Full text of Papers of Benjamin Strong, Jr. : Correspondence with the Treasury Department : Letters to S. Parker Gilbert, Assistant and Undersecretary of the Treasury, 1921-1923

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F.D. 12A.3 S

Federal Reserve Bank

S"-Mb/ua

District No. 2
Correspondence Files Division

P4PlIQ'S

SUBJECT

I.STRON

-roS.P. G/1-8 E-1-2r , .74)

.2., -

/1.1.3

February 114 In1.

ky dear Mr. Gilbert:

Thank you for your note ot the 10th, enclosing
copy of the Treasury Department's .5.ummary of Advancer)

under the Transportation Act.
Yours very truly,

Honorable S. P. '.3iibert, Jr.,
Treasury Department,
Xashington, D. O.
BS :=

MISC. S4.1.11111.1,-20

FEDERAL RESERVE BANK
OF NEW YORK

SENT BY

SEND TO FILES

COPY OF TELEGRAM

ktbruary 7, 1921.

Albert.
Treasury.

Vire received.

Personal and Confidential
Aosta-an you have received the nnoded information

regarding lsoal conditions 6hloh might affact times from Case. He Is ah.sent
this Teak

3trong

February 15, 1921.

Dear Mr. Gilbert:
Would you mind reading th enclosed, quite con-

fidentially, and returning It te me.

The memumadum was

prepared for my personal information, but if it would he

of service to you, i must ask you to regard it as quite
private and personal, for obvious reasons.
Yours very truly,
-

Honorable S. P. Gilbert,
Aseistant Secretary of the Treasury,
Treasury Department,
Washington, D. C
En c.
BS:MV

March 5, 1921.

Dear Mr. Gilbert:

,e7

Thank you for your note of the P3rd, and
,7
the interesting chart which accompanied it.
Yours vary truly,

Benj. !:trong,
Governor.

Honorable S. P. Gilbert,
Assistant Secretary of the Trsasury,
Washington, D. C.
BS:MM

March 'T6, 11.

My dear Ur. Gilbert:

Thalik you. for your note of the 16th, ar1 the
various enclosures.

Ishall reake an effort to do sole-

thing in thic matter right away.
Yours very truly,

Honorable S. P. Gilbert, Jr.,
Assistant Secretary of the Treaaury,
Washington, D. C.

BS:a

May 16, 1921.

Dear Mr. Gilbert:
Enclosed is a memorandum of the proceedings of the

Eighth National Foreign Trade Convention, held in Cleveland,
May 5--7, 1921.

You may already have received a copy; if not,

I hope you will read the first page and the portion of the
second page which I have marked.

Some one with sufficient foresight must exercise

some

influence upon developments from now on which may well have the

effect of making us the world's greatest selling market, and the
world's poorest buying market, simply because our costs of production

are higher than those in other parts of the world.

Yours very truly,

Honorable S. P. Gilbert, Jr.,
Assistant Secretary of the Treasury,

Treasury Department,
Washington, D. C.

Enc.

MAI 17, 1921.

Dear Mr. Gilbert:

Tbkalir you for your note of the lath instant,

eaolosing ccpy of Secretary MeIlea's letter of May I',
addressed to 3ermtor Frelingbuyeen.

Yours very truly,

Benj. Strong,
Governor.

Honorable S. P. Gilbert,Jr.,
ALeistuat Secretry of the Treasury,
Treasury Department,
D. C.
135:11i1

May 2.3, 1921.

Dem- Mr. Gilbert:

I am enclosing copy of a letter just received from Mr.
r4A-e-Sasakis, who has something to do with economic research work in
the Bank of Japan.

Please note his reference to speculatore

being alert to seize the opportunity of cheap money, etc.

Con-

ditions in Japan save gone through the same cycle of developments,
which we are experiencing, only somewhat in advance of curs, and

I have no doubt thet the results of cheap money here under preeent
conditions would be the

saraf) as

those which are apprehended in

japan.

Yours very truly,

Governor.

Honorable S. P. Gilbert, Jr.,
Aseistant Secretiiii7erthe Treasury,
Treasury Department,
Washington, D. O.
EiSsIIM"

Enc.

FERSONAL AND CONFIDENTIAL

May 23, 1921.

Dear gr. Gilbert:

I am grateful to you for your personal and confidential letter of May 21.
I have heard eomething of a -eeting of the sort described in your letter, end would

regret very much if euch a meeting were held without opportunity being afforded for
wee one representing this bank to expreee

the views which we think are material to

the determinetion of the country's policy, especially
There seem at the present time

in regard to foreign loans.

be three or four outstanding questions

in the minds of members of the Cabinet, so far as I can gather from the newspaper
reports appearing from time to time, and such statements as are made to me personally.
The-, two important ones are:

Business must be stimulated and encouraged by every possible means, and

one means will be lower discount ralese at the several Federal reserve banks.
Our export trade 'must be stimulated, and this might be brought about by
requiring

that the proceeds of loans negotiated in this market by foreign governments

or other foreign borrowers, be applied to the payment of debts owing in this country,

or to the purchase of goods in this market, and that unless this is done such foreign
loans be discouraged.

As to the first proposal, we have discussed it, and corresponded about it
at considerable length.

I can only repeat what I have previously stated, that in

my opinion rate reductions will have no effect of importance in

relieving cases of

distress, such as now exist in the agricultural section, unless the reductions are
of such character and extent as to really encourage borrowing

from

the reserve banks.

In other words, unless they encourage a period of expansion and inflation with all
the accompanying evils of speculation and extravagance.

Whet 1.6 needed is a die-

continuance of pressure to liquidate, and free extension of credit to institutions

Honorable S. P. Gilbert, Jr.

May 25, 1921.

welch need it, and will demonstrate thet they realize their duty of taking care of
clients who are embarrassed and need time in which to improve their position, as the
result of new crops made at lower costs.

I think I cannot do better than luote Bagehot's golden rule which forty or

fifty years ago effected a real revolution in banking

theught in London and has since,

more or less, determined the Bank of England's polio' under conditions eimilar to the
present.
As to the second, it appears to me that these gentlemen who advocate re-

strictions on foreign loans do not fully appreciate where the difficulties lie with
our foreign trade.

They are various and cooplicated, and probably cannot be overcome

by artificial restrictions or stimulations.
In the first plane our export trade depends upon our capacity to compete with
other producing nations, ehicb means that we must be able to produce as cheaply as

they do, or cheaper, and we will deprive ourselves of our ability to do so if we now
engage in a policy of expansion and encourage speculation so as to arrest the orderly
development of the process of readjusting production costs, particularly that part

of cost which is wages.

In the second place, one of the most serious, if net the most serious,
difficulties encountered by our export trade is the present premium on dollars, end

especially the erratic and rapid fluctuation in the foreign exchanges.

Curtailment

of borrowings by foreign governments in this market would simply have the effect of

deferring the date of restoration of normal conditions in the exchanges.

Even if

the statement is true that the proceeds of the Belgium loan was largely used to pay
for wheat in Argentina, the effect is to improve the relation of exchanges between
Argentina and this country, where the present premium of 40%, or thereabouts, on the

dollar has the effect of making it difficult, if not impossible, for Argentine
buyers of our goods to remit in payment.

The more loans ee are able to make to

foreign countries, the greater will be the relief to the exchanges, the sooner will
stable conditions be started, and the easier it will be for the citizens of other

e/'

nations to trade with us.

Honorable S. P. Gilbert, Jr.

May P3, 19P1.

If Belgium borrows in New York for the purpose of buying

wheat in Argentina, it means that they oanebuy wheat cheaper in Argentina than in this

market, ane until that wheat is marketed there will be no opportunity for Ise to sell
wheat to Belgium.

But it also means that the Argentine banks will have command of

dollars in New York with which to pay for goods already sold in Argentina, or to buy
more goods here.

To close the doors to such loans would be to seriously interfere

with the creation of just such conditions as would enabTe us to export our produce.
It seems to we that care must now be exercised not to oncourege those who

are looking to the government, that is to say, to the new adminietration, to effect
some miraculous cure in the economic eitueeion which cannot be

dminietered by

any knoen method, except it be by resorting t3 infletien with the danger of a recurrence

of all of the difficulties of the last two years.

I should hope that our government

would see the wisdom of incorporating in any progrem adopted such policies as the
following:

Ao reduction of rates 'Alice would encourage speculation.
Discontinuance of pressure upon borrowing member banks to liquidate loans

which would cause losses and hardships to borrowers.

Free extension of credit Oy reserve banks in the agricultural sections
to enable the rise croe to be mede.
Encouragement of foreign borrowing in this market without my restriction

as to the application of the proceeds.
Liberalizing the regulations of the Federal Reserve System es to acceptance

credits representing our import an export trade, particularly the lateer.
(8) The prompt funding of the debt of the allied nations to our government
present
upon liberal terms, which will defer payments of interest during theAperiod of pressure
upon the exchanges.

With this I em enclosing a little summary of testes -which may be of some

interest to you in this connection.

Honorable S. P. Gilbert, Jr.

May 73, 1921.

KM writiag you this personally and confidentially, but wish to say in

conclusion thut I believe

conference, such as the one to be held on Wednesday,

will be helpful if it produces some constructive thought along the above lines, but

w111 be distinctly harmful if it results in a lot of proposed restrictions, with the
idea that we can build a stone well around this country and look after our own

interests without regard to conditions in the rest of the world.
Your

very truly,

Benj. Strong,
Governor.

Honorable S. P. Gilbert, Jr.,
Assistant Secretary of the Treasury,
freasury Doidirtment,
Washington, D. C.
BS:MM

F. S.

Since dictating the above, I have received a telegram frow Mr. Hoover, usking

me to attend the meeting about which you wrote.

E. IL

Extracts from Bagehot's "Lombard Street."

"The reeagement or the money merket is the more difficult because, ee has been
eeriwie of internal panic and external demand for bullion cozeonly occur togetter. The foreign drain emetios the bank till; and that emetinese, and the resulting rise in the rate of discount, tend to friehten the market. The holders of
th reserve have therefore to treat two opposite maladiee at once: one requiring

stringent remedies, and eepeciel'y a rapid rise in the rate of intereet; end the
other an allevietive treatment with large and ready loans.

"Before lbe had much specific experience, it was not essy to prescribe for this
compound dieeeee; but nee we know hoe to deal with it. We must look first to the
foreign drain, and reise the rate of interest as high as may be neceseary; unless
you C.fin etoe the foreien expert, you cannot allay the domestic alarm; the Bank will

get poorer and poorer, and its poverty will protract or renew the apprehension.
A.111 at the rete of interest so laieed, the holders-- one or more--of the finel bank
reserve must lend freely. Very large loans at very high rates are the beet remedy
for the worst malady of the moeey market, skean a foreign drain le added to a
domestic drain; any notion that money is not to be had, or th-t it nay not be had
at any price, only raises elare to panic and enhances panic to madness. But though
the rule is Clear, the greatest delicacy, the finest and best skilled judgment, are
needed to deal at once with such great and central)/ evils."
"Nothing, therefore, can be sore certain than that the Bank of England has in
tele respect no peculiar privilege: that it is &limply in the position of a bank
keeping the bunking reserve of the country; tke.t it rust in time of panic do whet
all other eiailer bank must do; that in time of eenic it eust advance freely and
vigorously to the public out of the reserve.
*And with the Bent of England, as with other batiks in the sesie case, theme

advance, if they are to he wade at all, shou,d be made ea es, if possible, to obtain the object for which they are mede; the end is to stay the panic, and the advances ehould if poseible stay the panic; and for tbis! pureoee there are two rules;
"First. That these loans should only be mede at a very high rate of interest;
this will operate as a heavy fine on unreasonable timidity, eed will prevent the

greatest number of applications by eereoea who lo not recuire it.

The rate should

be raieed early in the panic, so thct the tine may be paid early; that no one may
barn:* out ef idle precaution without paying well for it; that the banking reserve
may be protected es tar as possible.

"Secondly. That at this rate these advances should be made on all good bunking

securities, and be largely es the public ask for theme The reason is plain: the
object is to stay alarm, and nothing therefore should be done to cause alarm; but
the way to cause alarm is to refuse Bowe one who has good security to offer. The
eees of this will spread in an instent through all the money merket at a moment of
terror; no one can say exactly who carries it, but in half an hour it will be carried
on all sides, and will intensify the terror everywhere. No advances indeed need be
made by which the Bank will ultimately lose.

The amount of bad business in

commercial countries is an infinitesimally mall fraction of the whole business;
that in a panic the bank or tanks holding the ultimete reserve should refuse bad
bills or bed securities will not mqee the panic really worse, the 'unsound' people
are a feeble minority, and they are afraid even to look frightened for fear their

The great majority, the majority to be protected,
!Ire the 'pound' people, the people who have good security to offer. If it is known
tilt the Bnak of England is freely advancing oa what in ordinary times is reckoned
a good security,--on wbt is then commonly pledged and easily convertible,--the
alarm of the solvent merchants and hankers will be stayed; but if securities really
good and usually convertible ,rt- refused by the Bank, the alarm will not abate, the
otter loans mdc will fail in obtaining their end, and the panic kill become worse
unsoundness may be detected.

and worse.

"It may be said that the reserve in the Banking Department will not be enough

for all such loans. If that be so, the NInking De,artment must fail; but lending
is nevertheless its best expedient,--this is the method of making itsLmoney go the
farthest, ,,nd of enabling it to get through the panic if anything will -enable it.
MakinE no loans, f.j.s we hhve seen, will ruin it; making large loans and stopping,

as we have also teen, will ruin it. The only safe plan for the Bank is the brave
plan,--to lend in a panic on every kind of current security, or every sort on which
money is ordinarily and usually lent.
it -.10 not, nothing will save it."

This policy may not cave the Bank; but if

1921

Ity floor Gilbert:
/-

I am forwarding It erourith a lotter iron

inackett, with a formidnble sot of flueetienirdrec.
V

r'e have :looked them throut and find that
pry' etim3.17 all but 0110 nre 1u171.i.thed currently, so
thin:

*they could ver7

el desired,

bp furniolled, if it vc...0

?erlit..1)s you will take The matter tql 1.7ith

the fitate Deparixiont, rind inr!teato to me 'ht pert of
re%1y thav would like to !'Le:ore mr.do, 17 any.

I havo

aoknorledged his letter and

odviood him that the inquiry 'mad be fore",.,Arded to
ashin!,:ton.

Lancorely yours.

DZIJALIIN STIUXIG,

CiPovernor

3. P. Gilbert,

t 3-o-6-rotary of the Treaoury,
Departzient,
D.

Juno 'It, 191.

COhFIDENTIAL

Dear

ir. Gilbert:
Thaak you for your confidential note of June 11.

I agrc3e with

the doubts expressed in your letLer as to the wisdom of supervision uf foreign
loans plaoad in the Aaerican 1;arket; hut I have be

un.f.er the impretieion tht,

it van unly the desire of the administration that both the State and Treasury
Departthente be advi8e6 of rieguti4tione in advance of their conclusion.

I did

not understand th:A, either department intended to take any affirmative action.
The 41aintenance of our export trade generally depends ucon foreign

credits, an4 if they al.e restricted fn any say, in the long. run it would come
out of our exports.

of busiT:ess should be encouraged and nut die-

courage, especially at a time when Verica has a surplut of products for extflC.

hen mzet of the worldowee us L.;:nsy Ezywu.,y.

lcure very truly,

Benj. Strong,
Governor.

:donorable S. P. Gilbert, Jr.,

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

Juno PO, 1221.

14 y dear Ur. Gilbert:

Thank you for your note of June 15, ia relation to the questionaaire
i-)repareO by the League of Mations.

1 hope you can get the documents back to

me, together with those Menti,aned in your letter,

'3 ail! send the batch

to Blackett, together witn some otter material euch as will enable thew to
coml-ileLe

he JA6wera.

ir fact

we may decide Lo curvlete them azid seae. them entirely un-

officialiy, and upon our own rescarsibility, *it,h an indication that they do
not come from the governwent in any wa.y, and that qe have Ifled out tbe

questione from ecurcee o1 informtion sva.iitbe to the tubilc, principally
those which we will tranazit to them Ith the documents.
`1,urs very truly,

Benj. strong,
Governor.

Honorable S. P. ialloert, Jr.,
Assistent Secretary of the Treasury,
Treasury De2artment,

lashine,ton, D. C.
BS:tiM

June 24, 1921.

iy dear Mr. Gilbert:

I have your letter of June 22, and am grateful to
you for the varioue enclosures, which I shall take plea ure
in. forwarding t

r. Blackett, with other reports which I

shall collect for his inforTation.
Yours very truly,

Benj. Strong,
Clovernor.

P. Gilbert,
Honorable
LEsistant Secretary of the Treasury.
Treasury Department,
Washington, D. C.

June 27, 1921.

Hon. S. P. Gilbert, Jr.,

Assistant Secretary of the Treasury,

!fir

Treasury Department,
Washington, D. C.

Dear Mr. Gilbert:

I thank you for the return of the economic and financial
questionnaires prepared by the League of Nations, which accovanied

your letter of June 24.
Inasmuch as it is the desire of the State Department that
no Governmental agency of the United States Government shall have any

relations directly or indirectly with the League of rations, we shall
be pleased to acquiesce to their request by not filling out the questionnaires above referred to.

Very truly yours,

Benjamin Strong,
Governor.

Jena

10P1.

; deer Mr. Gilbert:
Onle yeeterday word reached me that your nnme was before the

Senate for eonfirmation of your appointment to fill tho new effice
Under-Secretery of the Treasury.

1 eieh I might heee teen tbc first

to coregratulete you ueoa this appointment and to cend yau my good wishes

er succese.

To be euite nendid, I feel thet Secretary Mellon is to

be more congratulated theJ1 you, and he certninly ha e sheen god sense

in asking you to accept the office.

If the appointment is intended to

be permenent, it will be all. the more agreeable end satisfactory to ell
of us at the Federal Reeerve Bank in the aecurance that we rill continue
our Treasury Department reletions PO larsely with you.

You do not need

any assurance from me, or from my asecciatee in the bank, of our earnest

desire to do everything in our power to asniet you in your work.

call upon us without hesitation or limit.
With my very best wishes,

Sincerely yours,

honorable S. P. GLIjegezIA.Jr.,

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

Please

July 15, 19?1.

FERSoNAL

Dear Mr. Gilbert:

I *46 particularly pleased to have your note of
July 15, in regard. to the Comptroller's addreases.

Of course,

we have a, great many things to occupy our time here, but I am
debatin44sdom of writing an article for one of the financial

papers, or possibly the New York Timee, dealing specifically

with some of these ridiculous notions, of which the Comptroller's
plan is a notable example.
Yours very truly,

Honorable S. P. Giplut, Jr.,

Undersecretary of fEe Treasury,
Treasury Department,
Washington, D. C.
BS:Mk

July 18, 1921,
PERSAAL

Dear

r. Gilbert:
Replying to your personal nets of the 18th, I fear it

would be imposeible for me to prepare the article until such
later date that my temperature will have been reduced to a

point where interest in the enterprise 16 la6t.
shalawait until cooler weather comec.

/ours very truly,

Honorable S. F. Gilbert, Jr.,
Undersecretary 3f tgTreasury,
Treasury Department,
Washington, D. C.
ES:R*1

Certainly i

Vaanington, D. O.
August 9, 1921.

My dear Mr. Gilbert:
My friend, mipasonAlt,

an, Governor of the Bank of Aigland,

is on his vay to this ooWii.frroi
Steamship Celtic, accempanied by
one of the Directors of the Bank of 114and, Sir Ch2xles Addis.
They
arc coming for the purpose of visiting with me and discussine7 matters of
importance to the Federal Reserve Bank and to the Bank of 'inland, which
is our correspondent in London.

Because of the maw courtesies Nelich have bean extended to

by these gentlemen, aid, through them, by the British Government, bn the
occasion of my recent visits to London, I m exceedingly anxious that
they should be suitably received on their arrival in Now York; that
every facility be Accorded them to disembark without inconvenience and
delay due to the eMamination of luggage, etc; and especially that I be
afforded opportunity to go dawn end meet the Celtic at cuarantine on the
sane boat which carries the inspeetoes and newspa)er men.

The Celtic will probably arrive, as I understand, next sunday orlonday, will you, therefore, be good enought to give the necessary airections to enable the above requeet to be 00mAied with throu6e.
the Treasury Officials in New York.
Governor Nonnon and Sir Charles Addis are making this visit

quite unofficially and quietly, and do not wish their Dresence to be
advertised.
Thanking you in anticipation, I am,

Sincerely years,

-ler Secretary of the Treasury,
Alineten, D. C.

BS.YSB

Signed in Mr. Otrong's absence.

August 18, 1921.

Dear Mr. Gilbert:

I thank you for your letter of August 10, enclosing
copy of a letter written to Honorable George W. Aldridge,
Collector of the Port, in connection with the arrival of Mr.
Montagu C. Norman and Sir Charles Addis.

Mr. Aldridge was good enough to send me a Revenue

cutter pass to meet the Celtic at quarrantine, and has also
given instructions to expedite the landing of Mr.

Norman and

Sir Addis on their arrival.
I am indeed grateful to you for having attended to

this matter for me.
Yours sincerely,

Honorable S. P. CIAlbertJr.,
Under Secretary of the Treasury,
Treasury Department,
Washington, D. C.
18:VM

September 14, 1921.

Dear Mr. Gilbert:

Sometime ago Mr. Casenave, the French /laced Representative in this

country, asked me if I would be able to arrange for one of the representatives
of the French Government to wake some inquiries as to the methods eq,loyed by

our government in the administration of the income tax laws.

Today I have

received a call from Mr. Jean de Hincquesen, Inspector of Finance, who is also the
accredited

representative of the Bank of

ascertain just what arrangements of this

France in New York, who

desires to

character can be made.

I have told him that to enable him to make such a study it would be
necessary to get certain permits from

the officers of the

Treasury, and I am

writing to ineuire whether it would be eossible for you to give such authorities

to us or to the Collector

of Internal Revenue at New York, as will enable him

to wake a little study of our methods on the ground.

He wishes at the outset to obtain information erincipally upon the
following points:

(1) How income tax returns are made so as to insure

body of the tax payers
(?)

that

e large

do not escape.

How the actual collection of the funds is effected.

How the transfers of the funds to the credit of the Treasury are
made.

How delinquent tax payers or tax

debtors are discovered and

checked up.
After obtaining some information on these eointe, he
some further information

checked and controlled.

with regard

will wish to have

to the methods by which expenditures are

September 14, 1021.

Mr. de Rincqueeen advises me that under their new Income tax law
they are faced with a good many new problems which puzzle them, and further-

more, they feel their present machinery is antiquated and inadequate or the
purpose of administrating the ?reeent law.

His government will be deeply

grateful for any assistance which we can render them.

I would greatly appreciate favorable action upon this reeuest, and,

of course, some of the men in this bank would be glad to aseist in the inquiry

if you think it desirable that they should do so.
Tours very truly,

Honorable S. F. Gilbert,
Under Secretary of the Treasury,
Treasury Department,
Vaehington,D. C.
BS:11F,i

.:tishington, D. C., October 24, 1921.

Dear Ur. Gilbert:

I have just received from the office Mr. F. R. Varderlip's
letter addresed to -Mr. H. Y. Benedict of New ',Park pointing out that

Mr. Vandorlip has encouraged the tustrian Government to send some
representatives to this country to attempt some negotiations with
regard

to the ,Ustrian debt to-the United States

I am very sorry that this has transpired.

Grain CluRration.

It aeons to me that the

visit can be productive of no good until the so-called "Funding
Bill" passes and that, I understand, is not in such shape at this
time

that
'

any prophecy can be made as to its probable passage.
I am writing :1°. Benedict as per enclosed copy and roUld

be glad to have your sugrestions of anything further that occurs to
you and should'be.done.

Very truly yours,

Governor.

Hon. S. F. Gilbert, Jr.,
rider Secretary of the Treasury,
shington,D.

Enclosure.

October Z..1, 1921.

Dear Mr. Gilbert:

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

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

'utai 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.

I am 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 S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Treasury Department,
Washington, D. C.
BS:MM

October lilt 1921.

Dear Mr. Gilbert:

With this I at enclosing a copy of a letter of
introduction which I have just sent to my friend, kr. Eigo

Fukai, which will explain itself.

His quarters while in

Rashington will be with the Japanese Delegation to the Conference on Limitation of Ammament.

Mr. Fukai wax 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 when
a young man was private secretary to Marquis Matzukata.

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

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

are able

render him during his etay in Washington..

Thanking you in anticipation, and with cordial regards, believe me,
Yours very truly,

Honorable S. P. Gilbert, jr.,

Under Secretary of the Treasury,
Treasury Department,

taehington, D. C.

Enc..

November 1, 1921.

Dear Mr. Gilbert:

The enclosed correspondence in regard to Mr. Thomas
R. Lill explains itself.

Mr. Lill

has formerly been assoc-

iated with our Mr. Oakey, whose opinion I would accept without
reserve as to Mr. Lill's

qualifications.

If the Philippine Government can get a few men of
that character in the service, they will be
difficulties

will

be much lessened.
Yours very truly,

Honorable S.

P. Gilbert, Jr.,
Under Secretary of the Treasury,
Treasury Department,
Washington, D. C.
BS:titM

En c.

fortunate and

our

November 2, 1921.

My dear Mr. Gilbert:

Thank you for writing me under date of October 29,

enclosing copy of your letter to Mr. Ochs.

I had already

read the article, and had it in mind to either talk with Mr.
Noyes or take luncheon, under a standing invitation, with
the editorial stafP of the New York Times, and discuss these

matters, when your letter arrived.
After our telephone conversation this morning, I

assume that there is nothing further that you care to have
me do just now; but I stand ready whenever I hear from you.
Yours sincerely,

Honorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,

Treasury Department,
Washington, D. C.
BS: MM

FEDERAL RESERVE BANK
OF NEW

RK
November 2, 1921.

PERSONAL

Dear Mr. Gilbert:

ential reply to your inquiry of November let about

This is a.voulT conf

It was only to-day that I found opportunity to discuss the matter

Mr. Rounds.

with my associates, owing to my continued absence.

the moment, and especially because of

We are all agreed that at

a program developed at the recent Conference

of Governors which especially requires Mr.

Rounds, attention, it is quite out of

the question for us to spare him either temporarily or permanently.

Of course,

this does not mean that we will not expect you to make him an offer of a position
if you feel that you need him, and have a position which he would be interested in

considering; but as for letting him go in the expectation of taking him back at
the end of a period, I think that just now would be out of the question, as we
would have to replace h'm with some one righ

awa .
,/

.I hope you will

t mind my making this ubject the text for 9/letter on

Y/'

,y( about.

write, or speak to

a matter which it has trig been in my mind
Please understand thit these suggestions
the official attViude of the

e.,47--- Itegi_dutiefiz

bank in

re purely personal,

aspect to its duties

not represent
Fiscal Agent, and

al views which I

are only per

more intim
United

with reference to the

personal and nofficial relations ben the Treasury of the
and its officers.

atee and this
It has bee

eaeury of the

led to express to y

our policy ever sine

we were appointed Fiscal Agent of the

ited States, (and rqp4ated instructions have been given by me
c(C!

to my associates emphasizing the mportance of the policy) of renOefing every
possible assistance to the
authorized by law, or not.

reasury, whether it appeared to be required or
This includes lending men when their services are

Honorable S. P. Gilbert, Jr.

November 2, 1921.

C)needed, furnishing information, advice, assistance, support, and comfort, defendina. the Treasury against its enemies and critics, and in every possible way in

our powerprumAing its interest.

We intend to continue to do that.

On the other

hand, there has been a distinct chill to my enthusiasm for this policy, and to
that of some of my associates, because during the period when the Federal Reserve

System was being attacked, abused and misrepresented, there has not been one
whisper or statement emanating from the Treasury Department of the United States,
either its present officials or those that preceded them, in defense of the System.

The difficulties which the reserve banks are now encountering are entirely the
outgrowth of the situations created by the war, and of the attitude of cooperation,

and the policy of subordination, which the reserve banks willingly and enthusiastically
pursuea during the war and immediately subsequent to it.

Neither Mr. McAdoo,

Mr. Houston, Mr. Glass, Mr. Leffingwell, nor any present officer of the Treasury,

so far as I am aware, has publicly or privately in any influential or important way
undertaken to share the responsibility with the System, or defend it against its
It is suggested to my mind that

critics.

inasmuch as

the present officers of the

Treasury naturally had no responsibility for the policies of that day, they are not
called upon to defend those policies.

That may well be true; but I feel, on the

other hand, that when the integrity and good faith of the officers and directors
of this bank aneattacked, as they have been, that some affirmative position might
have been taken by the Treasury Department, because

those matters the Treasury

is well aware of the facts, whether under the present or former administration.

In my present frame of mind, I am beginning to believe that we are
subject to two things; as to the

old

administration,

its

disposition to

let

the critics place the blame, if any blame can be placed, upon the Federal Reserve
System alone, and not to assume any share of it; as to the present administration,
to wait

and see what the outcome is before deciding to defend the System or not.

November 2, 1921.

It always has been, and always will be, my policy to get a matter of this

sort out of my mind

and out of my system, frankly, when it arises, and I an only

writing this letter after long deliberation; but I would be the last one to ask for
any defense in my own behalf.

I am not doing so no

because the occasion for it

is passed; but 1 am inclined to think that it is a matter which you and your
associates in the Treasury will need to think about some day, if you expect to

maintain the efficiency of the service which is now rendered to the Treasury by
the reserve banks, and especially by this bank.

You will not get it if the type

of men who now run the bank leave its service for other institutions; and they will
do so if this movement to attack the bank's management has any measure of success.

Three of our officers have within the last week or ten days mentioned
to me the possibility of their leaving in case their future in the bank is what

would be indicated by the unwillingness of its friends to support it, and at least
two of them are the men upon whom you depend more than any others for the business
which we transact for the Treasury.
This letter is for your own eye and no other, and I believe especially
you will understand the friendly spirit in

whia

it is written.

Yours very truly,

Honorable S. P. Gilbert, Jr.,
Under Secretary of the Treasury,
Treasury Department,
Washington, D. C.
BS:MM

November 9, 1921-

Dear Mr. Gilbert:

The enclosed personal

and confidential memorandum

In regard to Mr. Kenneth Lord may be worth considering in
connection with the

me, and

Mr.

Savings

Morgan will

Division.

If so, please advise

be very glad to interview kr. Lord.
Yours very truly,

Honorable S. P...likbert,

Jr.,

Under Secretary-Trtreasury,
Treasury Department,
Washington, D. C.
Enc.
135: MM

'Fs

"'leer

1-0."(

ecember 7, 1921
Ct

(-'41

Dear Mr. Gilbert:

I tIlank you for your letter of December 5, enclosing copy
Of the address of Sir H. Strakosh to the Sef.x)nd Ap,c,ornbly Commission

of the League of :iations on the work or the Financial Committee, and
copy c f the recommendations of the International Financial Confer-nee at Brut..zsels to which reference in made in the address.

I shall be pleased to read the papers mentioned and apprecyour courtesy in forwarding them to me.
Yours very truly,,

Honorable S. P. Gilbert, Jr.,

Under Secrettp.ry tirthe TrosSury,
Treasury Department,
'Washington, D. C.
Gb.MA

December 9, 1921.

Dear Mr. Gilbert:

The copy of the Annual Report of the Secretary

of the Treasury on the state of the Finances for the
fiscal year ended June 30, 1221, has been received, together with your letter of December 7, for which accept
thanks.

It will give me pleasure to read the report,
and I am glad to have thp same for the information it
contains.

Yours very truly,

Benj. Stroag,
Governor.

Honorable S. P. Gilbert, Jr.,
Under Secretary 'Tr' rirIteasury,
Treasury De2artment,
Washington, D. C.
GB.WM

(74 4,-4-

ice,i.,>
-

COP/ OF TELEGRAM

January 31, -12k.

S. P. Gilbert
Washington.
heferring to our corresponaence with regard
torecent developments tenaing to classify Victory notes as
obligations which are to be traaea in in the short-term money
market, it occurs to me that this program might be further
accelerated if you were tolequest the various Feaeral reserve
banks in whose aistricts there is now a real open market for
short-term Treasury certificates, etc., to also make similar
temporary aavances to dealers against Victory notes as well
as against short-term certificates.

CASE.

February 3, 1922.

Dear Mr. Gilbert:

I was orly able yesteriay to r,hd Sir Henry Strako.los
address,

y u tare icod enough to send me last December.

know hil quite well.
fellow, hnd

He is a very unusual and exceedinEly able

if he, and others like him, woull only keep playing on

this atcpr it may he that com-on sense will ultimately prevail in
some of these matters abroad.

Teu:s very truly,

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

BS.MM

February 9, 19217.

PERSONAL

Dear Mr. Gilbert:

Last month the directors of the Federal Reserve Bank of
lanes appointed a new Governor in place of Van 7sndt.
cumstances are fully known to Governor Harding.

The cir-

Van Xendt had

eome experience some years ego in the Ptilippinee ir the Treasury
Department under kr. Tsft.

He has been a bank examiner, bank

officer, and an officer of the Federal Reserve Bank of Dallas.
He is 50 3geers old, eltheugh s man of young appeerance and much
energy.

The members of the Federal Reeerve Board are ew,re of

Lis capacities.
Philippines?

Do you thin V he might be of eervloe in the

He is not acqueinted with foreign exchange, but

has a splendid groundwork in

general banking and finance.

Yours very truly,

Honorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Treasury Department,
Washington, D. C.
BS. MM

February 18, 1922.

Dear sir.

Gilbert:

Thank you for your note of the 17th in regard
to former Governor Van Zandt.
YOurs sincerely,

Honorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,

Treasury Department,
Nashington, D. C.
ES.MM

March 15, 192?.
Governor Strong

I referred the attached correspondence
to Mr. akey for perusal during your absence.

G. B.

AWcans in Phili inesW
Oppose Maj.Gen. McIntyre
[Special Cable Dispatch)

01 ILA, February 17.The American
Chamber of Commerce has petitioned
Gov. Gen.

.President Harding through
to remove Major Gen. Frank
ntyre as chief of the Bureau of
ular Affairs. It is alleged that he
Incompetent to cope with big issues
antagonizes sentiment here, and
t he is out of harmony with Gen.
od. According to Judge Williams's
egations in the Chamber of CornGen.
' rce, published in full to-day, have
Intyre's recommendations
judgn often contrary to the best
nt of business interests and offi.

dom here.
Ilod
Gen. Wood did not know of the
Gen.

chamber's intention to denounce
McIntyre and merely forwarded the
resolutions without comment.
(Copyright, 1922. by the Public Ledger Co.)

FEDERAL RESERVE BANK
OF NEW TORII

//L-' TIME,/

TO ,.

INTEROFFICE

ROUTE SLIP
7

OFFICE SERVICE
MESSENGER SECTION

CI TE
.7-...

/--7--c,

7..,

REMAR

IDEPARTMENT
DIVISION
SECTION

FROM
N. B.

DEPARTMENT
DIVISION
SECTION

USE THIS FORM INST6%0 'OF OFFI E ENVELOPE WHEN POSSIBLE.

TO INSURE PROMPT AND ACCURATE DELIVERY ALL COMMUNICATIONS SHOULD BE DISTINCTLY LABELED

Ae.

ANgamummassaaasas_

larch 15,

My dear Mr. Gilbert:

I thank you for your letter of March 11, enclosing

copy of letter from the Bureau of Insular Affairs of the lar
Department, with respect to Mr. Thomas R. Lill.

I note that

Mr. Lill's services can not be utilized for the present owing
to no vacancy existing.
Yours very truly,

Honorable S. P. Gilbert, Jr.,
Under Secretary Ortte'lreasury,
Treasury Department,
Yashington, D. 0.
.MM

FEDERAL RESERVE BANK
OF NEW YORK

PERSONAL

April 21, 1922.

Dear Mr. Gilbert:

This is 8 very personal and private communication to convey

to you my reply to LeffingwelrrrieNcer of April 15.
is too vigorous, please rend his let

If you think it

gain, which I enclose.

would like to have his letter back,

as my reply.

I feel about Leffingwell's comments somewhat as I feel about

that executive order abo t payinQut
requires consultati4n and
deal better to have

i1tie

sold,

that in a situation which

amount of give and take, it is a great

isculion before a commitment is made,

either of opinion or )?,ction

do you feel about it?
Sincerely,

Honorable S. P. Gilbert, Jr.,
Under Secretary of the Treasury,
Treasury Department,
Nashington, D. C.

BS.MM
encs.

May 17, 1927,.

Dear Mr. Gilbert:

This is to acknoaledge receipt and to thank

you

for your latter of May 1, a:7pending copy of a letter dated
May 14, addressed to you by General McIntyre mith respect

to the possibility of an avointment in the Philippine
'National Bank for Mr. Van Zandt.

Ycurs very truly,

Benj. Strong,
Governor.

Honorable S. P. Gilbert Jr.,
Under Secretary of the Treasury,
Treasury Department,
Nashington, D. C
GB.MM

May 19, 1922.

PRIVATE AND CONFIDENTIAL:

Dear Mr. Gilbert:

So far se I can gather, there is some chance that the

British Government might step
interest on the debt.

forward quite promptly

If they do, you are bound to have a

bonus bill.

Very truly yours,

Honorable S. P. Gilbert, Jr.,
Under Secretary of the Treasury,
Wachington, D. C.

`f3S.MSB

and pay

May 25, 1922.

PrF.F.7,0F.AL ARP CONFIDENTIAL

!Iy. doer tir. Gilbert:
Thank You for wur cf the 20th-

T hve alrody read the

7:7ecretry's letter t.) 5'AlwAor VcCumber, f...nd of course reallTe tivt there

deficit notwitheindinj .11.r.t may be p1i on ferci;7n lonus.
Cr' the other hqnd, the mere r7ct cr nn;
:v4tion
pn0

;'rom

f,,ayment

pa.yxente on th(,,, princip,l, or rt least what mav be roal.iae

sale of ferei,f, g*vernment bonds, will 'e
Very truly yours,

Governor.

iionorabie S. P. Gilbert, Jr.,
Pnder f3ecretexy t-f thc, Treury,
Treasury Departwnt,
ife17.Angton, r. c.

be cocfir-

f the Ire'As c frequontly oY.preseed that the intere7it on the losne

incoTe cut cf which bonus liabilities mf4y be met.

>4'

nes7

r.n.cr,,Ire-4 source of

June

PERSONAL AND C3NFIDENT1AL

1912.

Dear Ir. Gilbert:
I have been catchilg 11,7 with your correspondence

tb v-r. Cass in regard

to Treasury financing, and have had more than one talk with Hr. Coas so as to
familiarise myself with ycur ViAfe and his as they havo developed.

Tt is always danilerous to prophesy, but good financint; involves a forsard

vision, an I

not
r1tir:E711 oemment specifically upon your imgrum, ;hie 1rr. Case

lenetb, but to point out a few peculiarities of our prosent situation

has dons

sith which T. believe people 5,re not generally familiar.
PlEASP cc:molder this elec an acknowledgment of your telegram just received

advising of the Imminence of thr announcement of the new offering.

Under our Americen bank5ng system prior to the intronucti.') of the Federal
Reserve Syster, times of liquidation and debt paying were accompanied by a large
accumulatimn of surplus ban} reserver throughout the United States, prioci17ally

carried by all or the tanks mf the ocuntry with their recorve agents.

In those

days there was very little borrowing by any bark from any other Lank, the maximum

at no time, I believe, exceeding-Or millions.

Those surplus tank re,serves

resulted in ths establishment of abnormally low rates of interest in the market
for all kirds of tank paper, and the abnormal ease of money mas one of the direct

results attributable

our inflexible system, just as much as vere the abnormally

high raton of interest which at times developed shen tank reserves became

deficient.
This has alfer changed in revolutionary fashion.

There is no such

thing in this country to-day as a great surplus of tank reserves, outside of that

Honorable S. P. Gilbert, Jr.,
held by the reserve banks.

June 5, 1222.

As liquidation produced free funds in the hands of the

banks of the country, those free funds were applied to repaying borromin,..78, prin-

The result of this change in our affairs is

cipally from the reserve hanks.
perfectly obvious.

Rates are not liable to go as abnormally low as under the old

system any more than they are likely to go abnormally high.
You may safely conclude, therefore, that %lay great further ease of money

can snly result from oils ef two things: one would be a further gave of lieuidation,
which me do not now anticipate mill occur; and the other would be a general release

of Federal reserve tank credit, either through large ievesta nts anaer section 14,
or redeeine the rates charged

meters under eecticn 15.

My ?arsenal opinion

is that ee have abeet seen the belies, of interemt rates, with the eceeible exception

of a short erled thie noraer ven

may hove acme mid-summer dullnees of business

that would cause a floe of funds to lee York: but I hardly see hoe that could last
beyond the harveet season.

The point of th.:a letter is to indicate to you my belief that it mould be
mise be do as large an amount of financing (I refer °specially to the refunding
of Victorys by exchange for s. nem issue of Treasury notes)

at the present time as

is possible.
A b I have reocatedly etatcd to you, were we to see a run-away speculation

not only in securities but in commcditiee, I think it mould be the duty of the
Federal reserve banks either to advance their rates (the influence of which would

be alight) or to let their abort-time investments run off (the influence of which
eould be considerable).

I sae many little indications that the great surplus ef investment funds
in the country luta been pretty well absorbed for the moment.

Ne see many indica-

and

tions that business is reviving,Aagricultural, industrial and commercial demands for

credit are likely to increase.

le have seen an enormous increase in the stock

June 5, 1922.

exchange loan account, and we have seen some tendency for new issues of securities

to back up in the hands of the distributers.
a warning that with some

Does not this constitute in itself

t5 billions maturing within the next year, that that

portion made up of Victory

notes,

P ay

t2 1/2 billions, should be gotten out of the

m ay to a large extent now?

Any prophecy as to the future is dangerous, and I ask yu to accept

this with reserve on that account, but as the best expression as to tho 2uture
course of the money market that I am capable just now of giving you.
Very truly yc,urs,

Benj. Strung,
Governor.

Honorable
P. Gilbert, Jr.,
Under Secretary of the Tre4..sury,
Treasury Depai-tment,
Nashington, D. C.

BSAM

PERSONAL AND CONFIDENTIAL

June 12, 19*2.

Dear Mr. Gilbert:

Your note of June 10 is just received, and I am most grateful to you for
keeping me posted about the matter referred to.
I am hoping that the outcome will be all right.

If you feel disposed

to do so I hope you *ill take the opportunity of saying to Mr. Mellon that if
Governor Harding is reappointed to his present position, I believe that the
country and the System mill be greatly benefited by appointing Mr. Howard, President
of the Federation of Farm Bureaus, as a member of the Federal Reserve Board.
Nhile that organization has sometimes been regarded as over-critical of

the

Federal Reserve System, I believe it to be a responsible and conservative

organization of

the agricultural interests of the

the guidance of men of prudence and misdom.

learn of Mr. Bogard convincec me

President

to be conducted under

That I have been able recently to

that he would be a useful

a sound representative spokesman for the
is that in case the

country and

agricultural

member of the Board and

interests.

My only

should take this view, that Mr. Pk-ward

induced to accept, and if the matter reaches that

ear

could not be

stage I think there are members

of the Farm Bureau organization who mould to-:day be glad to urge him to accept

if they

4ere given the opportunity.

Again thank you

for your letter.

Very truly yours,

Benj. Strong,

Governor.

Honorable S. P.

Gilbert, Jr.,
Under Secretary of the Treasury,
Treasury Department,
Nashington, D. C.

June 19, 191?.

PERSONAL

My dear Gilbert:

I have read the newspaper accounts of what transpired in connection

.c.rith the attempt to introduce political appointments into the Treasury, with

concern as veil ae ith deep interest and finally with the g.reatest apprecigtion of the stand -which Mr. Mellon has taken.

I do not like b.:: Trite letters en matters of this sort, as sometimes

they are misunderstood, especially as

nave no desire to curry favor with a

Chief for whom my admiration is constantly growing. If, however, vi u think

that he would understand such a letter, please hand him the enclosed - otherwise be good enough to teaif it up.

Of course, it le quite private and

confidenti al.
Let ri,o add that what I am writing 11_, r. Ae1lon is equally addressed

to you.

yours very truly,

Honorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Treasury Department,

ashington, D. C.

b,S.MM

enc.

is iv
%cc...AA I"' 41"

PERSCINAL

June TT, 19??.

Dear kr. Gilbert:

Replying to your note

to meke a fee reflections.

of the 2eth.

I knot that you want them to be frank, and I greatly

apereciate your giving ee u chance
possible, and

Your note affords me the opportunity

disclaiming any

to write you.

To make them as brief as

desire to write an address

for you,

they are the

following:

In varying degree for sometime past I have feared the development of
this "soft" money movement, and personally believe

sooner

that this Administration muct

or later come out definitely in oppostion to these demands to debauch our
This mill

monetary system.

be an opportunity for you to do so in a part of the

country where the sentiments you express may not be very popular.
I

by Senator
to meet

this

ern convinced that the principles contained in the bills introduced

Lenroot and

the needs of

congressman Anderson

are the ones which are

the agricultural people

statement then I would

suegest that

ef the iest.

separate eystem for the Parmer, but simply

scheme, it drave money

from the capital

(a)

the simplest

It creates no net

renders the present existing

for the farmers benefit.

agencies more effective

If you agree with

the plan be expressed in

language and that emphasis be placed upon twe points:

best designed

(b) Ey introduoing

centers, that is,

credit
the

from the centers

debenture
where

there ie a surplus of credit, to the agricultural districts where there is a
shortage of credit, and eill thereby release a certain amount of local bank credit
now needed for

the local

merchant and general berm-er ehe

pay that he regards as excessive interest

rates.

times is required to

Honorable S.

P. Gilbert, Jr.

June 37, 19?2.

My debasement of the currency is all be the advantage of the large
producer, and all to the disadvantage of the email producer and the laborer.

This

is especially true of the laborer. Oen inflation occurs, prices rise, but wages
lag behind. The laboring man gets his share, so to speak, of the inflated values
through increases in gages, which generally necessitate strikes, and a certain

lith his wages higher he sill enjoy a short period of

amount of suffering.

artificial prosperity ellen he can indulge in extravagance; then the day of reckoning
comes with a business reaction that thross him out of employment.

He suffers

He is the last to be benefitted shea prices are rising, and the first

both eaye.

to be thrown out of empleyment when rices collapse.

Edison's first question was to ask -what eeuld be the value or\gold if

the principal banking nations of the erld demonetized their currencies. bffhand,
many pecple were inclined to answer that gold would find a certain level of vein*,

depending upon its usefnallneee in the arts, etc., and the extent of the dleMand fr

it, implying thet it would be at a discount.

The question is most misleading.

Measured by ehat standard of value eeuld it be at a discount?
4

nee currency which was substituted for demonetized gold i

Obviously, in any

The fact is, however,

that gold ould probably instantly go to a great premium and the new currency to
a great discount.

Gold delinot acquire its value through the coinage lags of

the various n lionsIwhich simply fixed a standard as to the quantity of gold in a

The value of gold is traditional - historical.

given coin.

Through many

centuries, generation after generation of human beings have learned by experience
the

that gold i77ne article in the world which alwayc seems to retain purchasing
power; ehereas other kinds of currency at one time or another have depreciate 0 -when
measured in gold values.

The instinct to hoard gold and to put savings into

gold eould be stimulated by any such proposal as that of Edison or Ford.

Gold

would go to a prenium, the nee currency to a discount, and the utmost confusion

would arise in prices.

The very effort to stabilize prices by the issue of so-

called"energy currency" or "warehouse currency"

currency values that can be imagined.

ould result in the most unstable

June ?7,
5.

'?ere I making such an address (although X presume you could not take

this eosition) I would go as far as I dared in expreseine sympathy with the position
of those members or Congress who are commonly called the Farm Bloc.

I think some

o:! the things that they have proposed are fantastic, but they do represent a constituency that hae endured a period of real suffering ead distress and they cannot
be blamed for making efforts, even though some of them are misguided, to help

their people cut.

Further than thet, I think their methods have in eome instances

been wrong - but their purpose, that is to afford relief to their on constituency,
is beyond challenge.

Finally, I ar frank to clay that I think that an address of this
character to such an audience - or at least in that section of the country - is
filled with gun powder, and being made by

officer of the Government, and a high

one at that, aill have e considerable element of political Interpretation given
to it which,cannot be .voided.

I eieh you success in preparing the address, and would hate to face the
task myself.

Good luck to you.

Yours very truly,

40noreble S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Treasury Department,

lashington, D. C.
BS.MM

July ?,e, 1922.

PRIVATE AND CONFIDENTIAL

.. 3 :it-

Mr. Gilbert:

Enclosed are the figures indicating the amount of tiorrovings
at this bank by veeks from November 30, 1921 to date, divided-so Fie
to

bo4 loans to all of our member banks, loans to all :lel York City
I.

banks, and loans to those mhich ire claw-48.e 4911 Street banks.

The

daily figures you already have, and I hope in satisfactory form.
Yours very truly,

Benj. Strong,
Governor.

kionorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Treasury Department,

lashington, D. C.

en c.

Loans of the Federal Reserve Bank of New York as of close of business on
Wednesday of each week) from Nov. 50, 1921 to July 19, 1922,

the latest date for which weekly figures are available.

(In millions of dollars)
Discount
Rate

Date
1921
.
Nov.
Dec.
Dec.
Dec.
Dec.

1922.

Jan.
Jan.
Jan.
Jan.

Feb.
Feb.
Feb.
Feb.
Mar.
Mar.
Mar.
Mar.
Mar.
Apr.
Apr.
Apr.
Apr.
May
May
May
May
May

All Net York
City Banks

To Wall Streets
Banks

21
28

125
148
135
157
131

103
122
107
135
116

199

125

111

11
18
25
1
8
15
21
1
8
16
22

164
144

85
74

118
119
155
140
101
90
68
64
69
74
88
66

19
26
5

Si.

47
88

48
45
54
48
39

4 1/2

29
5

17
24
31

July 12
July

Banks
227
214
238
213

June 7
June 14
June 21
June 28

July

To all Member

200

42
54

108
74
94

84
59

96
83
43
53

14
12
20

42
25

28
9
8
25
8
8
9

7
52
77
47
72

48
45
67
65
51
17
1

o
2

11.5
31.5
11.5
15
o
213

o
o

18.5
o
o
0
o
41
58
413

*Banks described as "Wall St. Banks," are those which make loans to Stook Exchange
Brokers; and excludes strictly commercial banks and trust companies which
do no "Wall St." business.

to Nadi Street Banks each day fro november 3, 1921, when thts.
discount rate of the Federal Reserve Bank of new York W416 reduced from 5 per cent to

4-1/2 !e6r Cent, to June 22, 1922, Naen tde rate waa reduced to 4 per cent, and froui
June 22nd to July 24th.*
L4o,ans

in kdi ,ions

Wa te

of Do] '

il*Fi

Die-

ut
cot

Rate

1921

in 1-71.7
a i ons
of 1.4:lars

it ts

:
:
:

1921

count
li tte

Nov. 3

85.3

Dec. 19

100.4
97.

18.

109.

:
:

10
12

95.

22
23
24

14
IF
16
17
18

19
21

23
25
26
28
29
30

4-1/2

87.5
88.5

80.

80.1

120.
139.2
137.8
124.9
113.1
108.0
115.1
112.5
100.8
100.3
103.4

:
:
:
:
:

2
3

5
8
7
8
9
10
12

13
14
15

16
17

50
31

6:7
1r7

115.8
102.3
83.5
118.3

1922

Jan.

3
4

117.8

:
:

11(1)1i:;,

:
:

108. E
105.4
104.5

101.
143.

9
10
11
12

139

128.8
128.9
122.2
130.3
126.5
136.2
139.1
127.4
107.1
105.5
95.5
97.6

14
16

Led.

27
28
29

101.7
120.
133.5
168.4
103.9

95.5
84.9
89.2
75.9
59.4

;36:5

18
19

74.2

20
21

23
24
25
25
27
28

1,3
0:1
47
85.2
81.5
88.4

;

48.
36.7
53.9
50.9
55.7

48.1

..
:

4-1/2

-..can3 to 1111 Street BInks etca dty fro November 3, 1921, waen tae
discount rite of the Federal Reserve BInk of New York was reauced from 5 per cont to
4-1/2 per cent, tc June 22, 1922, ,yaen the rate was re(luced to 4 per tent, and from
June 22nd to July 24ta.* (Conttd)
Lo-..na

Date

in Millions

of Lolltra

Discount
Rate

:
:

Date

P443-

in Millions

count
Rate

of lioliars

1922

-,.01,148

1922

Feb. 1
40 .

3
4

a
7
8
g

10
11
14
15

16
17
18

20
21

75.256.4
70.5
70.
67.2
15.3
20.8 -

Mar. 19

:
:

20
21
22
23
24
25

:
-

:
:
:

12.7

54.3_
54.8 28.7
15.21.8
9.9
31.4-

:
.

31.4,

49.
18.3

27
28

:
:

23
0r.
.....

4-1/2

43.
58.

27
28
29
30

Apr.

17.

28.8
00.8
9.
11.5
25.

2.3

27.
31.

lg.

31.5

8
7

38.

17.1.

0.
0.
0.
2.
40.

10
11

34.8
29.5
27.
24.

11.5
Mar.

2
3
4
a
7

8
9

10
11

le.
0.

10.
11.
1.
1.

0.
7.5

7.8.

10.

14.

16
17

.
:
:
:
:
:
:
:

0.
0.
0.

13
14
15

25.
9.
15.

17
18

21.7

21,
22
24
26
28
27
28

29.
:

10.
13.

0.
0.
5.

0.
0.
0.
15.2
8.

-111[11111.-

°NNW'

-WW1.1,11,

Lo Nail Street BAnks oaten diy from hdvaJiber 5, 1921, when tae
discd,,nt riteof tae FederkiLl Reserve Bink of fiew 'fork was reduced from 5 per cent to
4-1/2 per cent, to June 22, 1922, when tae rate wAs reduced to 4 per cent, And from
June 22nd to Jul4 24th.* (Canton)

..-in Miiiions
,...004s

DAte

of Doliars

Diecount

Date

RAte

uoille
in MilLiOn8

of LoLivs

Diacount
Rate

4-1/2

1922

10.
20.

'June

2
w
d
4

14
15

0.
0.

24.4

17
18
19

20
I;

10
11
12
15

14
16
16
17

18
19

20
21
22
23
24
25
28
27
29
31

Juno

0.
0.
o.
0.
0.
0.
0.
0.
0.
o.
0.
0.
0.

29
30

: July

11.7

:
:

:
:
:
:

:
:

17
18
19

47
l.0

0.
o.
0.
o.
0.

0.
o.
o.
0.
0.
45:7
55.1
35.1
38.
31.
41.
11.
19.7

il.

:
:

21.9
11.7
9.
5.2

22
25
24
25
28

8
9

18.5

10.

:
:
:

1
5

4-1/2

1922

la
14
15

:
:
:
:

22
25
24

18.
16.

53.4
55.4
58.4

54.7.
58.
58.
51.5
31.5
40.
25.
15.5

11.5
11.5
17.
44.
84.
32.9
46.1
14.7
14.7
5.

*B4n,te descrihed .8 "Wall St. BAnks", ire taose *hien me loins to Stock Excain6e

erocers; And excinuee strictly commercii binks and trust compinies which do no
"Nal. St." busines2.

August 2, 1922.

CONFIDENTIAL

Dear Mr. Gilbert:
Mr. Moran came in this morning and I expected to hand him

the enclosed document, but not being certain of his return am send-

ing it to you.

You may already have seen it.

I knov nothing

about the people from whom it comes, but presume that TvIr. Moran does.

Yours sincerely,

honorable S. P. Gilbert,'Jr.,

Under Secretary of the Treaeury,
Treasury Department,
iashingt(-)n, D. C.

enc.

August 3, 19?.2.

GONFIDEATIAL

Dear Mr. Gilbert:

I am grateful to you for your confidential letter of August 1, and
for the enclosure 0/bleb accompanied it.

Superficial conclusions in regard to the policy of this bank with

respect to its rate of discount and in general its pol,icy in employing its
funds by investmeet in bills and freasury certificates might well lead not
only to a misunderstanding of the whole situation but resul t in efforts \,o
impose upon the bank a rate find investment policy hich in the long run mould

prove to be disastrous.

As I have repeatedly stated to you and written to

you, and as has been explained to the Federal Reserve Board, the primary con-

sideration whieh has melted the directors and officers of this bank to gradually
build up an investment account as its loans to member benks ere eedd off

as in order that we might not entirely lose control or forego our influence
upon the money market.

The emeloyment of our investment account - as

I have e.xpleined to you - is no about the only method u2on Yhich le may rely

for exerting any effect unca a dangerous speculetion should it develop.
But .further than that, the preparations nee being made by the
I
British Government to pay interest upon the debt-owing
to our Government he
.

already necessitated nd will probably continue to necessitate large shi2mente

of gold to this country.

The effect of these further additions to our

reserves are directly inflationary and the only method by which the inflationary
effecte of heavy gold imports may be offset is by our lieuids.ting our investment

August 5,

account and taking an equal amount of funds out of the market.
are doing from time to time and expect to continue to do

19?,?.

This 'we

the extent that

our position permits.

Efforts to induce the lowering of pur discount rate or to
about a. change in our ,00licy

in these regards .would simply serve to defeat

rogram which has been adopted

after much study and is being ;ursued with

careful regard to all the circumstances.
at the same time that ye were :Liquidating

drive the

ember

bring

Jere our discount rate reduced
our investments it would simply

It would in .fact nullify

banks to borrowing from us.

what we are now undertaking to do to meet a situation which cannototherwiee
be controll

The activity in the stock

market is no longer calling for the

employment of increasing amounts of credit

as .vas

true some months ago;

e believe we are checking the inflationary effects of gold

find that our oolicy, as you are well aware, is
with the success of the

imports;

not in any way interferring

Treasury's refunding oper.!Aions; and I think I should

frankly advise you that should attempts be made to modify this program, and

especially thould
heard, if e

they be attempted

without our having opportunity to be

would feel it neces.sary to lodge a vigorous

protest with

Secretary of the Treasury.
Yours very truly,

Benj. Strong,
GO ver,n5t.
Honorable S. P. Gilbert, Jr.,
Under S6cretary. of the Treasury,
Treasury Department,
fllashington, D. C.
1-S.

the

PERSONAL AND CONFIDENTIAL

August 3, 1922.

Dear Ar. Gilbert:

Replying to your letter of the first in regard to exchanges of
4 5/4 per oent. Victory notee for the nee 4 1/4 2e, cent. Treasury notes,
r. Cese is to-day communicating 4ith the reserve banks ellich hold Victory

notes, advising them what Re did, that we gather that you will be glad

to aea exebangeg effected, and stating that if they do not make the ex-

change direct, ee *ill be glad to handle the transaction fur them in this
market to the extent poeeible, along the lines of our on exchange.
I have just had a talk with the President of the Metropolitan
insurance ComrAny, rho inAicates that they will aeain take up con-

sideration of exchanging some tie milliors which they hold.

rhey had de-

cided not to do so, but I think possibly a little better understanding of
the situation may induce them to change their decision.
Yours very truly,

Benj. Strong,
Governor.

Honorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Treasury Department,
Nashington, D. C.

http://fraser.stlouisfed.org/
Federal Reserve 115.MM
Bank of St. Louis

August 4, 1922.

PERSONAL

Dear Mr. Gilbert:
)4°

Referring to your note of July 22 about that speech you contemplate making in Montana, I an enclosing a memorandum of what I had

in mind to suggest.

It w,".s written by our iv:

Roberts.

But let me point cut that this is full of prickers.

Some

intelligent people may say that if inflation is such a crime, why did
the Treasury inflate as they did in 1919

1920, and ghy did the

reserve banks permit themselves to be drawn into such a policy.

I am sending this suggestion to you for such use as you care

to make of it upon your own responsibility, but on reading it over I
cannot but feel that it might be misunderstood.
Yours very truly,

Benj. Strong,
Governor.

Honorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Treasury Department,
Sashington, D. C.
BS.MM

en C.

August 4,

7=ERSONAL AND CONFIDENTIAL

1.9.S.?..

Deer Mr. Gilbert:
Think you for your rarer (:,ff August 2, encicsiny, copy of
yvur personal .,')nci confidential letter t_At August
Cane.

Beflre /riting yk-fu ir

ddreesed to Ir.

eten tu rega.ri t.) the prograi,

there in nc-riie in-forffiation that I vtr. 'lead in regnri t be:1i valunt.R,
and I shall bo7,1e to frite you nonaeti,loe next ;mak.

Iowa very truly

Pft.j. s ro g ,
Governer.

Honorable S. .. Gilbert, -jr.,

the Treaeury,
Un,ler Se:;retary
Treasury Department.,
Washington, D. C.

August 0, 1922.

Dem Mr. Gilbert:

Supplementing Governor Strong's letter to y.0 of August

7 in reply to your inquiry of August 4 as to the present *herotbounts of Charles N. Fowler, I learn, upon uiry, that gr. Fowler

has an office at 44 heaver Street, New Iork City, and that tie
residence address is 527 Rivereide Drive, hew York.

Trusting that this informetion will serve your purpose,
I am,

Very truly yours,

J. h. CASE,
uty Governor.

Honorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Washington, D. C.
JHC MAE

August 9, 1922.

PERSONAL AND CONFIDENTIAL

Dear Mr. Gilbert:

Your favor of the fourth instant, in regard to exchanges of
Victory notes for the 4

1/0 notes,

is just received on my return to

New York.

In my final talk with Ar. Fiske of the Metropolitan Life Insurance Company he pointed out that the exchange would cost them about
450,000

in income.

He saia that he would prefer to await

the maturity

of their holaings am he would then assure us that any offer of exchange then maae would be promptly accepted.
Obviously, I felt unwilling to request him definitely to take

think

a loss of that amount but I
entire holdings whenever

the

you can count on their exchanging their

maturity date arrives.

Very truly yours,

BENJ. STRONG,
Governor.

Honorable S. P. Gilbert, Jr.,
Under Secretary of the Treasury,
V,ashington, D. C.

CONFIDENTIAL

August 11,

19?....3.

My dear Mr. Gilbert:

I have read your
ply of August 8 and no

letter of August 1

addressed to Mr. Case

and his re-

yours of August 10, all relating to the Treasury's

program for the next six months or so.
The first outstanding impression from; your letter is the very large

amount of issues to be made in a comparatively

short period.

it involves no enlargement of the total borrowing, a very

large

Mile, to he sure,

proportion of the

money to be obtained must be sought from new investors and subscribers to pay off

old investors who will doubtless 4ant cash, and it is the lary,ertt turnover of
that character
with a

that the Treasury has

yet undertaken.

Therefore, it is surrounded

greater degree of uncertainty than has been the case with previous issues.
The second impression that I

gain is the difficulty of

dealing with

both the Victory notes and the dar Savings certificates effectively and economically
by any exchange offer.

the results that were

The previous offerings of that character

have not

produced

a.nticipated or desired.

The third impression is the very considerable physical difficulty pith
which the reserve banks will be confronted in the last tym. .weeks of December in
handling the enormous number of people 4th whom we must deal in paying off the

called bonds, effecting physical exchanges, and especially in dealing with the
owners of the rnaturing lar Savings certificates.

These physical difficulties

are being studied no by the officers of the bank and ffe hope to submit some

suggestions in the near future.
As to the specific proposals contained in your

I offer the following comments:

letter of August 1, may

Honorable S. P. Gilbert, Jr.

Paragraph (1).

August 11

Of course, our experience would indicate that

1922.

vith

the

rates suitably adjusted to the market ee could count on Septemter 15 upon realiz-

ing any amount of cesh required upon an offering of one year

certificates, but as

stated ebove, I would doubt the success of in exchange offer - that is, I would
doubt its producing any very coneiderable amount of Victory notes.

The rate

su-eested in this paragraph as possible at that time Pay indeed prove to be the

case, but a 4 per cent. five Fear note just no' _could not be sufficiently attractive.
There is possibly less doubt of the success of a 5 1/2 per cent. one year certificate Gelling in adequate volume.

I an inclined to express a little darning as to

your confidence in an easy money market in the middle of September.

Much depends

upon the strike and the extent to vhich the crop movement has gotten under way and

*bother the railroads are in shape to handle the
Paragraph (2).

harvest

,,rnmtly.

If conditions appear to be satisfactory I :could rather

prefer to see the long time bond offering made in Seetember

rather than

in October.

If the offering !yam not a complete success it eould than afford a period of
recuperttion beteeen September 15 and the December maturity; and the period between

October 15 and the date ellen you eould need to offer the nod bonds to retire the

called Victory notes is rather short in case the offering proposed for October

ere not fully successful.

am inclined to think that you under-estimate the

importance of organized methods in placing a loan for t500 millions.

That is a

very large amount of investment moley to get on one offering, and of course it
depends for its sucoees entirely upon the rate being sufficiently attractive.

Is difficult to form an estimate from present data of just Mat can be expected of

the market as to a 4 per cent, taxable bond maturing in 20 or 50 years,beering in

mind of °Puree that the interest basis is aleays figured in the

market to the date

when a bond may be called and not to the date it may run if not called.

In order

to get some idea of market buses of e 4 per cent. taxable bond, ve have calculated

the interest basis of the 3 per cent.

Panama Canal bonds, which at the present price

of 92.41 is 3.35 ser cent.

Honorable S. P. Gilbert, Jr.

August 11, 1922.

This is for a bond sholly tax secret Mich matures in

lPel - the.t is, 39 years. qe have veade a similar calculation for the Fcurth
4 1/4 ear eent. Liberty loan bond, essuming a maturity in that case of 191, ,shich
elves the bond a market value of 102.90. By taking the difference in interest
bsiB beteeee the taxable and non-taxable tend and reducing this to a 4 per cent.

besie, ea find that theoretically at the eresent earket values of these to issues,
a 4 per cent. texatle bond ehould have a. market value of 100.44 if maturing in 1933 -

that is, 11 years; of 100.68 if maturing in 1942 - that is, 20 years; of 100.57 If
maturing, in g52 - that. Ic, 30 years; of 1.00.99 if maturing in 1961 - that is 39 years.
This calculation may be a bit misleading because

the limited issue of

the Penema Canal 3e, and because of the special circumstences surrounding the use ehich

is made of those bonds by certain classes of owners.

I think it may be fair to

assuise that they sell at a little higher price and a someehat lover interest basis
relatively than do the various taxable issues. The amount of the issue also has an
In V/04 of all the circumstances I think
important bearing upon the market price.
I vo ul d leen towards meking the efrering of a long time bond in September, and offer

a smaller ameunt than t500 millions, thereby giving yourself the benefit of a good
teet of the market ae Tell as ample weenrtueity to make other arrangements in the

light of what la disclosed as ,the result of that offering.
Paragraph (3).

It is very difficult ?ore to accept your suggestion

that t,-.n issue of $1 billion of long time tends can safely be relied upon as the
means of financing the December payments.

It is a very large issue to place and

eill need to be attractive in terms, and your feeling about iseuireg a 4 per cent.
bond seems to be so strong that I am led to urge that the assount of long time boeds

to be ofrered be materially reduced belom this figure.

Inability under the present

ta heve the lessee undertritten greatly increases the risk of the Treasury, and
the amount. to he raised is so large that it emphasizes the need for making the
preliminary offering earlier then October 15.

Honorable 3. P. G'ilbert, Jr.

August 11, 19?a?.

while December 1 is not a had tine to offer the tonde because of the
heavy interest and dividend payments for reinvesteent

all this coming into the

merket, around the first of the year - I revertheless wculci err on the side of
caution in deters:int:1n the meunt to be offered.
es tion oaln for no corfeent.

Paragre eh (4).

This F u

Paragraph (5).

The ehysioal difficulties of handling the exchange of ler

Sa.vinge certificates 1.8.nd of r: king the payeent of the rash to those ho do not

accept new securities are so great that I think the Treasury will necessarily be
called upon to make some interest sacrifice in order to start exchanges at least a
month before January 1, and notvithstending that it will overlap the heavy onerations
on !December 1 end December 15.

IL lould not surprise me et all if there vere a million and a half people

in the City of liev York alone that hold Yar Savings certificetes and Thrift stairs
maturing on January

Even if there is only one 1lIon, I think ee must

realiee that the handling of this anorrone number of reople, even though it were

dietributed rong all the Post Offieee and Sub-retetione and all the banks and their
braechen in !lee York City, neverthelees involvee R. very serious eroblem.

For that

reason I eould strongly urge that arrangements bet made to start exchanges just as soon

as eosible certairly not later then December 1.
In general, I agree with you that at least $1,500 millions of the short
dett of the (bverneent should not be funded at the preeent time, and I would be

rather eurprieed if it does not traneaire that. this figure may have to be increeted

e the result of some issues of short securities, to take care of the portion of the
called Victory notes and the !far Sevings certificetes beyond what is anticipated by

the entline contained in per letter.
In i;eneral as to the interact rate on a long time bond; it is too early

as yet to have a final opinion.

It ..vould be unitise to consult the dealers or

bankers, and you doubtless have it in mind to take that matter up for final

August ii, 1922.

consideration in cape the first offering is made in October, say e.ozetimie around
the middle or September; or If you ehould decide to 77 ale an offering of a long time
bOtn.d in September, you

111 probably vant to decide about the rate sometime -within

the next two veel.
if you arrive at a determination as to when the first long time bond
offering ehould be made within the, nest few days and will advise us I think I 'would
be inclined they to take t ffr or three of the beet bond nten in the city into our
confidence and sek their advice, but of course we ...would not think ot" doing so bxcept
.with your consent.

Please understand that these comments are in the light of

conditions to-day, which may materially ohm e -within a few days because of the
strike situation and 'within a few weeke, because of the kr ?rcttobing demands upon the
money market fer flnancing the crop movement.

Yours very truly,

Penj. Strong,
Governor.

Honorable S. P. Gilbert, Jr.,

Under Secrotary of the Treasury,
Treasury Department,

4ashington, D. C.

PS.IIM

August 14, 1922.

CONFIDENTIAL

My dear Mr. Gilbert:

Replying to your confidential note of August 12, I an very sorry that
anything contained in my letter of August 11 may have led you to aNindon the

holiday, and the fishing trip which I understand you were contemplating.

But,

on the other hand, I an convinced that the floating of a long time loan is not
eoing to be as easy as you seem to feel, and that should you determine to place

such a loan at 4 per cent. it eould, in my opinion, be hazardous to defer the

offering until October because I believe the possibilities of only a partial
success are sufficient to meke it hazardous to have that offering made only two
months before a much larger offering must be negotiated in order to meet the

called Victory notes.

This will be the first long time loan offered by the Treasury since
the ear enthusieem eae employed to rake the previous long time loans a success
and since the Liberty Loan organizations have been diebended.
loan

The Victory

as not a long time loan, and the Fourth 4 1/4e Iere floated, as you

realize, upon 6a. Nave of expansion and with all the enthusiasm of the ear prevailing throughout the country and with the Liberty Loan organization at the

highest stage of efficiency ghich it reached.
A loan of t500 millions, or even lees, running anywhere from 20 to 50

years, or even from 10 to 50 years, must be very widely and generally distributed

in order to be fully sold.

The largest investors will not be so attracted

because of the heavy taxes; large trust funds, endowment funds, and funds of

that character cannot afford to buy them in large amounts.

This wi 1] net

apply to insurance companies, savings banks, and,(unfortunately) to commercial
banks and trust companies

because of the difference in the tax situation.

August 14, 1922

_er organization is not equipped now to effect a widespread distribution; we must

rely almost entirely upon the activities of the banks.

There is no profit to tieni

in handling the business except a deposit for a short period.

And if these

difficulties are coupled with an offering of a less desirable bond - say a 4 per
cent bond - as indicated in your letters, I would fear a good deal of difficulty
in placing 5 loan of $500 millions.

If a smaller offering than $500 millions were made it still might be

possible to accept oversubscriptions, but that policy did not work very well in the
war, and it might deter subscribers if they knew that further large amounts of the
bonds might come on the market due to an oversubecriptione

I would very much regret having the Treasury face the choice of either an

incomplete subscription, on the one hand, or asking the banks to take up the loan,
on the other haslet - the latter would ee a distinct reversal of the Treasury's

policy of getting a side distribution of its loans.

If you have determined to

come to Iviee York, I hope you do not defer doing so as long as a week or ten days.

Should I possibly determine to go abroad to attend the conference of the banks of

issue, it might be possible to arrange for a conference of the' Governors of the
reserve banks just before the offering was made sc.; that your selling organization
might be brought togtther ind inspired with the necessity for making a good strong

effort to get a good distribution.

I would rather like to see the meeting of the

Governors held before leaving for Europe anyway, and am throwing out this sugges-

tion in advance of writing to Mr. Platt.

fill you let me know how it strikes

you?

Yours very truly,

Benj. Strong,
Governor.

ifienorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Treasury Department,
Vashington, D. C.

Auguet 24, 1922..

CONFIDENTIAL

Dear Lir. Gilbert:

Your persons.1 and confidential note of the 22nd in regard to the
Treasury'e prograra is just received on my return from ,toc.,,ds

It correctly expres.ees the vie e that I held at the time I erote you,
the only doubt in my mind being as to the amount of bonds that could be sold.

It would be illuminating if you could have some one in the ereasury
prepare a schedule shoeing at what point the income of an individual investor

is subject to so heavy income tax that. he can hardly afford to buy a 4 1/4 per

cent. bond that io subject to incon,e tax.

It will give you a good idea from

the tabulation of incore tax returne ef the very el .4) distribution that gill
be required in order to make a large loan e. success.
An offering in Septeeber gill not have the advantage of coincident

maturity of a long time note issue ehich has been so largely held by investors
who sill be eeking a reinvestment of funds.

to ceution in fixing the emeunt

Of couree, all of this points

he c N'ered in Se2t,amter.

Since 4 riting you last, week, I think for the first tine I have
realized the ianinence of the pasesge of the bonus bill by the Senate.

the press dispatches are reliable, there is in fact 9, possibility that a vote
sill be taken on the bill as early as Saturday of this leek.

In my opinion,

the sentimental effect of the Inaesage of that legislation without any provision
of revenue to meet the payments, eill be most unfavorable to the Treasury's
refunding operations.

The total amount of possible obligation throen upon

the Treasury has been so widely advertised as running betveen $4 and 5 billions

that it .will create the impression - whether justified or not - that the Treasury

August ?,4, 1922

will be faced Nith the need for raising large amounts upon nee issues of
securities beyond the very large !amounts ithich must in any event be issued for
refunding purpoees.

The investing public is very easily influenced by such developments,

and if the .08.esage of the bonus bill. oecurs at about the time that this first
issue is to be 7,1 & de

the effect 4111 be met unNverable and the extent of the

effeet can only be surmised as there eill not be time for the country tobe
educated am to the exact financial obligetion which it imposes.

It nay veil be that the hazard '4111 necessitate reeorting to

ome

shorter tine obligation, and thet regain 4ould be, to my mind, unfortunate becauee

it point only too eerte.inly to enlarged purchaeee by the banks of the country
rather then by investors, and a further expeneior. 4) f taree inve.;tenents and
depoeite.

Yours veri truly,

Strong,
1lDeerner.

ilonorable S. P. Gilbert, Jr.,

Under 2etcretary of the Treasury,
lashineton, D. C.
BS.MM

August ?,4, 191?.

PERSONAL AND CONFIDENTIAL

y dear Lir. Gilbert:

I read the article to whieb you refer, but & not think

that it represents financial sentieent.

The question in my

mind is as to the origin of all of this publicity on the subject
of the Combtroller succeeding Governor Harding.

Yours very truly,

Honorable S. P. Gilbert, Jr.,

Under Secretary of the Tres.sury,
fashington, D. C.
BS.UW

Se)tember 5, 19??..
CONFIDENTIAL

Dear Mr. Gilbert:
Your favor

Au,iust 31 is received al() the rigu, res

?ropered by Mr. McCoy are certainly most illuminating.

They

exhibit the necessity of vide distribution if 4te are to have
a successful altering of

taxable bond.

Outside of the

corporations, the big buyers really do net exist.
Yours ver,,, truly,

Benj. Strang,
Geve..rnar.

Honorable S. P. lilbert, Jr . ,
Treasury Department,

ington, D. C.

b.S.vto

September 20, 1922.

PERONAL ANL CONFIDENTIAL

4 dear Ur.
Replying to your personal and confidential note of

September 18, in regard to Nurray Huldert's outburst, I thin,c

yaa have stated the facts and my personal view is strongly

against doing anything about it at all. The controversy is
jrat 'Kept alive by answering critics, wad I hope tbe matter

will be allowee to rest.

This feeling is shared, 1 beiieve,

by my associates.
Respectfully,

Ponorable S. P. Gilbert, Jr.,

Undersecretary of the Treasury,
'Ashington, L. C.

September 25, 1922.

PERSONAL

My dear Mr. Gilbert:
Thank you for your note of September 214 which was presented

to-day by Mr. Pollak of the Wiener Bank-Verein.

had an interesting chat with him and am to see him later
for the purpose of discussing conditions in Austria and Central Europe.

I.bave some fear that his task in settling the Austrian
bank

liabilities here will be made difficult both for our bankers

and for him, unless something fairly definite can be known in regard

to the assts of the Alien Property Custodian, the claias against
.

them and what the chances are of recoveries from that source.

have told Mr. Pollak that I will be glad if he will keep
me posted as to what he is accomplishing and will later write you in

regard to the difficulty that I apprehend.
Yours vary truly,

Honorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Treasury Department,
Washington, D. C.
35. MM

0EFSONAL

Septemoer 29, 192.

Dear Mr. Gilbert:

My point about the Alien Property Custodian's interest in

Mr. Pollak's endeavor lies in the fact that I believe many people
are under the impression that the Alien Property Custodian is in
possession of aesets which will some day be applied to liquidate
claims against enemy governments.

They may hesitate to deal with

him until they kno* better about the chances of a more favorable
outcome from the Alien Property Custodiar.

I pointed out

this difficulty to him, but of course gave him no encouragement

that these matters should be dealt with officially.

In fact,

it was rather the contrary.
What strikes me as a res nsibility of our government,
however, is obvious.

If banks are to deal intelligently with

private negotiations, they should know something from their
government as to what the government's policies may be and as to

what the assets are and the claimsand what the outoome lay be.

Is not this reasonable?
Yours very truly,

Benj. Strong,

Honorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Washington, D. C.
BS.MM

Governor.

October 19, 1922.

PEKSONAL AND CONFIDENTIAL

Dear Ur. Gilbert:

Replying to yours of the 17th instant, we have been gradually increasing our buying rateson bills until they have advanced from about 3 per

It is important not to have this change teco7e
cent. to 3 3/4 per cent.
You will observe, however, that our bill holdings are not intoo rapid.
creasirvg and they have a wider distribution at the higher rates. Of course,

if the rate gets up to 4 ;er cent., it would be an indication that our discount rate wae too low.

I expect to be in Washington tte latter r,,art of newt week and

be'ieve that you awl the Secretary and I should have a [,retty thorough
discussion of these market conditions

they relste to your OPP oerations

in the market.
Yours very truly,

Benj. Stron,
Governor.

Honorable S. P. Gilbert, Jr.,

Under Secretary of the Treasury,
Treasury Department,
Washington, D.C.
35.MM

COPY- YITH

FEDERAL RESERVE BANK

OF NEN YORK

PRIVATE AND CONFIDENTIAL

October 20, 1922.

Dear Er. Gilbert:
The resignation of the British Cabinet is no more
than I expected, and as I telephoned you a few days ago, it
was forecast in a cable which I received intimating the probability of a further delay in negotiations for the funding of
the British debt.
This delay will afford opportunity for the making
of certain investigations which we discussed (if this work has
not already been done), and I am taking the liberty of outlining?

something of what is in my mind in a letter to you rather than
to !:r. "Yadsworth because we have had opportunity to discuss it
at length and I have not been able to do so with him.
Mile what I am writing Is directed especially to the

British situation, it applies in greater or less degree to the
situation of all the debtor governments, and I refer only to the
British debt because that happens to be the one which is next to
be dealt with.

One of the most

serious difficulties encountered by
the French Government in dealing with the adjustment of reperstion
payments by Germany arises in my opinion from the fact that the
people of France have never been fully informed upon the subject
of reparations, that the sentiment exists in France that Germany
can pay and must be made to pay, and that no government can
remain in office which proposes a compromise or adjustment of
reperations which does not in a general say conform to a well
In view of this
crystallised public oA_Hion on that subject.
i'rance
has been forced to
political situation, the Government of
occupation
of
the
Ruhr
and other sections
resort to the threat of
default,
a
course
which would be
of Germany in the event of a
the
costs
involved and
disasterous to the French because of
Ly
best opinion is
because an army cannot collect reperations.
almost
entirely
from
timidity by
that this situation has arisen
the French Government whichlas led to an unwillingness to disclose
the true facts and that it would have been wiser at the outset for
the' Government of France to squarely face the question of reparations uoon the theory that Germany can be made to pay only within
her capacity to pay and no more.

These remarks are intended to draw attention to the
rather paralell situation in this country. Our people have been

.44L,e)

C x6/ 43t, -141-444

4/9e.,6

lea to believe (as the result of statements which are based

upon inadequate data - and some of them inspired by nolltical
motives) that in general most of the debts cr7ins to this
country by the debtor governments are collectible. They cannot state the grounds for this belief, but are simply repeating
that they have heard in a general way from various sources. It

is certainly time that a careful painstaking investigation of
the debt situation unon a basis of capacity to pay should now be
conducted, and laid before the country at the proper tine and in
the proper way. in order to establish the basis of such an
investigation, it is well to considers first, in what way payments
may be made. All students of this subject will agree that for a
country like England, the making of external payments, such as
this, can be accomlished only by the following means:
FIRST:

Shininents of gold.

THIRD:

By substituting private loans in this

Export of goods in excess of those imported.
country for the government loans.
FOURTH: By the liquidation of foreign investments
owned by British prIvote investors.
An investigation of these four possible methods of
wiyment should disclose something of the capacity of the British
notion to repay the debt now owing to our government and especially
whether that capacity Is equal to meting the limitations imposed

by the funding bill.

FIRST - As to gold shipments; the gold resources of
Great Britain should be carefully examined and a study should be
made for the purpose of disclosing to what extent, on the one
hand, Great Brit-in can afford to part with gold and thereby
indefinJt-ly Cofer the .reestablishment of the gold standard, and,
on the other hand, to what extent it Is safe for Us to receive
further shipments of gold without dislocation of our domestic
credit situation, This investigation, it seems to me, should
include an examination of the African gold. production, of its
present dionostion, of the extent to which India can command
gold from Africa and from England, and, as throwing some light
upon gold movements, the history of gold shipments between England
and this country should be reviewed together with their relations

to prices, interest rates and trade balances.

Such an investigation 1 am certain will disnaose that
the possibilities of gold payment are exceedingly limited unless
we are preoared to face a com2leto and long-extended breakdo-cn'of
the gold standard in Europe and the rest of the world, and some
real peril to our own monetary syeten.
SEC= - The extent to which England may be expected
to renay by excess shipments of goods .to the rest of the world
over imports will be most difficult to ascertain, but some light
may be throfn uoon the subject by En examination of the Dritish
foreign trade prior to the outbreak of the war; the extent to

-3.-

visible
which the result of that trade as reflected in the
of
payments,
movement of goods, plus the invisible balance
may be expected to produce a net fund applicable to the service
new tariff should be
of the debt. In this connection, itthe
may
be presumed to have
studied to ascertain what effect

upon those classes of commodities which we have heretofore
habitually purchased In 2nglend.
THIRD - The extent to which the British Government
may be able to borrow rrivately in our markets in order to repay
not only by ratket and
loans to the Treasury All be governed
investment conditions here, but also to some extent by the degree
own
to which we may consider such a policy desirable from ourand
For
exemple,
if
the
payment
of
interest
Point of view.
amortization of the principal necessitated the British Government
borrowing from 200 to 300 millions a year in this market, would
to do so? The various
it be wise to permit or encourage them
considerations to be weighed in this connection should be examined
program
and di-cussed end it should be borne in mind that such aultimately
entire
debt
owing
to
this
country
would
apnlied to thp
investors in foreign
result in such a vast interest by American
government loans that might in the course of years have a profound
effect upon our political relations with other countries.
FOURTH - The amount and cheracter of British investments
in foreign countries should be examined for the Puepooe of ascertaining the possihaities of payment by recourse to these investments,
but obviously a study should be made as to the method by which such
inv-etment could be made available for the purpose. I think it would
methods which could be employed
be safe to say that there are only two
dangers
of a very certain
to this end, both of which involve
First,
the
.British
Government
might
expronriete them as
character.
Such
a
policy
would
arouse
such bitterness
was Cone during the war.
doubt
if
it
could
be
resorted
to except
of feeling that I very much
be
obliged
to
admit
that
we
had
under conditions where we would
friendship
of
the
British
people.
completely lost the symp-,thy and
The other means would be less obvious to the public but equally
conditions. If the
dangerous to the restoration of stable economicdollars
in order to
pound sterling under the pressure of obtaining
repay this debt beceme'progressively depressed, as was the case
after sterling was unpegred, there would gradually arise a premium
of Britieh investors,
upon foreign owned securities in the hands
any such
which mlght lead to the sale of large amounts of them. Butthat
of
disorganizing
to
comnerce,
Including
occurance would be so
policy
that
one
would
hesitate
to
advocate
such
a
our on country,
of destruction.

I have written the above simply as suggestions for a
6burse of investigation designed to throw some light upon variousbe
they con
means of payment which exist, unon the extent to which
It
will
probably
employment.
employed, and upon the effect of their
investigation
that
the
repayment
be found as the result of such an
of the debt to this country by Great Britain can be safely
*

accomolished through the employment of resources which will be

found available under all four of the means suggested, but that
a period of 25 years will not be sufficient for the purpose,
that the amount of payments mast be small at first and gradually
increased, and that in connection, with the scheme of payments

so that
adopted, some element of flexibility must be introduced
sterling
be
reduced
in
case
the
pound
the rate of payment may be accelerated in case it should rise
becomes depressed and may
above parity with our currency.
May I take the liberty of suggesting that the

the change In the
additionsil time now afforded as the result ofivestigation
along
Pritish ninistry can well be employed in an
The
data
already
above.
some such line as that roughly outlined
State, the Treasury Department
the
1)epartment
of
In possession of
the Federal
and the Department of Commerce, and accessible to
.Reserve 7aoard and the Federal

eserve Bank of New York can I

If, as
believe be marshalled in the course of a fellofmonths,
1-..eat
Britain
what
should hope, it resulted in a clearer view should be allowed for
long a pe3iod
is capable of paying and how
to me the Funding Commission could
the payment, then it seems
report and recommendation
go before Congress with a definite
contemplate
the
entire repayment of the debt
which would in fact
within the strict
necessarily
Government,
but
not
by the British
limitations of the funding bill, and here would be afforded
opportunity for a possible and friendlysolution of the problem
as to the principle debtor.
Yours very truly,

(Signed)

Honorable S. P.,Gilberi-,Jr.,

Under Sscreatry of the Treasury,
Treasury Department,
lashington, D. C.
BS.L1,

Ben j. Strong

October 25, 1222.

ODNFIDENTIAL

331' Yr. ...ibert:

Think yol for your note of October 21 and the report

which accompenied it rezt,:anr.te7tate 3' of Soviet Russia.
You 4cubtlebE observed that the on/y item which

might 3e couside:ed as gold iE the one ,Iner the title "Precious
irett.le"- 307

poo,00n

rubles.

I gruld annent that with &ome

reservation as a true statement of the a7,ount of gold held by
the Soviet bank.
Yours very truly,

Benj. Strong,
Governor.

Honorable S. P. Gilbert,-Jr.,

Under Secretary of the Treasury,
Washington, D. C.
BS.A0

PRIVATE AND CONFIDENTIAL

Dear Mr.

October 27, 1922.

Gilbert:
The market rate for bills is now squarely four per cent.

have got

to watch our discount rates now with the bill rate as high as that and zith the
stock exchange

rates

uniformly above ours.

But I doubt if any action need be

seriously considered until te are able to judge whether the ee.sonal demand is
not responsible for most of the change that is taking place in the general rate
level.

Referring to the document glitch you showed me

yesterday

afternoon.

have given it a good deal of thought and am convinced that every reason exists
for the

making of some

lest paragraph of the

such statement, at least to the extent embodied in the

pencil

memorandum

I handed you.

regard such an action as equal in importance to the veto

In some ways I would

of the 'bonus bill, and

as to its political tisdom, if that is any consideration % to be entertained at

all, it will make more votes than

anything that could now be done.

Further reflection makes me feel this so strongly that I am inclined

to urge you to take some step, if they are possible, to
to the President in the strongest possible terms.
Yours very truly,

Honorable S. P. Gilbert, Jr.,
Under Secretary of the Treasury,
Washington, P. C.

have this

represented

November

CONFIDENTIAL

1322.

Deer Mr. :1158rt:

I ea encleeing tie teekly business Ind financial suseeary prepared

for our directors and call your attention to the curve on the first page sh)*ing a sharp adyenoe in deposits an in loene end Investmente not only in New

York City out in all dietricts as reported by the reporting ben-, and this
should be considered In connection with the very sherp decrease in earning
aseets which took place in the Beale month in the Federel Reserve 3enk or Nee

'ork and to s somewhat less extent in the earning aesete of all reserve banks.
The indication is, partly at least, thet the government loan in October rwelled
botb the deposit and the loan accaunt.

At the meeting: of the Inveetment

Committee in Cleveland on Teeeday, every member or the committee Agreed gener-

ally that the folloeing commenie gore justified in regard to the loan and

its effects:
First: Thera tns a certain amount of padding of subecriptione by
brokers and others eho vented to scalp s narroe profit and who immediately

became sellers of tho bores.
Second:

hils ot generally the case in Ne* 'York City where allotments

to the banks were very email indeed, it ens neverthelees true in some parts of
the country that bangs had subscribed to the loan for the Rieke 3f tbe depoeit

and at once the bonds were delivered they started to cell the, and this selling combined with the "First" is that caused the decline.

Third: That a large loan of this character here payment ir made by

credit, engages the active efforts of all banks to mal,e sales to their

Honorable S. P. Gilbert, Jr.

!Ake.

Nevember

customers generally so ae to get the benefit of the deposit.
Fourth: That the effect of payment by credit is nevertheless to

inflate the ban).ine eeeitien.
Fifth: Teat the depoeits et the 4overnment's credit are employed very

prometly in lone of ene or another cheracter, and that when they are withdreen
froe the depoeitery Isants they do not generally withdrew the loans which they

heve *de, in order te me4ea goed deficient reserves, but et leeet some of them

go to the reserve beak end rorre,.
the TEMbOTE ef the eoevi,tes *red th-t every effort

=et

male hareefter te afrect distributicn ef bond

etside of the bulks

and thst the only 'Teethed by etict infletien of the benking position es t

reeult of the

large depeeits can be prevented is by the immediate employment

of th: Puede by tee Treeeury in the retirement of' cutetandine debt, end if
this preeeee can ba spoode ui beyond whht, has heretofore been the cave it till

check the teneency to inflate someetet and reduce the borroeine demendeupon the
Federal Peeeree 3ank3.

AT elon en the einutes cf the eeeting Nave been ezTroved by the

members of the coeeittee, I Enali send you o copy hice will throe elope light
upen the ee.eceselon et, the meeting ene the attitude or the committee.

The

eeetine was ettendsd by Mr. Mitchell of the Federel Feeerve Board, rhe ie

themfbre faxiliar It 'ghat transpired.

It as felt by tha members af the co4W4-,tee that in vin7 of the

a vuece in te;e eerest rite for bankers aceeetencee te 4 per cent. or over
teet seee better dietribntten of these bills eight no be eerected, eut If
they lid not distribute naturelly among benlie end other buyere it would be

desireble for us to eugeest to all the Federal Reserve Banks that they
liquidate further amounts of their governmeni. securities, preferably by selling
them to the Treesury, against xhich we eeuld continue purehames ' of

bills in

November 2, 1922
the market so as to maintain the rate

at about 4

per cent if possible.

Obviously, should the rate on these bills, as well as on the government
tificates - except thos of very short
rate of 4 per

cer-

maturity - reach a level above our discoune

cent., it might become necessary for us to advance

our

discount

This we had hoped would not be necessary for sometime yet.

rate.

Will you be good enough to read

in connection with this letter, one

that I wrote you sometime ago describing exactly the effect which the

operations

of the Federal heserve System had upon the money market, in that under the
present

system

there was

no surplus banking reserve and that consequently it

was not to be expected that rates would - at

any rate for

sometime - reach the

abnormally low levels which heretofore occurred after a period of liquidation.
Yours very truly,

Benj. Strong,
Governor.

Honorable S. F. Gilbert, Jr.,
Under Secretary of the Treasury,
hashington, C. C.
BS.Mti

Enc.

Plovemper 3, 1922.

COAFIDENT1AL,

Dear Ar. Gilbert:

I an in receii,..t of your favor of NoveTber 1st, and as to the

first part of it in regard to the distribution, of bills, so far the
distribution has not been very active but I hope to get a report to send
you shortly op that subject.

As to the last part of your letter, I agree with you heartily,
but can you:or Secretary Mellon convince others that the policy you

advocate is the best/

If any g3 tatement of an official natur i to be

Trade, it would distress ale very much to have it in any such terms as the
one I saw in Wa.shingtol.

air very sure it would do a great deal of

harm.

Yours very truly,

Benj. Strong,
Governor.

fionorab'e S. F. Gilbert, Jr.,

Under Secretary or the Treasury,
Washington, D. C.
BS.MN

November ?, 1922.

Dear Mr. Gilbert:

I have given considerable thought to the subject eatter of your
letters or October 50 and Nevem:per 1., 1922, dealies with the remeining Govern-

ment security inveatments of the Federal reserve banks.

I le'srove your

suggestion that the Federal reserve banks disease of their uncalled Victorys
in the open ;narket rather then by direct sal e to the Treasury for Sinking Fund
Account, and after consulting with the other riembere of' the oomeittee on

centralized execution of orders, I have to-day sent the telegram appearing Delow to the six Federal reserve banks bolding F25,71%050 unealled Victory notes
as follows:
Boston
Phil adelphl 8.

$5, 656,000
,150

Cleveland
fin sae City
Dallas
San Francisco

9,822,500
10,850
161,250
10 0fi5 300
g;25,716,050

Total
(copy of telegram)
"Treasury ie desirous of having Yed.eral reserve banks
holding uncalled Victory notes dis7pose their holdings and

euggeste selling in open market es met helpful progrem.
Such ection has anprovel entire Comeittee ehich suge,ests
reinvestment in Bankers, bills to the extent that reinvestment is deemed desirable. According to record e you hold
of uncalled Victorys. 'Would appreciate your
wiring me if foregoing procedure acceptebi.e advising also
to what extent Oceenittee can serve you in consummating

transactions.

STRONG, Chairnan."

I note that the Treasury now hold for the account of tee Alien Property
Custodian slightly more than $40,000,000 of the new 4 1/21 Treasury bonds which

you desire to have sold at the average cost price of about 100.07 or better, the
proceeds of such sales to be immediately- reinvested in United States Treasury

November 9, 1922

tificates of Indebtedness maturing in 1923, to be acquired at the then market

prices from the remaining holdings of Federal reserve banks.

I venture to say that

it may take a considerable period of time, possibly a month or so, to oonsumeate
such a transaction, but meanwhile as opportunity

offers we will undertake to follow

your instructions and resell some of the new Treasury bonds to the market.
With reference to your further suggestion that the Federal reserve banks
should dispose of a good part, if not all, of their Treasury notes, I think the banks
generally would be willing to do this provided they could be sold without loss.

The

present adverse quotetions are likely to prove a formidable stumbling block to that
program.

Our own holdings of Treasury notes (t11,500,000 4 1/4% due September 15,

1926), were acquired at the time the notes were issued by turning in a aimilar amount

of Victorys in exchange, and the notes stand on our books at about e 4.10 basis,

while today's market quotations show a yield of about 4.40.

Under the circumstances

I think it might be well to defer taking this particular note matter up with the
Federal reserve banks at least until the sale of the uncalled Victorys herein

referred

to has been consummated.

With regard to new financing, I am hopeful that it will not be necessary
to bring out an issue, even a small one, before the December offering.

This course

eill give the market a rest, a good chance to settle down, and make it just that much
easier to effect the important financing in December.
With respect to the large cash balances of *250,000,000 or more now on
deposit in the War Goan Deposit Account, I understand it is your intention to con-

tinue to use these funds as rapidly as possible in redeeming the 1922 maturities, and
to that extent simplify the heavy operations that lie ahead cf us during the balance
of this year.
Yours very truly,

Benj. Strong,
Governor.

oorable S. P. Gilbert, Jr.,
- Secretary of the Treasury,
'on, D. C.

november 10, 1922.

My dear Mr. Gilbert:

I have your two telegrams of to-day advising that there will
be no offering of certificates this month nor any announcement to that

effect.

All of this I think is very wise indeed.
In view of the proposed rayment of t50,000,000 by the 3ritish

Government on the 15th, which Mr. Case advises me is definitely arranged,

I sincerely hope that we may meet with some success in antici2ating further amounts of the December 15 maturities.

This will afford a saving

In interest and 4 reduction of the turnover on that date which might he

embarrassing in that it is eo likely to create an artificial ease of
Funds.

These Funds are likely to go into Stock Exchange loans and then

again cause difficulty when we come to withdraw them from the market.

Mr. Case and I have been discussing the matter this morning
and he will have a. word with you by telephone.

Yours very truly,

3enj. Strong,

Honorable S. P. Gilbert, Jr.,

Under Eecretary of the Treasury,
-I4cshington, D. C.

3S.MM

Governor.

November 27, 1922.

GONFIDENTIAL

Dear Mr. Liiibert:

Inforea.tion ha juet reached me from reliable sources abroad in
regard to one or two matter concerning which you are doubtless interested
and possibly Assietent Secretary WadE.2.worth is equally so.

It appears that Zimmerman, has been formally appointed Comeissioner

to serve in Austria under the proposed plan of rehabilitation and that
Ja,nesen, who as you know is an officer in the Netional Bank of Belgium,
Is seriously coneiderin3 aceepting appointment of Lievernor of tho new bank

of Austrian issue.

Arrangements for legislation in the various countries

concerned in this plan are now beini considered looking toward the issue
sometime next spring of a gua.rantead Austrian loan.

But I hear the opinion

expressed that the likelihood of e succeasful public lesue under the scheme
now eroposed is still remote.

Presumably, any sueh loan vould have to he

taken by the a.esisting .-.4overnments.

I am also advised it is pocsible that some private effort is being
made by the Dutch and SWise representatives who served an the Committee of

Experts to advise the German Government in regard to reparetions, to arrange

some sort of an international loan or foreign credit for the purpose of

Er-

assieting Germany in stabilizing the exchange, and somewhat along the lines

indicated in the report of the experts.

The erospects o t success of

this private effort, which does not seem to have been officially confirmed,
seems somewhat remote because of the probable inability of agreement among

the Allied nations as to a moratorium applying to reparation payments.

Honorable S.

Gilbert, Jr.

1\16-trembar 27, 1922.

Of course, the German Government is anxious to secure such a loan for

stabilization purposes; and France for the purpose of anticipating reiparations.
But I think it may be assumed that the British Government is not likely to
further any such plan until some final scheme -!'or dealing with the re2arF:tion
Oeb.ts with uermany is actually assured.

It should also be borne In mind that both Holland .and Switzerland

have large interests in mark exchange: rhich ?pleat 5e ..ssociatad tith this

effort to arrange L foreign than.

I have been informed that kr. J. P.

Eilorgan rather ttkes the British point of view.
Will jou be good enough to regard this as quite confidential.
Yours very truly,

13eni. Strong,
Governor.

Honorable S. P. Gilbert, Jr.,
Under Secretary of the Tresury,
Washington, D. C.
3S. 184

Aovember 29, 1922

Dear 14r. Gilbert:
My physician, Dr.

George D. Stewart of

417 Park Avenue,

York City, is having no end of trouble, he tells me, in

New

adjusting his tax

The field agent with whom he is

returns.

dealing is Mr. Edward J. Murray, and the deputy collector whom

he ha e seen is Niorris Cohn, room 620 Custom House Building.

I think the difficulty arises from Dr. Stewart, who
is an exceedingly busy man, leaving the

income tax returns to an inexperienced

preparation of his
secretary, and this has

resulted, as I understand, in his failing to make the deductions

which a physician or surgeon is permitted to make for costs of

instruments, etc.

At any rate, he tells me there is a difference

of a considerable sum of money which he is certain he should not
justly be

reeuired to rely, end. I am wondering

whether there is

not some way of having this case reviewed, with -a
for the fact that

Dr. Stewart is one of the

city and in every way

reliable.
Yours sincerely,

Honorable S.
Under

P. Gilbert, Jr.,

Secretary of

'ias'nington, D. C.
BS .MA!

the

Treasury,

reasonable regard

leading surgeons of the

December 1, 1922.

CONFIDENTIAL.

Dear Mr. Gilbert:

Referring to my letter of November 27, developments in

regard to the reorganization of the finances of the Austrian Gtvernword has just reached me that at the laet moment Zimmerman

failed to definitely accept the appointment es Commissioner, owing

to certain technical restrictions imposed u2on the ;:,owers to be
3ut I am also informed that he has

conferredonthe Commissioners.

not finally and definitely declined to serve.
yours very truly,

Eleni, Strong,
Governor.

Honorable

Giloert, Jr.,

Under Secretary of the Treasury,
'Washington, D. C.

FEDERAL RESERVE BANK OF CHICAGO

GENERAL FILE COPY

OUTGOING

December 13; 1922.

Albert,

ashington.

onf 'lent la'.

Rave just learned

rTok

ard is consiiering important

He thould be iromptly advi sod if his appointment is

o ?for.

oontelplated; others' ise he may make some other orramitment.
,tronk;.
FORM 46-16

100M SETS

1,8,0

01545

December 21, 1922.

Dear lir. G'ilbart:

Thank you heartily for your nibe letter of December

It got stuck to the back of some other mail, and I regret that
its acknowledgment was overlook-ad on that account.

Th ank you very much for your interest in Dr. Stewart's

tax matter.
Yours sincerely,

honorable S. P. Gi1bert,4.,

Under Secretary of the Treasury,
hashington, D. C.
B&W

Jamery 5, 1923.

rier Mr. Gilbert:

As euested in our telephone com-e-stion

inomming,I

uomg.ents on tne proposed bills for the roller Gr the agri_cultural

exire7.s

interests introeucsd by 6enators Capper end Lenroot.

Au I V.i.04 the situauion, thel,0 Fro two main questions, first, the
establiithment of adequeo means of Ointributin:.

:--cicu!ltv,rs.1 credit, t,!Y:

or drawine uoon surplus creeit furs in. certqn ca'ctirs in orer to
en:oly ar]ditional credit to those districts wter e

arr. ::,sficient.

The so-called Lenroot bill as originally Planned, end subz7equent1y
modified, -,Tas designed to accomplish both of ttess nurposse.

As you know, It

provided for the creatlen of a farm credit department in ewh of the twelve
Farm Land. Bbnke.

These departments were to

farm mortgage departments.

seoarate csnri dictinot from Vle

They- were tn have authority to i,;ruo debentures in

amounts net exceeding ten times the amount of their dspital anr!, In order to
take

cf the peA loads, the rere to have authority to rodiscount it the

Feeeral Reserve Ssnks all agrroultural paoer he]d by then vhen wi_thIn a maturit7
of six months, and. h.5 subsegnently amended wher within

maturity of rine months.

IL these two ways additional working cr,pital over and above the amornt of their
paid-in capital was T;0 be procured.
It *9!i no concemolated in the bill that the Fr Lr1 B,inks sb.0 lend

directly to individual farmers except when grouped together in organiTed cooperative

associations.

Generallyspeaking their funds are to be availed of only by redis-

count or purchase of paper from existing primary credit organisations such as

national banks, state banks, trust comienies, livestock loan associations,

1.5.23.

Mr. Gilbert

cooeer, ive merketing ansociationr and term credit mesocietione.

In other

words, the chief purpose of this bill is to erovide s mesnc of rediscount for
existing banks, trust companies end loPn and credit aseocietlens ehoee customere are

tea farlere themeelvee.

T'-eee eeistine points 07 eontect ellen functioring proper-

ly ere e2fficientlet broad al; distributine eeeotn, totir I believe +het the provieioneeLieh is incorpore.te0 ir both the Lerroot end Cepper Mlle Per the Lee'bereele f Lhe ea ,ller state herke ir the Faders' Pet-me r3etee

:,t1-' 4o much tc

el.:,Je-eeteel by
fecilitete e still eetter dietributier of credit, erreeislly
C.redit deperteer'ete lend direetle to oreenieed cooperetive
tze per eT the
&sr:eclat-ken, or fLrrere.

But tate currone of

i11

is' tc rrcrifIP q Tseare of drnerine additi)nel

credit to the agrteuleurel section? en(' °or to reeeene I beleva thEt the Lenroot

bill i.e better ele to eccemeltsh thie thee the Cseeer bill. First, I believe
that the denture' of the Fem. 'bald Henve, even witheut the tex-ezemet feetere,
ouldLeve e meet' better reerket teen te debenturer er colle.teral truat notes of e
nurber of ineividuel credit er redieeeunt coreereMons with emell eeei'vel ef' tleA

kind provided to tile Ckppor bill, end, meeend, tl!e previelen ir the Ienreot hill
Federal

which authoriee the Lend Fianks te rediecount agrieelturel peer eit

BEeerve Leoke when it comes' within nine months of meterity is F meet effeetlee

mens of providine Purther credit for the peek lode.
It nay be euegeeted that the Ceeper bill eieht

rtmorded

se.15.F

give to the Lediecount Corporations of that bill power to rediscount their peper
with the Aesorve 3kreee, Out I believe It would be eoet umfortunete to extend

the facililee

.J,41 T!eseree Benks to a possibly very large number of ineviCunl

leen e rporations with small capital and with none of the reetrietione er ebligatione impoeed on member banks of the PeserveFletem.

It is proper, however,

and would be a real help to have the twelve Land Benke, which operate under the

jurisdiction and supervision of an efficient Federal board, empowered to rediscount

eith the Federal Reserve Banks under proper safeguards and with their indoreement.

Mr. Gilbert

As T view the situttion, the Lenroot bill, in principle, occomelisnes
al/ that is needed to servo the problem no* confronting the agricultural sections
althoagh it is now rather roughly drawn and in anumber of details should .he
seeede,:'..

ieve, a You do, that the deeentufte autbori7ed to bp i?eled

seeild not be tax-exempt.

liaitaden upon t

I believe, also, 't.ht tt,ere Eheule be ne stetutorY

rates e: -Uscouui ahereed be the Le,nd Okr11,

There ie no

neeeso r. eeLti.

een whet should he the current rate of diecount end the

rte e paid on whaL

,eve been the last levee of iebenturee. Sc, also,

telleee t'eet there
the borreeer is etare

rite of the

no o ohlitien peetat. a discount of paper on welch

fete of iutereet 1-V2t cr more iu exceee of the current
The

ere matters tawt wirbt much eetter be left to the

reeulstioe axi contrel of the Ferm Loan 'rd tiler, to eeeree ereeisiore of lew.
I ag. ease oepooed, /0 you are, to e Treaoure contribution amounting to
es much ar !!120,000,000, the =leoent k,tlich I uneeratend iP no proposed in the

teereet bill, but I -elieee th.at thL bill end the eredit deperteente crested by it
could function properly on e much smaller capitallantion than that which has been
ruegerted.

If, as I believe, e capitel of !,2,000,C00 or . 3,00°,000 for the credit

department of eeeh Land Bank would fere the, beeie of all additional credit that
mey be reeuir-d then I feel that the 'ill might he no drawn as first to induce

eubecriptione by the public, end eubsoquently by the Treasury in the event that

public eubscriptione are not sufficient.

You etated on the telephone that there

htve beee pome sugge,rte:.ene that the Lenroot bill oueht to be mended by providing

for an even greater ceeitelization.

If it were intended that the Fr m Land Banks

should 14A0 only direet leans oet of a revplvie fund such as the War Finance

Coreoration he,

any means of eaking a turnover either through the Federal

Reserve Banks or by drawing in new funds through the stle of debentures, it might

be essential further to enlarge the eapitelization, but with the provisions in
t'le bill meking possible the issue of debentures end the rediscount of eligible
paper when within nine months of maturity, the Land Banks will be able to procure,

Mr. Gilbert

l'AttOU

1.5.23.

ereet emcent of cpitell, se much edditionel credit se

no%

reeded for their sueneeeful operatior RF rediecount corporations.

While I have always oppoeed the principle of goeerneentel earticipetion
in any sort of egricultural credit,

it eeene to me far better that the Treeeury

sbeeld contribute t30,000,000 or 00,000,000, if it le neeeesary to do ao, to
eezeetee

'-fect!ve re,i!eeeeet ccencretien for the primary SOU,cFW. of aer1cul-

".e erietine ben',.e. trust comeentes and ben eesoeietione,

terel

then to deviee

effeetive, - if

RUC

ea the Ceprer bill, ehich I believe would be mueh. less

dee,elnr cuffieient additionalcredit

cYt

Into the evelculturel sections.
The elpital

of the proposed credit departeente of the Lend banke

te railed by a provisiee ir t

ee.

the 7ar Fineaoe Cer,ecretion shell in the

first inntance zetecribe for whet:ever amount is determined upon RE needed, and

te Imn cerente as and when nee,,i,d.

The life of the War Finence Corperstion

iteelf atould be extended for 'nether veer, and, pending ite liquidetion, etrenuoue
efferta miz.ht be mede to effect the eale of the nee etock of the Lend Banks to

private interests.

Fhetever Fmount umder the preferibed minimum might not be

'eln up by outside cepitel shou3, uron liquidation of the W r Finence Corporetion, he trensfarred to the Tre

Thie mecheniem

Till

inFure immediate

funde for the new credit departmente and will, et the same time, efford an

opportenite to efect a eale of the cepitel to the cut-nide before the
Trees:tire telres it 077r.

Incidently this might meke a

most effective mewls

of licuidatine the Vier ?inane, Cerporetien when that time errivee and rill, at

the eee time, give the ne% coeporetion aF,oine bueinese.
KiEht it not be better, then, to adopt the principles of the Lenreot
bill, eliminate the tax-exempt feature, reduce the amount of the cepitalization,
and provide for Tressury

be reiced, than to
http://fraser.stlouisfed.org/
Federal Reserve Bank
of St. Louis
4.uto,
Pac4t,ran

contribution only in the event that

privete capital cannot

itroe over the Thole plan solely becauee of the objection to

Mr. Gilbert

1.5.23

One more thing, - I understand that the Caper bill has elrealy been

reported by the Senate Banking and Currency Committee and that it is likely that the

If that im true, 'here will t:e before
Senate for consideration two bills vastly difTerent in .)17, Pld
o .
the
Unless
Lenroot bill will be reported next week.

there le somewhere a. ntrong guidiric! hand it it difficul to fere;Fee rt-,t
the compromised product.

I would like to urge, ae I Lbve dons befrs, that the
And,

Treasury take hold, if neoessarr-dthrough c coffereace of six or csven of tl:ore

most directly interested, agree upon some plan that will net only he content
with the principles ve 0.1 stand for, tu-1-.

to you already, I do not believe that tL.c

will also work.

*r bill will -Nerk.

"4/,'-v truly yours,

Honorable S. F. Gilbert, Jr.,
Under Secreter of the Treasurr,
Wastingtn, D. C.

PERSONAL AND CONFIDENTIAL

January 8, 1923.

Dear i4r. Gilbert:

Yours of January 8 about the article in the Journal of Comeerce has
I have greet difficulty in making out whet Dr. Willis is
just reached me.
driving at.
He has a very cool and unenthusiastic article in the Journal of

the Academy of Political Science for last month, in which - aeon,: other thle:.;e been a certain amount of nepotism in the
I think ?oesibly, however, we are all inclined
to give his views a little more personal direction than is just to Dr. Willis.
Undoubtedly, some of his experiences connected with the Fecerve System have

is an implication that there has
manageeeet of the Reserve l,anke.

tended to

I am very sorry that it should be so because he

sour him a bit.

could be of great help to ue, especially at this time when the outlook for the

System is a doubtful one.
the

As to the question of financial leadership; I am vary much amused by
viewswhich he expressee.

At no tine has the ileeerve S-yetem been oo free
as it ha E since gr. Mellon

from anything approaching control by the Treasury
took office; tbet is, since the Re...eerve i3Tuke

r.,?,, z.-11;

I think, on the other hand, it is faieeto say that

to funct,ion in

anl

at no time have the officers

at the Treasury given so willingle,Feld quite properly, sympethetic attention to
the views expressed by the Reserve aanks in connection with the Treasury's
financial operations.

Thie is 53.1 as it sl-rbu-Id be,

xrid I cannot explain Dr.

Willis's article except as being more of a criticism of the Reserve Board than
it is of the Treasury.
It iF. sort of a beck-handed crack at the noard, if
it is anything; and is not the best course in these matters to ignore the all?
If you would like to have me talk with Willis, I would be glad to
do so, but doubt if there is mucb to be gained by it.
tours very truly,

gonor ab 1 e S. P. Gilbert, jr,.,
Under Secretary of the
Washington, D. C.

Treasury,

January iJd, i925.

Dear :lir. Gilbert:

Thai L.1,u for your

covering the cost

cA7

in th

to
of your railrohd aric: p-uilmaa tickets

Washington on the ibta.

it 13alcays a pleasure to serve you
st
pkcity, so do not hesitate to call u.,ori us

Very truly ye,12's,

CASE.

Honorable S. FvG114.4,,fr.,
Under 6ecretary of the Treasury,

Yiashington,

D. C.

any vt-

ny time.

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Ae

February 20, 1923.

PERSONAL AND CONFIDENTIAL:

My dear Xr. Gilbert:
I have just been over the memoramlum which you

enclosed in your letter of February 16,

but without any

pride of authorship!

I am mther taken with the genoral idea expressed,

but I feel thtt this Is so much s matter for exchange of
views that I suggest proposing it to the British and getLing

If it would be desirable to do it unofficially,

their reaction.

can probably arrange to do so througl Mr. Norman as a personal
mayter.

What do IOU think?

Sincerely yours,

Honorable S. P

Gilbert, Jr.,

Under Secretory of the Treasury,
WPshington, D. C.

9S.Mari

FEDERAL RESERVE BANK
OF NEW YORK

copy

PFFSOYAL AND CONFIDENTIAL:

February 21, 1923.

Tear Mr. Silbert:

This morning brings yours of the 19th, on the. subject of the exchange

problem relative to the British debt settlement.

Elaborating what I have already written, the following suggestions are
strongly in my mind as worth considering 1.

hi1e the problem discussed in the 1920 report of the Secretary of

the Treasury, levee 60-65, wae no different then than now, circumstances, (such as
the German mark collapse) have changed and, in my opinion, favor less definiteness
in any obligation to be assumed by either party than may then have seemed feasible.

The provision on page 63 for payment in sterling drafts does not seem to accomplish
It would simply mean that with sterling at a premium, se would have the

anything.

right to ask for payment in sterling and then have sterling to sell.
exeetly what the British

But that is

Treasury would do anymay in making payments in dollars, -

simply sell sterling and buy dollars, - and the prevention of n sterling premium
would not be accomplished any better by hawing a change in the
ling.

party doing

the sel-

What would be required is just whet I suggested in the memorandum I left

with vou; that is, an increase in the amounts paid.

setting up forms of machinery

Nothing is accomplished by

to carry out the purpose, so long as the parties are

agreed in the purpose.
2.

Any schemelbr converting the propoeed 3 - 3-1/2%

obligations into a

marketahle bond, payable in sterling at a fixed rate, (say per of exchange) or in
dollars, presents many difficulties.

Without elaboration, they seem to be

principally the following:

The variable

rate, provisions

for anticipation and

deferring, how to distribute amortization payments, etc., would. re-

FEDERAL RESERVE BANK
OF NEW YORK

Mr. Gilbert

2.21.25.COPY

quire the orention of a %holly different bond, in my opinion.
If sold in London the discount love would likely be
large under eny probable coWitionr no to be enticip,ted.

If the British ere Reed to essume the discount lose,
it would be better to rely upon n simple right to cell for tirger
peymente end let thee do their own borroeing in their own enrkee. end
pay what they muet.

Sales by our Covernment of a British bond in the
London market would be a fruitful source of dicpute wnd bwd feeline.
The :Awn #,ould be no more then e club, ,recticwlly,

and better plane are poesible which would require no clube.

se can have no objection to the British delaying ptements, within the
limit& of the agreement; or increasing payments without limit, so lone ac the
exchange market is protected; and (what so few people comprehend) we ere deeply con-

cerned thet there shall be neither premiums nor discounts an the currencies, nor

violent fluctuations. The British interePt is siailnr an equal to our keen.

expreve in simple lwnguage, and te t definite obligation upon the ptrtiee, en evect
pltn for increeeine or decrensing peemente in ceee of sevancee or declines in one
currency or the other, impreesee me NS unnecessary, end poeeibly involving some
hazarde, if attee.pted beyond the limited propoeels contained in my memoranfium.

The important consideretions nre the following:

Stnble rte s of exchange

Return to par, eithin gold points, as BD= as
possible
5.

Resumption of free gold peymente by Greet

Britian and thereafter Its maintenance by both parties.
Similar conditions brought about in some eix or
seven other countries ehere geld payments cen no doubt be resumed

as soon es done by the British.

FEDERAL RESERVE BANK
OF NEW YORK

Mr. Gilbert

e-g@PY

The imeortance of such a resumption bill be eppreciAed when it iP realized thet

with dollars, sterling, yen, and guilders back at per (within gold chipping points)
probebly W or more of the world's foreign teede eould he freed of the hazarde and
speculative comelicetions of the exchange fluctuation or the past eight yeerF.

This leads to your letter of the 19th and the larger aspects of the
Eterling market.

e heve discursed and eorreeponded with the Governor of the 'Rank

of Fngland upon thip ruhiect for two years pest end are egreed even though the
that

British debt IF successfully funde4/there are still serious difficulties in the
way of exchange stabilization,

principally those having to do with paymente of

reparations by Gereany and, in turn, such payments to Gre-t, Britein by Allied
Govern%ents ae may ee required folloeing our refunding.

Notwithstendine this,

It eould be our expectation to continue discuesion of the matter, especially if the
exchange provisions of the '3.ritish funding mereement are favorable, rith the hope

of arrivine at acme plan, even if not a cemprebensive one at first.
The part to he taken by the Bent( of rneland and the Federal reserve Rank
If comparatively simple.

It should, hoeever, su leeent,

or, In fact, funementelly rest upon e satisfactory and effective agreement Re to the debt.
It eoulel, in
a word, be our expectation to buy bills an eermerk gold, in the respective warkets,
ae exchenee movements mede it desirable to do ro, and, of course, it is possible

that a gold loan (eocalled) might be considered at the outset, although the writer
has never considered such a loen to be in fact more than a gesture.

It peems to me im,ertent to draw out the point of view of the "ftitish
Treesury as to any specific provision, as soon as possible, as that me), disclose
weeknessee in the plan.
8*

Finally-, stated in order of importance, I eelieve the a, eeeent.should

contain

The general decleretion referred to in your letter
Provision for accelerating payments if sterline goes
to 4 premium

Mr. Gilbert

FEDERAL RESERVE BANK
OF NEW YORK

2.21.25.

copy

Provision for deferring payments (within the limitations
of the agreement) in case sterling declines, such provision to be suggested by the British
Some such plan of payment as is out'ined on page
2 of the memorandum, although this is of less importance, and
whenever a satisfactory agreement is concluded,

it should, if possible, be followed by some agreements or understandings between banks of issue, loe-eing to improving conditions
in the exchange market.

It would be helpful to read the full terms of the agreement, whenever you
are able to let me

belt it.

An additional copy- of this letter is enclosed. which I should be glad to

have delivered to Acting Governor Platt for the information of the Federal
Jeerd on matters relating to our foreign exchange diecuesions.

Very truly yours,

Honorable S. P. Gilbert, Jr.,
Under Secretary of the Treasury,
VInehing.ton, D. G.

12.S.MSB

eserve

February 26, 1923.

PFIVATE AND CONFIDE:F.1AL

tier tar. Gilbert:

Under separate cover I

writing you about the

9ritish agreement.

Your letter containing the

draft, Thas

dated February

22, sent "special blivery", but only re,chee_ my office 9:45
SEturdaj, the 24th.

morning.

Plec;se note

6nveloo.

Very truly yours,

Honorable S. P. Gilbert, Jr.,
Under Secretary of the Treasury,
Washington, D. C.

BS.MSB
Enc.

It appears not to have been mailed in

;asticgton 'till Friday

the +um on th

the condition

February 2e, 1923.

PEF,SONAL At CONFILENTIAL:

near Mr. cilnert:
Wijth thie T em returning the copy of the rough draft of the British
nanding egreement, on shich I have mede eome pencil notations, also memoranda

commenting u1)0 the verious points shich you eill find numbered.

As this draft

will Jeubtlees be eonFiderehly changed in lengueee and form, I am now sending only
comeente, sitteout attempt to m'Ae any considerable chereeeF in the language.

It will be a qrot aid in further considering this utter to beve the
encineed reugh draft, with me cencil notes, returned to De, Is I have retained no
co y.
plen.

Aleo I am witheut e copy of the Act of Congress approving the funding

I have retained copies of the memoranda of eoirte.

I am teem that the delay in receipt of 'our letter of the 22d he
unaseiJably delayed thiF reply.

Very truly your,

Honor e

') S. P.C011bert, Jr.,

Under e--erstary of the Greaeury,
WaehingtOn4 D. C.

March 6, 13.

CONFIDENTIAL:

Deer kr. Gilbert:
Your

of Merch 4, with the revise draft of the Pritieb funding agree-

ment and the Senate bill, are duly received.
The egreement is of such immense imi:ortance that I hesitate to send any

further comments in the nature of R "lest word" without eeme further reflection.
So I may Pend another nete tomorrow, and will return the draft then enyway.

course keep the copy containing my former notes.

In general I think the agreement is a fine, simple document,
without smbiguoue phrasing.

clear and

It may need some polishing, end, if there is time

and opportunity, I would apprecivte seeing it egain when about finished.
The following suggestions may be eorth considering

Pace 2, Peragraeh 2.

The language indicetes t'let the entire

$4,600,000,000 will fell due, normally, December 15, 1984.

This would imply

that the entire principal is kept alive "ill maturity on the basis of a typioal
lean cumulative sinking fund obligation. But is this literally true? Does
not the debt really mature according to the schedule of pa3mente?

A rev words

will cure this; if I em right in the comment.
Page. 4, first peragreeh.

The language might imply thet after

one such postponement had been made and repaid, others could not he subsequently
made;

add the Aorde "until all amounts previously postpone have been fully

repaid" or something like that!
Pages 5 and e, Paragraph 5.

6hi1e there is provision in

paragraph e for fixing the rate of exchange, it seems to me that paragraph 5 is

rather uncertain as to intention.

Does it mean the United States, can fix any

Mr. Gilbert

rate of exchange in any currency?

3.8.215

The British will surely object to that, and

Does not tte spirit of the agreement indicate thet -

properly.

It is a dollar debt and normally be be repaid in dollars
If repayable in any other currency it will be simply as n

meesure of mutuel value to protect the respective dollar - sterling exchanges

In that event the only other currency 'would be sterling,

certeinly not francs, or lira, etc.
Therefore why not let paragraph 5 relate just to dollar bonds
and rely upon paragraph 8 to cover the terms for sterling bonds.

Also I think paragreph 5 (near the end) might read as folloes "Tha United Stetee, before offering any such bonds for srle to the public,

"in Great Britain, etc." (words underlined are new)
The last sentence (persgraph 5) is FO brord se to appear to offer opportunity for
a hostile Secretary of the Treasury in later years to impose very burdensome rules
upon the other party.

I certainly think this should be made clear that the rules,

etc., must be reasonable and within the terms and spirit of the agreement.

Also,

on farther thought, I feel quite certain that the intention will be cleerer if
earegraph 5 is made to cover dollar bonds for public sell', and paregreph e for

sterling bones, etc.
4.

jfe

think, a mietaiee.

FDY9erape 0.

The rate of exchange suggested, 4.87, is,

Premiums and discounts on dollar - sterling exchenge are

figured above end below exact gold parity, vhich is ;4.5885plus, per full weight
eovereign.

Therefore, the gold shipping point is that point above or below

4.8885plus which produces a difference equel to all coet (including assay charges,

freight, insurance, boxing, abrasion, interest, and incidentals) of laying down
gold in the merket whose exchange is at c. preeium.

The amounts involved here are

so enormous, that I feel sure the exact gold +equivalent should be "nominated in

the bond."

There are some changes of phrase, which I am considering end will

Mr. Gilbert

They take some further thought.

eend tomorrow.

Page 3, Peragraph 3.

Insert word "made" after eord "states"

third line of this paragreph 8.

hef 3, Paregraph 3, lest line.

The words "good deliveries"

sre

difficult to exesztly define. It depends upon business custom, etc. - it very
difficult thine to define. why not say "s'Iall be in such negotiable form, free
of defecement or mutiletion, as tie constitute en

sccepteble trensfer of title

under then existing rulee of the Tressury, which apply to securities of the
United

St5te5.4
7.

This would include our fiscal agency rules_

As preliminery to sending you a new suggestion for peragrapb 8,

tomorrow, plesse consider that I am rather doubtful of the reasonablenese of
requiring

the British to "meke edvence pent of principal in such amounts as

be necessary etc."

may

It might be too much for them, and ts are just guePeing

es to what the future hes in store for us anyway.

are any deferred payments

I am cleer that If there

unrepaid, they should then be psid up.

A blenk check

up to billions (beyond unrepsid, deferred instalments) I think is much too uncertain
and possibly too harsh.

I'll try and suggest another formula later.

In general, the possibilite of celemity grorine out of this egreement
lies entirely in the possibility of a 3ritleh default.

'Mille remote, It could only

occur, so far es human foresight can judge, because those are foreign payments.
would suffer, though not as much as they, because

such a default, - and I

think our own interest requires that the additional obligations contemplated, - for
exchanee purposes, - be most serepulously safeguarded.

It is hard to picture

situation, with sterling above our gold shipping point, in %which the 9rit1sh could

not find means to make these additionel payments;

it would, indeed, probably

be tee case only in event 3ritish domestic credit we at such lo e ebb that the
Governeent could borroe neither et home nor abroed.

Ur. Gilbert

6.C.23

So plese let me have another tvLenty-four houre to chew on this.
Sincerely,

Honorable S. P. Gilbert, Jr.,

Under Seoretnry of the Tresnury,
Weehington, D. C.

copied from aenuscript.

Meech 7, 1923.

CONFIDENTIAL:

Deer Mr. 011bert:

Unexpectedly long session with the Dentist end Doctors have made it

difficult to nend you another draft of peregreph 6 of the funding egreement, as

I had hoped, before leevine for Colorado on Fri.
The enclosed rough draft may he suggestive, but possibly the folloeing
will expreRe better Abet is in my mind -

'ho paragraph, in my view, should contain the following provisions:

Both parties desire gold standard, free gold payment, nnd
stehle excheeges restored rire:! meinteined.

The first named provisions (as now recited) sre to protect
Greet Britain egeinst decline in pound.

Greet 'ritain will repey al) deferred inetelmente in case
sterling Roes to premium, - uot exceeding, eey, t

in steted period or

periods, An order to protect dollar.
I bad hoped to avoid a fixed amount to be peid in Advence, in

case of a sterling premium still continuing, but there in really no way that
e-

occurs to me to avoid doing so, without leaving the Amount either to be determined

by the Secretary, by events, or by later agreement, and I would therefore prefer
to omit (d) and substitute some such lenguege as you already have in the lest

peragreph of this (0, making the British obligation to repay apply to deferred
amounts tkad errengements for advence payments to be eorked eut when the need

arises.

My yesterday's letter covered the other parts of paregrteph C.

Mr. Gilbert

3.7.23

P1e,3se let me know if tbere le enything further thet I can do.

it ip a privilege.
Sincerely,

honcreble S. P. Gilbert, Jr.,

Under Secretary of the Treasurj',
Wa.ehington, P. C.

copied from manuscript.

A,-,r1.1

12, 1923.

Dear Governor Stronto

I am returning to you for signature your letter to
Gilbert, with 9, few slight changes which
-,roved.

r. MP.son has

Also letter witt, check for t455.78 to be sent to

the Complissicnor of internal itevenue, which r.Mason considers
the rroper .procedure to fellow under the circumstances.

Tours sincerely,

tr. Lienj. Strong,
c./0 (%-galor Sanatorium,

Colorado 3rin.i, Colorado.
Enos.

Colors.do Springs, ':',olorade

April 16, 1923.

Dear Mr. Gilbert:

I am sanding you with thim the tile of papers relatin

to my

ifICXYr0 taxos for the yer.;rs 1918 - 1919 - 7,920, and would like to ask

you to conciliar the facte.

VI books fand returns have been exand.ned by ine-eotors three or
four times, and the 1%14 inspection :nada was in August, lci21, which
There is no
;lowered the years 1918 - 19'19 - 1920 above mentioned.

objection to that so long ke they get the job done and quit bothering the
takpayer; but now it seems, at this late date, that I awl adviteed that
the ReVelltiO inspector and the 3ureau t4aaltington do not agree with

respect to the taxable interest on Liberty boAs, and another r:orrection
nin loss
ie necessary, and finally I ,trR asked to sign an agreement of :ay right of recovery if the Treasury is wrong. Alec the agreuntent
intizates that mat;..ere will be expedited if i sign away III rights. It
allEOUildt. like the old bureau "red tape soalr the taxpayer" stuff to me,
End on that score I get bit riled. 'Jut for another reason. (And
that is what inspires this leter.) I ni7 really indignant. We are
facing a deficit .thie yefx of a large 611Th 0.00 to t2a0 millions', I
judge - and have some hundreds of millions or uncollected tso:es awaiting
effort over the smell fry, like
Why wasteo nuch time
adjutitsent.
me?

Get =1.;:ftr.ir the big amounts ?An d let there triflinf!. errors waiti

So much for that.

*y best to you.
Sincerely,

IsrAtble S.. P. Gilbert, Jr.,
c/o TreRsury Department,
Washington, D. C.

FEhSJAA AI) CFILZLL

April 18,

Deer Gilbert:

Referrine to our eychnage of teerams yesterday tad your /ire which
received this orninc, 1 regret to observe that preueat Treawury bnlences in
Pederki Reserve b,nks d not ,erkit of redemption of Septet ber maturities as of

to-day.

41th respect to the stgestion that wo try somo s ;(es in the mmricet,

honestly be,levc tht this is P most invAvisable thins for we to el.tgest to the
oawnitte at the preeent tire. Please bear in mind in this retard that at the
iNshiagton Conference there wts considerable discussf.co, but4-t.en

overnors on

the -ne }lend ,,r.d the Fedmita Reserve Board on the other, itt respect to the right

of the Borrd of of the irefigury to dictkte lc to the purchase and sale of securities in the open *arket. This dtectIsIlon tormirmted in a modific4tion of the
oreamble originally Aopted by the Bonrd.

y best judgment ia that for the

present there hao teen qtite enowh pr-1sure from tau Board &nd thu Tres ry,

that it is 4ot

words the slt

to unduly press this &otter further just nos.

In Aber

Ils for the myercise of a bit of ,4tiea-te.

As I dvised y,u on 3ondty,in trAnatitting tho copy of the linutes of

the Philade-,:his com-ittee mectinw this questior of further sCes on the market
Wile thoroughly

one over t that confere)ce,

the feeling we pretty deneral

thtt in view of the possibility of A advsnce in rates in the as.,:r future it was
not 6dvIspble to re-Pell to the ,,,rket any trobttntial block of Goverment securi-

ties from the Federed Reserve portfo!lo if such ,:ctlen were to be shortly followed

by a rote incre,se.

I thereupon seized urnn that oniortun,ty tc- evIgk'est an ulter-.

n,tive course, nowelY, thkt it would be * nice thin for the corAttee to coopergAm

se,

April 18, 1928.

C.,

-ith the Treasury's, eepreesed desire to have the Federal Reserve benks

liquidate their Government securities by tenderine the Trensury all of the Sept-

ember nertif'o-tes for redemption at par and interest.

As you have steted that

there le elsreer nmeunt of September maturities outstanding than is neceesary,

naturally felt that this offer would commend iteeLf to you.

After some discussion

all members of the co ittee cordielly :,,,greed to recer end to their respective

Boards that all September certific,tes held in portfolio be offered to the Treasury

et par and interest.

The Tressury to nfve the privilege of teking them up at such
If you heve not sufficient fundu on hand to

time as would suit its convenience.

take up the whole t!6,000,00C.. why not make s stlrt and t ke up 'some pert of them

this week -nd the bs'ance later on?

For your thformetton I am enelosine with this

a memoreldem shewine thget, the Septeeber meturitlea ere held by nine benks, in the
aggregete sum of e35,94Z,500., and I RID honing I emy hear favorably from you about

this in the near future.
Developments of the past week have but strengthened ey conviction thst
the time has arrived when K

advance in the discount rete should be made here,

but I an heartily in sympathy -with the idea that kr. Crissteger should immediately
quelify me Governor, !awl promptly accept the invitation of the New York Chember of
Coreerce

come here and rake an address which will contain seme irportent state

meat with respect to the preaent'credit tendenv'ee, the steterent to be of each a
charecter as to pave the wey for an increeee.
I enclose a copy of current inforzetion from Was'e-ten which may be

of interest to you.
Very truly yours,

5.
P. Gilbert Jr., Esn
Ur0Ve ?ark

Asheville, North Carolina.

J. H. CASE,

April 18, 1923.
Memo. on Credit Policy.

Examination of the banking position today as compared with 1920 must
make due allowance for the fact that the foundation upon -,vnich any inflation may
occur has teen tremendously broadened by reason of the large increase in the
country's gold stocks. The danger point in the 1923 reserve ratio therefore, is
considerably above that of 19a), and a like measure of inflation may be attained
without the corresponding expansion of member banks borrowings from the Federal
Reserve System. The facts as charted seem to show that commercial loans and investments Of member banks have gone up more than 43, 000 ,000 ,OOO. during the past

year or thereabouts and re fully as high as the 1919-20 maximum. The simple fact

is, therefore, that a great credit expaision has already taken place, based largely
on the extraordinarily large gold imports of the past two years instead of being
based solely on Federal reserve bank credit as was the case in 1919-20.
The two important questions to be determined at this time are:-

Will further credit expansion actually increase
production and facilitate distribution of goods.
In view of what has already taken place, should
our discount rate continue to be about 1% below
open market rates, thereby stimulating further
expansion.

It should be borne in mind that if, as and when our rate is increased it normally
happens that a considerable further expansion of credit continues for a brief
period.

The recent report of the President's Committee on Unemployment, states

that the main objective is "to flatten out the alternating cycles of abnormal prosperity aid resultant deflation, so that business may be spread out rare evenly and
the recurrent disasters avoided." According to Secretary Hoover's statement, the
hypothesis upon which the committee has worked is that "when industry has been restored to full production further price rises are artificial inflation." The socalled boors, which the committee points out has always preceded depressions and in
some instances panics, comes of consumption demands exceeding full production
capacity.

The report of this committee goes on to state, "Individual banks
and the Federal Reserve System as an organization have a responsibility for checking undue expansion by credit control, and in concluding, it recommends that more
study be given to this subject. It further adds that excess gold now in the
American banking system, might constitute a factor tending to undue price enhancement, with consequent relapse later." The American ranker in comment ing upon this
report editorially says: "Every one agrees that the causes of the periods of
depression originate in the over-expansion and inflation that occurs during a period
business and
o
of prosperity. Thus if an hin - is to be done
impart to it a great er amount of st ab il it y the contro 1 mist be applied in the
period of prosperity. We are now in a period of prosperity and fortunately the
report of this committee, begun in a period of depression, has been issued at just
the right time because the actions of the business world in this period of prosperity will determine the extent and the nature of the period of depression which

is to follow."

votat

The foregoing is sound and it seems AMC unreasonable to assume that

the Federal Reserve System is looked to by the Country to protect the credit resources of the nation from exploitation.

COPY

CONFIDENTIAL

August 6, 1923.

Dear Jr.i Gilbert:

Have you given any thought to the disposition of the outstanding bonds of the 4% Loan of 1925 which become
February 1, 1925 ?

redeemable on and after

I notice that there are $118,489,900 outstanding, of

which $84,820,800 and $1,768,000 are on deposit to secure national bank
notes and Federal Reserve Bank notes respectively.

Of course at the

money rates now prevailing, it would pay the Treasuryto let these bonds
run along, but even if such conditions should prevail when these bonds
become redeemable I would he interested to know what you thrik of the advisability of retiring them because they carry the circulation privilege.
I think we all agree that national bank notes constitute an unscientific
form of currency and that it would be desirable to retire them on that
account, and with a view to reducing the different kinds of currency in
circulation in this country.

By redeeming the outstanding bonds of the

4% Loan of 1925, you would automatically bring about the retirement of at
least $84,000,000 of national bank notes.
In addition to these 4% bonds there are close to $600,000,000
2% Consols redeemable on and after April 1, 1930, which also carry the
circulation privilege, and these two issues make up the bulk of the
*793,000,000 circulation bonds now outstanding.

If they were paid off

gradually and no further bonds with the circulation privilege issued, most
of the national bank

notes would be entirely out of the way.

While I

appreciate that in order to redeem these circulation bonds the Treasury

Hon. S. P. Gilbert, Jr.

-2-

8/6/23.

might have to reborrow at a higher rate or use surplus

funds

which otherwise

might be used to retire through purchase at less than par, government
bonds bearing higher coupon rates, nevertheless I am inclined to think
that such a course would be desirable and that the Treasury would be
justified

in following it in

order to retire most

the national bank notes.

I should be glad to have an expression of your views on this.
Very truly yours,
(Signed)

Honorable S. P. Gilbert, Jr.,
Under Secretary of the Treasury,
D. C.
Washington,

J. H. Case.
Deputy Governor.

Kvember 22, 1923.

Deer Mr. Gilbert:
It WEIS good of you to write ma so cordially, now that our ways

seem to pert, after all these years.

Our relations have teen a great

csuee for eatiefacticn to as Lli la the bunk.

If we have been of some

little service in your work, indesd yJu hay_ equally been our stalwart

friend in cure.
No reply to your letter would be adequit' mithout expr:a ing

the great ,fmiration I have foryou or., for our a;lendid achievamcmt:

in the Ireasury.

To 1eye, record ,f wblic 5rvice of

hiphset

ordcr, wnieh the -ublic kill never understand and aporeciate as fully
,s do your intimate asc.ocietes like myself.
I wish you every success and much harroinese.

Very sincerely,

:Lonorable 6. P. Gilbert, Jr.,

c/o Messrs. Craveth, Henderson & de Geredorf,
52 William St., New York, N. Y.
BS.111/

Full text of Papers of Benjamin Strong, Jr. : Correspondence with the Treasury Department : Letters to S. Parker Gilbert, Assistant and Undersecretary of the Treasury, 1921-1923

FRASER