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F.D. 12A., 76 No. Federal Reserve Bank Stifon/c. District No. 2 Correspondence Files Division P/9PkWS SUBJECT 875(?6Aca -TO zinveva G. S'Ec-rs-'. 4/S r-e)AJ 01c 772- EAS 72,3 Mc2.7 SEE 44 7-RIP 1125"; /f2-40 ga,-iiwcwps-v-k STATTVENT SHOWING EST/MATED EXPENSES AS REPORTED BY AL! FED1.;RAL RESERVE BANKS AND AMOUNT OF EARNING ASSETS ilEQUIRED TO COVER SUCH EXPENSES FOR THE YEAR 1924 Boston &Rams:a Estimated Current Expenses $ 2,132,020 New York 4 Philadelphia 6,765,000 t 2,632,000 Cleveland $ 2,720,020 $ 1,650,000 Estimated Dividends 480,00n 1,q00,000 618,000 Estimated Reserve for Depreciation, etc. 150,1)00 1,760,000 100 OCO 850,000 200,202 02,762,000 0.0,295,000 3,350,300 $4,330,000 Earning assets at 4% Required to Cover Estimated'Expenses 69,050,000 257,375,000 83,750,000 Average Earning Assets Held Weekly Jan. 2 to Mar. 19/24 200,3E4,ccc 88.252,020 Total Estimated Expenses Chicago. Richmond $ 1,344,160 350,000 St. Louis minneasclis Kansas Citl Dallas San Francisco $ 4,405,000 0 1,500,000 $ 1,230,170 $ 2,016,248 $ 1,380,000 $ 925,000 300,000 760,000 _2E3,522 657,197 100,000, 391j80 $2,200,000 $1,876,637 t5,987,197 $1,?00,020 108,250,000 55,o0,000 46,915,925 97,7E0,000 55,758,000 61,111,coe T o t a 1 3,049,000 $ 30,793,578 273,950 272,982 251,429 210,000 6,716,361 720 05,0oc 1,000,000 0,831,350 02,798,950 i2,286,429 4,524,C00 149,679,925 47,530,000 45,783,750 69,973,750 57,160,725 30,425,000 49,287,000 60,621,000 5:1 t44,142,563 Earnings 68 ,208,000 Average holdings of Earning Assets Jan. 2 to Mar. 19/24 in Excess of Estimated Requirements Average Holdings of Earning Assets Jan. 2 to Mar. 19/24 Short of Estimated Requirements $ 758,000 $4,5C2,000 842,000 $ 57,011,000 117,542,000 44,423,000 $32,137,925 $3,077,000 015,358,750 $20,686,750 Avorage earnitg assets short c f Richmond estimate their earnings for 1924 as " 1924 " Atlanta " 1924 " San Francisco " 11 11 $3,000,000 3,083,325 4,615,000 90,762,000 964,543,000 $ 22,925,350 $ 3,470,275 014,195,075 010,470,000 113,100,300 4103,539,075 $22,338,000 $161,921,425 requirements $138,996,075 December 7, 193. Hon. Garrard B. Winston, '.----"Dhciiiirretary of the Treasury, Treasury Department, Washington, D. C. Dear Sir; This is to acknowledge receipt and to thank you for the copy of the annual report of the Secretary of the Treasury for the year 1923 which you so kindly sent to Governor Strong for his information. Yours very truly, Secretary to Governor Strong. C 0 F Y 1TIAL March 24, 1924 Dear Mr. Winton: Governor Strcng is absent from the office for a brief period and i therefere, anewering your letter of March 22 addressed to aim. On or about March 15 money rte e eased coneiderably (temporerily, at let,) not only io thie market but aeeereuLly over tee entire country, so thet call money was lending az low as 2% in Ceicego de well as in Nea York. The market hap been treated to the that it has witnessed for some time. first really abruet decline in money rates The ease has been most oneral in chareo- tor and has affected the ehole list of obligation that are influenced by chengee in the money merket. The extraordinarily newly disbursemente of the Treacury on Varch 15, eccomanied by our temporary advance to it of $138,000,000. at that time, had an imediate end rether unusual effect on the price of money, because )f the fact that our larder member benks were for the first time in a long ieriod borrowing a negligible amount - the smalleet in yeare and %ere, therefore, un- able to follow the cuetomary %ractice of uning the proceeds of tteir Nearch 15 cellectione in reducing their debt to the Federal reserve bank. Our member banks' reserve with us showed an increase on March lb of about 4s:125,000,000. in excecs of normal, which reulted in an aotive tion to get this surAlue 'celled cut, ap,iearance of a lenders' panic. RO that the market hen, tem;.orarily, the These excess reserve balencee have now en- tirely dieaeared, and thc fact that we are now areachine the end of the quarter with its large amount of diebursemente on April 1, leads me to believe that it is not unlikely that Ne may eresently see somewhat firmer rater fer money, certainly over the first of 4ril. - 2kr. lkinston March 24, 1g24 lashington Open NI:aket operations of the System have, of course, come to a complete standstill, although there. was considerable activity during the week or ten-day period preceding the March 15 transactions, so account 14,,P materially increased. that the aggregate amount in this The present holdings, together with some 41%500,000. purchased for delivery later this month, now aggregAe 4U81,000,000. The buying rates fixed by the Open t:urket Investment Committee about the first of 11/0.xch are still in effect, but at present they are eo out of line with open m rket prices am to 1-rdte it practicully imposible to increase this account furthtr. The accompanying liet shots the spread that exists between our rates and the market. an indication cf the change :that has taken place in short-term "Governments*, since my talk tith Secretary talon tnd you on March e, mitting 4 liet of th 1 um trans- schedule of Uovcrnment seourity price e at tat date and the prices that at present prevail. Government obligations maturing next klaroh were then being purchased on a 4.15% basis, while at the moment they ure quoted to yield about ';.:03.5%. This is, of cours, in keeping with the change that liete ,3wept ovt,r the entire list of Government paper, including Liberty Loan bonds and the Treuury bonds of 1247-52. It iu, naturally,'a vpry difficult matter to unherL.ake to prognoeticats what the futur.-- course of money will be, but I think it is a fair statement to eay that thoughtful bankers scarcely antioipo.te that roles will rein around the present extremely low levels for any grout lengt:_ of time, unless it should clearly develoi that a real recession in business wee in iiogreso. In this con- nection, our indices for February show that th total volume ofproduction, dictribution and trade was at the highest point since r,:arch ign. The policy of the Open Narket Investment Committee at tne moment i6 kr. iinston Washington karch 24, 1924. to hold to our pre6ont .prices and to review again the situation early in April. It is not at :iresent colittgliAated to alter our buying rat in way .i.articular, but rather to await developments in the market; and if pricee there should presently go in reverse !nlid 10F(t some of the advance that has recently been made, it is the thought of the Committee to diecuse tet eitu%tion with the Federal Reserve Board. Very truly yours, J. H. CASE Deiuty Governor honcraLle 6arrar0 B. Wireton, Under Secretary of the Treasury, t&ahingtcn, D. C. knole. JhO hAB JN June 2, 1924, Lear kr. Winston; Mr-Young is not down today but will be tomorrow, and I am writing simply to remind you that we are ho.Ding to have that meeting the i::st of this week. I have a dinner engagement for Saturday evening in tashington which I cannot very well change; otherwise I have no engagements at all to interfere. Youre very truly, Honorable Garrard B. iinston, Under Secretary of the Treasury, Treasury Department, Washington, D. C. BS.MV WA4 Ve7711,17"01° D C' ILGI830, Dej3WL4X044 jWqEL?(40LQ;PL:k 41yo ILeawlal g000LirpTG (!trx.1.71,q ?. itoecou' .1111,7, L61,)I .pLark' ro 1mpeL1otemoTo7 I ogiouor ALA. MOD' T ofyGLItTec uo 611%ViiINMI4E figac. p. cannel. GOA:tteluco4. Lox. 2s4rugglk OAGEITM'i To kvegIug.pou P.:PP c-T, rvTe 414;11* KNOT). co tauTtiq Aon wAonot negL cp4, wacqpit rpt3 VOLTLY'd uo.p clomu coqoA pri4, m/ii 4.0woLL,JA' ftToe.pou: Tvoc o x13,4 ww WA' June t, 124. Dear Mr. Secretary: It roe most kind of you to send. me the letter i'rom Cleveland. Of course, the -ynly interest %hioh I am juAifisd in expressing in the matter is thtt relating to the Syatem Ns a whole, end then whet I did. eay Vas with great diffidence and reserve, to pleLse told it in confidence. Toure very truly, Honorable Garrard B. Vineton, Under Secretary of the Treasury, Treasury i:apartmeat, Teshington, C. 44" MIS, 34,1 40M 1,4 FEDERAL RESERVE BANK ,`F NEW YORK SENT BY SEND TO FILES COPY OF TELEGRAM June 5 4 12 tlk 'aineton - Trea.sury Department ,r Mr. Your .6 would appreciate morning appointliont Eft he ic oblieed to leLve by 402A to keep (Inether i2portfint engtgesuffie, Strong PIA 3 .41 ra To3e. e3JLR oT 01138 . aelto 6.4 UO t 3VF132331 -IAPI3C139 NSOY W314 MA5403...13T -40 Y903 11/10A RON VI Y.F4TH 3A,1717.`,. w7AT June 11, 1024. Dear Mr. Winston: Since I tntt you in lashington, I had a chat with Mr. Gwen D. Young and find that his engagements are such that he could only be in Washington on June 28rd or 24th or the morning of June 28th, as he must be in New York on the evening of the 25th. If more convenient, a. meeting could be arranged at ally time during the week beginning June 30th. My suggestion is that it it would be possible, arrangements for dinner on the evening of the 23rd or 24th would be more satisfactory than any other time, and if the gentlemen who are to attend the meeting could dine with me at 7718 H Street, I would very much enjoy having them. I hope you can arrange to be there yourself and the other three whose names you mentioned. Will you let me know at your convenience so that I can advise MI. Young. Yours very truly, Honorable Garrard B. Winston, Under Secretary of the Treasury, Treasury Department, Waehington, D. C. BS.MM ,;ne 19, 1324. My dear Mr. Winston: have just heard from Mr. Owen D. Ioung that he expects to be in Washington to attend the dinner t.t r. ellon'e apartment at 7:30 p.m. on June 24, and you may also count on sy being there. Yours very truly, Honorable Carrard B. Winston, Under Secretary of the Treasury, Treacury Department, Washington, L. B3.11! July lb, 1924. Dear '4. Winston: The enolosed correspondence explains itself. Mr. Saunders, as you know, is one of clr directors and apparently was instruasaLal in securing the aipointaent of Mr. Guilfoyle in the Bureau of Printing and Engraving. I hKve simply told Mr. Saunders that I would pass the iaforaalion along to you without recommendation, of course, as we know nothing about the man's work and we have scrupulously avoided endeavoring to influence any action in respect of appointments of this character. Yours very truly, Honorable Garrard B. Minato°, Under Secretary of the Treasury, Treasury Department, lashiagton, D. C. enc. VI July 17, 1924. my dear Er. Winston: Thank you for your note of the 16th in reg,ird to Guilfoyle. I will bave a word. with Mr. Saunders about the situation. Yourb very Inily, Honorable Garrard B. linston, Under 3soretary of the Treaeury Treasury Department iashion, D. O. BS.RN 1.7 ,) '41 August 1, 1924. My dear Mr. Winston: Thank you for your note of the 60th enclosing a copy of Governor The various points which at once occur to me on the subject of the present depoeitery arrangements may be sumrarized as follows: Harding's letter. The principal objection to the present plan of paying by credit is that it has some inflationary tendency. That, however, has he reduced to a minimum by the fact that all the Government'e short-time obligetione now have a good martet, and the amount teken by the netional banks, while increased every time there is e sale of a new Issue is nevertheless constantly being decreased as the banks sell their certificates at a profit. To change the practice now would undoubtedly make the certificates a little less desirable to bank subscribers, an it might necessitate at times paying a slightly higher rate on the short loans, although I should suppose it would be very slight indeed, but nevertheless the objection as to inflation has been reduced to a minimum end we no longer regard it es a menace. The existing practice has now been in operation since 1917. The banes are thoroughly accustomed to it, and under its operation the Treasury has enjoyed their whole-hearted cooperation in piecing new issues. le would regret very much to see it disturbed by requiring them to pay cash. t. If the member banks were called upon to pay cash for aew issues it would mean that an immense amount of money would be poured into the Federal Reserve Banks every quarter-day in addition to the present inflow of tax funes, and a heavy withdrawal of funds from the market would necessitate heavy borrowings by member banks in order to make good their reserves until the Treasure had disbursed the money in payment of maturing certificates and in making other Government disbursements. It would be a disorganizing influence in the money market. At times we would see money rates jump up very suddenly and then as suddenly decline. In eeneral,we think the solicy of the Treasury should be directed towards minimizing money market disturbances which might be caused by the Treasury's borrowings. 4. We are entirely out of sympathy with the attitude of any member bank which might feel under present conditions that it did not care to continue to hole Government deposits of this category, and allow 2 per cent. interest. While to be sure those banks were asked to mete large loans to the Government at comparatively low rates until the end of the year 1919, that is to say, for a period of two years after the first issues were made in the summer of 1917, nevertheless considerine the record of the entire period down to date, the relations of the banks to the Treasury have been on the whole of a satisfactory character. I think most of the banks who have understood how to handle their accounts have made satisfactory profits on the security issues of the Government **. .1M1. 4suarig :toJaa4 locriavo,t, Joalthn c!li NOY ...u116o1oae, AJI`. add, .'",to a,too -twiclGtbox f1d* 011-loit auwadr iL LI %,mrsoLlo'lhs1irm ed!sin e.scarta'sma-rtss. x-Laileoc,c,t> Littepaell. otLf 'to el J /bala yjaly.zq o tiqjaaaa'1.1 aaJt no/Joe t.,do ri.ea4444,411.11 atcya o.1 beOilLart 3:jtv.f razd ,levaKicit ,Jiter c'JaccfnalsoD v,LijThtj.i1 *ea ,3noi..talillIdo oak \lova caalt:4441c7cd eL cLiaa;i: lo else dfiiitt;i3fik Jc acj.60111,IIit,o SJ4s. USSAIalQeb, Pled dIeb aae Jvd ,,bacoul jfie riave ttagi bluoor flac ioi taaCeat ale.,,dJ sd..1 eikic i(.161,Jduobau /drat( .44.,%11 1I b acOqr.isaca bitteita I 4,.;4tsfilit .,erodkroz ,easol Jlodaii a..6 ao,LJactdo aitt bcombel ,nced sad bac:ream/Rim .1) ft. 00,1poLtLi a 14.111 f.trt.11*; s, di ac121.4 JainaLa tczi.# bfl ,c2,41va4 .1-cdoIst.ea met wort aoljosmq -duo xaccf o,t trf ao tyLlsori leirgoo.1: oa 5,1ro a.a ..-ce,tkr*s; alfr tisob tT.3. iZ OJbatio,11..0c4 ..11,4,LiCrtastk os.g4911: ec1.1 4101$4413.00 34:f 104ov iL , at, maa glc t1soltzlar..;coo baJ1,844,10,the Iitj )'0(4,it,ile., CAA 00, Ufa! cos/a /101,1.819tiC ai acyod zoo !loft atato,A14 dovia Vac /0.74c-1 ol 400 rotillti:ietl, Ird bad-lad-eV) .AE10.0 'bo e At 101 as uaa ,Lelsbe3. $ff,t cfli 170014 *.d bLiow 1.re 1101 -d-a.k .,11tf twoisa , ao -colt ft.t.4.decalq o?1,1.:11. Atf 14, oj. aolJtbac al *Alit noes bikini-J.1 VZ3Vi ain4,1d,aviaca lawirtbff:tw'tts.t$141 avilwovrod itt*ed a.f.a.tlaaaoart t4Lfow:Ja*rim ad4otabalil attiad ladatafg I isnu esV151,161 1,1.at3 boos Oialot ialoso -crtaroC idiozelltiacubai Isisiorilj;co 3al-talem .j.namiq fit ycaol cri,1 bea-tud 11.1045 soact.riat girtizzi-agrrocit 16 9n" 1.how Ji .j!5)1.1,m-,1 xsaoz adt -e lb bsri AcitsaAvIT ci.r.Inabbme modj bak, y 1.1.ratIbus 'tacv qi rent ea.biLvi, ,3:, 85%14 11tI3o.91Lien.aI .1 101.40 umt twai tjb d b ibcda ruiszalT ads./ lo *co 1 IO,,; e.dd vulvae-IT adJ lid ba rtio sd ith QuidyIca mid-m.1 ib jorIrds ie cox a is isialgt tab-I:rot/4J .ssallovrod ladmor y.ao. "rto 8buJIJ.3.6 acial3aodt trull J00 jaaIelri/ ' ),11) a7ta arMl.k.ibeloo tai isq 3 toollA DIU ,roto.s,co Ja341.11.25VOD "IV ot crool ei.i aQ't ,K,a3 ad. al 44sAJ bca ictoi.tho land eJ-16-cmilob daaemeltrko biod r,A,t iUw Swift adJ 0341%6- al aisob botioo alljaa 6:13 'AC bloaea ei1 orlaf niaed eibavf oj- wolf ,.booJilabatt aJlslo-N Ja3ouria,ro,l) edj "to actiaal t.711 viz:, artt viasoplaiLisa j 'to clodwii ci Wad ave.d eAt ii.1f)1 tbaI18.14 clawid aeodt eque ,V.Liti 71 et /eAliatt,' asi.J al etifA) ettx afizt ylenI.40; c clidA aol 711v1jc.14,.,,,pcoo 414''t okraq FOLI caelerizlavaa osaia,:ddJ Lcego/4,31eI Jug,/ 2ialdJ I ob.ati .154 443.,i$rib 3,tabooz)-A August 1, 1924. 2 and on the Government deposit Kocounts. *e see no reason now when money rates are very low for any change in their attitude. They should be willing to teke the lean with the fat. They should bear in mind that during periods of very high money rates the Government never asked them to pay more than 2 per cent., and there were times when these balances were very large and rere carried for coneidereble periods. 5. The suggestion that spasms in the money market could be avoided by requiring payment within ten days of the date of subscription is in effeot no more than a suggestion that the Treasury withdraw the balances of the Government deposits and transfer them to the Reserve Banks somewhat more 7romptly than it now does, I see no particular merit in this sugeeetion. There may come s time If inflationary tendencies prove to he dengerous when such a policy might be adopted as sort of an emergency pmetection,and that is one of the various suggestions that I spoke to you about eome weeks ago in disoueeing that question. But am clearly of the opinion that no emergency has yet developed which would justify that course. An examination of your reoorde I think will disolose what a very large return - even at 2 per cent. * the Treasury has realized year in and year out on tanks° deposit balances. It seems to me that it would be rather difficult to justify foregoing that revenue. On the other hend, the time may come when the prompt withdrawel of balances from these aepositary banks may be the means of exercising a very healthy restraint upon inflationary tendencies, and at that time it might be well to consider a policy of more prompt withdrawal of balances after sales are made and after income taxes are paid than Is true of the present practice. Governor Harding characterizes our present policy in buying Treasury seourities in the open market as being for the purpose of earning expenses. That may be one of the purpoees ehich he has in mind, but I am sure that the records of the committee handling these transactions and of the Federal Reeerve Poard are filled with comments deprecating taat.as the avowed purpose of the System and. reiterating over and over again that our open market policy is designed for the purpose of building up a portfolio which might later be liquidated in °ate a dangerous speculation did develop end it became necessary to make our discount rate effective by dilating the member banks to borrowing from us. Mr. Case has read your letter and this reply and is (Ate in accord with what I have written.Yours very truly, Benj. Etrong, Governor. H000rable Garrard B. *instoe, Under Secretary of the Treasury Treasury Department Washington, D.C. 88.MM MISC. 34, 1 )471,1,14& 40M 1-24 FEDERAL RESERVE BANK -*F NEW YORK BENT BY SEND TO FILES COPY OF TELEGRAM Winston August 21, 1924 Treasury Arriving bonight Will see you tomorrow morning Strong December 18, 1924. P50111A414 Dear Mr. Winston: I have juvt received and w1h to, thank you for your note of December 18. Since talicing with you on the telephone, I have been advised that my friends will arrive on the Ciror.i9 instead of the Carmania, kir. I ht.0 supposed.. This I have tAplained to Li. C. 'Stuart, Deputy Collector of the Port, who has been good enough to izsue Lo me a Coast Guard Cutter permit, armnged through kr. Elting. kir. Stuart's office to you I eh tal keep in touch with ourtain when the cutter 411 go down to meet the Caronia. Please be &at-mired of my appreciation of your aseistnce in arran6ing this, ,. nt.1 believe me, 4Uricerely honorable Garrt.ru 1. ineton, Under Secretary of the Treasury, aashingten, D. U. MS8.L3 Aam, i ,rive.seIt $ti,1 oithaotgrri 1-.47,411,80 oodbabi ialooat:. uJtt ,J6, lad 4),w8t *am E19 *kJ belubtA.;.t JaJai ..61nOlz0 et,t-i.fiwa sotto If £1UOI1JArLei booit, Lisbono od .14 .ZM £i.twle.t4kiod t11-it104:4t, 0.1 i.,t ..11,11BI ay!oJ 1 o zogob 416 Tool ni- Aouod ddlo /1,44,5 :Jot Ja.No4".1 .0 Mau.18 y.turpe iodooiIo3 'to tnid of,d7o44 zuLl Lama-LID' te tot tvbk VOXo 1 40Ct.ialas43 s..es13 to: I .b000qqua z.1.,1.1 oboolal soul:a yiilti.ed. itiT bvivio IS I e oi vAll no odd ixdy 'fAttwafli **fad mod e)Lit4itatlieJ :Jcoa to lec,;ineosCi 1 v4f1 .131k bvio3ol box, rfolw xnArld VOX ./M :nosgati: ,61 io 'ic Fobruary 2, 122E. Dear Mr. Vinston: It oceurris tc. me that you night be interested in some transac- tions which we have had in connection with the opyrIttions of the Open 1V,rket Investa,ent account. We rLoently acid a block ot U5,030,010. of the certificates due September lb, IQ25 from the SI:coL,1 rengtm nt to tuke tem back to-d4. It o4o 7 Tre ury .court unA6r an hai.:;,e1Aeld that eters. J. P. rgan * Gomany were desirous of obtaininE sume Treasuly c:atifiez.tes in cnnct.1or w,ith Ue debt i.ayment for account of _1,,cfr Triti8 Covorn- ent, and ue hve terefere sold t'rlom this lot of 4.6C:)0,O00. Seitomber certificates. We also 'nave km.owlecige that Lliey Uave 1:oudht upwarde of $10,O14000. of these certiftettee in the o,arket stand, they will ute on June 16, 1D2F C,olvernmnt. This will result all of which, I under- in making iayment for the British in the aciount of September 1c26 certifi- cates actually outstandine failing SOM0WhAt below 3O10,00,00.0. ad it had suested to my mind the possibility of the Tre4,.sury on March IF), 1925 mkin g a joint afferin to include u six nionthel certificate due in September, which would 1,ermit of the large amount of .larch 15, 122.5t in the Alien Property Custodian Account b#Jing exe4a4,ed for the new September cert fleates and 6.0 afford an oortunity for similarly con- 07 sorting ti.ie c4tificates held in the Open V rket InvestTent Account, i 2. kr, Winoton it is mntuiilly (iesir.pble to continue the investment in thrsit account rather than permit, the ;larch maturitiosto run off. Then, too, if it a hould develop that tilt, Treasury hex 6. surplus at the end of this fiscal year, such an issue %Quid provide a ready iiy di short certificates that would should deem it wise to do so. be vi1b.!.e or purche if Very truly yourJ J. H. CASE, Deputy Governor. Honorable Garrard b. Winston, Under cf Lhe Tre'Jx4.4ry, re.shiN0:011, D. G. i'dtC Hi& you February 20, 1925. Lear Garrard: This note Al, be presented to you by my eon, Philip G. Strong, no la spenuine, the weak-and in Washington kith his frienu, Mr. Hamilton. am sure they will enjoy an opportunity to 5EJO something of the Treasury Department, and certainly of the Bureau of Engraving and Printing, if it is proper far them to ao so. May I trespass on your courtesy to show them that attention, and greatly oblige, Very truly yours, Honorable Garrard B. Winston, tinder Secretary of the Treasury, Treasury Department, Washington, D. C. ...L-devA ..e,,,k l t tk-ti-s 4D, ___.. yvx0v,s,.etke aori,e5 --RA)Wohea,A _ Cof- ---i- a-,, S -A 17Zrzi,..tce, I ait-t, iv-. ehaele 5. S add ,.'s gc.v,gtc......% .51,Stova.,A4aviA; -.7-6W4g (ark 1,--0 VA 011.1, . MC- 641 Sr rCt Ftrra r MrC.,... e. P )A ri vtg 73,-. S. itk CD . LtA . k-c. ei.d. 0 A . e---rentell, ker-ga.it C--i-e.4eit ii., CO- ,-0AciovtROWSsetAr ,Joser ii `Dt.41.0o, -60 e--:% e-i-e- e-e Ae.'"--.1-1-C- ---Pair(Tb C4ft - C_OVA AkaA '. 0 .,1 , elect-A- 1,' CIO KJ/A.4'i S ?a_ y-k 6 , \ Ike i?.-ei 1.1..r. IA, Re. ,:/t,cad 5 Ate ICeofri.L.i. Aid L....AT3 a..,..4.1c April 2, liat .4 dear Sir Robert: This note mill be ?resented to you r.y The Honorable Jarrard 3. 'Anton, Under Secretary of the :reasury, bo ie taxi% e holidt-y of fe-4 wooko .und exoeote to dp end a part of it in i.ondon. I nave (..,,iven gr. 4naton this :etter to you, L.orhe of ;ay other friuds aoroad, in order the.' Ile opportunity to meet you. tc-e uay aut it r, el I may be th%t if hie trip is too short he *ill be unq.ble to -recent it. Jure you ail' uncerstand it ie entirely I Arlo, if so, ouc o ti; imitation upon hie timeAssuri% you o mynp.).reciation of any uourteay tht.t you are 1,ble to ibo o Mr. $inoton, ,tna it kindeet regslrils, I be to remain, Very truly youri,3, Sir Robert Kindezsloy, Chairmen, Lp)2.i...rd Brae. &o., Ltd., London, Logi Find . . tilt Lo-la.i , leitkeirs 040rge.5-1Z 10..Keat4 026wleG Atk.,-, ,Xcq1aArct ELY'ect.V7stfc3cti-,A 61kf e..C.Qrevi.Ved rApv- e,,tv- -Tose& 5, Ihe Wt. FL AAC -Tbi-ora 48 ROV-igcto, C-,'re,,÷ R,0 c) f. - e T3K,p. Co. Lid- iteo. -A-0 S.& era-I r Zs 0 Ceed-j--Al Acilet-,Nd tv,-4-td MeNePt vva April 2, 1925. p. NO deer air Pobert: With this 1 beg to enclose copy of a letter of introduction which I have taken the liberty of handing to my friend, The Honorable Garrard B. Winston, who is spending pert of hie vacation in London, and whom I have seured of e: warm welcome from some of my friends abroad. he will be much interested in anything that you can tell him about business conditions, tad I am sure you will be interested in learning from him some of the more recent news from the United atstas. With kindest regards, believe me, Very truly yours, .ir Robert Kindersley, Chairmen, Lazard Bros. & Co. Ltd., London, England. Enc. BS.6 I tk-4 March. 9, 19 zb WNAL I ,v ky dear G arrard: Some time ago I wrote Leland Harrison about the possibility of getting ors information from certain of the foreign countries lith respect especially to monetary and. raw:tacit:I !natters 1.5 ch an reach the 6t te Department from time to time, and which might have a bty:.rring upon our min reltAdons in those countries. He nee,mee. to think that it uould be necessaly for 1.1:3 to get some cooperation from the Treaoury in order that te iEhtbe on the mtiling Informstion of that sort is beooming of increasing importance to us, and anythinz that you cn do to facilitate having such an arrangement as All work automAically effectively to keep us posted, will be of great value. If a list of tie countries in which we are esv,soLily interested would bec...csirable, I can have that prepared, but I would like to have the arrangemunt fir; cemprehensiv'e ai.4 it cam possibly be rati.de. sent to us will be treated witil all necessary confidence. Very truly yours, Honorable Uarrard B. Winston, Under Secretary of the Trt7asery, Washington, D. C. EELS The information # y 25, 1925. Lear Garrard: I find taat I adved 6 couple pf thd newapaper articlea containing the Edleged interview with you, dna you may ae intdreetea in reading Lbeit. Don't bother to acknowledge. youra, Honorable Garrard E. iton, Uncar Ziecratd.ry of the Traaaury, Whiagton, D. C. ince. My 26, / :i.C125 cf,\ 1-.2( Dear(...7t,rr1-rd: 6peeit,LiiYy ltetter la,t in t.s.cuy44eu Yhtst you Lmvtt r..21 yet., turotAl up, L..e,1,-_,Ac; tri titre.r 0.1K1 ,--rGL, and 1 IliOfl,;(.]:a;.ate., of wi e Go.i'VeTca k. Under 0,11oretar7 of the :Aailiajten G. tu.s, ..Lry, ok.;r6, never iLtwLe,1,,5r June 1, 1925. Dear (%rre,rd: I am re?lly- eActurbed boit thet special lattsr. week or tea days i..go 14.11'41, to wroto a loag letter ytt.ty,nr4,-i.t...-eon. etlytO hi$ of1.;6 It ii-fr ttaik t.ut T have E,..1.eo hed Lfl Itaporun.t. letter from Dr. 6teue...rt cf the Fen.lial fie6erve Dok,zd tele hOL1 2'6 or or ThI to ret&ch New Uric. la not!..,,at tabOUt Our mail. ret tirari ive have had trout.,1c: I tqA wonder.in atiA what aould be :!one titout t. I yours, Honorable Germr0 B. Winaton, 1Z1E - 13th Street, N. ia:.2.11.4ton1 D. C. S&LS) ., MISC. 34.1 40 M 8-24 FEDERAL RESERVE BANK OF NEW YORK SENT BY SEND TO FILES COPY OF TELEGRAM June 2, 1.925. Winston - PerLonal Tretsury, 4Fehinton. Your wire yeaterdty Mb), 25 letter received ond understood STRONG 43,43 )1 TIFIOY walel Y8 1-1,1118. MAFID3J3T 90 Y900 Nes 0104A-; A/ OA A, AE 3Vg32353JA51302R June 4, I.:4Z5. Dear Gs,rard: tour note of the third res.ched me lromptly this eel morning. ":7', Out if your inc,uiry of the Post Office produces e.ny refit/Ate, I shall be 61ad to hem- them. 'Thank you for the reminder about your new address. My records have been corrected. Sincerely yours, Honorable Garrard. B. iinaton, Under Secretary of the Treasury, 4ashine,ton, U. G. 6i soul, Leg '44 pI 4'7 tfJc.)...LJ , i Li L1 o J Or, to, es d oj b.8 I is t. aiifle z*11 , iJC t \p, + I, CEgi e - July 10, 1925. Dear Mr. 'dneton: am 4.164 to submit heremith the usual summary of gold payments and receipts of the Federal Reserve Bank of /few York, including the Buffele Pananch, for the month of June, DM; Gold PLymente t Cole to Ptnke and Individuals . . Certificatee to Banks end Individuals . . Certificates to U. S. Disbursing fAncera ('Old Peceirte Coin Certificates 1,93V,COC 117,213,000 2.4E1.000 $121,573,000 . . ... .. 6,393,000 ACM12.100 Net Disbursements 114.005000 $ 7,568,000 Total Im--,orte into lies York (Revised Custom Office YiFures) . . . Excess of Set Disbursements over Total Imorte 949.000 . 6,5n,000 The receipts of coin by thia bank, reported as 0,393,000, included $8,075,000 of coin released fres ecrmark for scoount of the Argentine Mtbassy and the Seise NAional Bank. This Atount of our coin deposits was, therefere, neither imported from ,brotd, nor taken out of circultion, According to our figures, total exports from Sew York during the month of June, ,,,mounted to $2,641,000. The total Fold held by the Federal Reserve System on June 3was .J,818,000,000, tmd on July 1 sae $2,786,00,000, representing a reduction of $32,000,000 during the course of the month. Thia prompts me again to review with you the suestion of our gold payment policy. You may remember that ahen this balk first inaugunted the payment of gold in the usual course of business in August 1922, it sae with the express purpose Honorable Garrard B. Fineton of offsetting imeorte into the United St&tee. July 10, ign. During the next two and a half years, that is, up until the end of December 1924, the totel gold imports into the United States amounted to $751,S15,000, nd the net paymente of gold coin and certificetee by the Federal Feeeree Beak of New York during the some period amounted to $717,124,000, or only $$4,38g,000 lese than the tote/ amount of Worts. 'rale nhoe hoe well ur original object wes accompliehed. ahen, however, it became apparent in December 14, that the direction of the gold mcvement ees ehaking, that exoorte might snortly exceed mports, we recon- sidered our policy at some length, and, as I told you ellen you acre in New York about that time, we decided to continue making gold piymente, not with the purpose Nay longer to offeet importe, but rmther with a view to maintaining in circulation approximately the amount then outstanding, that ie, between 003,000,000 and 41,0)0,000,000 of gold certificetee. In other words, having accomplished our original purpose of offeetting the import movement, we pelt that it would be woe _43 necessary and unwiee to lose all that we had accomplished by decreeeing payments t4 imports decreeeec for thet would only result in drawing out of circuletion most of what we bad placed out. The netural coneequence of our present policy, that ia, of maintainine, the preeent gold certificate circulation at shout its present irk, will be & direct reflection in the Systemie reservec either of an export movement or an import movement, whichever shcuid take place. Before Governor Strong left for urope, he expressed again hie agreement nith our present program, even though it would result in having future exporte or importe very directly affect the amount of the System's old reserves. I em diecueeing this in eenee detail only becauee I understand that eome of the other reserve bank, heve now oommenoed making payments of gold in rather sub- etontial quantities. As you know, it ',tar only the New York bank that made these lANK July 10, 19P5 rrard 13, 'Winston permente in the usual ccuree from Aueust 1922 until the early part of 1924, when tee Federal Reserve Sank of Chicago commenced eubetential payments. Because of the proportion of our volume of payments, it was possible for ue to control the total outstanding fie long as the federal heeerve Bank of Chicaeo Was the only other bank making such puyments. A euddan *hitt nom in the policy of many of the reeerve banks which in the eest have not paid out enough even to offeet their receipts, might meke it very difficult for us to maintain the total in circulation at the present figure of about *970,000,000, as ee had more or lease informally egreed. In the circumetancee, therefore, it Joey be advisable for UB to have some discussion of thie question perheps before the meetine next week when I understand that you are to talk to the conference relative to it. Ie is a matter ebout rhich we ehuuld have no confusion of purpose because, es the past three years have demon- strated, our combined efforts can cc eesily accomplish this object. Very truly yours, GEOBOE L. HARBISON, Deputy Governor. (Dictated by Mr. Harrison How:Table Garrard B. Winston, Undersecretery of the Treaeury, Treeeury Department, Weenington, D. C. (3/..H.NW but not read.) FEDERAL RESERVE BANK IIISC, S. 1-30M-1-25 OF NEW YORK OFFICE CORRESPONDENCE To FROM DATE SUBJECT: August 6, 1925, Inquiry from Mr. Winston concern- ing Bational City Bank's protest against loans on gold to Bankovni, J. H. Case be glad to do so if hr. Winston would send us in the meantime a copy of the letter to the State Department so that we would know exactly the nature of the charges to which we were making reply. Mr. Winston said that at the moment all he desired us to do was to send him an informal memorandum for his own use. **** ** * * This memorandum was prepared and mailed to Mr. Winston on August 7, 1925. 192 A copy of it is attached. Kis FEDERAL RESERVE BANK S. I-5014-1-25 OF NEW YORK OFFICE CORRESPONDENCE August 6, 1925 192_ SUBJECT: Inquiry from Dr. Winston cone:tern- To FROM DATE J..H. Case ing National City Bank's protest against loans on gold to Bankovni. Dr. Winston telephoned this afternoon that during his recent visit to New York he had talked with Mr. Mitchell, President of the National City Bank, and that during the conversation Dr. Mitchell had complained that the Federal Reserve Bank had made certain advances on gold to the Bankovni urad Ministerstva Financi, Prague, which advances had previously been made by the National City Bank but were transferred to the Federal Reserve Bank because the Bankovni was able to obtain a lower rate of interest. Mr. Winston said that Mr. Mitchell had followed up his complaint to him by making formal protest in writing to the State Department and that the State Department had asked the Treasury for information regarding the transaction. I explained briefly to Dr. Winston the circumstances surrounding these advances on gold to the Bankovni and said that I would obtain for him complete details from our files. Subsequently 'at 3:45 P. IT. I telephoned to Mr. Winston and advised him that if he desired us to make a formal reply to the charges which Mr. Mitchell had made to the State Department we felt that we should be furnished with a copy of Dr. Mitchell's letter, but that in view of all the circumstances we would prefer to submit to Mr. Winston, for his confidential information, an informal memorandum giving all of the facts concerning the transaction which might be used by Mr. lianston as seemed advisable to him. Furthermore, I ad- vised Er. Winston that if, after receiving such a memorandum from us, he believed it desirable to have us make a formal reply to Mr. Mitchell's protest, we would CONFIDENTIAL UELIORANDUL FOR mR. WIRsTaN, UNDERSECRETARY OF THE TREASURY, RIMARDING =WAIN LOANS ON GOLD LADE BY ME JOIDERAL RESIOIVE BAITS TO THE HAMM URA,D IIINISTERSTIA FINANOI, PRAGUE. Submitted by: J. H. Case, Deputy Governor, Federal Reserve Bank of New York. August 7, 1925. The Bankovni urad Ministerstva Financi, Prague, has been exercising the functions of a provisional state bank of issue in Ozecheslavakia pending the establish- ment of an independent and definitive central bank in that country for the establishment of Which a bill has recently been introduced in the Czech Parliament. In the autumn of 1922, we received an inquiry from this institution asking us whether we would open an account for it and make investments for its account in this market. As we had had no previous relations whatever with this institution and, therefore, knew little of its affairs, before replying to the inquiry we consulted with the Bank of England which follows a similar policy to our awn in the encouragement of relation- ships between central banks. We were informed by the Bank of England that they were also entering into relations with the Bankovni and were prepared to regard them as a bank of issue pending the establishment of an independent central bank in Czecho- In view of this faot and in line with our established policy of entering slovakia. into relations with foreign central banks of issue and encouraging cooperation between oentral banks for the furtherance of currency stabilization and the economic re- habilitation of Europe, we advised the Bankovni that we were prepared to do the business for them in this market which they requested. We opened an account for this bank in June 1923, and for about one year thereafter did practically nothing for them beyond the investment of their funds in this market in bankers acceptances. -2- In July 1924, the Bankovni advised us that in order to keep their ex- change stable it was necessary for them to increase their foreign balances at times when there was a temporary adverse balance or payments against them and for that purpose they desired to secure advances upon the security of a part of their gold cover. They advised vs that they had on deposit with the National Bank of Belgium in Brussels foreign gold coin valued at approximately 011,100,000 and inquired whether we were prepared to make them advances against that gold. Section 14-a of the Federal Reserve Act gives the Federal reserve banks power to make loans on gold coin or bullion at home or since we had power under the Act to make such advances to abroad. Therefore, the Bankovni and, furthermore, as it was a facility which we felt it proper for this bank to extend to central banks with wham relations had been established, we advised them in response to their inquiry that we would be willing to make three months' advances in amounts not to exceed 95% of the bullion value of the gold. The first advance aggregating $6,000,000 was made on December 2, 19249 for three months, and the rate quoted was 3% which was our rediscount rate at that time. A seoend advance aggregating 04,500,000 was made on January 16, 1925 for three months and at the same rate. Since that time both advances have been renewed twice for periods of three months each, the rate for all renewals having been 3-1/2% since that was our rediscount rate at the time the renewals were made. The establishment of this relationship with the Bankovni was undertaken with the approval of the Federal Reserve Board which has been fully advised from time to time with regard to the advances on gold to the Bankorni. -3- These advances have also been shown in the statements of condition of the Federal Reserve banks published each week. Furthermore when the arrangements for the making of these advances to the Bankorni were being negotiated, we suggested to the Federal Reserve Board that the State Denartment might be interested to learn about the matter and, under date of August 7, 1924, the Board advised us that in accordance with our suggestion the Department of State had been advised of the proposed transaction. As the other eleven Federal reserve banks share on a prorata basis with the Federal Reserve Bank of New York in the transactions with foreign central banks, these advances an gold to the Bankovni have been participated among all Federal reserve banks. # Pugut 7, 1925. 3:00 p. m. PERSONAL AND CONFIDENTIAL Dear Vr. Since dictating the special delivery letter enclosing the Peigian communication from Governor Strong bearing date of July 28, I have received another letter from him midressed from PLrie under date of July 30, 195, which contains some additional information on this same subject, and of which I enclose a copy. Very truly youra, J. H. CI,SH, Deputy Governor. honorable Garrard B. Winston, Under Secretary of the 'Treasury, Washington, D. C. SPECIAL DELIV PTASCIPL RY ;:ugust 7, 19?5. Et50 2- I" W GONFIDFATTiL Dear Mr. Vinston: h5ve just received a. packet of midi from Uoverhor Strong ore: which ir 5. coseic!enthl letter dated Brussels, 141.i r9, July in which Governer iftronF, rafere to discussions which Ile helii had with Governor Heutain cf the Banque NAioriele de ?elziwe, h1har2enrs very Importsnt berrin2, upon the Tubject of the debt ne6oti,Aione ahich you are to undertAce next week. Covernor Strcni7 hes furnished m- Atb 5..n extra copy of this letter for your privte .1nd oif1dentIl vse, which I aenolosing hereNith. Kindly ackno.Pdedo rf,ceipt. Very truly yours, J. H. CE, Oeptity Governor. Honorable Gorrard B. Winston,' .iricier Secretary cf the Treaeury, Ws.shington, D. C. CONFIDFNTIAL: Rotel Majestic, Paris, France, August 19, 1925. y dear Winston: So far, I have not had opportunity to gather impressions in France s fully as I would like, partly because so many people are away on vacations, end partly because of language and other difficulties which have to be overcome here to a greater degree than almost anywhere else in Europe. Undoubtedly they have had a good crop this year, and it is now pretty The tourist crop has been about well gathered. I refer especially to cereals. the best on record, and, from personal experience, I can testify that it has In Paris, even on a gold basis, prices are pretty high, brought a good price. and yet Americans have been here in droves, spending money right and left. Of course there has been a good deal of uneasiness about the situation in Morocco, but the evidence of cooperation between the Spanish, Britieh and French, and the recent military success which the French enjoyed against the niffs has largely relieved that feeling of uneasiness, which was undoubtedly growing and having a rather widespread effect. There is unfortunately some feeling that when Parliament reassembles the present government will be facing difficulties which they may not be able to survive. Two or three people have mentioned to me the possibility of their not lasting many months lepEer. The ever-present fear in the minds of the business men is the activity of the socialists and communists, and the introduction of fanciful ideas of government and finance by some of the long haired type of radicals. So far as I can learn, there are no figures available from which to judge of the success of the conversion loan which is now being floated and on which subscriptions close early in September. They all speak hopefully, but with some The general attitude is that the people will not subscribe until the reservations. My rough impression is that the maturities are now being comfortably last days. taken care of, but that the subscriptions are only about 50% of expectations. There are about 55,000,0009Q00 to 58,000,000,000 francs of bonds de They are issued for one defense outstanding, maturing, of course, every day. month, three months, six months and one year. Some days they days they are over in subscriptions to take care of maturities, but the average Some fear is expressed that if they have a failure recently has been pretty good. of the present loan, it will mean an enforced conversion of the bonds de defense and a very severe blow to French credit. The only other resort, if conversions are not effected and maturities cannot be met, is inflation by further issues of Bank of France notes, of which they have had all that they want and more. You know the new bond is a perpetual 4% rents, issued at par in exchange for bonds de defense, with all of the exemptions and privileges attaching to the existing issues, and with the obligation of the government to pay interest on the basis of the sterling value of the franc figured over an average period each day, at the rate of 95 franes to the pound. Of course any distrust of the Paris, France Mr. linston 8.19.25 (2) which caused a decline in its sterling value would simply add to the budget I have never fancied the scheme -en in paying interest on these new rentese myself, but am le as this. to believe that the emergency justified some such radical scheme Of course you have heard the many rumors of the resignation of governor Robineau following the disclosure of irregularities in the accounts of the Bank. I am told that twice he submitted his resignation, which quite likely would have been accepted had they been able to find a successor. Rumor has it that the job was offered to Monsieur Sargent, who was at one time sous-Governor of the Bank, later an officer of the Treasury, and at present the head of one of the banks in Paris. I am told he declined. And the same story is generally heard as to Monsieur Joseph Simon, head of the Societe Generale, to whom I gave you a note of introduction. I have just had luncheon with Monsieur Simon, and had a long and confidentie talk with him. He tells me that he is now of the impression that there will be no change in the governorship of the Bank, at any rate for the present. I went through a considerable part of the Bank of France yesterday, - the first time that I have made a tour of the premises in about nine years, - and was astonished to find the improvements which had been made since Monsieur Pallain resigned. It is really a modern, up-to-date institution, so far as one could judge by the way the work was being done. It is fully equipped with American tabulating, adding and type machines, and with all the modern appliances for accounting records, etc. The dingy old building has been repainted and refurnished with modrrn furniture; the girls have all been put intc so-called over-ails, and it has a very neat, businesslike apI also visited the new branch they have established out near the Etoile pearance. and I do not believe we have anything any better for any bank in the United States. At least all of this is to the credit of Monsieur aobineau, who is very such beloved and trusted by the staff of the Bank, even though he may be a rather weak man in combatting importunate politicians. If Robineau has some part of the blame for the bank have more. And when his own people appeal to him on the ground of patriotism, of course the difficulty of his position is obvious. Nevertheless, a stronger man would have resigned juggling the accounts, I certainly feel that the regents of and precipitated a crisis, however great it had been. That, I am told, is the argument used with all of them, - that it might have disrupted French finances and turned them inside out consequently. I would like to give,you some detailed account of my talk with Monsieur Simon: His history is briefly this: to Caillaux when he was in the Cabinet; As long ago as 1906, he was Chef de Bureau has known him all his life; and has e very high regard for him as a man of culture and ability. He says he comes of an excellent family, and while under a cloud, he, nevertheless, is the strongest man in France in monetary and financial matters, but, of course, not as strong politically as others. Much of what T an writing may already be known to you, but I will burden you with repetition: The present understanding is that Caillaux will head a mission to the United States which is proposing to sail not later than the fifteenth of September. Simon has urged that the mission sail as early as possible, and fixed September 15 as the latest feasible date. He is to be a member of the commisoion himself, and ne tells me Caillaux is determined to select come of the leaders of the various Faris, France 8.19.25 Mr. rinston (3) Aical parties as members of the mission, as only by that means will it be pos,ole for him to deal with the parliarentary situation which will likely arise on his return if a settlement is effected, as it will need ratification by the parliament and on1y4by having some of the important men of the various parties committed to the I think Simon feels, - and possible Caillaux settlement can he get ratification. that such a mission is justified by the complexion of our awn debt funding commission, which contains representatives of the tam political parties in Congress. The French mission plans to co immediately to Washington on landing in New York, without seeing anyone, believing that courtesy demands this. Simon of himself seemed to be a bit uneasy about the uncertainty at home, ir a general way feeling thet an arrangement of the American debt is bUt one step in a whole series of reforms in finance and monetary matters which should take two or three years to accomplish under the continuous management of the same And under their system of government, they can hardly expect the present men. the political situation cabinet to last for any such period, and consequently the policy of continuity will be difficult to carry out. He has asked me some questions about the personnel of the Commission, which I have an-wered with a good deal of caution, telling him something of who the men are, and whet thetr history has been; explaining that Mellon is a man of great skill, who deals with facts and not illusions, and that it would be a very wise thing for them to take to America, completees possible, information about their situation, and in such form give Mr. Mellon a thorough understanding of their problems. rr. that it will I asked him if there was any basis for the uneasiness about the promptness with which the French Government was paying its current bills; and if there was none, that should be dispelled; but if there was any foundation for it, this should be disclosec, as well as all other material facts bearing on their capacity to deal with their financial problems. He said that on the whole he felt that rectly reported in this morning's newspapers, would the Belgian settlement, if corbe helpful, the principal and most important thing being the apparent disposition of the American Commission to deal with the problem of payment upon the basis of capacity, rather than upon the amount of the obligations per se. He thinks that the budget situation is showing a constant improvement, the current year's deficit of 2,000,000,000 francs being a great improvenent over ormer years. And he was hopeful that in the near future a balance can be struck, but he urged all of the difficulties which we have all heard repeatedly about direct taxes, the difficulty of getting adequate taxes from the farm classes, etc. is the One of the great difficulties they are facing uneasiness of the public generally about political conditions, and their fear of a socialistic government. Thepeasant classes in France are mostly small agriculturists, as you know; That is to say, property owners and savers. The classes having socialistic tendencie are wage earners and a considerable section of the so-called intellectuals, - professors, lawyers, and the like. These latter classes are active and agreesive, while the farm peasant is a quiet fellow, who stays at home and works hard on his farm, saves his money, hates to pay taxes, and gets frightened at the idea that his property may be taken away from him. Paris, France 8.19.25 Ur. Winston (4) Simon points out that the collection of the taxes now imposed is being _ae most effective. He says that in a big bank like the Societe Generele, with branches in so many towns, they have a good chance to observe this. He thinks the reports of failure to collect taxes are grossly exaggerated and most unjust. The income tax is not an productive as it should be, but he calls attention to the fact that this is a new tax, only imposed since the war; that the people are not accustomed to it; that it is abhorrent to their traditions and temperamort; end that its development will noceosarily be gradual. Even se, when one considers that most of the incase from securities is already taxed up to 25%, such as coupons and dividnds, and the income tax iv imposed on top of that tax, tle actual figures as to direct taxation are a tit misleading. Increases in the return from the income tax will not be by an increase of rate, but rather by spreading the area of the tax over greater numbers. I asked him whether he thought the reduction of the bank rate to (377 '. in general, the maintenance oi present rates on the eovernment's borrowings , a wise progress; whether rates should not be increased, some pressure put on credit generally, and the short time securities of the Treasury put on a more Ho said that that criticism they businesslike basis as to the velue of funds. had had many times; that the Treasury consulted the principal tankers as to whether the rate should be raised, and they were unanimously against it, all of them stating that an increase in rate would be regarded by the holders generally of the bonds dr defense as evidence that there wan something wrong, and that it would actually have the effect of frightening holders and reducing subscriptions rather than the reverse. Of course you realize that Simon is non-political, and one of the thoroughly sound, able hankers of France. He agree with me that the ideal program would be, first, to complete some kind of a security pact and give e cones, of confidence as to political conditions in middle urope; then to fund the American debt; and, follcwing that, undertake a vigorous monetary and fiscal refcrm, which would include revaluing the franc and revising the Government's debt, If possible with some advantage in intereet. He thought that with confidence restored a good &al could be saved in interest, but the difficulty, again, was political. The question of capacity, I think, muct be preeminent in their minds just now, and he looks at that question in a fairly reasonable and businesslike He says that he can usderstand that payment out of Gerean reparations might way. he objectionable in America an tending to create the impression that we would be-. come involved in all the disputes over German reparation payments, and, ultimetely, with the political discord with which this is dl associated. Or the other hand, we are e creditor of France, -which has a certain limit to its capacity to pay its debts, that limit being influenced by the extent to which she is able to collect from her own debtor, - Germany. I gather that he felt that a definite scheme of fixed payment over a period of years might,. on the one hand, have the effect of imposing too hear a burden, or, on the other bend, might ce/1 upon France to pay less than perhaps possible if Germeny.were able to carry out the Dawes Plan in a larger way than many people now suppose is possible. I know nothing of what is in their minds in the rely of a proposal, but should suppose that in some way they would hope to have Otemetpapmentetgreater or less according as they get more or lose from Germany. It will be the same old difficulty, which I should hope, however, could be dealt with so that a contract can be effecte . PariR, Free, 8.19,25. Mr. Winston (5) I gained the impression that Caillaux in going to America with the intention of getting a settlement if it is possible to do eo. Re may not have an acceptable proposal, but he will cortainly have some proposal which he will be prepared to fight for with his own parliament on his return if it can be put into shape acceptable to us. my own belief is that almost any settlement is better than a break just 40w, especially as Simon tells me that the country is in a mood now to mehe sacrifices in order to put the house in order, lith a commission such as Caillaux as puggeeted, I can well imagine that you will be induleee with a good deal of oratory. After a good many years experience eitn these folks, my sucgest]on eculd be that the oratory be allowed to flow just as freely as possible; that the members of our own commission do not attempt to deal with the members of the French commission by argument, expoetulation, or admonition. If they could listen patiently to these gentlemen, exchange patriotic speeches with. out limit, and then let Messrs. Mellon and Caillaux sit down privately and arrange the deal, it will be f(und much aaeier to lee Monsieur Caillaux convince his own seople, and Mr. Mellon our people. And the effective thing tc be accempliched by the comeissions will be the votes unene thenseives whether they will agree to the I can assure you that It will be very proposals of the reseective chairmen or not. much easier for Monsieur Caillaux to convince his nen co3leaguer than it will be for our Commission to do so. There is one point which I promisee Monsieur Simon to speak to you about very confidentially. 11e says that it would be a matter of much delicacy for him to sock the advice of any of his American friends while he is negotiating with the Commission, on which matter I think he is quite ccrrect. I told him 1 would speak to you, however, about the possibility of some private discussions of that character in case he felt that he need the advice of some reliable American friend! while he is in '.ashington. It would he a very excellent thing if that in done. And you know of a similar ease where the results were good. 1 had hoped to visit Paris without being under the necessity of seeing Caillaux, fearing lest it might cause some embarrassment. But when I was at the Bank yesterday, Robinoau told me that Caillaue knew I was here and would feel that I had been discourteous if I did not call to see him. I explained to Robineau that my colleague in Paris was the Governor of the Bank of France; that I WRS not official in any way; and did not want to make any calls which might be misinterpreted He said that that would be carefully explained to the Finance Minister, but he strong* ly urged me to see him. So I am Leine_ o have a talk wiai him late tomorrow afternoon Of course you know the way things flesh after heving another visit with Robineeu. around here in Paris. Mille Simon only reached Paris this morning from the country, he had already been advisee of my appointment with Caillaux, and wanted to know whether I proposed to see him alone, or would have anyone with ms. I think he was afraid there would be someone with me. Thile my talk with Ouilleux may 10,8,13 to some modification of what T gathered from Simon, at present my feeling is that the French are earnestly desirous of settling the debt; are probably encouraged to feel that they can as the result of the Belgian settlement; will undoubtedly need to go through a period of discussion and bargaining; will probably have a great variety of things to suggest; but, in the end, if an are rearonably generous, we should be able to get a settlement; and any settlement is better than none. So I hope that Mr. Mellon and Monsieur Caillaux earls, France 8.19.25 (6) Mr. I':inston ean fix it all up without a lot of wrangling in the commissicn, which would endanger the result. letter at the first I will continue this opportunity after seeing Nonsieur Caillaux, but, as I am leaving for Switzerland tomorrow afternoon, I may not have a chance to fix it up until next week. fete impression I got frcm the bankers is the probable urgent need of a moratorium with the French even greater than with the Belgians. They do neee a period after the uncertainty of the debt obligation is disposed of within which tc carry out the rest cf their financial and monetary program, eseccially to get the budget balanced. And for the first impression that put the budget in order is a serious one with some chance for success. tine I get the the effort to Continued - August 24, 1925. As stated above, I had a long visit at the Bank of !ranee last Thursday afternoon and went directly frcm there to make my call on Caillaux. On the whole he impreesed me quite favorably. He seemed to be a man of culture and energy, but not afflicted with the French nervousness and excitability. He speaks tnglish very well indeed. Fortunately he caused me no embarrassment by attempting discussion of debt negotiations, or making any special requerts for assistance, or loans, or anything of that sort. He was anxious to tell me something of his program, which I can describe in a few words: An to the budget, he says that he can accomplish balancing it, assuming that an arrangement is made as to the British and American debts, and is within striking distance of it now He had the figures all on his desk, which he said he would have been glad to show me had there been time, giving the various changes proposed for taxation. Among other things, he says that the maximum inheritance taxes will go the maximum income taxes in the high brackets he proposes to go as high as 70%. And other sources of revenue ere to be tapped, he complained a good deal about the French system of taxation, - the product of many years' ex-. perimentation and efforts on the part of the Government to meet a characteristic French demand that the collection of taxes shall be reduced to a mathematically exact calculation of how the burden shall rest with justice to every tax payer. He said it would be better fvr France if they had a simpler system and more direct taxes, but the French temperament would not stand it. He explained that the direct tacome tax was new since the war, and he agreed that to be more productive it would need to be spread over a wider area; and that simple increases in rates were dangerous in developing various expedients for escaping taxes and driving money out of the country. up to about 80%, and He claimed that it was too early to gain any idea of the success of the pending loan, which had encountered difficulties because of the harvests, which occupied the peasants, and because of the strike of the bank clerks, which made the work of the banks ineffective; else because the old Bonds de Defence paid 1% more than the new loan; that there was no advantage in conterting before the last days, and consequently results could only be expected late. Subscriptions were scheduled Paris, France 8.24.25 I Mr. Winston (7) close September 5, but they are being extended, probably until the end of September, He spoke of the prevalent opinion abroad that the French were not paying I told him I did not think adequate taxes, and asked for some expression about that. that all the people of America could be vonvinced about that one way or another by a The only argudetailed explanation of the complicated system of taxation in France. ment which would be convincing would be a balanced budget, and once that was done the criticism would disappena. He was very positive in his assertion that with a balanced budget he would propose to deal with the floating debt vigorously, and ultimately effect a consolidation of the debt. And, w'th a reasonable lituation as to the debt, they must effect a stabilization of the franc for a period and then revalue it at some figure The alternatives to a successful consolidation of the debt by to be determined. as that being attempted now would be either further inflation as some suchmiasu,Pe the maturities were taken care of, by note issues by the Bank of France, or else I believe at first Caillaux a forced conversion, which would hurt their credit. was supposed to favor an enforced conversion, but the bankers talked him out of it, stating that it would wreck the country. He is supposed to lean somewhat to that and somewhat to capital taxes. He thought the French people would accept a revaluation of the franc if it did not involve a reduction in the amount of paper money in circulation. Then he wanted to know in a general way what the American attitude was and whether, in case of need, they could turn to the United States for help in their I told him that if he had in mind some specific transaction, such as a program. loan, the past record in that respect indicated that the American attitude was helpHe must bear in mind, however, that while the Federal Reserve System had a ful. certain control of the use of its own credit, that was a'very small matter compared to the attitude in general of American investors, which could not be controlled. But during the last two years we had loaned $2,000,000,000 to the rest of the world by absorbing security issues, and some further sum in the way of bank loans and credits. If anything developed to shake American confidence in r,Uropean affairs and that investment market closed, it would add very seriously to their difficulties; that and that they were still timid about foreign investments were new to Americans; them, He wanted more information about this, and I explained how successively Switzerland, Holland, England, and then France had suffered from a shock to conThe case of Switzerland being typical, where the proposal for a capital fidence. levy resulting in a flight of Suisse francs, and temporarily wiped out the balances of the Bank of Issue, which had to supply the exchange to timid Suisse people. Not much developed in the talk beyond giving me the impression that he was a pretty vigorous person and really determined to do a good job if he is given opportunity. From various other sources I get the following information and imI am told that it is a fact that so far the First about the loan. pressions: loan has been a complete failure. The Government has outstanding from 55,000,000,000 to 58,000,000,000 of short paper, of which about 15,000,000,000 is held by the banks Par_ , :France, 8.24.25 Mr. Winston (8) eee d 40,000,000,000 by the public generally. It 5s the 40,000,000,000 with which aey must deal. Outside of the City of Paris, I am told, subscriptions last week amounted to only 1,000,000,000 francs. It was at first hoped that they would get at least 20,000,000,000 converted. They are now talking about 10,000,000,000 being a successful result (when it would, in fact, be a failure and leave them in a difficult situation). That this is beginning to be appreciated would appear from a statement made to me yesterday by one of the special American NewspaperCorrespondents, that there were stories about that they eere again having difficulty in France in meeting maturities and that while the statement of the Bank of France showed that they had a good margin on their note issue, if the true facts were known it would be shown that the new limit had already been exceeded by 2,500,000,000 francs. I, personally; don't think that story is true. But it indicates the degree of nervousness which exists. There also are stories around that the fighting in Morocco is costing them vast sums of money beyond what they have stated, and that they have fixed up some deal with the Spaniards to finance it so that it does not show in the French figures. There is a good deal of discussion and uncertainty about the commission The last time I saw Simon, he asked me whether the commission should all go at the same time, or whether he, Simon, should go ahead of Caillaux. I told him I thought that was the sort of cuesticn which should be dealt with by private inquiries at Washington. Then he wanted my personal opinion, and I told him I would like time my first impression was that Caillaux Should go at once himself. It would add dignity to the proceedings; wculd give the commission an appearance of responsibility which it could not otherwise have, and avoid the unfortunate impression resulting from Parmentier's visit. to go to Washington. to think it over, but Subsequent inquiry leads me to believe that Caillauxse position is a very difficult one. The socialists are in position to unhorse this Government at any moment. They know that if they do so the burden of dealing with the Moroccan situation and with these debt negotiations will fall upon them. They prefer to sit by in the position of vetoing or approving procedures, rather than assuming the responsibility of initiating them and conducting them. Caillaux, accordingly, is anxious to make no effort at funding the debts which is unsuccessful. And I think his disposition might be to send Simon on ahead.to spy out the) land, and, if there is hope of success, then to go over and finish up, himself, but, if not, to escape the odium of failure by not going. The rumor reaches me an utkafficial proposal for a 99 year system of payment, with 2'4 interest, has been transmitted and rejected at home. Now there is no doubt that the first reaction to the Belgian settlement here was rather favorable, as it gave the impression that capacity was going to be an important consideration in fixing the amount. Since the figures have come over they have been analyzed pretty carefully here, and the French now seem to draw the conclusion that the amount to be paid by the Belgians, increased to the proportions of the French debt, and without the special concessions made to Belgium as to the pre-armistice debt and interest, etc., will put an unsupportable burden upon the French and that they could not pay that amount. The statement that the terms accorded Belgium were of a special character out of respect to some moral obligation Paris, France 2.24.25 Mr. Winston (9) 1!.110' sated by President Wilsen, has given them a chill. Possibly it is just as well enat this should be so if the Funding Commission is ready to make some concessions to the French who they some tc negotiate. The facts are, undoubtedly, that the burden of the foreign debt on the French is much heavier, proportionately, than the burden of the foreign debt on the Belgians. The Belgian foreign debt amounts to about 8O. per capita, or thereabouts, and the French foreign debt is possibly 0.00. per capita. Belgium, of course, suffered little devastation compared to France, and had priorities in repration payments which has put them in a fairly strong position. The yrench, having to pay the reconstruction bills themselves, without adequate reimbursement from Germany, have gotten their finances in a very bud state. Of course we must remember at home that the whole scale of living here is almost poverty along side of our scale of living at home and has a connection with the difficulty of collecting taxes and the meagre invectment fund available for dealing with their domestic debt, c moored with some other countries. For instance, a frond of mine has just rented a large house under an arrangement by which he tnhes over the chef and butler. The wages of those two men aggregate less than 500 francs a month -- one of them gets the equivalent of 0.0.00, and the other 612,00 a month. Parmentier tells me that his apartment is run by a frenchman and his wife. He has had to increase their wages two or throe times recently to meet the a ded cost of living, and he says he now pays them 525 francs a month. They do all the work in his apartment and the man, in addition, takes care of his car. If this scale of living is applied throughout France to all classes, one recognizes what a slender margin there must be for taxation and for investment. Up to this point I have been rambling along, recounting conversations Now for a few specific conclusions az and impressions as we would in discussion. I see the picture hare: 1. The domestic debt of France is some 300,000,000,00D francs. Of this 55,000,000,000 are short obligations maturing every day. Those are a menace to the nation, and with any shock to confidence, the only way in Which they can be paid is by inflating the currency. 2. Caillaues effort to deal with this was the result of a choice of the following measures: a capital levy an enforced conversion a further inflation of the bank note issues an obligation issued on a gold basis. He selectee' the fourth, fixing the rata at 95 francs to the pound, and the interest at 4%. The result of the loan, so far, has been a complete failure. No one knows what the reaction will be when it becomes publicly known, and the date is being deferred in the hope that something will save the loan. 3. The Bank of France has, in part, lost control of the situation. Its commercial portfolio is of negligible amount. Most of its bills are simply cclloction bills discounted for five days. The bulk of its earning aseets are the direct obligation of the Government. There is now no hope of the Government repaying. Consequently no bank rate is effective. And the bank has lose control of the possibilities of inflation due to issues of notes made on Government account. Paris, France 8.24.25 z Mr. (10 ston They admit a deficiency The budget has not yet been balanced. It may, indeed, be larger than that. of 2,000,000,000 francs. With this situation at home, they are commanded by both the British and Americans to fund their debts. I think it has given them a tremendous There are some in France, and I believe influential people, who feel shake-up. that the situation is rather desperate, and that the heroic measure would be to frankly tell the British and American Governments that they cannot and will not pay; make the sacrifice to their credit; and then do their best for their domestic creditors The present painleve government is retained in office by sufferance depends upon the outof the socialists. rhen parliament mists they may go out. If they go come of the debt negotiations, the Riff war and the pact negotiations. out, there is likelihood of a socialist government under Merriot, or the like, and all sorts of fanciful attempts to deal with the debts and like matters, probably indtuding a forced ccnversion and capital levy, all calculated to scare the French investor out of his wits. with There is nevertheless, the feeling that/the suspension of reconstruction work (which I believe is almost complete) the prospect of collections from Germany, and a pretty gcod domestic business situation with an improved belance of foreign payments, if they can make a liberal adjustment of foreign debts, they can some way or other wiggle out of the situation. It It is probably true that if the franc can be stabilized and the budget balanced, even though the domestic debt is not reduced, the thrift and industry of the French people will result, within a few years, in the accumulation of a savings fund which will constantly lighten the burden of the debt. With this outlook, while they were pleased at the evidence of a generous attitude towards Belgium, they are disturbed by the statement that it was Roughly, if a special arrangement for Belgium which will not apply to others. the French debt is three-quarters of the British debt, then the rrench payments This will be three-quarters of the British payments, or 120,000,000 a year. would be beyond their capacity, especially as they must make a funding arrangement with the British as well, and the British seem to be advertising strongly the opinion that the french are capable of making very considerable payments. I gather that the Belgian schedule of payments starts at about Against ;14,000,000, and, after ten or twelve years, reaches nearly '13,000,000. payments by Germany which will be applicable to this there will be still some the payment of the debt, so that the pressure on Belgium will be much lighter. Their work of reconstruction is completed. They have the in reparation paymente from Germany, and they have been forgiven a large part of France, on the other hand, had no preference from Germany, their foreign debts. had enormous reconstruction projects to finance in northern Franco, has had but benefit of priorities small contributions of cash from Germany which will be applicable to finance reconstruction, and will need a considerable part of whatever Germany can pay hereafter for the improvement of her domestic national debt Situation. Finally, I think it is e fact that if debt negotiations fail, and, at the same time there is a loan fa3lure in France, they will be driven pos- Par,, Fraece 8.24.25 104w Mr. rinston sibly to an enforced conversion of the domestic debt; the domestic credit of the and there will probably be sore flight of Government will suffer tremendously; capital, with the resultant pressure on the trance But there are, of course, offsetting considerations, one being 12. the fact that the inflation which has taken place in France has roduceC the burden If the French were as of the dcbt to very much. less than its nominal figure. complacent about paying taxes en the Anglo naxons, the burden of the (IAA would be much less, but the psychological limit of taxation in France is low, much lower than in either England or America, and the same rules which would apply to a Lritieh adjustment will not apply to a French adjustment because we are dealing with Frenchmen and not 1;Inglishmen. My best judgment is that some kind of settlement must be made with the French if they are to avoid trouble; and that if these negotiations fail trouble is almost certain to come. T have had euite a few talk*, with Morrow, and with Gilbert, as well as some others, to get the impreesions they have gathered from talks here. I think Morrow's idea is that the French can pay a total of '100,000,000 a year to the British and Americans together. Dut, of course, with us this would include the !20,0G0,0^0 they are now paying as the interest on the debt for the sale of supplies. The British, on the other hand, seem willing to accept a more moderate fixed obligation, and take a part of their payment conditioned upon German reparation payments. My own feeling is that the best prospect of collecting from France lies in very moderate payments indeed for the first period ca, say two or three years, giving them a chance to put their domestic situation in shape, and that after a few years their capacity to make foreign pe, ments will be very greatly increased if they escape the present crisis. Another thing of which I an convinced is that n reorganizetion of their monetary situation is essential to a continuance of foreign psi ments. This ie because of the menace of their floating debt. If they undertake to pay us conei, _able fixed sums, and close to the margin of safety, and than they have any difficulty with their domestic debt at all, their only recourse is to the rank of France, and that means depreciation of the franc and of the exchange. I may write you something more later, especially after we learn more of the negotiations in London. But I will let it Eo for the present, as Dr. Stewart is leaving tomorrow and will take it to you. Sincerely yours, Honorable Garrard B. Winstot, Under Secretary of the Treasury, Washington, D. C. a 05114 I'VE OP P1 VZ-13 3AU3S32:11V8303.4 5INV9 AO M3N Sit,10A INas Ae AcIOD O hi1 rith repert further brin, r , CIN3S I4Vei93131 vd11 . Olympic. via. tomorrow Sails t.nd coniz:ic.)riE economic .,,nd fl MIR million. 4,000 c-nly tot,,1 indicf-te reporte current th ,Idvisea E.Ad 4, line 9, 74th st Au of letter hie to you R4.-rere you. for morning thi, form.,t-icm following ctAded. Stron:-, Twz. -ferm lt.tahindton 'V .7.eptesbt:r L 314.: 01 3311A 0 0 11 September 25, 1925. PRIVATE My dear Garrard: Referring to the question of gold which appears in the statement of the Bank of France 4i6 being held troad, this figure in the statement of September 10th is 1,664,000,000 francs, which at the per of sterling exchange ia the equivalent of 03,900,000 sterling. The amount still to be returned by the Bank of England ia something over 18,000,000 sterling, which would leave somewhere between 56 and 56 million sterling as the amount of the unsettled gold account with the British Government. Thia is, of course, supplementary to my letter to the 5ecretary. Sincerely yours, Honorable Uarrard B. Winston, Under Secretary of the Treeaury, Washington, t. C. B5.L6 October 1, 192,5. PER6ONAL Vy deer Barrard: am enclosing for your edification u confidential memo- rundux me,(fx by one of our mer who i a tmined observer, and you will notice to it extent, in u general way, it ia confirmatory of z.hat I wrote to the 6ecaetury. of course, I have done wh;:tevi I coule to keep you informed, and have distinctly refrained from making any specific suggestioa or recommendation, I am, taavrthelese, feLrful that rungementa malt be made for the repayment of the French debt of u cAlerar cannot be fulfilled. ' ovtvor, the e'vent r.mtfirk6 to be seen in later years, when it Rill be an academic queation for both you and Ite. yours, honorable Garrard E. Winston, Under Secretary of the Treasury, Washington, D. C. Enc. Con fident ial September 29, 1925. AN IMPRESSION OF FRANCE It has so often been said that "Paris is France" that it is a little hard to realize how untrue, in many ways, this popular saying is--that actually Paris is almost as far from the centre of gravity of the country as, for example, New York or the Atlantic seaboard cities in the case of our own country; that Paris is so far to the north that the German invasion penetrated to within less than twenty-five miles of the capital with the greatest ease, and that, aside from Paris, most of the larger cities of France, like Lyon, Marseilles, Bordeaux, Toulouse, and St. Etienne lie within the southern half of the country. In point of fact, the northern segment of France of which Paris is distinctly the industrial centre, takes in scarcely more than about one-third of the population. Yet it is largely to this northern area that the attention of the great bulk of American tourists is confined. It was, indeed, very striking to note how few Americans were to be seen south of Paris and the chateaux country, in three or four weeks of traveling, and covering well over fifteen hundred miles. Perhaps the most decisive effect of this little journey of exploration was the overturn in the writer's mind of the popular notion that France can be considered a "rich" country. Measured at least by American standards, and even I should say by Miglish standards, the reverse appears rather to be the fact. For example, it is remarkable that one may -travel for hundreds of miles southward from Paris, through an obviously very fertile and highly populated country, and see still in village after village and on farm after farm far more ox teams than horse teams and practically not a sign of a tractor. Still more striking, scarcely any farm machinery other than that which can be run by hand is seen. From -the railway trains and from the auto cars which now run almost everywhere, the eye could overlook thousands of acres which were being harvested with scythes, the women workers being almost as numerous as men. 2 Consider the economic waste, in time and in human labor, that is implied in this general prevalence of ox teams and of harvesting by hand-swung scythes and it is not difficult to understand why it is that the man power required to produce a bushel of groin in France is several times that prevailing in the United States. It is true that their yield per acre is higher because the fields are more intensively cultivated, though not to the same extent as in Germany and other northern states of Europe. But the labor-time cost per is far greater. In other words, we have a parallel here to the experience of American manufacturers who have opened branch factories in France, that not only is the money wage of the workers scarcely half that of the United States and in many cases far less, but the average output per man is equally low. As stated by one careful observer, "very roughly, it takes two average workers to do the average job of one worker in America." Along the same line we find that, with more than one-third of the population of the United States, the French consumption of electricity is about one-eighth; and correspondingly their use of automobiles is on about the same scale. And everywhere you go this same impression is borne out by the look of the farm houses and farm buildings and the city streets and houses, outside, of course, of popular watering places like Biarritz or Nice and Cannes. is nowhere the air of wealth or prosperity. There You have the feeling that, alike in the country and in the towns, the country is backward, the standard of living is low, the scale of income is meagre, and the population living for a very large part but little above the border line of bare subsistence. A striking instance in point is the surprise that greets the eye in going through some of the chateaux country, down the Loire. This is Touraine, counted one of the richest parts of France; heavily patronized by crowds of American, English, and other tourists and therefore well supplied with pocket 3 money and more prosperous than the country as a whole. Yet even in this "heart of France," as it might be called, one may see a sight that is rare in almost any other leading European country. That is hundreds upon hundreds of families still housed in caves: Everyone has read about the "cave dwellers" of France, whose mode of existence has not changed greatly from that of their forebears, the troglodytes along the ancient Nile, Many books have been written about them, but the writer, at least, was still quite unprepared to ride for miles and miles along the valleys of the Loire, the Indre, the Cher, and the Vienne, and see more than four out of five of the farm dwellings and of the smaller village dwellings as well, still in whole or in part consisting of the caves that must have been inhabited by the same sort of a population, eking out a scant and debile existence, for an almost immemorial time--possibly, as the astonishing researches of the last quarter of a century have shown, running back certainly thousands of years, In many cases additions to the ancient caves have been made in front so that the original dwellings are covered up; but even now one may see hundreds upon hundreds of habitations that are still little more than cave dwellings with a facing or veneer of modern construction. Certainly, With but very few exceptions, the stables, wagon sheds, wood sheds and the like were still these ancient caves cut out of the soft chalk that offered such an easy and highly defensible retreat to the ancient inhabitants. Considering how unhygienic and unsanitary this sort of dwelling is-dark, damp, and gaining but little of the purifying effect of sunshine--one does not marvel at the percentage of the French population that was unfit for military duty in thA9 War and below even their very modest requirement of stature, And throughout this southwest third of France there was but scant evidence of new building, since the War, such as has characterized other countries like Germany, England and, to the nth degree, the United States, Outsid 4 little strip along the Basque coast, from Biarritz down to the Spanish border, where tourists come in crowds to the sea, and new hotels, villas, and even chateaux are springing up everywhere, one could go for a long distance without any signs of new construction. The buildinr. prosperity of France has been largely confined to the devastated area and to the northern segment about and above Paris; the part that most tourists see. One noted many other signs, if not of indigence at least of conditions reat far from sharing that wave of expansion that has characterized most of the industrial countries and most notably, of course, our own. Before the War, Today, seven years since the end of the France was noted for its fine roads. War, many of the country roads are far from being kept in good repair and show distinct signs of neglect. The same with the railways. Traveling on the railways is not a comfort; from the prevalence of flat wheels and uneasy springs. any wonder because the railway fares are absurdly low. . This is scarce At a rough estimate, second class fares, which used to be counted about the equivalent of our ordinary fares, first class being about equal to our Pullman rates, are not one-third the present passenger fares of the United States; so it is no wonder that the railways, either those State owned or other, cannot obtain sufficient revenues to keep up their rolling stock or road beds. of engines, Down along the southern border I eaurplenty in use, thirty or forty years old, several dates of the engines the going back to 1881 or 1883; and the tractive power of most of/engines seemed to correspond fairly well with their age. There has, of course, been a considerable advance in electrification of the southern railways, along the Pyrenees, and the change from the old steam to the modern electric engines is felt almost instantly that the train begins to get under way. But in spite of the abundance of cheap power obtainable from the mountain streams, the electrification of the railways has so far advanced but a little way. 5 In keeping with the general impression here recorded one finds that the general scale of prices throughout this region and of most of France, is still astonishingly low. Though the average of commodity prices at whole- sale and even of the cost of living is now from four to five times that of the pre-war scale as measured by the indexes, one gains the impression that this cannot be true of the southerly portion of France here chiefly considered. of railway rates is not exceptional. The case Cab fares in Paris and everywhere else are so ridiculously cheap that one marvels how they can even pay for the gasoline at the high rates at which "petrol," or "essence" is sold. And at least southerly sections and outside of the more popular places like Biarritz, hotel rates and the like are still very low. At two of the loveliest watering- places in the Pyrenees it was possible to obtain excellent hotel accommodations with characteristically fine French cooking, at rates less than one-half similar accommodations in this country or even in England. the rates did not run over 3.50 or At some of the very best hotels 4.00 a day per person. would be half again as much in rural England, and twice as much in London. In the same way, excellent champagne was to be had at the better-class hotels at from 30 to 40 francs, which in gold is not more than two-thirds what it was before the War, and'excellent table wines at from 8 to 12 francs the bottle. Incidentally, the cost of these same wines in England is now nearly three times their price in France, in gold, due partly to the heavy duty but much more to the enormous rise of retail prices in Great Britain. Excursions in auto cars, which now provide such an agreeable way of seeing something of the more mountainous country, may be had at 30 to 40 francs for an all...day excursion, often covering very considerable distances. And as a similar instance of the generally low scale of expenditure, one could but note the average play at the popular gaming places. Where there were no Americans or foreigners about, the average plays were still in francs, 6 as before, but with the franc worth now less than a nickel. And yet few rooms would employ less than a dozen croupiers and changers, although it would seem as though the total income of the tables would scarcely pay the wages required. But those who gambled wore the same earnest air as though they were dealing in what the average American would probably call "real money." Probably the average play, in dollars, at Palm Beach, would be larger than the play there in francs. All this, it seemed to the writer, has a,very important bearing upon the question of the French ability to bear taxation and likewise their capacity to pay their debt to America. The average of taxation, measured in gold, may be no greater today, as these pages have endeavored to make clear, than before the War, relative prices considered. But the fact which to the present writer, at least, was not clear is that the relative income of France today must be less than before the War, and therefore their ability to pay taxes. These are matters which, of course, with the topsy turvy change of monetary values, are exceedingly difficult to establish, but it is difficult to reconcile the extremely modest scale of expenditure and the general cheapness of things, measured in gold, with any other view. Eventually I believe France will be greatly stimulated by the upheaval of the War, but, contrary to the impression gained from some of the more obvious obtainable data, one does not gain the impression of anything like so much of a post-war advance in France as in Germany. Th October 8, 1425 Dear Gamrd: The Links All reserve a room for you for lionday aight, and they have secured seats 1)-104,110 and 111 at the Empire for "The Trail of the liolf" that night. 1:3 there ;1.nyth1ug else thtt I can do 31ucerely yours, iionorable Liarrana 4inston, Under Sccret&ry cl L.he 7rer, ilashington, D. C. October 9, 1925. 4 deer G.< r re rd: It will probably be neceesary for me or eome oft leer of the bank to go down the by to meet Dr. Schacht and hie femily when they arrive on the Deutschland on October 19. he is likely to be met by e small army of newspaper re- orters, and I went to maX..1 sure that notJling r=oes wrong. Can you arrange for me to get the necessary peso to go down on the cutter? I hope the machinery can be e,!--t in action to facilitate the handling of his luggage, the examination of passports and his passing the usual medical examination, which. just now seems to be a matter of 60416 difficulty for foreigners when they arrive late in the day. When I came in on the Olympic, we old not dock until ten o'clock, only American citizens were examined hnd permitted to lhad. I do hope any such occurrence can be escaped in some way by some diroction to the authorities, and I *ill try to get in touch with you in case I learn that the boat is liable to be Late in laudiat;. will have another party to handle when Governor Hautain and Mr. Vandervyvere, Minister of Agriculture (Former Minister of Finance), end Mr. Van:Zeeland, Secretary of the aelgian Debt Mission, arrive on the ata, but I will take that up wits you later. V,ry truly yours, Honorable Garrard B. Winoton, Under ecratetry of the Treasury, Washington, D. C. October 28, 1925. My deer Gt4 rrti rds It will probably be necessary for me or some officer of the bank to go down tae by to meet Monsieur 8autain, Governor of the Dilations' Earl of E,elgium, Minister Vandurvyvere, and Secretary VanUsland, when they arrive on the Majestic on November 10th. Cr you airange for the neceasaly cutter pa se? AndI o hope mschinery can tn set in motion to facilitate the handling of their lugga,ge , examination of pueoporta, weeical examinationt, etc., so that it i1l not be r matter of difficulty for thee. You will r,!call that I rote you on October 9 of pros?ective arrival of tai perty. incerely yours, Hono re bi Ge r ra rd 3. Winston, Under cicretary of We eilington, D. C. the Treasury, November 19, 1925. Dear Mr. Winston: Tale note will be headea to you by Messeure A. Vandevyvere, Minister of Agriculture, F. Hauthin, Governor of the National Bank of Belgium, and. Paul Van Zeeland, 6ecretery of the Nntionhl Bank of Belgium, who are visiting Waehington for s few days thie week. have taken the liberty of explaining to these 54antlemen that you will arrenge for them to meet Secretary Mellon, end I hope ht that time both you and he will be able to make that the opportunity for acquainting youreelvee fully with the object of their visit to this country, concerning which I have already spoken to you. Commending them to your kind attention, I beg to re- Sincerely yours, Hoaorable Ghrrard B. Winston, Under Secretary of the Treaeury, Weehinzton, D. BS.L6' C. ' rr") November 27, 1925. My dear Ga rre rd: Unfortunately Iwas so fatigued after my trip, first to thicego and then to Washington, thtt it wae absolutely impossible for me to pTepare something to submit to Mr. Iellon before leaving for New ork on Thuradey. Encloeed le a. memorandum which covere the point which I had ,Ae in mind. It is not an ettempt to ex?ress in ltnguage enythin6 more than the bare outline of e. statement which can he elaborsted at will. I think it is a vary importent messega to get before the people of this country; in fact, important enough to find a place in the President's mesaage or in his speech before the Federation of Farm Bureaus of America in Chicago. Of course it mey Seem preeumptuous in me to meke any suggestion of the sort, but you seemed interested, and so T em taking the liberty of paseing it on. Sincerely yours, "1/Yi 512 Honorable Garrard B. Winston, Under Secrotery of the Treasury, Washington, D. C. Enc. BE.L$ The agricultural industry in the United States is confronted with three problems: 1. CREDIT. This is being dealt with by three agencies. The Farm Loan System which is gradually developing an efficient and very extensive organization for making loans to farmers upon the security of mortgages. The Intermediate credit banks. All of those with whom I have discussed operations of these organizations speak favorably of the results end seem to look forward to their enlarged development, so that they may ultimately become e very important part in the credit machinery of the country. That was my anticipation at the time of making the suggestion to the Joint Commission on Agriculture]. Inquiry during the hearings of 1921. The Federal Reserve Banks. This System furnishes insurance to solvent banks throughout the United States that they may be able at all times to meet necessary credit requirements for short time borrowings, and their value is inestimable in stabilizing credit conditions. The three agencies referred to, you will observe, cover long time mortgage loans, loans of intermediate periods, such as are needed for the cattle industry and for crops requiring long preparation and longer time for marketing, and the short time credits extended through the 2. commercial banks. 1ARKETING (domestic). This is a problem which must, of course, be dealt with by agencies such as cooperative marketing associations, which are now gradually developing throughout the country and which should be.fostered and encouraged. le have been giving atten- tion in this district to this particular development by advising bankers as to how acceptance credits may be used to finance cooperative marketing aeeocietione, so that the paper drawn for this purpose will be eligible at Federal reserve banks. 5. PRICES. There has been a greet improvement in the relationship between the prices of the things which farmers produce and those which they consume, the last two years bringing the farmer's dollar more nearly to parity with the wage earner's dollar. But one of the most important considerations in prices is the ability of the rest of the world to purchase and consume the surplus production of our farmers. Our ability to market surplus crops abroad depends upon various factors, principally, (a) Stable monetary conditions throughout the **pad, so that they will no longer be subject to the hazards of fluctuating currencies and exchanges. Willingnese of the American investor to extend credit to foreign countries during the period of reconstruction. This places; dollars at the commend of the world with which to buy American produce. Progress in elevation of the standards of living throughout the world rather than curtailment of purchasing power of our customers. Nothing will promote this more effectively than will the development of stable monetary conditions. With one-half of the world's monetary gold now in the United States and nearly three billion dollars in the possession of the Federal reserve banks, there is now, in fact, more credit potentially available in this country than can safely Whet ee need is e sound international be used at home without danger of inflation. credit policy directly designed to stabilize currencies, to aid nations in meeting their financial problems and to lay foundatione for the development of higher standards of living. This is now being expressed in the those nations which deserve aid by, willingness we have exhibited to aid Cooperation with those central banks which pursue free of governmental or political interference in sound monetary conditions and stable currencies. sound policies, bringing about Maintaining an. open market for investments in foreign securities of sound enterprises, especially in lands where we sell our surplus farm produce. These are in pert the responsibilities of the Federal Reeerve System, and good progress is being made, although gradually and carefully, in discharging the trust conferred upon the Federal Reserve System in the custody of this great mess of gold which should be devoted to constructive purposes, the greatest just now being reconstruction. 3 ex .A ta 46$ 0rvilzoti 025 DEG gSEVE Btaa 140 recexter 8, Ms. Dosx Garrard: HeerrInE am o:cloAng our converefttion about thiwt sc.areso, elmlston r'ien mLy or ,my not be in line 4.ith Most you hp,6 ia foe will otaervu it contempleten little in :.e.,Tere to policies, but it uill not be diflicult to ictroduce ttat if yob twInk it wQ6Li bs of intorost. The in;,ortant thing, of coursr, ii'; European mon*Aery rcaE.tion to it, ftndthe genrel %ItuLtion es to ititIA,t1 markvo for or c.orplos prouction, partirAltrly the crop; aso tt.le ne& for extension of credit oy thi ,:aantry ,,t4riug 4.he period of Europesn recovery In order that thi e m6rkot mhy not be imphired. It you ttfl giPi.nce over the enoloded rid return it to me with your conmeLte,I ill siert oomething right away. Sincerely yours, Honorable Gsrrerd B. Winston, Under cretry of the Trft.eury, Wvehington, D. C. Lao. ?Mei be:,...errber 10, 1,925 Deur Garrard: I telepnonad to the Links, and they hill take care of you on arrival ainday afternoon. If there is anything else I ell: do, please lot me error/. Sincerely, Honorable Garrarcl-2. 4nston, Under Secretary of the Treasury, Washin6t)A, D. C. PUSENCAL.: January K1, 1926 4.Very t11`..,..; to you for A. intinettely informed of develenmente in the '(uestion of the raiwai Bonds. .proli6lua 2o r Needless to say I 5ro glad of the decision. I do bopo it ie poesibIe to bring our .17-yrin,; In to fruitd:ru. 3inebr14 yo-ars, Honorable Clarrard B. The Under Seoretery of the Ireioury, ,;,aehington, D. G. March 3, 126. PERS,WiL Deer Garrard: Yours of February 12 was somewhet delayed in reeching me because of its hexing been addressed to "F..trm Sprin4en, - n easy aiatake to have erisen when getting an address over the telephone. The outcome of the Tax Bill, on the whole, struck sic as being most satisfactory, lthough I would rather see the Treasury 4th a little more margin up Ito sleeve for rainy weather. But I have been much caf,:;tretied by the situation as to the Italian settlement. It may have some bearing on our trip to Italy, in which I conI have read the copy of the letter of February fidently expect you to join me. 10 with the greeteet interest; and permit me to say tleet I think it i Li a oorker: The Polish Minister will be over here Friday. I wish you collia stay over and continue the discussions, which we will have tomorrow, and hear what he hes to say. There is, of course, quite e bit in the feeling as to our being wholly disinterested, and none of the others thoroughly so, although with varying degrees of selfish interest. In e way, the Germans and French, who are suspicious of Polish conditions, are actuated politically almost entirely. In the case of England, I do no think that with Roman he is considering matters wholly from the etenepoint of the Bank of FAgland. In feet, he hes been almost too broad minded, if' possible, in hie attitude toeard some countries, such as Greece, in Wring risks for constructive purposes. If biormenss attitude is to be criticized at all, I should say that it is rather that he lives in an atmosphere arid negotiates eith people all surchergea with political ieflueace and considerations; end furthermore, almost all of these people are more influenced by euepicion, distrust and fear, than they are by a wholly Amon pure dbsire They are still afraid of one another, and there is a for constructive aid. It is a pity thet it is so, as so good eeal of selfish pulling and hauling. much could be gained by frankness and mutual respect and confidence. You amused me by saying that you sent the Greeks back. Of course we would have been subjeotA. to ridicule h4,..ci they come over ostensibly to fund a I he always been troubled by the char.. cter and extent of the commitment made in a former edminietration. uebt, but really to get a huge loan. The most interesting and umueing thing in your letter is the statement attributed to Volpi. It is one of the finest Latin etetemente that I have seen many a long dey. In fact it is just such fine Italian hands as diepleyeci here which form the founaetion of a good deal of the distrust _lad suepicion to which I little books on pont' CIS refer. I was at once reminded of eht most fescue of 2 Mr. wint.>ton ZO by EitH.chiavelli, called The Prince, supposed to have been a description, as I nice'', of the qualities and characteristics or one Gaee,..r. Borgia, whose record as a tro,.eber of Machiavellian deplomacy wav ,..robably only equalled by Talleyrano, who ags)in It really is a little maeterpiece, and it delighted me to read it, for it gives one a little pinch of the kind of' duet that lies behind the door. equalled, possibly, by Frederick the Groat. This letter is really superfluous, tie I em to see you tomorrow, but I was, so delighted to hoar from you that I am 'writing, to eno-ourage you about Lein& again. lily beet to you, a.s always. Sincerely yours, honorable Qarrard B. iiiniton, Under Secretary of the Treasury, laehington, D. C. uoThalt .11A tM av6iiO beou..,cua toOn ' attr btLo tillev.sLioali -0 laitet..2 45 ak, ukiodi ,4316-tod 10 ittivAlas Oa* ool,/11.:up oc1 to a.low aley Cuiv 1brialxolit3T vi b1Lupe xisi ;;,ciiirtel'It44414,4149b ra.,LtiLavzIriozti 10 ,11.60141 1 az 00LiAllosob ,soeicreJaAraL.ix1 laut to :3tj 8,1 x11w51 jO :Ionic; 3L1,111 el no Z'113V13J io lobe-01 xd ,JA DA,S1 c1/41 xi:J.1,18(N ,bolL6upa oessId;511at) I bri.8 13(11111d aell 44r1., 1 Jua go. oilomekt uox aett 4.rOt az az ,auouilloqua asillio3C3f) 0.1 WLIJ.ilw fitd 1 ,t4-111..1 x11.1501 zit loJJal airiT uox molt lbad 04 boIskiiiab °a aow ,uox Oi /sod yft ,a 7 tiox yle,leoula triert.a0z Idt-xotioii 4itt to vi.e..toloue ,t1 ,no,,tzinlds.,3111 CONFIDINTIAL June 18, 1926. Dear Mr. Winston: Referring to my telephone conversation of yesterday afternoon, I am indeed sorry that there was anr misunderstanding on our part about which of us was to tell the Board 'Of' Governor Strong's testimony before the Indian Currency Commission in London. had understood you to say that you preferred to make the report rather than to have me de ar), on the ground. that Governor Strong had employed experts, prepared data and made an appearance before the Commission, acting as Fiscal Agent of the Treasury upon the confidential request of the Secretary. I would have referred to the matter myself on the assumption you had overlooked it in our talk before the Board, except for the fact that I knew you had seen the Secret oaa subsequent to our discussion as to the procedure which we would !brew, and feared_ that he might flave suggested some other course. Not being released myself 1, of course, said nothing. aT sorry indeed. that the omission occurred. It vas the only matter that I think we failed to cover tally, and I would not want the members of the Board to think that it was intentional. In the circumstances, I hope that you Will :Ive an opportunity to explain the matter to them, as you said on the tele- phoae you would, and to point out my understanding that it was you rather than that was to tell them of It, as well as the reasons I did not feel free to do SO. I want to thank yo a for all the time and trouble you took in outlin- ing the foreign situation to the Board with me. Your explanationsand statements June 18, :me supplementing Governor Strong's on reports were most effective and, I tla su.re, gave the Board a much clearer and more vivid picture of the situation than it would have been possible for me to have given alone. Very truly yours, GEORGE L. HAEBISON, Deputy Governor. Honorable Garrard B. Winston, Undersecretary of the Treasury, Treasury Department, Tashington, D. C. GLif.M1" COE'Y June 25, 1926. Dear Mr. Winston: fou will recall we recently discussed with you the rate of interest being paid by the Treasury on its temporary borrowings over the income tax periods, in relation to the market rate for money. As I explained to you at the time, it seemed to us desirable that arrangements be made so that the market excess of funds resulting from these quarterly operations should, as far as possible, be utilized While we have, during several to meet the Treasury's temporary borrowing needs. in a measure, it is not of the recent tax periods, succeeded in accomplishing possible to do it directly for the reason that the rate of interest paid by the Treasury for these temporary borrowings is not sufficiently high to attract the For instance, on June lE we made temporary sales to the funds from the market. market from the Special Investment Account of the System at 5,e interest, while at the same moment we were loaning the Treasury a much larger sum at 2% interest. this * It has been suggested that possibly the Treasury might be agreeable to paying a somewhat higher rate for such portion of the funds as might be provided outside of the reserve banks, but from some standpoints this does not seem to be In reviewing past correspondence with the Treasury on this altogether desirable. subject, I find the principle clearly expressed that the Treasury was willing to pay whatever the accommodation was worth, that is, what it could be obtained for in the open market and I assume, therefore, that if some satisfactory way could be found of determining what is a fair market rate, there would be no objection on the Treasury's part to paying it. While the rate of interest which may be received by the reserve banks for this accommodation is perhaps not of itself an important factor, nevertheless I think we may agree that in principle it should be as near as possible to the market rate for the same accommodation elsewhere. We are interested in working out, if possible, a plan which will permit of the utilization, in part at least, of the surplus funds in the market on the tax periods for the purpose of taking care of There is attached a memorandum which the Treasury's temporary borrowing needs. discusses this subject more fully, which will perhaps be of interest to you. If you find yourself in agreement with the views expressed in this memorandum, I should like to suggest that the rate on the one-day special certificates I think we would find little difbe a subject of negotiation at each tax period. ficulty in arriving at a fair rate as we determine what rate is necessary, in order that member banks may purchase the certificates or participations in them. I shall appreciate it if you will go over this memorandum and then favor me with an expression of your views concerning it. Very truly yours, J. H. Case Deputy Governor. Honorable Garrard B. Winston, Under Secretof the Treasury, Washington, Encl. . C. TRURY'S TaPORAF.Y BORROWINGS About two years ago the rate paid by the Treesury on it temporary borrowings at tie recerve benke Was put on a sliding ecale basis with a view to automatically taking care of changes in the ga.rk et rates for money. The present basis for determining the rate fixee it at 1% oelow the rte to be borne by .zoy tihort-term eecurities ieeued by the Treasury on the tax payment dates; or if no short-term ecurities are isoued, the rate is to be .1% less than the iorket rate of any outstendine government securities maturing within six months, in no event is the rate to be less than 2% nor more then 5;Z. There is one respect in which this eethod of fixing the rate does not work satiefactorily. Over the tax paymeirt periods there is temporarily injected into the money market e coneicereble emount of surplus funde by reason of tlie fact that the Treasury pays caeh for the maturing issue of certificates of indebtedness, wthereae it teeee some days before checks ri:CE2.i.lied by Lhe Tree eery in :iayment of in- come taxes can be collected. This surplus of funds corresponds more or lees generally to the amount of float on the income tax check and also to the emount of the overdraft in the Treasurer's account. During the periods when the banks are borrowing heavily at the reserve bank,theee funcie would be ueed tempererily to reduce the indebtedness at the reserve bank, but more recently there have been periods when the banks have been eubetantially out of debt. at the reserve benk, with the reeult that they have no use for these surplus funde except to put then into the call market, thus causing temporarily a period of abnormally r.L.sy money, which is followed by a period cf tighter money as the iNinde are withdrawn. With 4 view to correcting this eituation, ttri a bank ha e durieg the recent tex .,eeriods sold from the Special investment Account of the Federal Reserve 6yetem (subject to a repurchase eg,reement), goveinment securities to several of the. largerbanks in New York City and Chicago which found themselves with surplus l'Unde. These securities are then bought oack as the goverement' s checks are eellected, so that by the time the Treasurer's overdraft is eliminated, all of the securities have been repurchased. To illueere.te, on bierch 15 last e eold total. of T38,000,000, ell of which were repurchased by Werch 20. On December 15, 1925, we sold a total of $30,000,000, all of which were repurcheseci by Oecember 19. These sales have been made at rates to yield the buying bkelAil& sem& a3 would the purchase of short-term government securities in the market, although considerably less than the prevail.ing cel.I money rates. . The following is e comparison of the rates paid on these temporary sales with the call rates end also with the ratee paid by the government on its temporary borrowings. Teeporary June 15, 1926 _.rch 15, 1926 eiec. 15, 1925 Call 3a1 e,. Money Treasury I Day Cert. % 34 :4...!.''.! 471% 2% 2% 3:ii% 5% 2% -I' It will thus be seen that while we were able to make the temporary sale of government securities at ubotantisliy lees than the prevailing call money rate, it wee nevertheleco at rates coneiderebly --hove those aid us by the Treeeury it overdraft. -2While these operations have accomplished their purpose in the main, there the reserve system, two disadvantages to the method are, from the standpoint of followed: assurance that it will always be available; that is to say, its use depends on the reserve system holding in its own investment account a sufficient amount of government securities available for sale in this way to take up the slack in the market, and 1st - There is no 2nd - It results in a direct loss to the Federal Reserve System of the difference between the rate paid by the Treasury on its overdraft certificate and the rate at which these temporary. steles are made to the banks. On fearch 15 this difference was 34%, and on June 15 - it was 1%. kuch the better way to handle this situation would be, if it were possible, to sell to the banks either one-day certificates of the Treasury or participations therein, thus utilizing the excess funds throwninto the market as the result of the Treasury's operation to cover the Treasurer/ a overdraft at the reserve bank. The one factor which would make it impossible to take this step now is the method of determining the rate of interest now being paid on the Treasury! s temporary borrowings. That is to say, it would not be possible to interest the banks in a purchase of these certificates or a participation in them at a rate 1% less than the coupon rate on any short-term certificates being Jawed at the time, or 1% less than the yield of the shortest outstanding government securities, for the reason that such a rate is generally about 1% below the true market rate for short-term funds. might pay a rate corresponding rate on such portion of the 'overdraft certificate as might be sold to the banks, continuing to pay the lower rate on such portion as was actually carried Upon careful consideration it is believed that this would be by the reserve banks. undesirable both from the standpoint of the reserve is,:eiks and the Treasury, as it would be very difficult to justify the existence of two rates for what ould appear One suggested solution is that the Treasury to the market to be substantially the same accommodation, and from every standpoint it would seem better that the matter be handled on a strictly business basis so that the reserve banks will receive neither more or less than the market rate for this accommodation. In the correspondence with the Treasury two years ago it seems to have been the accepted view, not only of this bunk but of the Treasury as well, that the rate This view is paid by the Treasury should be the market rate for such accommcdetion. clearly stated in the Treasury Department's letterset April I and April kb, 1924. It seems doubtful whether any automatic plan cen Le cievieed by which a There is, howfair market price for the funds loaned to the Treasury can be fixed. ever, no serious difficulty in determining at each tax period the going rate for this As to the general level where the rate would settle, there are a type of funds. It would probably oe in the neighborhood of this bank' a buyindications. ing rate for 15-day bankere acceptances, or the yield on the shorter outstanding it would probably be about 1/2 per cent less than the disgovernment securities. count rate. The precise rate can, we believe, best be determined by negotiation as we find what rate is necessary in order to sell to the member banks the one-day Treasury certificates, or participations in them number of August 9, 1926 Dear Mr. Winston: Mr. Jay sweets that I pass on to you a bit of information concerning a report of the Indian Currency Committee from MT. Harrison Brush, vice president of the American Smelting and Refining Company. Mr. Brush has heard by cable from one of his friends in London that the proposal involves the sale in ten years of about 240 million fine eunces of silver from the Indian Government reserves. This is about the only new item of information which he had. The problem of the effects of the Indian proposals seams to be pretty largely a problem of Indian psychology; whether the Indians will unload silver from private holdings. Very truly you:* W. Randolph Burgess Assistant Federal Reserve Agent Honorable Garrard B. Winston, Under Secretary of the Treasury, Washington, D. C. (Si ned by A. I. after Dr. 3uret:4o left for rest of his vacation) Blithers, B. C., Irebruary 14, 1927, Dear Garrard: This letter will doubtless be delayed in reaching you, just as it has been much delayed in the writing. It nill be a feeble attempt to exsress something of the appreciation I have always felt of your wonderful work indlkhe Treasury, and what is even more personal, my enjoyment of our delightful assoc- iation during these years. You know in the earlient ;art of my connection with the Feeml Reserve Dank, when the Treasury nepartment business vms negligible in importance, our relations with the officere of the Treasury, outside of the Secretary, were neither intisate nor, I regret to oay, especially satisfactory. After 1917, however, we had long years of busy end happy association with Leffingwell and Gilbert, and when Gilbert left I faced the future with much apprehension as to what would be in store for us. You can Imagine, therefore, the satisfaction with io all felt when the conviction grow upon us that the change was but a change of the individual and not at all in the happiness of our relationship, and in fact I feel the same way now that Ogden :4111c is to suceend you. Of course I'would have much preferred if you could have reraained and we could have had another such trip abroad as we had Inst year. ronsibly we can do the letter anyway, but olease, my dear Garrard, accept this as El very inadequate expression of my feeling about the last few years, which I hope you share. I also want to eend you the best of good wishes for the future. I hope your career in New York will be as successful as it was In Washington, and I delight in the thought that we shall see something of each other. Sincerely, your friend, Hon. Garrard B. Winston, c/o Messrs. Shoarman 1 Sterling, b3 Wall Street, New york. 71fo' (go 614- Hotel Brighton, Atlantic City, N. J., April 16, 1927. Dear Garrard: It was a joy to have your letter of April 15. I liko the idea th,t your leving the Treasury does not mean that the old ties are to be ?urthermore, you happen to write about a matter Which I have been working on lately, and the same mail brings a report of your tmlk with Mr. Case and a cony of Charlie's letter on eonciitions in Cuba. *Watching the accounts in the ne-Ispapers and. my correspondence with the bank on this 7ubject have given me a feeling of uneasiness which might indeed be apnrehension if I did not feel that recent experience in Cuba has made broken. us all conscious of the possible dangers there. Please understand that this letter is personal and I don't want it to get out of your hands, but I would much appreciate your talking it over with Charlie Whose interests there are so considerable. Let mefirst recount what I believe to be the objections to maintaining a brunch of the Reserve banks in Cuba, just to refresh your memory. First, it is probably not warranted by law to maintain euch an office in 8 foreign country. Second, it involres the assumption of an expense by the Reserve banks which is no less than e gift to the Cuban nation. Third, it subjects the assets of the Reserve banks maintained in Cuba, and esnecially the reserve of unissued notes, to the operation of a foreign legislature and of courts of a foreign country. 'Fourth, it subjects these assets to such hazard, as it may be, of a rather unsteble country where bank runs are frequent and where disorders, even, in fact, revolution, may at times arise. Hon. Garrard linston 2- 4/15/27. rifth, it has the effect of reeking the Reserve System in a meesure responsible not only for the protection of its own members in Cuba but for the protection of foreign banks doing business in Cuba as well. It would hardly be possible to afford adequete protection to our benks in Cuba and withhold it from foreign banks. It seems to me that this is unfair to the emericen bunks. Sixth, in the event of disorder in Cuba it might necessitate tyPe of intervention by the American government for our protection which would otherwise net be necessary. Seventh, inasmuCh es every Reserve benk is liable for the redemp- tion of the notes of every other Reserve bank, it imposes a liability upon us in Nev York just as great as it does upon the Federal Reserve Bank of Atlanta, despite the fact that we might protest all we pleased against the maintenance of this office. There are other objections of less tmportence 4hich I won't recount. Now, as to the solution of the difficulty, which is what I have been stewing over lately, I can clearly see that in the present situation it would bring on the very calamity which we seek to avoid by closing the office. We certainly cannot fford to desert our um members in Cuba with conditions there as they are at present, and I would. be the last to suggest It, This means that some substitute for the present arrangement which would be effective in practice and satisfactory in every way to our banks should be found, and the Cuban Government induced to accept it. I had formerly advocated a bank of issue which could be associated with the Federal Reserve Bank of New York in some way and, in feet, am not willing to finally dismiss that as impractioable, bot,when I say a bank of issue I do not mean such an independent establishment as other modern banking el. Garrard Winston countries have, -3. 4/16/27. but something which would be copper fastened and adequately protected against misuse, exploitation, etc. Such a bank must be either completely independent of the Cuban government and have a certain umount of exterior supervision such as we could give it or, on the other hand, it should be no more than a shell of a bank with certain very limited functiens to be operated by the overnment which are not really capable 3etween one and the-other extreme there are a variety of of abuse. echemes possible according to the degree of confidence which one isswilling to extend to the ',1overnment. I can see some very serious dangers in the plan you suggest and some very distinct advantages. The fact is, according to my notion, Cuba needs an automatic system of currency issue, the currency to be secured by gold, and the -elastic element in the currency to be furnished, not by a Cubuebank, but by the Lmerican banking machinery. And I believe that some plan of that character can be devised. It will require a good deal of study and some knowledge of local practices in Cuba, with which I am not acquainted. My present plan is to return to New York the latter part of next week. If you and Charlie and I could sit down some day for the purpose of jotting down the main headings of a plan, and if at that time I could get more exact information as to just what are the fluctuating requirements in Cuba from the standpoint of our banks which have branches there, I think we could start he preparation of something very promptly, and I have some reason to believe that we can get support both from the Treasury and in the Department of tate. prom the above you will see that I differ very little from what you suggest exceot as to the need for a system which permits of no discretionary exoansion of the currency in Cuba by any kind of a Cuban agency or organization, government or otheraise. Ion. Garrard 41nston -4 hope things are going well with you, end look forwerd to an early visit with you. My best regards to you and Charlie. Sincerely yours, Hon. Garrard Winston, 55 Wall Street, New York City. May le, 1927. Dear Garrard: I have writLen Charlie Mitchell asking. him to dine with rae one night this week when you and he tire both free. Will you please ac your secretary to advise Miss Bleecker what night you select. Si ncerely yours, Mr. Garrard B. Winetcn, C.Vo National Ci tyOrapany, New York City. October 18, 19 n . Dear .3arrardr, Could you do me a favor? cen I :PAnt to 'wiry, all that I ._bout Leighton L. Rogers from the officers of the Rational City Rank who had to do with him when he was in Petrograd. Of course, I want to know about hie integrity, tact, ability and dependability, whether he ie the sort who got along with people abroad or who failed to do so, and in what particular directions hi s abilities lie. If you can get this for me I would very greatly appreciate it, and I am also looking forward to seeing you and possibly Charlie if he is not too busy some day soon so that I can hear something about you and your interesting trip abroad and what you found there. with best regards to you both, Sincerely yours, -,4inston, Hon. Garrard 55 'Wall Street, New York City. .