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F.D. 12A.,



Federal Reserve Bank


District No. 2
Correspondence Files Division



875(?6Aca -TO




4/S r-e)AJ


772- EAS



SEE 44


1125"; /f2-40




Estimated Current Expenses

$ 2,132,020

New York



t 2,632,000

$ 2,720,020

$ 1,650,000

Estimated Dividends




Estimated Reserve for Depreciation, etc.



100 OCO







Earning assets at 4% Required
to Cover Estimated'Expenses 69,050,000



Average Earning Assets Held
Weekly Jan. 2 to Mar. 19/24



Total Estimated Expenses


$ 1,344,160


St. Louis

minneasclis Kansas Citl


San Francisco

$ 4,405,000 0 1,500,000 $ 1,230,170 $ 2,016,248 $ 1,380,000 $


300,000 760,000















T o t a 1

3,049,000 $ 30,793,578










47,530,000 45,783,750









68 ,208,000

Average holdings of Earning
Assets Jan. 2 to Mar. 19/24
in Excess of Estimated
Average Holdings of Earning
Assets Jan. 2 to Mar. 19/24
Short of Estimated Requirements




$ 57,011,000




$3,077,000 015,358,750 $20,686,750

Avorage earnitg assets short c f

Richmond estimate their earnings for 1924 as
" 1924 "
" 1924 "
San Francisco "





$ 22,925,350

$ 3,470,275



113,100,300 4103,539,075

$22,338,000 $161,921,425



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


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.


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

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


Open NI:aket operations of the System have, of course, come to a complete
standstill, although


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.


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


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


The policy of the Open Narket Investment Committee at tne moment


kr. iinston

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,
Deiuty Governor

honcraLle 6arrar0 B. Wireton,
Under Secretary of the Treasury,
t&ahingtcn, D. C.


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.

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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

Toure very truly,

Honorable Garrard B. Vineton,
Under Secretary of the Treasury,
Treasury i:apartmeat,


MIS, 34,1 40M 1,4





June 5




'aineton - Trea.sury Department
,r Mr. Your .6 would appreciate morning appointliont Eft


ic oblieed to leLve by 402A to keep (Inether i2portfint engtgesuffie,





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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.

,;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.

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
Yours very truly,

Honorable Garrard B. Minato°,

Under Secretary of the Treasury,
Treasury Department,

lashiagton, D. C.


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.



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
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





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August 1, 1924.


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.

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 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,
H000rable Garrard B. *instoe,
Under Secretary of the Treasury

Treasury Department
Washington, D.C.

MISC. 34,



40M 1-24






August 21, 1924


Arriving bonight Will see you tomorrow morning

December 18, 1924.


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,

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


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,

honorable 1. ineton,
Under Secretary of the Treasury,
aashingten, D. U.








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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


ent, and ue hve terefere sold t'rlom this lot of 4.6C:)0,O00. Seitomber
certificates. We also 'nave km.owlecige


Lliey Uave 1:oudht upwarde of

$10,O14000. of these certiftettee in the o,arket
stand, they will ute on June 16, 1D2F

This will



of which, I under-

in making iayment for the


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 c4tificates held in the Open V rket InvestTent Account, i


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.


vi1b.!.e or purche if

Very truly


Deputy Governor.

Honorable Garrard b. Winston,

cf Lhe Tre'Jx4.4ry,
re.shiN0:011, D. G.




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.

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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.



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


Arlo, if so,

ouc o


imitation upon hie timeAssuri% you o mynp.).reciation of any uourteay tht.t

you are 1,ble to ibo

o Mr. $inoton, ,tna


kindeet regslrils,

I be to remain,
Very truly youri,3,

Sir Robert Kindezsloy,
Chairmen, Lp)2.i...rd Brae. &o., Ltd.,
London, Logi Find .


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April 2, 1925.


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.



March. 9, 19 zb



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

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.

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.

Honorable Garrard E. iton,
Uncar Ziecratd.ry of the Traaaury,

Whiagton, D. C.

My 26,




6peeit,LiiYy ltetter
la,t in


you Lmvtt

r..21 yet., turotAl up,


tri titre.r 0.1K1

,--rGL, and 1

IliOfl,;(.]:a;.ate., of

e Go.i'VeTca k.
Under 0,11oretar7 of the









June 1, 1925.

Dear (%rre,rd:

I am re?lly- eActurbed boit thet special

week or tea days i..go
14.11'41, to

wroto a loag letter


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

to ret&ch New Uric.

la not!..,,at

tabOUt Our mail.

ret tirari ive have had trout.,1c:

I tqA

atiA what aould be :!one

titout t.

I yours,

Honorable Germr0 B. Winaton,

1Z1E - 13th Street, N.
ia:.2.11.4ton1 D. C.


MISC. 34.1

40 M 8-24





June 2, 1.925.



Tretsury, 4Fehinton.
Your wire yeaterdty


25 letter received ond understood



TIFIOY walel
Y8 1-1,1118.

MAFID3J3T 90 Y900





AE 3Vg32353JA51302R

June 4,


Dear Gs,rard:

tour note of the third res.ched me lromptly this

morning. ":7', Out if your inc,uiry of the Post Office produces

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.









i Li L1


J Or,


es d oj b.8 I
is t. aiifle



t \p,




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


Cole to Ptnke and Individuals . .
Certificatee to Banks end Individuals . .
Certificates to U. S. Disbursing fAncera

('Old Peceirte




. .

... ..


Net Disbursements



Total Im--,orte into lies York (Revised Custom Office YiFures) . . .

Excess of Set Disbursements over Total Imorte



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

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


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,


Deputy Governor.

(Dictated by Mr. Harrison
How:Table Garrard B. Winston,

Undersecretery of the Treaeury,
Treeeury Department,
Weenington, D. C.

but not read.)


IIISC, S. 1-30M-1-25




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.


A copy of it is attached.



S. I-5014-1-25



August 6, 1925


SUBJECT: Inquiry from Dr. Winston cone:tern-





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

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


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

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


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


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


bankers acceptances.


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


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


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



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


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.


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.


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.





;:ugust 7, 19?5.
Et50 2- I"


Dear Mr. Vinston:

h5ve just received a. packet of midi from Uoverhor Strong

ore: which ir 5. coseic!enthl letter dated Brussels, 141.i


in which Governer iftronF, rafere to discussions which Ile helii

had with Governor Heutain cf the Banque NAioriele de ?elziwe,


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

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.


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
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



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
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

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

Mr. rinston


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.
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

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.


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


Ur. Winston


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
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,

Mr. Winston


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


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.
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


Mr. Winston


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
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
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;

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
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
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.
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





Mr. Winston


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

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

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 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

Mr. Winston



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
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.

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





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
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.
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 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
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
;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


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
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.


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September 25, 1925.


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

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
Sincerely yours,

Honorable Uarrard B. Winston,

Under Secretary of the Treeaury,
Washington, t. C.

October 1, 192,5.


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
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.

honorable Garrard E. Winston,
Under Secretary of the Treasury,
Washington, D. C.

Con fident ial

September 29, 1925.


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.


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.


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


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,



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


indigence at least of conditions

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

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

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.


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 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,


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

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.



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

1:3 there ;1.nyth1ug else thtt I can do
31ucerely yours,

iionorable Liarrana


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

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,

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.




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

ork on Thuradey.

Encloeed le a. memorandum which covere the point which I had

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.

The agricultural industry in the United States is



three problems:


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

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.


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,


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


Progress in elevation of the standards of living throughout
the world rather than curtailment of purchasing power of our
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,


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


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



46$ 0rvilzoti
gSEVE Btaa


recexter 8, Ms.
Dosx Garrard:

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,


European mon*Aery

rcaE.tion to it, ftndthe genrel %ItuLtion es to


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,

cretry of the Trft.eury,

Wvehington, D. C.



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/.


Honorable Garrarcl-2. 4nston,
Under Secretary of the Treasury,
Washin6t)A, D. C.



January K1, 1926

4.Very t11`..,..;

to you for A.

intinettely informed of develenmente in the '(uestion of the


.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.


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, 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


Mr. wint.>ton


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&

beet to you, a.s always.
Sincerely yours,

honorable Qarrard B. iiiniton,
Under Secretary of the Treasury,
laehington, D. C.



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,t1 ,no,,tzinlds.,3111


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


to our discussion as to


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

: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

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,

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,


Deputy Governor.

Honorable Garrard B. Winston,

Undersecretary of the Treasury,
Treasury Department,
Tashington, D. C.


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.



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,

. C.


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 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.


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 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.

June 15, 1926
_.rch 15, 1926
eiec. 15, 1925


3a1 e,.



I Day Cert.










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

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.

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.




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

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

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



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

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,



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


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?

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.


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,

Hon. Garrard
55 'Wall Street, New York City.


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