamin Strong,
Governor, New York Federal Reserve tiquik,
New York City.


Increased Railroad rates (already effective)

billion Kr.



E4 8.44k

17 th. August 1920

(Shrie B

Secours 1920)

SERIE B - SEC OURS 1920 110



promet de payer, pour valeurs requesi au gouvernement de
ou a son ordre, le

Jour de


la smuts en

principal de

sur laquelle lee interne seront payee semestrielloraent au taux de
s.c pour cent


6 % ) par an, de la date de la present° obligation

jusquti cello du remboursement. Le principal ainsi que lee interets
de la presente obligation seront payee

Lo principal Alt lee intOr8ts do la presente obligation seront payas sans deduction, francs de tous impfts ou taxes de toute nature, presents ou future 6tablis par le Gouvernement, ou par une autorite quelccnquo, politique ou sutra invostie du drcit do creer dos
impete ou taxes dans

ou dans see possossions.

La presente obligation fait partio dune s6rie dtobligations
de teneur analogue, made susceptibles dt8tro de mcntants differents et

dt6tre romboursablos en dlautres monnaies, qui viondront toutes a eche
ante le

Jour de

eignees sous le titre "sorie B

192_ et qui sont de-

Secours I920.-

Le Gouvernement de

stenage a ce qufau.

eun paiament portant sur le principal ou sur los intergte, ne soit effoctue sur ou a ltoccasion de llune queloonque des obligations de la
dite eerie 6mises par is Gouvernement de

acct a la


44:: de ltecheance, soit avant, soit apres, sans qu'un paienent sumblaPle soit effectue en nCle temps sur toutk::! los obligations de la dite
eerie 6.:ise par le Gcuvernenent et au prorates des obligations respec-

tives do la dite serie.

En vertu des pouvoirs qui lui ont ete conferes, la corudssion des Reparations a autorice le Gouvernement autrichien a emettre
la presente serie de Bons, sous le contr6le de la Section d'Autriche
de la Ccpylission des Reparations. Ces bons jouiront d'un privilege de
premier rang sur toils les biens et ressources

11Autriche et auront

priorite sur le paienent des reparations dfles en vertu des disposi

tions du Traito de StCormain ou de tout Traito ou Accord y annexe, ou
en vertu dlarrangements conclus entre ltutriche et lee Puissances al'toes et associees pendant l'armistice signe le 3 Novembre 1918 sans

udice des obli rations

IA ltAutriche d



es frais d/ontretien

des arnees d'occupation. les depenses de la Commission des Reparations,
et les frais de la restitution
en nature

et dtexecuter les rel,lisos et .aiements

en vertu des dis ositions du Traite de St. Germain

a llexce

tion de caux vises a ltArt. 181 et au § 19 de l'Annexe II a la Partie
VIII) e t





':`e s

e od

ourront titre recuises .ar la Commission des Reparations ou



formex_ent aux dispositions des dits Traites, protocoleaou accords, par
une Puissance interessee.

Signe pour le Gouvernement autrichien.

Contre-signe pour la Section dtAutriche
de la Co2Assion dos Reparations.





November 29, 1921.

Dear Ben:

Your letter has just been read to me over the telephone.
I am also laid up at home for a couple of days with cold and a little

The cables have been considered by the State Department, and
I think informally by the Cabinet.
It seems to be generally agreed
that we should send an unofficial representative who should sit in the
same capacity as that of Boyden.
A cable has gone to Boyden asking how long such a committee
might be expected to be in session. It would appear that if they are
only going to meet once for a day or two, it would hardly pay to send
someone over from here to represent the Federal Reserve Board. On the
other hand, if they are going into more or less of a permanent session
as advisers to the Reparation Commission, perhaps someone had better
go from here who will stay with the job. I agree with you that this
committee may be the beginning of a move in the right direction. No
more now.. Will write you as soon as I get back to the office and have
something definite from the State Department.
Always yours,

Fonorable Benjamin Strong,
Federal Reserve Bank of New York,
New York, Y. Y.



December 3, 1921.

Dear Ben:

I am back on the job again and am writing another line
in reply to your letter of the 26th.
In the first place, I an terribly sorry to hear that you
are laid up. Basil told of telephoning to you and finding you not
allowed to converse even in the softest tones. I hope you are improving. For Feaven's Sake do not let John Skelton know that you
It would be too inviting for
are speechless, even for a moment.
him altogether.

About the meeting of the representatives of banks of issue,
we ore still waiting to hear from the State Department and they are
waiting to hear from Boyden. I think, however, we have decided that
some one should represent the Federal Reserve Board unofficially
just as Boyden sits on the Reparation Commission. The question of
who it should be is still awaiting word from Boyden as to what kind of
If they propose to just have one short
work the Committee will do.
meeting, then probably the Federal Reserve Board will designate Boyden
or one of his staff. if they are to assume some permanent function,
it may pay to try to get some one to go over from here. This le, of
course, all under your hat.
The way reparations are going such a Committee might have.a
lively time for a little while and then find that they were giving
advice in connection with payments that were not being paid.
No doubt you are following the Conference here with great
I am sure nothing will be done about a general economic coninterest.
conditions at that time will
ference until this one is over,
be more or less of a factor in deciding about the next step. I talked
with Mr. Mellon the other day and he is very strongly against a conOf
ference which will in any way interfere with what is going or now.
course the ildministration has steadily set its face against taking any
active part in the reparation situation.

You have no doubt seen that the Funding Bill is to come up
I am going up today to lunch with Senator Watson and give
next week.
They expect an interesting debate, and unless
him all the latest dope.
some of our Senatorial friends are in the same condition that you are
by doctor's oroers there will probably be some pretty lively things

- 2 -

Henry talks quite definitely now about his trip to Belgium.
It is not entirely settled, but I imagine that it is pretty well on
the way. We shall all miss him here in this torn.
Always yours,


eJC\ Xerrt

Honorable Benjamin Strong,
Federal Reserve Bank of New York,
Lew York, N.Y.




Plt 9



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Part e

Believe good plan to Set familiar with situation here stop
Confidentially Prather .goes brussels after Conference


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1,:.2! ECG 6

12 37









marks. gold centimes twenty eighty-nine eight thousand

twenty-nine seven million five


equivalent cents, eighteen

dollars fifty-three nine thous:nd sixty-four three million
one of sum the

15th, November duties import due marks

gold thousand hundred five million sixteen of account on



paid Government German the 16 December On
Boyden, from message a embodies cable This

-608. B

6J1. No.

a.m. 8:40 1J, December
a.m. 11 18, Decenber
Paris. Embassy, .".merican









Germany. to loan a
permit, conditions future as arrange, to effort an with probably combined

indemnity the of share British the


reference with also priority; Belgian

on return in concessions obtain to effort an with Germany by payments

cash the to respect with substantially concede to indicated is willingness

measures. military for
that evident seems It

wa.s it

than anxious less is Government French the

negotiations. governmental the Crom emerges yet as

definite nothing arrangement, indemnity the Regarding
payments. February



January the to limited is request present

payments, late to reference with difficulties be will there that

inevitable is it although that states note the Furthermore,


were arrangement indemnity existing the under but England in this for
credit for applied They


marks. gold million

unable are they thnt them by made

are they which payments February




(hundred 2 to 150 from

statement The

raise. to unable

January the of balance the on delay

for 15 December on Germans the of made was request Formal


follows: as B-605, a.m. 11.00

16 December Boyden,

Ur. from message a embodies telegram The

a.m. 10 1921;
l6, December 685,

No. Paris at P.mbassador American the from Message Cable


Ni A

MD - 0640


December 21, 1921.




My dear Governor:

I enclose for your information a copy of a confidential cablegram, dated December 16, 1921, from Mr.

Boyden, the American unofficial representative with the

Reparation Camission as to the conversion of the francs
and lire to be paid to Belgium.

I am sanding you this

caolegram because of the bearing which this conversion
of currencies will have on the foreign exchanges. I call

your attention particularly to the special injunction of
secrecy issued by the Reparation Commission.
Very truly yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve lank,
New York, N. Y.

1 enclosure




44.4 L'1340


Cable message f row the American Ambaeeador at Paris,

No. 684, December 16, 1921;

5 P.M.


The telegram embodies a message from Mr. Boyden,

B-604, and mports as follows:
It wee decided by the Commieeion en December 14 to
begin conversion and to pay to Belgium as rapidly as could
be converted trance and lire which .:ere excluded nrevio-eslv

the peyments to Belgium and which were held under the

French and Italian guarantee.

It is probable that now

these sums are all in the form of governrent bills of short

The status at present of these suns is the result

of the desire to take no steps to deereciate exehanee.
It seems that the recent rise makes poeeible conversion
without results of a serious chareeter.

The Finance 9ervtle,

however, has been instructed to take steps to effect
convereion only to such an extent as is possible without
serious deoreciution.

Instructions have also been eieen

to proceed mth great caution.

Im!s4iate ausnension of

the lonversion is to oceur if the rate of the French or
the Italian exehange should fall to level of loaded
(lowest?) average rates guaranteed.

The amounts involves


are 206 million francs and 173 million lire.

Power is

pcesessed by Belgium to name the desired currencies.
Request ha-, been maee

Belgium that francs be converted

into one-half French francs, one-quarter Belgian francs,
one-eighth .ollars and one-eighth sterling.


has als6 been made by Belgium that lire be convert& into
one-fourth Belgian francs, one-fourth French francs and
one-half dollars.

It ie thought by the Finance Service

that the transaction may involve a period of from two to
tour weete.

Italy mairos decided protest but no oojection

is made by the French delegate.

The Gawmiailion,

in view

of the possible exchange speculation, issued a special
in4unotion of Sooesoy.

It is, however, obviOus that all

otter Governments era informed.

I therefor, fcrward this

as Governmental information and with sp,-?..11.1 ..2-ation with

resect to its confidential character.

DI ET:MT3 es







Dated, December 22, 1921.
Recld 3: 25 p. V.

Secretary of State,

697, December 22, 1921, 5

December 19th Germany

Federal Reserve New York

$2,070,020.60 equaling 8,689,667 gold marks on account of Belgian
priority and announces paypent to be made December 22nd for same
account of $1,429,076.31 representing 5,500,000 gold narks.
December 22, 5 p.m.




Dece'ber 21, 1921.


My deFtr Mr. Gilbert:

I thank you for your letter of December
enclosing fnr my personal and confidential information
copy of a cablegram dated T:ecember 16, 19ki, from Mr.

Bo'den, as to the conversion of the francs and lire to
he paid Belgius, 1,hich I ehall treat most confidentially.

Tours very truly,

Benj. Strong,

Honorable S. P. Gilbert, Jr.,
Under Secretary of the Treasury,
Treasury Department,
Washington, D. C.
GB. Imo'

Decemtxr PS, 1921.


My dear Mr. Gilberts
I thank you for your letter of December 21,

enclosing for my personal and confidential information

copy of a cablegram dated December 16, 19n, from Mr.
Boyden, as to the conversion of the trance and lire to
be paid Belgium, which I shall treat most confidentially.

Yours very truly,

Benj. Strong,

Honorable S. P. Gilbert, Jr.,
Under ,'-ecretary of the Treasury,

Treasury Department,
Washington, L. C.




Fr. L: American 7Mbassv, Paris.
December E4, 1921, 3 P.M.
Raceived: December 25, 1.55 A.M.
Nu. 698.

This cable embodies a message from Bovien, 11-611,
referring to 604.

Belgium azrees, at request of Italian and

French Governments, to a72ept in equal amounts of Belgian francs and
sterling the wails requested in dollars originally.
version will imve'liatelv be undertaken now.

The delayed con-




December 28,


My dear Governor:

I enclose for your information a copy of a

cablegram dated December 22, 1921, from the American
unofficial representative at the Reparation Coimnission

as to the German payments scheduled for December 19th
and December 22nd.
Very truly yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.

1 enclosure


C. D. 'Washington,

TreLaury, the of Undersecretary
Jr., Gilbert, P. S. Honorable

Governor. Deputy

yours, truly Very

BelEium. cf 9ank National the ,f account for ceived
re- duly were therein mentioned payments two The

Commission. Reparation the


representative unofficial can

Ameri- the from utblegram a of copy encloeing 28 Decer5ber of
letter y_ur of recei7.t thanks with aeolowledge


Gilberts Mr. Dear


29, DeceEber

71,1 1




TrY. N. York, New
lank, Reserve Federal Governor,
Fs., Strong, Benja.hin

yours, truly


reparations. of account on Muir Be to payab7e rencies
cur- of conversion the to respect with



Repa- the with representative unofficial American the from

telegram further a of copy a infonratiOn your for enclose


25, December of letter my with


connection In


Governor: dear My


51, D?.cexer




big.* WWI'



I"4r1 I


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