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Lly dear Governor Strong:

I have your letter

which you express great interest

in Ur. Fukai, of Ja.pon to ether with a copy of a letter
introducing him.

It will be a treat pleasure to me to she.. :Ir. Fukai
every courtesy pi s ible. I appreciate the opportunity of
seeing him.



With ki71. regards,
Si erely

Benj htrcaig,
Governor; kederal Reserve 3ank,

New York, N.Y.

November 80, 1921.

Dear Mr. Criseinger:

With this I am enclosing a oopy of a letter of
introduction which I have just sent to my friend, Mr. Figo

Fukai, which will explain itself.
Mr. Fukai was one of the financial advisers to the
Japanese Delegation to the Peace Conference in Paris.


one time he represented the Bank of Japan in London, and hen
a young man was private secretary to Marquis Matzukata.

Mr. Fukai speaks English fluently and is one of the
best informed men flat I met in Japan.

I shall greatly appreciate any courtesies that you
are able to show him and especially any assistance which you

are able to render him during his stay in Washington.
Thanking you in anticipation, mad with cordial regards, believe me,
Yours very truly,

Honorable D. R. Crissinger,
Comptroller of the Currency,
Treasury Department,
Washin8ton, D. C.
Federal Reserve Bank of St. Louis


o, 1921.

Dear Mr. Comptroller:

This note will be presented to you by my friend,
Mr. Eigo Fukai Deputy Governor of the Bank of japan.

Mr. Fukai is spending some time in Washington dur-

ing the Conference on Limitation of Armament, acting in the

capacity of financial adviser to the delegates.
During my recent visit in Japan, I had the privilege
of becoming well acquainted with the officers of the Bank of
Japan, and feel that Mr. Fukai has become a warm personal

friend and associate.

Our relations with his institution

are of the closest.
He will esteem it a privilege of having the oppor-

tunity of seeing you while in Washington, and I shall greatly
appreciate any courtesies which you are able to show him.

Thanking you in anticipation, and with the assurance
of my regard, believe me,

Yours faithfully,

Honorable D. R. Crissinger,
Comptroller of the Currency,
Treaeury Department,
Washington, D. C.



July 31, 1924.

Dear (,overnor Strong:

Receipt is acknowledged of your letter
of July 18th, outlining a new arrangement for
the performance and payment of notarial work required in connection with the operations of your
The Federal Reserve 3oard has no objection
to the plan, which appears to be entirely consistent with the principles of law and of public
policy, relative to the payment of notary fees
since there is no agreement or understanding
whereby the notary assigns his official fees or
receives less for his notarial work than the 1 w

hr. Benj. Strong, Governor,
Federal Reserve Bank,
1,:ew York, 1.


C.151A0133\/R Alii1
59 3



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24, 1927.

_,Is,;(..7Liq3URG771 ."1




7/-a4:o7L4rrt.ezt v

Expense of services rendered for Government

Dear Sir:

At the recent Governors, Conference consideration
was given to the question of whether or not Federal reserve
banks should be reimbursed by Federal land banks for expenses
was reported
involved in paying Federal farm loan coupons.
to the Board to be the sense of the Conferencelthat in principle the Federal reserve banks should be reimbursed for services performed for Government agencies other than the Treasury,
when the expense involved is sufficient to justify the banks
asking for reimbursement.k
I am requested to advAsp_xolk that the,yiew_of the
Board with respect., taA?eivieral reserve banks seeking reimbursementfor such expense incurred by them is not in
hafiafiy with the view of the Conference, as expressed above.

Mr. Benj. Strong, Governor,
Federal Reserve Bank,
New York, N. Y.

MISC. 3B.2-


4 / 67
















Assistant Secretary of the Treasury
August 20, 1927.

My dear Governor:

I have been giving serious thought to our rather brief conversation
of Fricky relative to the Polish situation, and while I appreciate the importance
of selecting an "adviser" who has had some experience in the past in dealing with
the Central European countries, yet if his relationship has not been constant,
with the rapidly changing complexion of affairs, it seems to me that his past
experience might be outweighed by other qualifications. Some of these, which I
will mention to you, I believe I possess.
The position of fiscal Assistant Secretary of the Treasury, as now
constituted, is a rather difficult one to fill for the reason that this official
muet carry out the duties definitely assigned to him and at the same time be as
current as possible with all that the Undersecretary is doing. This last requirement is not at all easy, for the reason that it would be quite impossible
for the Under-secretary to advise the Assistant of every step he takes, yet the
Assistant must be ready at all times to assume the duties of the Undersecretary
during his absence or inabilitk to act. I mention this particularly for the
reason that the experience gained is a great one in performing my own duties
and covering in a general way the duties of the Undersecretary.
Ab I see it the duties of the adviser can beet be performed by one who
will have a willingness to base his judgment not only upon the reports as issued
by the Minister of Finance and the Goveraor of the bank, but will have the determination and energy to get out and study the various situations at first hand.
The adequate use of the revolving fund in assisting State enterprises is no
ordinary responsibility, and particularly in this phase of the work a first
hand knowledge of the requirements should be had. Advice on any situation can
be obtained from the adviser's asvisory committee, from the bankers, and the
central banking institutions extending credit, but their advice can only be
sound if a true picture of conditions is given to them. To obtain such first
hand information, the advieer himself must be a person of energy and of physical
As far as the knowledge of languages is concerned, my entire family
speak French fluently, and I have spoken it in a desultory sort of way for over
fifteen years. Lack of opportunity to speak a foreign language reduces one's
I believe that in a month's time with a little work I would be able
to carry on any usual conversations and understand thoroughly, particularly as I
would make a practice of speaking French with my own family.
A sto ability, one is scarcely a good judge of himself, but without
wishing to appear egotistical, I think that my record of achievements in those
things which I have had to deal with should be a satisfactory answer. My close
knowledge of the Farm Loan System and agricultural credits should be a benefit,
as well as the experience gained throu4 my fiscal and financial duties.


I um deeply interested in this situationiand while I very.

sincerely appreciate that you, as Governor of the Federal Reserve Bank,
'would not wish to back the candidacy of any particular person, yet I hope
that placing special confidence in my energy, ability, and willingness

to cooperate in carrying out the spirit of the plan, you will look with

favor upon my appointment ahould my name be considered.

Very cordially yours,

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

Charles S. Dewey

August 24, 1927.


My dear Dewey:


Thank you for your letter of August 20. I think I should explain that

'bile I um sure my Policia friende and poeeibly the benkere ea well VW be in-

toreeted in our views here in retard to the adviser, such views as we bold will
not be final or conclusive and, in fact, our oen interests will te rather alight
as compared with thoee who are really furniehing Poland with the great bulk of
the money.

am aura you understand, therefore, that I ean eend you nothing in the
way of a commitment as to my pereonal views when the time comes to exprose them

and if I am asked for them, but youcoen certeibly count upon my discueeing your

wishee with them fairly end, if you desire me to do so, giving you the opportu-

nity to take it up directly and personally.
The thing that hes troubled no about your wish in the matter has been
the feeling I have all along had and have already expresseed to acme of our friends

on the other side - that it would be abeolutely essential to have eomsone with a
rather extensive knowledge of the genera Europeen position and of the pereenalitiee involved Which, of course, can only be gained by experience on the trounn.
I shell probably be in Waehington before long and we Cat have another


Faithfully yours,
Honorable Charles S. Dewey,

C/o Vnited States Treasury,
Vaehir2gton, D. C.





irotol Goorgo V,

Paris, May 29, 192B.

My dear Dewey

Your mosoage through quesnay roachod mo on the "Majestic", but

unfortunately I was obliged to send you a roply Which / fear was unsatisfactory.

The fact io that I um just recovering from a long and vary

painful illneos, and as some visitors had arranged to come over from
London to moot me at Cherbourg, I was just unequal to anything more.

Day after tomorrow I am leaving for Craw°, Whore - confiden-

tially - my address will be care of the Brand Hotel until the latter part
of Juno. narrioon arrives here on the 2nd of Juno and expects to visit
you in Varsaw at the time arranged:

It is a disappointment to no not to

be able to make a visit myself, but it lo solely a matter of health, which
mould not permit of my doing 60 much traveling.

I know you understand all

this and what limitations thore are upon my activities.
You would havo boon greatly pleased indeed, had you hoard the
most complimentary expressions in regard to your work in Warsaw which I

hoard from some Polish friends in Paris last week, and you will not object

to my also saying that thio arises not solely from your own attitude, but
that Mro. Dowey has had a fine contribution to your acceptance by the
Polish people.

Please give her my warmest regards, and express my good

wishes and congratulations to U. Karpinoki and M. Mlynaraki.

Vith warmest good wishes to youroolf, I am
Very sincoroly yours,
Hon. Charles S. Dewey,

c/o tank Polcki,









13, 1925.

Hon. Benjamin Strong,
Governor, Federal Reserve Bank,
New York City.

My dear Governor Strong:
At the request of Hon. Garrard B.
Winston, Undersecretary of the Treasury,
I enclose pass permitting you to board
at quarantine SiS DEUTSCHLAND, due about
October 19.
Instructions have also been issued to
the staff officers, in compliance with Mr.
Winston's request, to expedite the examination of the baggage of Doctor Schacht, head
of the German National Bank, at the time of
his arrival on this vessel, accompanied by
his wife, daughter, and secretary.
Very truly yours,












March 26, 1925.

Hon. Benjamin Strong, Governor,
The Federal Reserve Bank of New York,
New York City.
Dear Governor Strong:

Referring to the Hamilton medals ordered for you
by your Mr. Chapman from the Philadelphia Mint, the following is submitted:
The manufacture of medals of Secretaries of the
Treasury and their sale at the Mint is not covered by any
regulation or obligation'. The issue of these medals has
. been rather capricous, depending at tines upon the personal
wishes of the Secretaries concerned. The recent observance
of the one 'ilundredth anniversary of the death of Hamilton
prompted the idea that it might be appropriate to have a
medal of the first Secretary of the Treasury issued, No
particular importance was attached to the incident. Mr.
Morgan, the late Engraver of the Mint, was requested to
prepare the design for this medal.

(signed) R. J. Grant,
Director of the Mint.








Mr. Mills

Juno 19, 1928.

J. H. Case

Refunding of Third
Liberty Loan 41% Ronde due


Making allowance for the $75,000,000 or thereabouts of Third

Liberty Loan 4% bonds which the Treasury will have retired tomorrow, and
for the possibility of its acquiring an additional 450,000,000 or so by
June 50, 1928, there will, I

estimnte, remain approximately 41,200,000,000

of these bonds whose retirement will have to be provided for between July

1 end

September 15, 1928.

Obviously this is too large an amount of secur-

ities to have maturing at one time; and, therefore, it seems desirable for

the Treasury to undertake to retire not 'eve than 4500,000,000 to 000,000,000
of this aggregate amount well in advance of September 15.

From the infor-

mation which I have gathered from my talks with dealers in Government securities., it would seem that no one at present is able to locate any additional

large blocks of Third

41% bonds; and it is apparent, therefore, that the

bonds are very widely

distributed among, and are

securely held by, a large

number of owners.

In this connection I have been giving careful thought to your
proposal to make an exchange offering some time in July. As a result of,

my study of the situation, I am convinced that this offer must be a fairly

liberal one, if the Treasury is to refund or retire before maturity any
further substantial amounts of these bonds. In looking over the list of
various maturities of the longer-term Government bonds, it occurs to me

that a 12-1F year bond, with a 5 5/8% coupon, might be offered, at par

(as of July 15, 1928), to holder of Thirds, the Treasury in addition

agreeing to pay in full at that time (July 15, 1928) the coupon on
Thirds maturing September 15 next. In other words, the Treasury would

5 5/8;
give to holders of Thirds who effected the exchange a new. /bond at per

plus sixty days' extra interest. Even with this offer, which might
reasonably be considered fairly liberal, I am inclined to the belief
that the Treasury would not be able to refund more thaa, say, 4250,000,000

to 4500,000,000; so that the Treasury might further offer to sell an additionel amount of the proposed new bonds,

- 4250,000,000 or there-

about e - at par, for cash or book credit, payment therefor to be made to
the Treasury perhaps on August 1, 1928, rather than on July 15.


August 1 the Treasury might then formally agree (until further notice)

to retire Thirds at par for cash, at the option of the holder, any time
between August 1 and September 15, 1928: in other words, the Treasury

would have outstanding after August 1 an open redemption offer, and if

this offer were given considerable publicity by the twelve Federal reserve

banks and through the press it might enable the Treasury to retire substantial amounts of the Thirds for cash before September 15. Mould this
estimate prove to be wrong the cash sales of new bonds would at least

put the Treasury in a strong position for retirement of the Thirds on
September 15.

In firing the coupon rate on a long term bond, it should of course
be borne in mind that at the present time such Treasury bonds enjoy a

"scarcity value" which value to some extent will be affected by the proposed new issue in July. Therefore, following the suggested July operation,

if it really is the intention of the Treasury to refund the balance of the
4:hirds, which are due and outetarding on September 15, by means of short-

term issues exclusively, I think it would be very helpful for the Treasury


in July to indicate such intent, so as to avoid giving the impression
that a further emission of longterm securities may also be brought out
in September, 1928.


March 15,


Dear Sir:

Tould you oblige me by Issuing t pass tor two
L permit Mr. Benj. Ftrong.,ne hie daughter Miss Katherine

Strong tc,.tiles,within the custom line in order that they
Hay meet Mr. Strong s two sone, who ars returning on the
Steamehip AquitiLnia,

rriving on Saturday, MLrch 1D.

Appreciating your courtesy in the mstter, i am
Yours very truly,

Secretary to Mr. Strong.

H. C. Stewart, Esq.,
Special Deputy Cllector,
Custom Huse,
New Yrk City.

April 28 1922.

Dear Mr. Stuart:

I than:. y.0 ft,r the Cr ast Guard Cutter pass, encl., sed

in ytur ftv. r tf April 27, permitting Mr. Fierr Jay t..
t Quarantine, f T the pur-,

Steamehip /-1Nmeric

itnt,_,.. ue C.

rmun, G.,vernkr .f the Bank

t1/4.ard the

meeting Mr.


N man deeiree that nn mentitri cf his arrival be
publicly kn;in.
ApprAciatine; yr c,..urteEy in the matter, i i.e,
Ycurs very truly,

H. C. Stuart, Esc.,

Speibial Deputy Golleo#or-,

United States Cuts Service,
Nev Yerk,



October 31, 1921.

Dear raddy:

With this I am enclosing a copy of a letter of
intreductien which I have just sent LD my friend, Mr. Eigo

Fukai, which will explain itself.

His quarters while in

Washington will be with the Japanew, Delegation to the Conference en Limitatien of Armament.

Mr. Fukai '48,4 one of the financial advisere to the
Japanese Delegation


the Peace Conference in Paris.


one time he represented the Bank of japan in Lundon, and when

a young man was private secretary to liarouie Tiatrukata.

Ur. Fukai epBake English fluently and ia one of the
best informed men that I met in Japan.

I shall greatly appreciate any courtesies that you
are able to show him, and especially any assistance which you

are able to render him during his stay in Washington.

Thanking you in anticipation, and with cordial re,7ards, believe me,

Yours very truly,

Honorable Eliot Wadsworth,

Aseistani Secretary of the Treasury,
Treasury Department,
Washington, D. C.


October F.1, 1921.

Dear Mr. Secretary:

This letter will be presented to you by my friend,
Mr. Eigo Fukai, Deputy Governor of the Bank of Japan, who is

visiting this country as financial adviser to the Japanese
Delegation attending the Conference on Limitation of Armament.

Mr. Fukai is a warm personal friend with whom I

have had many most enjoyable visits while in Japan, and from
whom I received many courtesies while there.


um anxious

that he should become acquainted with you and with the members

of the Treasury Department.

Anything that you are able to do to make his visit in
Washington an enjoyable and profitable one will be greatly
appreciated by

Yours faithfully,

Honorable Eliot Wadsworth,

Assistant Secretary of the Treasury,
Treasury Department,
Waohington, D. C.
135: MM


7 - 1921


November 4, 1921.

Dear Ben:

I am glad to get your 1e-ter of the 31st with
I will
copy of letter of introduction to Mr.yukai.
certainly do whatever is pos.ible to extend the courNo doubt, you have
tesies to him while in Washington.
effort also.
enlisted one Basil Miles in


We were talking about you :yesterday and wondering how you had survived the return journey to New York
and how you had recuperated from last week's tour of duty
Apparently, you are on the job again and
in Washington.
Do you expect to be down here during
I hope you are 0. K.
Why now come down and we viii give Mr. Fukai
the party?
My sister will be here after the
a dinner at the house.
I am planning to have
middle of next week for a week.
a dinner or two while she is here and if you will come
along, it will greatly add to the occasion.
Always yours-,

Honorable Benjamin Strong,

Federal Reserve Bank,
New York, N. Y.













November 7, 1921.

Dear itiraddy:

Thanks for your note of the 4th. I shall
be in Washington sometime I suppose in the next two

weeks or so, and will then want to give a dinner for
Mr. Fukai and possibly some of his associates c.)n the
Japanese Delegation.

I hope you boys can all arrange

to be there.
Yours sincerely,

Honorable Elio t Wadeio rth,

Assistant Secretary of the Treasury,
Treasury Department,
Washington, D. C.




The consideration of the great problem of a speedy cure of the
disordered finances and currencies of Central Europe has, at the Conference
of Genoa, been entrusted to a particular Finance Commission.
This Commission has appointed three sub-commissions, one for credit and two others
The last two sub-commissione
for currency end international means of payment.
have on their side again formed a committee of experts, and in the heart of
this committee on opinion has finally matured.
is, that the Conference is to be broken up and to be continued by a new conference, at which the representatives of the central banks of issue, under
the presidency of the Bank of Eng,land, should assemble.
This opinion has
been delegated by the sub-commission to the Finance Commission, which on its
side has made it a resolution and at the some time has drawn up a report,
which, however, is nothing else than a reproduction corresponding in meaning,
and often even literal, of Articles 29 to 40 of the so-called "London Memorandum," which has been given to the Conference as the foundation of its deliberations after Genoa.
No positive work has been done at Genoa, as far as the worldThe work is rather to be done
dominating problem of currency is concerned.
by the Conference of Central Banks which is shortly to be called, taking as
a basis the propositions which the experts of the Entente have laid down at
the end of March in the "London Memorandum."
The Genoa "make-believe" Conference must, therefore, be set aside and one must confine one's self to the
study of the aforesaid Articles 29 to 40, if one wishes to become acquainted
with the programme of the Conference of the Central Banks.
As the kernel
of the problem, the currency problem, only Articles 29 to 36 come into consideration.
Of these eight articles five, namely Articles 29, 31, 32, 33 and
35,represent a useful foundation for the deliberations of the central banks.
The prerequisites of a cure for the disordered currencies are here enumerated,
and in a concise dogmatic style which gives the articles the character of
In this way profitless debates on important principles are
firm theses.
And this is well, since, indeed, at the Genoa
checked in the beginning.
Conference votes will probably be cast by those bank presidents who with
their peculiar conception of the demands of a national currency system have
been the cause of the currency distress of their countries.
These "expert"
leaders of the central banks will, by the thesis form of the "London Memorandum," be hindered from importuning the Conference with their individual
conception of money, will, rather, be compelled to submit themselves to
greater knowledge.

"The Conference of the Central Banks"--2


The aforementioned five Articles confine the Conference to the
following propositions:
Article 29: The preliminary condition for the economic restoration
of Europe is, that every country shall stabilize its currency.
This presupposes that a possible deficit in the State Budget shall be covered by the
exertion of the country itself and not by the issue of paper money or by
claims upon bank
credit (which by indirect means would lead to the issue of
paper money; A. L.).
Article 31-32: All European currencies shall have one and the same
standard, namely, gold.
Article 34: In all countries currency reform has to begin with the
balancing of the State Budget, under consideration of what has been said in
Article 29.
Article 35:
The second step is the stabilization of the gold value
of the unit of currency.
At the given moment each country has to decide,
as a principle, whether it will return to the old gold parity or will create
a new parity which corresponds approximately to the rate of exchange at that

These propositions are excellent and form a useful platform for the
Conference of the Central Banks, which they spare at the same time fruitless
debates on certain principles which have made all previous deliberations of
this sort, particularly the currency conferences, an arena for scientific
The conflict over bimetallism, the silver standard, an international central bank, and so on, is in this way kept at a distance from the
If the five aforementioned paragraphs were to constitute the
total content of the section dealing with currency in the "London Memorandum,"
the central banks would in reality have to concern themselves with only two
practical questions: First, how those countries are -to be helped which are
not in condition to bring their budget into balance from one day to another,
which is considered' a prerequisite for currency reform; (I myself consider,
on the contrary, currency reform as the 'erequisite of a balancing of the
budget, yet this prerequisite can, in an emergency, also be met by emergency
credits from foreign countries).
In the second place, in what countries the

prerequisites for a return to the old gold parityrestitutionhave been met,
and in what countries, instead of this, a new parity must be created, consequently steps must be taken towards "legal devaluation."
The entire working programme of the Conference of Central Banks could limit itself to these
two principles--if a couple of other paragraphs were not contained in the
"London Memorandum," which complicate the problem to an extraordinary degree
and destroy almost everything which the other five paragraphs have done.
These are Articles 30, 33 and 36.
Of these three articles one, Article 30, is comparatively harmless.
It states, that a lasting cooperation of central banks is desirable, "which
need not be limited to Europe," and which would make possible a similarly
directed credit policy.
Freed from its context and considered by itself

"The Conference of the Central Banks"--3

this paragraph is perhaps acceptable, although it weakens the important principle, that the currency reform of each country must come from within and alBut the two paragraphs, 33
though it may easily allow illusions to arise.
and 36, put the article in another light and take from it the harmlessness
In particular the "similarly
Nvhich it would have if it stood in isolation.
directed credit policy" which it is to make possible for the central banks
receives a new and more comprehensive simificance, as soon as one realizes
the process of thought of Article 36.
This article states that a cooperation of the central banks is
desirable for the reason that the competition of the separate countries for
the gold of the world might lead to great fluctuations in the purchasing power
of gold; an "international Convention" of the central banks would be able to
weaken this competition for the gold of the world, in that not gold but a gold
balance would be ceded to the respective countries (that is, they would be
compelled to introduce the so-called "gold exchange standard" instead of the
It proceeds from this Article 36 that this similarly directed
gold standard).
credit policy of Article 30 means far more than a union of identical principles
The central banks are, rather, under common security to store up
of credit.
gold credits against one another to a fixed amount.
ures have already been fixed upon, indeed a definite percentage of the total
circulation of money, calculated in gold, of the countries which are short of
This percentage the strongest central banks--the American Federal Re'gold.
serve Banks first of all--would have to lend to the weaker ones.

The sense of Article 36 (completed by Article 30) is as follows:
The gold demand of the countries which will shortly bring their currency into
order, brings with it the danger, that in view of the scanty supply of gold
in the world the price of gold will rise considerably and that all commodity
prices, measured in gold, will sink accordingly, which would mean the same
thing as an acute world crisis.
This danger is to be m
from countries occupied with the reform of their currency the necessity of
attracting excessive amounts of gold to themselves is to be removed, and this
Is best to be done y placing at the disposition of these countries gold
credits with the central banks which are the strongest, from time to time, by
whose help they may be able to settle possible passive balances of their payment balance, without requiring actual gold.

If one wanted to provide Article 36 with a superscription, it would
have to read; "Fear of a gold shortage."
The fundamen
gramme of the Conference of Central Banks is complicated to an extraordinary
degree by the fear here expressed, and by the palliative given at the same
We will, therefore, investigate in how far Article_36 has a right to
existence, and whether it is correct to burden the Conference of Central Banks
with it.
First, however, we must concern ourselves with A.rticle 36, which
eignifies a still greater danger for the Conference.
It begins with the assertion, expressed in the most positive form, that it will not be possible
for a number of countries to return to the gold standard in the course of the
next few years.
These countries, so the article continues, should at least

"The Conference of the Central Banks"--4

make the assertion, based on principle, that their endeavor is directed
towards the introduction of the gold standard, and they should, further, declare formally how they intend to reach this goal.
The superscription over
this Article 33 would have to read "Resignation."
We wish, first of all, to
enter into detail upon this article.

The view that a number of countries, among which Germany is apparently included, during the next few years will not yet be in condition to
return to the gold standard, rests upon two considerations.
In the first
place, the State Budget of these countries shows so great a deficit that it
cannot be hoped to bring it completely into balance before the lapse of several years.
The raising of the revenues to the height of the expenditures
always demands a certain time, it is argued, and during this time a requisition of the printing press by way of a makeshift cannot be avoided.
As long,
however, as this is the case, it is argued further, a transition to the gold
standard cannot be thought of.
For every increase of the note circulation
means a further depreciation of the money of the country and its sinking below the newly created gold parity, forces, therefore, unresistingly abroad
the part of the currency of the country which consists of gold, even if it
remains with the central bank and serves only to regulate the exchanges for
foreign bills.
The second consideration proceeds from the balance of payment.
In the countries under consideration, especially in Germany, burdened with
reparations payments, this is strongly passive.
Even here there is need of
a certain time to reestablish the balance.
During this transition time,
however, gold flows out of the country exactly as in the preceding case, because the passive payment balance brings the external value of the money of
the country down below the new parity and compels the central bank,, either
to give up its gold or to sacrifice parity.
Either, however, signifies the
and of the gold standard which has barely been reestablished.
This--alas, Ed, popular--process of thought can be followed only with
a certain dejection.
For it shows how thoroughly corrupted are the views
of today in regard to the demands of a healthy finance policy, and how pitifully little has been learned from the terrible punishment which maltreated
political economy
inflicts upon the nations that disregard its laws.
One would think that eight years of inflation, in particular however, the last
three years, must have brought even the least intelligent individual to the
consciousness, that something does not agree in the equation "Budget deficit t:
printing press."
One would think that the nations must have been obliged to
feel, by their own pockets, that to print notes means nothing else than to
subject to a forced taxation all those who possess an income in money of the
country or own property in securities payable in the country's currency, or to
expropriate them gradually, and indeed more thoroughly than the most radical
Communistic rule can do it.
One would think that the fearful object lesson
in Central Europe--not to speak of Russia--would have opened the eyes of the
expert economists, at least, and made them recognize that circulatory media
which the State creates by means of the printing press are not new money, as
it supposes, but stolen money, that is, money of which it cheats the citizens,

"The Conferences of the Central Banks,"--5

by depriving of a part of their purchasing power the money tokens and claims
which the citizens hold, in order to appropriate this part to itself.
Article 33 of the "London Memorandum" shows that all this is not the case.
While it takes. quite as a matter of course, that the deficit in the State
Budget of certain countries mittlzeor indeed would have to be, covered by
laying claim upon the printing press, it shows distinctly that the sense and
essence of note printing have not yet unfolded themselves to the highly expert
gentlemen who have drawn it up--they stand in very near relations to the Bank
of England.
Unless Machiavellian processes of thought should be at the basis
of the article, which, however, can probably not be assumed.
The fundamental principle that a state may cover the deficit in its
budget by the help of the printing press is in no way distinguished from the
principle, that the individual citizen may, by counterfeit or theft, procure
for himself the money which he lacks.
That this principle has still an official acceptation, although one can scarcely shut one's eyes to its fateful
consequences, is a fact which we bequeath to future races as a documentary
proof of the moral insanity in the economic thought and action of our time.
And if the Conference of Central Banks, in the near future, should have only
one result, that a break is finally made with this thoroughly corrupt view,
it will deserve credit which cannot be rated highly enough; at the same time,
expressly new lines of direction for the policy of the central banks would
be contained in it.
In reality exactly the same rules are of value for the State in the
conduct of its affairs as for the individual who is managing his.
It has
to raise its revenues to the height of its expenditures, or, if it cannot do
this, to bring down its expenditures to the level of its revenues.
A deficit
which has its origin in abnormal circumstances and will again disappear with
these circumstances the State may cover by means of taking credit, that is,
by taking up long term loans, in case of need, forced loans.
If all these
ways are impracticable, which is always to be traced back to weakness or imprudence, never to an actual impossibility, there remains as the last, unpleasant, but unavoidable way out, the declaration of the inability to pay,
State bankruptcy.
Here the State touches the border where the unmoral begins.
But it remains itill on this side of the boundary, for it acts only
weakly or imprudently, not dishonorably.
It oversteps the boundary for the
first time at the moment when, in order to disguise open bankruptcy, it
seizes upon the printing press and fulfils its obligations to creditors,
officials, holders of dividend-bearing stocks, and so on, payable in good
money, in bad money; that is, when it commits bankruptcy, without formally
announcing it, and, at the same time, cheats numberless outsiders, who stand
in a relation to the State in no wise involving legitimate claims, cheats them
of part of their private income and property, or, rather, lets them be cheated
by third parties.
Compared with this treacherous wholesale expropriation
by means of the printing press, an expropriation which presents itself in
the mask of the honest man, open deeds of violence as, for example, the famous
confiscation by Charles I of England of the private deposits in the Tower,
have something positively appealing about them.

"The Conferences of the Central Banks,"--6

The pretext that the necessity of the time is stronger than all
moral philosophy and economic theory, is a smooth phrase.
Not on this account, because the necessity of the time exculpates the State, which is counterBut
feiting money, exactly as little as the rascal who is forging a check.
because there is at this time no state in Europe, not excluding Russia, which
would not be able to cover the deficit of its ordinary budgetwhich indeed has
been considerably unburdened by the fraud practiced upon State creditors and
of ficials--by means of internal loans, and voluntary ones.
For the printing
press,whith revolutionizes
the entire political economy, has caused, among
other things, an enormous lack of capital to arise.
ing chapters of inflation is involved here, which, unfortunately, has never
been made the object of a special investigation.
In a few wordstthe course
of events is this, that the decimation of all existing claimsthrough the
shrinking of the value of moneyenriches the debtor by just as much as it irnpoverishee the creditor; in connection with which the debtor feels the enrichment, in the first place, less in his property than in his income.
second income over the origin of which the one who enjoys the profit does not
rack his brain very much, but which considerably increases his need of capital,
piles itself, consequently, upon the income from trade, industry, and agriculture (from the latter only under quite definite conditions), which, apart from
this, is in inflation times, mightily swollen.
The great masses of notesi
which in all countries of inflation are accustomed to be hoarded, come from
this source, for the most part, and do not become transformed into investments
of capital because they fear extortion through excessive taxation and through
continued depreciation of the value of money.
The State needs only to put
these two considerations out of the way, hence to pursue that policy of taxation and finance which is dictated aside from this; then capital in more than
sufficient extent will stand at its disposal in order to cover the deficit of
one or two budget years and to proceed peacefully to the balancing of the budgets of later years.
The establishing of a balance in the State Budget is, therefore, not,
as Article 33 of the "London Memorandum" assumes, a prerequisite which must be
fulfilled before one can proceed to the currency reform; it is, rather, quite
to the contrary, dependant on its side upon the previous or at least contemporaneous execution of this reform.
To let the currency problem alone until
the budget balances, means an adjournment ad calendas graecas; for under the
condition of permanent revolution of money, of continued transformation of the
value of the unit of reckoning, the budget account can never come into balance.
Moreover, I have recently explained here why currency reform can cure
State finances, but the financial reform can not cure the currency, and I must
today refer to what I said at that time.
Just as out of the way as it is to place the currency question chronoafter the question of budget balance, is it also to wait
with the
currency reform until the trade balance of the countries with unsound currencies comes into equilibrium.
Cause and effect are here very naively confused.
Where the trade balance is passive, that is, the obligations of payment towards
foreign countries, which are due, are greater than the amount of the available
or easily secured foreign means of payment, there the departure from the priniples of a sound currency is alone to blame for this passivity.
In a




"The Conference of the Central Banks,"--7

country which has the gold standard, or a financial system resting upon the
principle of this standard, alpassive trade balance"is inconceivable.
principle of the gold standard is: increase of the national monetary circulation with a predominence of claims, decrease of the circulation with the
predominence of debts to foreign countries.
This automatic expansion and
contraction of the available purchasing power raises and depresses the prices
in the country exactly to the extent which is necessary in order to absorb
the imports flowing in in the place of payment, and to prepare and to dispose
of the exports necessary for purposes of payment; both, without causing any
considerable change of the value of money or of the course of the exchanges.
The extent of the payments to and fro is in this connection quite irrelevant;
if it reaches figures such E.1 s the German reparation payments present, it, to
be sure, influences the level of prices in the most incisive manner, but leaves
the value of money and the rate of exchange intact.
A country with sound
currency can, to be sure, come into the situation of declaring open bankruptcy,
namely, when the State authority is not sufficient to attract from the population the sums necessary for payment abroad.
But it can never have
trade balance" in the current sense, that is, be unable for lack of adequate
supplies of foreign bills to deliver abroad the amounts standing in readiness
at home.
For the low level of prices, which here arises from the obligation
of payment, under all circumstances keeps in readiness those exports which assure the creation of the necessary foreign bills.
The. passive trade balance,
in the sense of the impossibility of creating foreign bills at parity, first
appears when the State, in order to spare its population as regards taxes,
has recourse to the printing press, hence, sacrifices the currency; which means
nothing else than replacing open bankruptcy, which would injure foreign countries, by disguised bankruptcy, which expropriates its own officials and domestic creditors as well as indirectly all holders of claims in the currency of
the country, to a partial extent.


That the "London Metnorandutn," in spite of the true facts of the case,
takes the passive trade balance as well as the budget deficit as a pretext to
dissuade a number of countries from the immediate setting about of currency
reform, detracts from,the value of this preliminary work in a lamentable manner.
The Conference of. Central Banks is thereby hindered, in the first place,
from accomplishing practical work, and instead of this driven upon the course
of theoretical considerations of paper "lines of direction," so that it runs
the risk of becoming lost in the well-known and by this time unendurable
typical conference prattle.
It appears that some of the authors of the Memorandum have had their good reasons for recommending a dilatory procedure.
Certain central banks consciously pursue the policy of drawing the currency of
their country near to the gold parity by intentional deflation.
These banks
would like to go as far as possible out of the way of a discussion upon the
practical question, "Devaluation or Restitution, new or old gold parity?",
because they know the mighty interests which resist, for weighty economic
reasons, any improvement of the value of money.
They would like to win time
in order, first of all, to reach the old gold parity absolutely or approximately and then, when they can expose a fait accompli to publicity, to discuss
the question at what gold parity the individual countries are to anchor their
Without admitting it, the Bank of &gland, above all, takes this

"The Conference of the Central Banks,"--8

Also, the Bank of France, which with its notes is still distant
from gold parity by more than 50 per cent., hopes, nevertheless, to bridge
this span in a few years, would like to postpone the definite return to the
gold standard until the old parity can be destroyed.
Indeed, even the Bank
of Italy cherishes such desires, in its case plainly unattainable.
But shall
the nations groaning under the scourge of a more severely disturbed and completely unstable currency, who would feel any fixation of the value of money,
no matter on what basis, as a benefit, on this account wait passively until
their neighbors believe that the psychological moment for their own currency
reform has come?

Article 36 of the "London Memorandum" wishes to introduce a cooperation of the central banks to the extent that the strong demand for gold which
is feared for the time of the practical currency reform in the case of the
countries of inflation, shall be lessened by furnishing
gold credits with
the central banks which are strongest, from time to time.
The drawing upon
these gold credits, eventually completed by means of an international clearing,
is to take the place of the sending of actual gold and consequently deprive
the countries occupied with currency reform of the necessity of attracting to
themselves great masses of gold.
In regard to the nature of the gold movement and the possibility of
its substitution, in principle, by a world clearing system, I have already
expressed myself somewhat exhaustively in these pages.
I have denied the possibility of a general world clearing, as long as a pax aeterna does not absolutely protect the right of property of the separate countries to their gold
funds deposited at any place--the presupposition of every clearing.
easily realizable would be the conception of a gold credit from country to
country or from one central bank to another.
Here .too the difficulties of
a political nature may not be underemphasized.
In any case the question of
currency reform, quite simple in itself, is enormously complicated, as soon as
one couples it with the question of a lasting community of work of all or of
single central banks.
There arises a loss of time, which, in view of the
urgency of the problem, can only be justified if there is really danger of an
acute shortage of gold and of an international crisis in prices, in case one
onits to watch over the return of Central Europe to the gold standard and to
organize it centrally.
But this danger is quite imaginary.
The world gold market has not
the least to fear from the currency reform of the Central European States,
even if the reform takes place in a thoroughly anarchistic way, according to the
judgment of each individual State and without mutual consideration.
And, indeed, for an entire series of reasons.
In the first place, the need of gold which is connected with a return
to the gold standard, is quite insignificant.
The essence of the gold standard
in the restricted sense, which today practically alone comes into the question,
does not consist in the fact that the monetary circulation of a country is

"The Conference of the Central Banks,"--9

It does not
composed of gold and gold covered notes (gold certificates).
even consist in the fact that the monetary circulation of a country is covered by gold to that percentage which assures the redeemability of money,
for which, according to experience,51;33 1/3 or 40 per cent, gold cover would
The gold standard which the different Central European counbe required.
tries can and must introduce today, in order to attain again to a stable value
or money, is a cross between the "gold redemption standard," the principle of
the redeemability of notes in gold, and the "gold exchange standard," the
principle of the foreign payment through transfers of gold balances abroad.
The first standard is prohibited because the masses of people made distrustful by the currency deceit of the last few years would make use of the redeemability of their money into gold by collecting together all the quantities
of gold in any way attainable and hoarding them up, using the gold, therefore,
If, one hundred years ago,
not as a means of payment, but as a treasure.
Ricardo considered a 12 per cent, gold cover quite sufficient to assure the
redeemability of notes to a practical degree, today even a four times greater
The gold examount of gold would,presumably, be despoiled in a few days.
change standard is prohibited because it postulates a far going economic and
political dependence of the country which introduced it upon that country
The cross
which holds its gold balance or, in case of need, advances it.
which the Central. European countries will, by way of expediency, have to adopt,
is the gold margin standard, that is, a standard the kernel of which, consisting
of paper, is surrounded by a gold margin, which is just sufficient to equiliThis
brate each passive balance of the trade balance by the delivery of gold.
gold margin standard will become a real gold standard in that the paper kernel
is at all times kept in agreement, as to value, with the gold margin, which
may easily be accomplished in a mechanical-quantitative way.

For the introduction of this gold margin standard no more than 20 per
cent, of the total circulation of payment media needs to be covered by gold
Germany, whose
in any country which pursues an honorable currency policy.
circulation today (on the basis of a value relation of 50 paper marks to one
gold mark) has a gold cover of about 33 1/3 per cent., has, consequently, in
so far as it can dispose freely of this cover, more gold in its possession
than it needs for the 'execution of its currency reform, and a similar relation
obtains in a number of other countries, such as France, Italy, and CzechoHere the currency reform can be begun, consequently, without any
The claims which the other counconsideration of the world supply of gold.
tries without a sufficient provision of centralized gold might perhaps make,
are, after this, of scarcely any weight; at the same time the fact must be
reckoned with, that here--particularly in Russia and Austria--great masses of
golden hoards will come to the light of day, as soon as the value of money
is stabilized.
In opposition to this stands the fact that never has so huge an increase of the gold available for coinage purposes, centralized in banks of
issue, taken place as in the last few years.
It is estimated (according to
the ldioniteur des Interets MatOriels), that the visible gold supplies, in spite
of the remarkably strong current into the gold industry, have increased in
comparison with 1913, by 14 milliard francs (34 milliards against 20 milliards).
The increase is to be traced back partly to the new supply from the gold mines,
partly to the disappearance of old gold from the circulation of the countries


"The Conference of the Central Banke,"--10

of inflation, and it is completely out of the question that the reintroduction
of the gold standard into these countries will lay claim upon even a fraction
of nominal value of the masses of gold which the circulation in the last few
years has retired and has replaced by paper.
Unless individual countries
prematurely go too far in their conception of the gold standard, and try immediately to pass over to an absolute gold standard,
Even for this the time
will surely come some day, and for this very reason, that the world is overstocked with centralized gold.
But the countries must grow organically up
to the absolute gold standard.
It is a luxury which today scarcely one of
the inflationary countries can allow itself.
Meanwhile, even if it were otherwise, and separate countries should
really attract a greater mass of gold to themselves than is postulated by the
currency reform; what would be the practical effect?
As things are today,
the demand for gold, whether it rests upon the increased export of the countries to be reformed or upon credits which are granted them, would be a charge
upon the United States, the single country in which gold is obtainable in any
amount one chooses.
The drawing of gold would take place in this wise, that
notes would be presented for redemption to the Federal Reserve Banks and the
gold bars and coins received for them would be shipped to the countries to be
The consequence would, in America, be a contraction of the note
circulation which, according to the quantitative theory, today no longer contested, would lead to an intensification of the purchasing power residing
within the remaining note circulation, and with this to a depression in prices.
If this shrinking of the note circulation and this lowering of the price level
should be felt as a disturbance in the economic life, the Federal Reserve Banks
would be quite at liberty to bring again into distribution the notes which have
just come in for redemption.
Since their gold supply, according to the first
May report of the Federal Reserve Board, is greater than their note circulation
by 820 million dollars, the banks could put into circulation an equally high
amount in notes without the circulation of a single uncovered Federal reserve
note In America.
Europe could, consequently, draw from the American central
bank system, 820 million dollars in gold, that is, an amount far exceeding the
actual need in any case, without in any wise affecting the cover (note well,
complete covert) of the American central bank notes, without the need for the
circulation to feel a diminution of such notes, in short, without the fear of
any economic disturbance whatsoever.
From the currency reform of the European countries of inflation, a
certain danger might proceed in a single case.
Namely, if these countries, in
their totality, should represent great financial strength and should be able
to make effective any significant demands at whatever time they chose, or to
collect their demands in gold.
In reality, however, the situation is just the
opposite: the countries to be reformed are financially weakened, and the possibility of demand lies on the other side.
If, therefore, a danger threatens
the international gold market today, it proceeds not from the countries of
weak exchanges at the time, but from the countries of the strongest exchanges,
particularly from the United States.
By a sudden demand for their war advances the United States can actually conjure up a crisis in the world market,
while the gold claims which Europe may make from grounds of currency technique,
can produce no more than trifling effects.

"The Conference of the Central Banks,"--11

The Conference of Central Banks will, therefore, if it is in earnest
as to the speedy cure of European currency disorder, be able to do nothing better than, in the beginning, to throw overboard Articles 30, 33 and 36 of the
"London Memorandum," which do not do away with complications, but, to the contrary, create them.


Translated by K. D. Frankenstein
E. M. G.





SEGUR 70 32

April 12, 1923.

Hon. Benj. Strong,
Governor, Federal Reserve Bank,
New York, N. Y.
Dear Ben:

Logie tells me that he has had a letter from your secretary
saying that you have felt it necessary to go west for a few months
to get your larynx back in good order.
I cannot tell you how sorry
Nancy and I am to hear it.
You have tackled this proposition before
with great success and no doubt will tackle this one successfully, but
it must make you pretty mad to have to pull out just now.


Of course, we were all greatly interested and somewhat amazed
at Bill Williams' departure from the bachelor circle.
Logie wrote 2
,letters, one to Nemo and one to De Chambrun, after we had talked the
.situation over, which epics I enclose copies of because you certainly
should see them, and Nemo will probably never think of sending them.
1,""Without Allen Winslow, and Bill Go4n and you in the west, Nemo must
feel himself quite deserted.
Ls for Jim Hickes, he must be Wondering what will happen next to his menage.

Basil gets back in a day or two and we will have a reunion
of the Paris Branch.
Really it looks quite serious for the old
I wish Nemo had taken in one or two younger men to carry
on with.

Logie is finally quite thin for him, playing a lot of golf,
and taking care of himself.
Basil was in his usual form When he left.
He has been to Rome and from there went to Vienna and Warsaw.
I am
looking forward to talking with him on his return.
He seems to like
his job very much.

Nancy and I have just been to a luncheon at the office of
the Finance Minister, M. Lasteyrie, given by him in our honor. It
was a very genial and delightful affair.
That is a wonderful old
building and we lunched in state in the little dining room and wandered around the big salons afterward.
Lasteyrie is quite optimistic
about his budget and about French finances in general. He says there
is only fly in the ointment, Viz.; reparations.
His income is improving
but just what is happening to his expenses he did not say.


he thought that possibly the income might
He was
ter this year than the estimate.
I asked him what he had
first 3 months.
and he denied all knowledge of the reason

be two millard francs bet400,000,000 ahead for the
been doing to the franc
for the present rapid

The air is full of rumours as to the Ruhr and the attitude
of the British; also the results of M. Loucheur's recent visit to
Loucheur was not in any way representing the government
However, we hear that there are hopes as to
when he went to London.
the results of his mission.
We are living most comfortably in Bob Bliss' apartment ard
We expected to
I hardly know what we would have done without it.
be at home before this and Nancy is planning to go home any way at
The conferences
the end of next week whether I get thru or not.
The delay in cabling and the difficulty of conveying
drag along.
full understanding to Washington of the situation here as it developes,
also the Easter holidays, make quick action impossible. I wish we had
a long distance tele hone to Wasl'ngton.







June 28, 1923.

Dear Ben:


On getting back here on one day early in June, I found
cyour most encouraging and chatty letter of May 23. All the family
have seen it, and since then we have more and encouraging information via Ben, Junior. Needless to say that we are more than delighted that things go so well. As usual, here comes advice from
a long distance to one who rarely takes advice,to the effect that you
should stay on the job until it is entirely finished and then a little
more, so that when you come back you can join the family sewing circle
without any qualms or handicaps.
I came straight here from the boat after spending a day
in Neu York with Nancy. We had an old home dinner Thursday night
with quite an attendance. Prather, Fred Sterling, Mac, Jim Curtis
from the outside, and Elliot Goodwin, Phillips, Nem* and E.W. Frank
Polk dropped in for an hour or two; also Allan Winslow was on hand.
Unfortunately, 1:Z,ss ear broke down on the way in from Chevy Chase
and Curtis did not arrive until about half-past
so that he, PA1j.
There was a great deal of conversation; also, there was an
auction pool. Mac was quite chagrined at selling for $2 less than
Loggie, but they both, with Basil, sold for about the same, whereas
Nemo brought 0104,nearly three times what the others did. That shorts
about the rating that the others have in public estimation.

Nemo and I are now at the house, but move out to the
Straight farm, we hope, on Saturday.
There are .lots of changes here. Gilbert leaves in August
for a trip abroad. The Secretary is away so I shall be acting for a
There is another change coming,
little while until he gets back.
which you will hear about in due course. The signs along the Federal
I have not even met the new
Reserve Board alley are greatly changed.
members of the Board. Adolph is going to stay around all summer
with just an occasional feu days off. He told me that with you
away it was very necessary for him to be here in view of the many new....

ra 6nAKr


As to the European trip, it finally ended by the signing of
an agreement, and I was able to get back for Harvard Commencement.
was a very interesting tour of duty and threw a lot of light on European
conditions, points of view, and aspirations. The outstanding feature is
.utter lack of unity of command. I had to make a speech on Commencement

- 2 -

Day and enclose it with some trepidation Der your inspection.
It is
quite a change from my point of view of four years ago. We often say
that if people would go abroad and study Europe, they would feel
differently about America's participation.
I did that very
feel very differently from the way I did, but with the reverse English.
Whoever might be our representative and however wise he might be, he
would have a tough time deciding what ought to be done. As a matter
of fact, Europe is basicly much better off. People are getting three
square meals a day and are better dressed and more comfortable than they
were in 1920. Of course the Ruhr is making a tremendous reaction.


On the way home I spent three days with Monty Norman at that
wonderful house of his. We had one long evening together, and the next
evening Sir Robert Horae came. We dined well and Sir Robert was most
outspoken. He does not like the French and says the only league of
nations that is necessary is that between England and the U.S.A.
NormAn is very keen on reviving the Central European Nations, and of
course the Austrian loan was largely his work. He wants to tackle
Hungary next, but the Reparations Commission turned him down, due to
the fact that the French had two votes and they both went Against him.
I did not think
However, he is the great little worker and schemer.
he looked particularly well. He still takes an hour's walk before
breakfast and then goes to the bank to stay from 10 to 7.
I saw Baldwin for a moment.
It was only two days after he
had landed in the job and he was certainly jumping sidewise.
will save his life if anything will as he goes there religiously every

I saw Lasteyrie to say Good Bye at the end of May.
chatty and quite optimistic about his budget, as usual. Anyone that
can fathom the French national finance of today is wise.
I suppose
he knows a lot about it and therefore founds his optimism on something
real. No one else was optimistic.

Basil, Bill Wright and I took a motor trip through the
devastated regions, "getting as far as Ypres. The amount of construction
that has been accomplished is simply amazing.
I wonder what
when this artificial stimulant to business stops. I suppose there
have been more buildings put up in France and Belgium since 1920
than were built in twenty years before. No wonaer business is good
and there is no unemployment. As they are doing the work on other
people's money, or rather the hope of getting other people's money, it
is done well.
All goes well at home. Nancy and the boys are at Gloucester
I am
and will proceed to Northeast Harbor about the middle of July.
going up there for a week after the fourth and then settle here until
September without any chance of a break.

- 3 -

By the way, I came down on the train with Governor Harding.
He looks 100% better than he used. to and. claims that he likes Boston.
I think Boston likes him. He is a little more queer and. lonely than
You would have been aima.sed at his remarks on the subject of
4, ever.
your friend Herbert. He said he would like to have such self-confidence.
-IL number of people that I talked. with in New '- agland were very peevish
at the remarks that have been made by the said Herbert to the effect
that everything was too high - that a buyers' strike would break the
backs of the sugar profiteers, etc. The popular impression seems to
be that there was an effort made to put the foot brake on a little but
instead the emergency brake went on and. got stuck. There is a complete
'igland mills. They are all beginning
absence of buying orders in the New
to curtail and will run out of their orders before the end of the summer.
You were exceedingly right in your prognostications and statement that
I wish
we were getting inflated and 1st have a secondary deflation.
I had acted accordingly.






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Address by Eliot Wadsworth of Boston, Assistant Secretary
of the Treasury at the Alumni exercises on the afternoon
of Harvard Commencement, Thursday, June 21, 1923.

Three years ago I spoke here of the problems of Europe and of a plan
then being disaussed for the creation of a large fund which might be
used for reconstruction loans.

The plan was not adopted and substan-

tially the same results have been accomplished in a natural way more
rapidly than anyone could have imagined at that time.

Through normal com-

mercial channels America has hastened reconstruction in most practical
ways by providing a ready market for European products and issues of
sound securities.

The Austrian Loan just floated so successfully is a

striking example of what may be done.

have loaned


The investors


the United States

sums to foreign nations on a business basis.

The liber-

al spending of American tourists has been and will be a considerable factor in steadying the exchanges.

Europe has passed through the first serious crisis left by the war
and underlying conditions are such bettor than in 1919 7 20.


is more active, transportation improved, an enormous amount of reconstruction has been accomplished, so that tens of thousands of families
are now housed and settled who were formerly mere refugees.

The farmer

everywhere is doing well, which is perhaps the outstanding feature of the
situation on the Continent, and gives good ground for optimism as to future

Increasing production of food is a firm foundation to build

Nations which in 1919 urgently asked for

chase of minimum food rations for


-nd in some cases exporters of food.

relief loans

for the pur-

people are now self-supporting


Finance and industry were on the mend but now are so dependent upon
the situation in the BUhr and its results that no prediction is possible.

History dhows nothing that compares in size and


the Buhr occupation.

ITars.have been




by treaties and have

broken out again, but always the new war was much the same as the old,

with the resulting damage largely confined to the fighting zone of the armies.'


There is no record of

a struggle as is now being waged to

force a nation, defeated in an unjust war of aggression, to meet its just
liabilities under an accepted treaty.


again in a period of uncertainty. much like that of 1917


human plan for the future .depended upon the outcome of the battles in Northern France.
Before the war Germany produced. 190,000,000 tons of semi-bituminous.

of whic11,117.,000toop

'orne from the Ruhr; 60,000,000.from Upper

15,000,000 from the Saar Basin now out of German
coal wa4 of


ly all the coke

control.' .But




fully as essential

the 1141,T7

importappethlwthe.tonnage. dhows, it provided nearThe by,.product,oyens of the Rthr

three-fourths of the ammonia, ..the benzine,.and.the



steel and


to the United States.



coal.tar used in

of the.:11Uhr factories

is the output of the


That little area, perhaps 40 miles long

provided something 114#4.21p ingenuity can replace.



15 wide,

A hundred thousand_

French and Belgian troops without firing a,Shot. were

Ole in a,few,bripf

weeks to practically place a strangling hand on the jugular vein.of_the



Practically another

is along new lines.

war is going on but it

bombs, no cannon, no poison gases are being used to
ade the industrial heart of Germany.


stop by rigid block-

Long-distant cannon, far-flying

aeroplanes and. Zeppelins are as pigmies in their effects when


with the cutting off of coal, steel and their by-products from many millions of human beings.

Without actual physical. destruction the stoppage

of the mines and factories is causing immense loss, suffering and inconvenience.

Brazil feels the reduced demand for her coffee and other products in
Central Europe,

Par away India curtails its purchase of manufactured

goods from Manchester and Birmingham

kets for its raw materials.


the loss

of German mar-

No suCh effective weapon has ever been

wielded by one nation against another.

as a


We had thought of the

producer of marvels of offense and defense,

after its close we see a new force applieds




In less than five years

few thousand men in blue

uniforms carrying on an effective pressure upon a nation of 60,000,000

The intricateiadustrial maChine built up in the past hundred

years now proves itself


aweapon of .deadly strength when one

of the sources

the power which makes it run is controlled and the throttle of that

power tight closed.

New history was made in every

battle of

the Great Tar and new history

is being made today as the stoppage in the Rthr Valley quietly but inevitably affects one community after another hundreds of miles from what
might have been the zone of ordinary warfare.
This is the


great issue

of the moment, but there are many others,

and economic, in Europe, the Near East and Russia which must be

worked out on the ground by the peoples and their governments.

They alone

can bring about a settlement and adjust the conflicting Interests and hatreds brought about by the upheaval of the War, the fall of long established government systems, and the ropartition of a continent.

may have in its present po-

Whatever moral influence the United States

sition has been exercised
these problems.

in the interest of peaceful and just settlement of

Our desire that differences should be adjusted by confer-

ence and

arbitration has


a loading American

been well known.


With the

concurrence of the gov-

sat on a committee which asked the privi-

lege of studying the question of reparations from a practical business point
of view, but the offer was not welcomed.

The Secretary of State suggested

a tribunal, of experts to which the reparation


should be referred

and intimated that the United States would not be averse to assisting in its

Our representatives have worked as they could at conferences

and elseWhere to bring

for the


not without some success as was Shown at

The British debt has been funded; settlement has been arranged
cost of the American Army of Occupation.

ing out of the War are being cleared up one by

History cannot be unmade and

The complications.grow-

one as opportunity occurs.

the question can never be answered Whether

or not the United States could, by a different policy in 1919, have prevent-

ed or eased the present situation.

We made our decision then; did not rati-

fy the Treaty of Versailles; did not subscribe to the covenant of the

of Nations.

Who can be sure that a different action could have pre-

vented_ the present clash between the

opposing interests of France

It is often said that if the United States had been officially repre-

sented on the Reparation Commission and had sat

and Ger-

on the Council of the



Of Nations many complications would not have arisen or would have been

Whether that is so will never be known.

The situation as it was

in 1919 cannot be revived; too much has happened since.

We must takes the

facts as they are.

We may look back to what might have been only as a guide for the future.
Supposing for a moment that the United States had officially taken part in
the discussion and conferences of the past three years, then surely our representatives would. have been forced to align the United States on one side

or the other of the great questions which have been considered; questions


policies of the most


intricate and changing

.These representatives in an effort to bring about results must have

taken deoisions and thrown the influence of the


States in favor or

against the plans suggested.


statesmen are quite aware


that even a very high offi-

cial of this government must ultimately depend upon the approval of public


opinion to make hi s acts effective.

from day to





ments and understandwhat is back

of them?


ties which would confront

each other is

this country

The settlement of reparations
future of certain nations of



what public,.

intelligent public

The different

.by England on the question of reparations and the

tries which rapidly followed


how could there be

opinion when it is difficult even for men on

changes almost


opinion would support?

the isgme.




attitudes taken

under three .minis-

a good example of the

in determining it



and guarantees is fundamental to


Some far-reaching results



Drastic steps are being taken to force


be obtained.

Suppose again



the United States through its official representatives had committed itself for or against the present action in the Buhr; that stand could not
fail to become a political issue in the next campaign.

It 'would be an


issue upon which the voters could not be fully informed, and- yet the re-

volt of the voting would be of paramount importance to the nations of
Europe who would be affected.

What nation with its interests at stake

could resist the temptation of


part in such a campaign?

That is one of the old arguments against the official presence of
the United States in the political arena of Europe, and only to make it
more definite do I sirht the RUhr as a typical example of the kind of
question which would constantly be injected into our elections
sues could not be


cut and the result of

an election could rarely

be considered as the judgment of a majority regarding them.
rue most discussed

in a

Campaigns must be fought largely

Party issues, the personality of the candidates,

or the running of a strong man


The very is-

campaign might be settled or completely changed

between election day and inauguration..

on domestic questions.

ouch is-

influence on the


independent ticket would have pre-

Pew, if any, administrations could

fairly consider an election as a mandate covering our policy in Europe

for four years;
,1 have ventured to theorize. in a dangerous field in an effort to im-



point which seems so vital to this country.

As a people we can

through officials elected once in four years,

hands to help or hinder the development of this

The power in their

country is stupendous.

There are domestic problems facing us at home which are not too small



the best men that can be found for high government office amply


Our national finances, taxes, the prosperity of the farmer,

industrial relations, railroads and shipping are a few of the many questions which press for constructive settlement.

We alone can solve them.

We can ask no help from outside nor do we intend to.

The voters must de-

cide every so often into Whose hands they will intrust the affairs of
this nation.

Whoever may be chosen should represent the choice of the

people based upon home questions



upon any

theoretical action which

may or may not be taken in Europe.
In many ways this is as critical a time for the United States as it
is for any other nation.

We may as individuals be deeply interested and

engrossed in the spectacular happenings of Europe.

I do not belittle our

selfish interest in the result of those happenings, but I feel deeply that
our action as American citizens dhould be controlled by that is best for
the United. States in the management of its on affairs.
No such do.-

The United States today is a great and solvent nation.
velopment has over occurred before in the world,
ernment has


No such democratic gov-

ever existed. We are a great experiment and a

We see great

as stable beyond

nations which for generations had

very success-

been looked upon

question struggling today in a crisis which may.predk

their government, finance and industry and turning to us for help.


to which we maybe of help.


our own welfare will depend the extent

the men whom we elect to office much of our welfare depends.


the accusation of the world

simply because we devote the


that we are selfish

or self



thought and energy which is in us to

our own problems and policies. The world needs the United States, needs:
us at our very best, strong in government, sound in finance and industry.


The broad sympathy of the American


together with an energetic, ever

present desire among American business men to build up and not tear down
must give

assurance that others will

not suffer but will benefit as we

achieve social advancement and prosperity.

By keeping ourselves free and uncommitted; by keeping strong; by
handling our own business efficiently, we are in the long run conserving

and building up a force which has and will prove of untold
re-establishment of Europe.


in the




December 15, 1919.


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

I am in receipt of your letter

addressed to Assistant Secretary


ferred to me for reply.
Mr. H.

effingwell and by him re-

You.linclose a copy of a letter from

C. Sylvester, Jr.,

City Company, in which

ated November 28, 1919,

ice-President of the National

t is urged that individuals and

corporations be perm tted to inventory their securities and
to deduct the shri
In reply I

matter, and wi

age in computing tax liability.

esire to thank you for your interest in this
to assure you that this subject will receive

my careful clsideration.






, te

Benjamin Strong, Jr., Esq.,
Governor, Federal Reserve Bank,
New York City.


4,erc--d'i ,,,,..\ -5



7 1918

Dear Mr. Strong:

You will perhaps remember that yau asked me the other day about
the power of the Secretary of the Treasury to borrow money.

Since my

return to Washington, I have looked this up, and have the honor to advise
you as follows:

Section 40 of the Act of Congress of August. 5, 1909, known as

the Payne-Aldrich Tariff Act, amended Section 32 of the Act of Juno 13,

1898, and authorized the Secretary of the Treasury to borrow money from
time to time at a rate of interest not exceeding 3 per centum per annum,

in such sum or sums as, in his judgment, may be necessary to meet public
expenditures and to issue therefor certificates of indebtedness in such
form as he may prescribe, and in denominations of $50 or some multiple

of that sum, and each certificate so issued shall be payable, with the
interest accrued thereon, at such time, not exceeding one year from the

date of its issue, as the Secretary may prescribe, providing that the sum
of such certificates outstanding shall at no time exceed $200,000,000.

Prior to the enactment of this amendment, under date of November
20, 1907, 3 per cent certificates of indebtedness were issued under the
authority of the earlier Act, in the sum of $15,436,500, which were sold to
national banks at par and accrued interest, and were used as a basis for

They matured one year later and were redeemed.

Besides this power, Section 26 of the Federal Reserve Act


provides that nothing therein contained shall be construed to repeal the
parity provisions of the Act of May 14th, 1900, "and the Secretary of the
Treasury, may, for the purpose of maintaining such parity, and to strengthen
the gold reserve, borrow gold on the security of United States bonds

authorized by Section 2 of the Act last referred to, or for ono-ear god
notes bearing interest at a rate not to exceed 3_per centum per annum, or
sell the same if necessary to obtain gold".
Under the provisions of the Act of 1909, the Secrdtary has authority
to borrow $200,000,000 on certificates of indebtedness, and, for the pur-

pose of maintaining the parity of all forms of money issued or coined by
the United States and to strengthen the gold reserve, he has authority to
borrow such amount as may be necessary, without limitation.

Very sincerely yours,

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