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F.D. 12A.3 5



Federal Reserve Bank


District No. 2
Correspondence Files Division





R.e.. LEFF i/vGw4z_z_
4)5s T. Sffer-Y. 0A





fvd&G.Atev s- cii.


1,923 -




Mkty 27, 1918.

Dear Leffingwell:

am taking the liberty of enclosing to you a letter

that I have prepared, addressed

to Secretary McAdoo, on the

question of organization because I think you had better read it
over before passing it along.
I am most .anxious to get this under way as the de-

cision materially affects our work during the entire summer.
As you know, I want to be away as much as possible.
Very truly yours,


Honorable R. C. Loftin ell,
Assistant 'Secretary of the Treasury,
iUshington, D. C.



22, 1918.

Dear Leffingwell:
You may got a note from Dean West of Princeton as-4ing
something about my work for the Goverument.-for use in the con-

ferring of a degree.

Don't give ran too bad a character.

taithfully yours,

Honorable R. j. ;414/4T4,924,

saistant-Tedretary oi the Treasury,
aShington, D. 0.


June 15, 1918.


Dear Leffingwall:

I have given more thought to the French situation since talking with you than anything else and have reached a aonclusion which you

may regard al quixotic, but which I still believe is a sise thing to do.
NS munt not lose the war for lack ef financial curse. This
is the time when they must throw their military reserves into the struggle

and I believe that a great morel s6vartnge will be given at this critical
time by throwing our financinl reserves into the struggle.

If it will stiffen the resietance to let the Bank of France
one or two hundred million dollars of gold, I would let them have it-


onettion is will it *stiffen the resistancei
It is most difficult to get a correct appraisal of public
sentiment, and Particularly of the apirit of n nation which is suffering the depression sf reverses.

We have been through an experience with

Russia that discloses the peril of a misunderstanding of that vita fnctor
of Wcr.

If it sera left Solely to me, I think I would get the very best

potraible exnresuion of view es to the morale of the French people from
Pershing, Sharpe, the Red Cross people, the Y. U. C. A. people and our Own

Government representatives in the war councils in France and if these views

encourage us to believe that it will have commensurate results, I wouldn't
wait for demands to be pressed but would come forward at once with en

offer to build up the recerves of the bank of Trance,

nor would I wait

d do this by the gradual process in connection srith our purchases


Honorable R. C. Leffingwell 6.15.1E


of war materials, but I would do it in a large way, courageously, just as
the aresident directed our troops in the brigading arrangement.

Take this for rhat it is worth. It is my best judgment of
what ought to be done.

Very truly your


Honorable A. C. Leffingwell,

Assistant Secretary of the Treasury,
'ashington, D. C.


October 17, 1918.

My dear Leffingwell:

One must, at all hazards, preserve a sense of humor
these days, and I hope you have not entirely lost yours.


amusing incident occurred in the bank a few days ago that shows
the mental attitude of the organization.

We sent around some

instructions about keeping windows open and doing other things
to avoid the influenza.

direction to

Among other recommendations was a

useDobell's solution as a gargle.

The instructions

read, "it may be obtained at any drug store without a subscription."

Honorable R. O. Leffingwell,
Assistant Secretary of the Treasury,
Washington, D. C.



October 24, 1918.

'ear Sirs:

Among the names of candidates for admission to membership in the
entury AssoaiationI find that of Mr. Russell C. Leffingwell, at present
Asuistant ieoretarroV the Treasury.
I have known Mr. 1,effinguell for many years, while he was
Henderson, and, during
practicing law as a member of the firm of Cravath
he past year and ono-half, since ho has been ehgaged in work for the
Covernmaat, I have had an intimate association with hir4 and, possibly,
a better opportunity to judge of his qualifications for membership in the
club,.and of his great public service to the country, than any other memHe ia a man of the highest character and ability and
ber of the club.
On the eve of enlisting in the army, he
has a most agreeable personality.
was persuaded to andertae some cpecial work in the Treasury Department,
Daring this
which has resulted in his occupying his present tesition.

period a very large share of the responsibilities of the financial di-

He has
vision of the Treasury Department have fallen upon his shoulders.
discharged them in a manner waiot ha a aroused the admiration and gained
for him the respect of the financial community of this city.

Hembership in the Century Association has always been regarded

as a recognition of some form of service, and I know of few men who have
done more for their country during the past eighteen months than has Mr.
Leffingwell, and he has done it with a modesty and ability that, in my
opinion, commends him ,!!ithout reservation for memberShip in the club.
hope that the membership committee of the Century Association
will feel as I
tion of the personal sacrifices made by such men as he. It has involved

do, ttat there is little indeed that can be done in recognihis laying aside a lucrative practice, reducing himself to a scale of living
involving the most rigid economy, the abandonment of associations of a life
time, and this he has done, as have many others, without expectation of
I Can not commend him too highly for membership in the club.
any rellard.

Very truly yours,

Committee on Admissions,

The Century Association,

7 West 43rd Street,
New York.



Deoember 10, 1918.


Dear Leffingwell:
EnOlosied is allother memorandum relating to a sug-

gestion or a man in your department that may be worth investigating.

Very truly yours,

Bonorahle n. o. Leffinevell,
..esistant SeOretary of the Treasury,

Lake George, N. Y.,
February 6, 1219.

Deer Leffingwell:

This letter is the result of much cogitetion about the next bond issue;
its terms; and the policy of the Department in financing from now on. If you
obeerve some slight change of attitude on my part, it is brought about as the
result of opportunity to do some reeding snd thinking on these matters imbieh 1 was

unable to do Shen at the office.
Men we became involved in the war, it developed very promptly that as
prices had alreLdy been tremendously advanced U6 6 result of geld imports and of

the competitive buying of the Allies in this market, our on war costs and Government borrowings vould bo correspondingly large.

I felt then, sod 'till feel,

that the only ways by Which the required credits could be produced for the Govern-

ment's needs would be either ea the result of:


or, roiling Chet, of
(b) Inflation (to the extent that economy was not practiced

voluntarily or involuntarily)

The methods evailable to the Treasury for raising the money wore limited



Competitive rate bidding, or

(d) rstriotic Anneal.

all knov Met Individual economy yes not practiced to such extent as

to enable the Covernment to raise the entire sir fund without recourse in part to
inflation, end the reserve banks furniehod it. The controversy in the Treasury
Building during this entire period was betvoon one school believin4 that economy

could and Should be nforcod and inflation avoidd through establishing higher

U. Leffingwell


rats levels; the other school, Which included the writer, believed that


must be enforced through some system of rationing, or by consumption taxes, or by

other methods more rcientific, direct end equitable than high interest rates.
During all of this period, as frequently. expresed to you, I have, personale
ly, felt that the problem of inflation should be dealt with through enforced


but that, nevertheless', the interest rates established for the Liberty Loane eere
someWhat loeer than was vise, and that slightly higher rates end more attractive terms
would have produced better results. Possibly in that view I was wrong.

While higher

rates of interest might have restrained some expansion, the amount saved might not
have been verth while, nor do we know how much the edvanced price level is due to in-


On the other hand, accepting the Secretary's decision in these matters in-

volved the adoption of a corresponding rate policy by the reserve bank, vhich vas


always done without hesitation. My only comment upon the past is that both the

Treasury Denartment and the reserve banks were the victims of the failure of our Govern-

ment to get a bettor control of expenditures by the neopl generally. Some part of
the inflation might have been avoided by paying higher rates on the Liberty Loans,
but how much is anybody's guess.

Te ere all familiar with the results of the policy of the Department.


money has been successfully raised, and, an nesrly as I can estimate, it a cost of

possibly Six billions of bank inflation, not all of it, however, directly attributable to Government borrowing//Before expressing 00110 vises about the program from

now on, I must refer to the report of the Committee on War Finance of the Mariam

Tconomic Aeseciation and Pak you to read it, if you possibly can find time to do so.

kt any rate you should read articles four and five, starting at page seventy-five.
They sill bore you some, make you mad some, but, also, they will help you some.

Professor Revert (Iv) annoys ma, as he will you, and I am proposing to write Kemmerer

a blast about the report.

Their trouble is the usual end ancient one, of aperotelve

Lug the problem on the theoretical basis of 130% perfection, but leaving out of WI..

count entirely the humeri rector, i.e., what ic possible to do, rather than What ought

Mr. Leffingvell

to be done.

They are expressing in these two articles


at they think ihould be

dene irrespective of the average of the viers of ell, and it is to that average

view which a program must conform if it is to succeed.

A college professor finds

it impossible to construct his views along these lines.

liut Kemmerer may be, and

likely is, correct about the price level, although again he loaves out of his
argument the most imeortant factors of all, Which ere "reletive inflation," and
bearing on that "relative price level," and again bearing on that *the relative bulk
Of gold reserves' as between the various nations of the world.


You and Secretary

writer of this letter, will

ceeteo, and now ascretery Giese, and possibly the humble

find in future years that the Treasury and the Reserve

System must stand up and justify the policy of the two war year, Which involved
rather complacent acceptance of some inflation es a necessary evil
aepert of the price paid by the

Government for

being, in fast,

successful vat finence.

If the

Government, in consequence, paid too high prises for its su plies, I think the
Treasury Dopertment could maintain that it was not as a result of wilful inflation,
but was caused by the failure of the Government to take control of expenditures by the

People of the country, thereby making inflation inevitable or loan failures probable.
we have paid the high prices, we hove had some billions of inflation, but from now en

the Treasury is charged with an even greater responsibility than heretofore because
thn day of deflation aperoiches.

The process of deflation is a painful one, ine

waving loss, unemployment, bankruptcy and soil and political disorders, Whereas
the process of inflaiion brings in its train

prosperity, employment, rising prices,

a haeny abeenco of bankruptcies and general stet* of contentment, all of 'Mich

leads me to the noint of this letter, namely, that mistakes by the present Treueury
Adminintration from now on


bring retribution of e very certain and definite

character which was not likely during the days of war excitement and expansion,

but which


now beginning to loom up most definitely during the disteeteful days

of paying the damages.

The object of this letter is to emphasize a few points

about tho future Which none of us can afford to overlook.

r. Leffingwell



The level of prices of both wages and commodities in

this country has alwaye boon much above that of any country in Aaron°.
is that the readjustment of prices throughout the world has

not generally

Uy belief


the differential egainst us, and that with certain special exceptions it will still
be found that the level of rage and cemmodity prices in inglend se veil vs on the
continent of

urope is much lover than ours.

as greet sr formerly.
prices out of


The relative difference may not be

Our danger is not simply that re have

continued a level of

with those of Aurope, but rather that to have eetablished a higher

level of prices than formerly under conditions of such artificial prosperity that

merchants and menufraturers the have permitted their

inventories to oile up on them

at these oricer must no struggle through s costly period of liquidation, end, in
coneequence, are bound to austain heavy losses on large stocks of unsalable goods.

Abroad, Where stocks of goods have been greetly reduced, the proem, of reeecing
the price level rill likely not involve such serious levees as with us.

ven up

in this distrietT meet men Who are already encountering difficulties with stocks
purcheted censiderebly above present prices.

A friend of mine 7110 bee just been

visiting me, rho is in the cotton textile business,
their inventories is already tremendous.

along tb:1

says that the shrinkage in

You know that is taking place in the 'eel

The same thing is heopening in loather, steel


and iron, in fact all

The objent of referring to this point is to cell attention to the

fact that if inflation is arrested at its present level the reedjustment of prices,

and loss resulting rill be no greater than, that now fixed by the existing


If inflation continuer, money grows cheap, - the liquidation will be arrested

and our later troubles be the greeter.


T'!otwithetanding the hardships and lessee result-

ing, I believe you rill agree that it is inevitably neceesery that our banking position
must be gradually deflated.

If this is not done, to may face the necessity of

either continuing the gold expert embargo, to the detriment ef the rest of the world's

financial oosition, or else lore

a large amount of gold at a time 'than it woula be


Ur. Leffingeall


inconvenient for us to do so, and noceseerily force n more radical readjustment in
intorest levels then ee have yet found necescary to employ.

Lithe moment my

thought is that the processes of deflation vill follow naturally enough, and
gradually, if the Treasury is able to adopt such a policy er will simply prevent

further inflation, vhiah vill be referred to later.

As briefly mentioned above, I em receiving

reports that are disturbing about businece conditions; contracts are being cancelled,
and sometimes rather ruthlessly.

I heard the other day, for instance, of some big

contracts made by American mills for South Amerioan buyers, the goods being of

special cenetruction, and just es soon as prices fell off cables came up here, not
only canceling the contracts, but canceling the bankers credits under vh uh the con-

treats hed been issued.

These sere special lines of goods rhich could not be sold

in this country and involved pure sea of rote material at high prices. i know from
experience that thip sloe thing will take place in the iron foundries. Uenufacturers

of pig iron, 1 have no doubt, viii suffer cancellations of contracts right and left.
such trades as mono' ihirte indicate the trend of the deportment store buyer.


ecleneen from a Wirt rectory in this district the other day mede the rounds with
practically no cuccess evoeot in selling cheap imitation silk shirts, for vhich
there still seems to be some deend from laboring men eh° are getting unusual
wages. The wool auctions in Boston are en indication of the haaitation now develop-

These various aims ef-butiness recession indicate that the readjuetment it
now under ye), and that es may be aenronching a period *hen active criticiam eill


There i

a change of wind e indicctinE a dhsnee in reether.

*snRao, AND BUT4t

One ground of criticism of our policy in the peat

has been the *Borrow and Buy" slogan. I believe it ves necersary in order to insure

euccessful financing.

I believe it involved the least vicious form of inflation,

but I believe that for future loans it should be abandoned end discountenanced by
the Treteury, even though it means a more moderate success in financing.

You may suggest, as e conclusion of No.4,

that the on/y roceurne of the Treeoury, failing to niece bonds with investors, will


mr. Leffingvell

be to sell them to the banks of the country.


That I doubt very much. If anything

is to be sold to the beaks, it should be short certificates until the time eases
*en bonds can be sold or vhen the Treasury is willing to pay the rate to sell them.
6. TAT xmar or DIA= BORRITING rRIN Vann RZSZRYt AANKS: To ii----"--

lustrste exactly the relative inflation involved by various methods of borrowing
would be almost impossible except in theory because the fplow of bank loans and de-

posits throuehout the country is so active hs to obscure What really takes place.

Theoretically, however, the fancying is true:

When e member bank either lenus to

e subscriber or itself buys some Government bonds, it causes inflation only in case

and to the extent that it borrows from the reserve bank, and creates no inflation
unless it does borrow from the reeerve bunk.

For every dollar borrowed from the

reserve bank a nossibility of inflation arises in the ratio of the average of bank
denosits te reserve deposits so crested by borrowings. If all the banks of the
country make loans of this character to or for the Government to the extent of, say,

e billion dollars (and theoretically the average reserves of all national and state
banks is 10%) the borrovings from the reserve benke will be only $100,000,000 to
Thie can be demonstrated by figeres ehich I
supnert the billion of inflation.

will not eletorste.

The process of expension *AO takes niece as a result of

such borrowings frem commercial banks is loss dangerous than the process of infla-

tion which would result from direct borrowings from the reverve banks. In the
first instance the inflation it limited to the initial Amount of bank loans, the
reserve bunko contributing only the amount of reserve required thraugh their die
counte. Rut, if the Government, needing * billion dollars, should borrow that sum

directly from the revel-Ye bunks, it voule be throwing a billioy dollars of reserve
money into the hands of member banks, end, theoretically, thie reserve money would

supeort a bank expansion of ton billions, if the retie is one to ten es assumed.
WO hove, therefore, three possible choices:



A sale to investors vho do not borrow,

A sale to investors who do borrow, or to the commeroiel
banks, Which would result in an inflation to be supported


mr. Leffingwell


by loans at the reeerve bank, equal only to the
reserve percenteee of the inflation crested, and

riorrowings directly from reserve banks, ehich would

croft* new reserves to the extent of that b)rroeing
and munnort inflation to many time* that amount.

I believe every possible effort should be made to confine the next loan to the



re have *Iraq* considered thet too sharp an ad-

varce in the rates on Liberty Bonds would cause e corresponding decline in security
valuer and consequent embarresemont for-savings banks, life insurance companies und
No matter at

ether security holders. 1 doubt if thet hoe been a sound argument.

Whet rate the Government issues its securities, the in-vestment level 'ill shortly be
esteblished by Inanely end demand in the market se that the cempetitive rate between

the Government's loans and other securities will adjust eutemetioelly.

'Peon if the

Government sold a lom, rate bond it would shortly sell at such a discount as to bring

it into direct competition with other forms of investments. On that point I believe
we have been misleading ourselves a bit in the nest. Hereafter, hoeever, * new

fectoe will enter into our celculations of the utmosrimportance.

Our markets muct

greduelly be opened to foreign loans, both government and private.

Foreign govern-

ments, and borrowers eenerally, are willing end will bo forced to borrow in this
market almost at any rates Whieh will produce the credit - Their refundinge and

urchpess in our markets will sake it necessary.

It is a competition Which our

Aseesury must met unlnes our Government is ri/ling to exclude foreign borrowings
from this merket, with coneenuent serious &owe to our cemmerce and finance.


-ekes little difference oleo at what rotas these foreigners borrow because the same
interest comreadjustment of market values will take place to bring about this s

petition. In feat, as the doors are now being opened graduelly to h normal interchange or goods und of credits, and, ultimately, to shipmente of gold, a. world reavoid
adjustment of the interest level ir bound to tyke oleos. '0 can not ignore or

Mr. 44;finosil



nd our Oovernmeat must prepare itself to enter into the competition and ad-

vance its rates, or have its loans fail, unless it is still willing hereafter to
pursue 6 orogram of inflation rhich might be disastrous.

One of the ablest bankers in France, for rhos* opinion I have the highest

elgerd, told we two years ago that he expected after the war was over to see the

very hest private credits ix Turopo paying 10% interest for fixed capital as
dietinauiehed frem benk loans, eveni solvent governments end municioalities doing so.

For the next loan I believe the Treaeury

phould *dart the policy of offering a rats of interest on a taxable bond running not
more than five years, redeemable, say, after two years, which will be so attractive
in terms that it will induce investors of all classes to buy them with s minimum of
bank borrowing in order to carry them.

If this is done, I believe, the action of the

Treesury rill earn and receive the commendation of all thoughtful, intelligent men

end that the armor of politiciene can be ignored.

Also if this is done, it will

reeuire SOMO readjustment of rates by the reserve banks.

For reason* ehich need no repetition, our bank rate

has been regulerly and promptly adjusted to the Treesury's program.

Should the

Treasury nor piece a high rate loan, I iheuld euepose that the reserve banks would

be reouired to adept the relieving rates:

A special rate to enable banks to rediscount existing
loans made to original subscribers to the Fourth Loan,
probably 4i7: for ell maturities.


A special rate for nee. loans to enable banks to carry

eubecriberr to the Fifth Lean, et lent flout' to the

rate borne by the new bonds, but probably not any lower.

A special rote for bills arising out of the importation
and exportation of goods.

Admittedly, this last rate, if fixed at aroun-.1 present levels, with other rotes
advanced, rould drive a lar7s volume of foreign bills into the reserve banks.


the other hand, it might create such a premium or special dmeand for bill*, that
banks rould be found more enxiaus than heretofore to hold a portfolio. 1 would

Mr. Leffingeell


advocate this peeled rote for internationel reasons, it for no other, es suggested
at our conference in reehington.

Upanoion to the extent resulting from that

*alley, based upon the development of a special market for international bills, vould

be the least harmful of any in vhich ve could indulge, and vault: be a later protection

to our internationel exchanges.


bond would be a mistake.


I have come to believe thet a by rate tax exempt

The difficulties resulting are illuetreeted by the

nosition in vhich any member bank would fird itself under the new tax bill.


average gross return on invested money and lonn fund* under present conditions sill

run between 54 in the large cities end 0. or over in the country,

If a 4;i: tax ex.-

*apt bond is issued, thourh running but for five yeart, and redeemable after two,
it veuld tay a return to RA member hank, by reason of the tex exemption, that would

be equivalent to something like 18A or 'OA on other forms of losne
table of calcul tione here and speak roughly from memory,

I haven't the

it rould be the greatest

portable inducement for banks to buy these short bonds and turn right around and
borrow from the reserve bank o

to scalp the difference between our rats end the

rate of net return en this- trx exempt investment. it would forde the reserve banks
into the position of discriminating in loans made for that purpose and loans 'nude for
more lagitimete purposes.

This it an almost imponseble thing to do, beceeee a bank

can buy the bonds and secure the funds to do so by diecounting its eligible paper.
I believe I toll yeu that Alexander etoted to me that if the Bank of Commerce ranted
to take $100,e10,000 of notes of that character they (meld realize t good many
million dollen' e year profit by borroeing the *hole amount from the reserve bank
in one form or another.

To impooe the obligation upon the reterve bunks of safe-

guarding againet this form of inflation strike*: me as an unjust and unseund thing to

In feet, an obliration vhich they could hardly expect to suceescfully perform.


No policy by our Treasury from now on

can ignore the international rspeet of our finencial poeition.

I am very clear,

after reading venous British reports, that the London Tartlet will in the not distant




future experience an edvence in the levol of hank rates generally beyond anything
heretofore oxperionced in the London market eeceot in 'sr or other crises. It would

not surprise me to see bilis selling at between 5% and 6% in London, and a good part
of thst bueineso gradually transferred to thie country.
Lord Cunliffe smite& me privately:

*I am indeed nervous MB to the outcome

all this enormous credit inflation and huge floating debt."
Cokeyne, governor of the Bonk of Tnglend writes:

"I em sorry to say that

the currency inflation is proceeding apece bare *ad I fear it will continue during

vhet a comfort it rill be 'her the Governeent borrowing can cease:
Until that ard the artificial money rates COM3 to an end, ws shell not be able to tell
how we really stend."

You he doubtless; reed the report of the eunliff committee.

Mose nil

point to the adoption of planr in London st some time for squeezing )ut inflatioe,
doinr every with artificial conditions, and, of course, accepting tha coneequences of

higher interact rates.

IN UOVCIAreleeli:

The greet tmentetionof the secretarioe of the Treas-

ury in time of wsr is to borrow cheap money.

It it axiomatic that in such emergency

the Treasury attempts, and usually eucceede, in obtaining control of the benk of
issue and that the bank of iseuo become, the instrument for furniehing the 3overnmeent

with Cheep loans or irrednemO:le retie at the expenre of sound monetary conditions

and of the ,rice level.

That 'le eezotly 'het }weaned in 4iglene during the

Nenoloonic rare, end it has heron'ned in rrence (with the possible exception of the
reenco--ruseian 'far) since the dye of Nenoleon.

The sank of prance to-day shore

the effect of such 6 policy as strikingly se any institution in Airepe with Whose
figure* re ere authoritatively eogusinted.

The ;lei& Benk and the linear/al Bank of

Russia both succumbod to this irfluence, sad, in the latter case with a complete

collapse of credit.

Our policy in this country has no far been the soundest of

any, vs have avoided a debeeement of our circulating media, have taxed liberally,
end have hed but moderate inflation, and 1 believe that fro-' n,w or o couregeeae




policy by the Treasury for one more lean will do mere to establish the country's
finance, end generally to ertablieh its business upon a sound footing than eny other

eingie rector.
Secretary Glass in one or two public tete-temente bee expressed the view

that the Treasury can still rely upon patriotic impulse for finenciel nupport. That
Is undoubtedly true to some extent, but if patriotic imoulse ie med the means of
placing unettrective bonds Which must be forced upon reluctant investers who are

induced by artificial rates to borrow money in order to buy them and then shortly

turn shout end well them to avoid Orinkege, es experience ell of the evils of ine

fiction, the disentert of losses by patriotic investors, an unnaturti end severe doe
cline in the Government's bonds end credit, end en investment interest rate ultimately
eehieh as would have boon estetlithed in tho first piece bed the Government borrowed

et an attractive rate to the investor.
If this letter seems to involve some Chimes of front on my nart, (which it
rosily does net, fundamentally) pleere bear in mind *hat n change has taken piece in

In the fece of my persistent, continued recemeendetion to our friends

in vsehington thet eteps be taken to coneerve goods fele services, I found myself
edvocating inflation es a Moms of meking up the deficiencies of oome feilure to
sdeountely control expenditures und to promote economies.

Nor that tn, eer is over,

even uoh meene as were adoefed to control private expenditure have been abendoned
end there seems to be just one recourse left, which is to interpoos obetsclos in the

wee of borroeing, end to do it by a slightly higher rate level.

In other words,

While the eer was en, the proposition stated or poee one of this letter resulted
in edooting policy (d).

Now that the ear is over end no control it being exercised,

Ire are forced to the edootion of policy (c). That's the ehole story in a nut shell.
This rather rambling letter contains something of vhat I would soy bed ve
onportunity for e meeting. I eish very much you could melte the opportunity by coming
It is eimrly an exnression of my personal views eithout conrerence with
up here.

it, Lrffinlvoli
ly keeeoiatas.
vith beet regarde.
Unceroly yours,

Monorehle T1. C. Leffintee11,

AgeiFtemt Seeretery of the Treceory,

ruAington, D. C.



Lake George, N. Y.,
7, 1919.


ri 1 1 1 1

Dear Leffin g-7-1"r14-13ERAL RESERVE BANK

I received the first telephone bill to-day, -!'hich
seems to cover service from the latter part of December to

the firet of this month. Won't you let me know if you have
received any telephone or other bills Which I should have

paid, and the amounts, so that I can send you a check!

Faithfully yours,

19grafal...9 Leffiurelll
1126 - 16th Street, -

Tashington, D. C.



Lake George, N. Y.,
February 11, 1919.




Dear Leffingre

I am continually end continueuely feeling regret that you can not
There are so many things that I would like to talk

gat up to Lake George.



I have had the pleeture of meeting Mrs. Heritt, and last night

ead dinner at her house When you were the eubject of much discussion and everyone
expressed the hope that you could run


hare with Mrs. Leffingrell for a tine.

Maybe I can still persuede you to come.

There is one detail of the situation with Which you may or may not be
familiar, but it seems to be developing rather rapidly.
a direct drive in the last
registered bonds.

loan campaign to have subscribers elect to take

I hear a greet many people

say that they have not yet

re made, as you know,

rho have ordered registered bonds

received them, even of the third loan, and that eben

bonds are sent for transfer they literally disappear and that a good many of them
come beck eith names spelled rrongly, etc., etc.

Of course I knor that re always hear
correct and Prompt

of the

mistakes, and

never of the

deliveries, end I know as well as anyone can how terribly overe

werked Broughton is, and


*het tremendlaue difficulties he has to struggle.


fact I don't blame him, nor anyone else, if delays have occurred, but, upon making
inquiry unon the situation, I was told confidentially a few days ago that


rere twelve hundred bags of unopened Treesury Department mail in the Division of
Loons and Currency, which repreeented an accumulation of some months, where the

contents of the begs WAS not even knorn, and that


accumulation is


'r. Leffingrell



This is not a letter of complaint, because that--s the last thing of
Which I would be guilty, but I as writing to ask Whether it is not possible for

the Bank, or all the reserve banks, in some ray to help out in this difficult

It would be e misfortune to start the fifth campaign without having

e clean-up in deliveries for the fourth.
As I now recall, we have one or two men in the buelding helping.


might be possible, and if you say so I will make inquiry end see if we can't
organize a staff of really expert clerks, now working in our Bond Issue Division
(where it is camper ively slack until the next loan) and send them over in a body

to tackle this job.

I have not broached it at the office, but will do so if you

ask me to, and see /that can be done about it.

Ineidently, I feel very sorry for Broughton and feel that if you don't
look out you are going to lose a very good man. He is terribly over-worked and

those who assume their responeibilities

with the conscientiousness that he does

are more liable to break down under the mental strain than the less conseientious

And while on this subject, I feel strongly the need for legislation
vile& will authorize the reserve banks to do the work of registration.


mechanical difficulties could be overcome, and our boys would infinitely prefer to
do the work than to encounter the difficulties Which arise by the present methods.
How do you feel about all this
Beet regards.

Sincerely yours,

Honorable R. C. Leffingwell,
Assistant Secretary of the Treasury,
7ashington, D. C.



5 191)

Lake George, N. Y.,
February 28, 1919.


Dear Leffingwell:


I have not really replied to a recent letter/you sent me about
Clark's salary.
course, give

his work


I submit to your authority in the matter but will, of
a handsome present When I leave to compensate him

and attention to the



At present I am planning to attend the nveting in 7eihington on
the twentieth, going over a day or two in advance, particularly for a conI have, at times, felt that I

ference with you and Secretary Glass.

was so much out of sympathy with the position of some of the membere of the
Federal Reserve Board, that I was, in a sense, a conspirator to defeat
their purposes.

That's the last thing that I want them to feel, and going

to washington in advance of the meeting would be somewhat with the object of
endeavoring to agree in advance among ourselves upon a policy.

It would be

foolish for me to close my eyes to the fact that the governors of the
other reserve banks will-be very much influenced by my own attitude in
the next discount nolicy, and I would feel much happier if that attitude

were the result of a preliminary understanding with you and Secretary
Glass, and with the Federal Reserve Board.

Don't think that this is

inspired by egotism at all.
I have enjoyed

very much the

hospitality and many courtesies

that have been ehown me by Mrs. Hewitt, which I am very confident have
been inspired by some private communication from you or Mro. Leffingwell

Ur. Leffingvell

all of vhich I greatly appreciate.
Beet regards.

Faithfully yours,

Honorable R. C. Lefingwell,
Aseistant Secretary ef the Treasury,
Washington D



Lake Georgemrp. Y.
February 197, 1919.

Dear Leffingvell:

I have not rerlly replied to a recent letter you sent me about

I submit to your


authority in the matter but

ceurse, give Clark a handsome nresent when


I lenve to compensate him



his rork and attention to the visitors.

At present I am planning to attend the m:sting in tshington on
the tvyntieth, going over e day or two in advance, particularly for u conference with you and Secretary Glass.


it I have, at times, felt that I

was so much out of sympathy with the position of some of the members of the
Federnl Reserve Board, that I vas, in a senre, a conspirator to defeat


That's the last thing that I rant them to feel, and going

to Thehington in advance of the meeting would be someThat with the object of
endeuvering to


in advance meeng ourselves upon a policy.

foolish for me to close my

eyes to the fact that the governors of the

reserve banks will be very

much influenced by my own attitude in

the next discount Policy, and I would feel much happier


were the result
Glass, and



it would be

a preliminary

understanding with

if that attitude

you and Secretary


the Federal Reserve Board.

inspired by egotism at


I have enjoyed very much the hospitality and many courtesies
thrt have been eleven me by

been insnired by some


Hewitt, rhich I em very

confident have

communication from you or Vra. Leffingaell




all of vhich I greutly apnreciete.
Beet regards.

Faithfully yours,

Monoroble R. C. Leffinvell,
Assistant Secretory of the Tretsury,
rashington, 0. C.






A '72 . 7 1319







Ifuehington, March 28 ,1919.

DeiA. Mr. Ieffirvell:
The enclosed statements which have just b en received from the
Bank (which, however, are not exactly in the form that I suggested)

throw sme light on the financial results to the Federal Reserve
of fiscal agendy operations.
Very truly yours,

Hon. R.C.Leffirgwt,
.-Trerasury Department.




rnia,-;AL R',E,RNIE

Washington, March 29,1919.


Dear Mr. Leffingwell:

am returning the correspondence with Mr. Oscar Wells
and have written Mr. Treuan asking him to ta-e this matter
up with Bond and Goodwin, which I am sure he will do with

Tours very truly,

Mr. R.C.Leffingwell,


March 31, 1919.


T an urged by the Liberty LCan OrganizAtion to 7et word
to New York today in regard to Secretary Glass attending the
proposed mooting wl'ich we wuuld hope to fix, If poositle, for
next Monday, but Which, I believe, can be deferred until later
to rneet hit convenience.

once for the printI or also urged to obtain authority
that they my to distributed in
ing of subscription blanks, so
Ovince. Thin involves, of co urse, a determination at to Whether
sUbscriptions shall be for one or two forms of security.
T am also urged to secure from Secret!Ary Glass, if poggile,
a Irry definite and posItive st:'.t&ment as to where sUbecribers

should file their subscriptions, in other words, ,*ere their 1-nk

lalances ,?.re maintained, this br-ing the only protection that we
can get, with our large quota, against the diversion of many

frog New York.

Honortble R.



taIttratily. and ,ah4e b

re ia AA

ecurvi pemanimt1y6

far yr.t la caf.e irRnklid aid luare.

1 ha4



May 24.0419.

.rL04 derYlce in some oopiK4itv In ta._

4aleSstad, but a .ftry good oelonlvvr, and It a


i:ear Hussell:

Ihis letter ia not intended to be answered while you
George, but I

am using that address so that it may be kept

files in Wadhington and torn up

after reading, if

are at Lake

out of your office

that is the



to make of it.
Mere is no doubt that the conclusion of the 2ifth Loan is accompanied

by the complete dieintelgration of the Liberty Loan Organization in this dis-


The only way in which that organization has been possible of creation

charge of the various

and operation is by having man of the highest order in

of responsibility could

div5aions, to whom a great deal




men have finished their work and will return to their respective offices,

practically all of them


Considering the

been volunteers.

program of the future in the

I have it strongly in mind teat what we need
right man to take

charge of'

return to the


anything else is

more than

the business from now on as a

considering who the man should be.
would not

light of this


paid employe, and I am

I was told a while ago that Lewis Franklin

Guaranty Trust -Gompany, and

up his office in the '.a-easury pretty soon.

that he

might it

contenTlated winding

not be possible for him

to transfer to this bank, in some responsible position, in charge of this whole

That is one suggestion


relates to

ir. hornor


I have had in mind in regard

WM. A. head & Oompany, who had charge of our

:etropolitan Canvass Organization in the Fifth

to the future -


he impressed me



oN i.o.a;r2 I

Ma y 2.



Dear Hussell:

This letter ia not intended to be answered while
George, but I

you are

at Lake

am using that address so that it may be kept out of your office

files in Nadhington and torn up after reading, if that is the proper disposition
to make of it.

Moro is no doubt that the conclusion of the 2ifth Loan is accompanied
by the complete disintaxgration of the liberty Loan Organization in this dis-


The only way in

which that organization has been possible of creation

and operation is by having men of the highest order in charge of the various

divsions, to whom a great deal of responsibility could be delegated.


men have finished their work and will return to their respective offices,
practically all of them having been volunteers.
considering the program of the future in

the light of this fact,

I have it strongly in mind that what we need more than anything else is the
right man to take charge of the business from now on
considering who the man should be.

as a paid employe, and I am

I was told a while ago


Lewis 2ranklin

would not return to the Guaranty Trust Gompany, and that he contemplated winding
up his office in


Treasury pretty soon.

Might it not be possible for him

to transfer to this bank, in some responsible position, in charge of this whole

That is one suggestion I have had in mind in regard to the future another relates to Mr. Horner of



Read & Company, who had charge of our

Metropolitan Canvass Organization in the fifth Loan.

He impressed me most

Honorable R. J. Leffingwell



favorably, and while he could not be secured permanently, he might be a very

valuable man for you in case iran.klin did leave.

I had it in mind to suggest

for him a limited period service in some capacity in the Treasury. He is

essentially a bond salesman, but a very good organizer, and is a partner in
the firm mentioned.

*:ion't you turn these things over in your mind and let me know the

result of your cogitations?

of z

eaithfully yours,


roper diaper

i6 aooOmpar

this ells-



Lake George, E. Y.

Of oreatiOrt


o vh'Ic

finished th,


L un4


411 ei thaq:


s feat.


have It In
:8Xt. A4L te tau aLlog.
meiring wiz.o the skin W.

vald not return to the 31
h14 offiee in the Treasdr-

to transfer to thie Wank. in

ei.ise is the


:thew; from no,. on 41,


dove. and I am

1 Vas told a 'hilts ago that kowi3 Praairlia
.ast;ocl.,any4 and thwt he sontqmplated winding

etty elan.

Might it not be p4.ssib3e for him

=r1b position, in Ofaferio Of this whole

atioa. iz oao 41094tioa I'have 4ad in-ziad in ?cgs:TO to the future
reIatos to AA-, horUer of 1M. A.. Amid * .Ds4,a47. who tad ohulte of our

AVAIDS Organizatium in the. k1tt4 Loss.

he impro*sAd mmt l'aost

Honorable R. U. Leffingwell


favorably, and while he could not be secured permanently, he might be a very
valuable man for you in case iranklin did leave.
for him a limited period service in some

I had it in mind to suggest

capacity in the Treasury. He is

essentially a bond salesman, but a very good organizer, and is a partner in
the firm mentioned.

Won't you turn these things over in your mind and let me know the

result of

your cogitations?

2aithfully yours,

Honorable R. 0....1441g4W1,1944,

Lake George, N. Y.



June 40,


My dear Russell:

I noticed in yesterday's papers a
your having received a degree from Yale.

way of contrast.

It interested me by

Possibly you do not realize it but there

is no honor that governments or

universities can confer upon you

which is equal in value to the esteem
are held

little account of

and affection

in which you

by the many people with whom you have been associated

in Government work during the last two years.

That is certainly

one of the greatest, if not the greatest reward for all the

sacrifices which it involved.
There are very few people, if any, mho realize quite
so well as I do what a wonderful job you did for Uncle 3am, and

it will be a satisfaction to you all your life to have dune it
even though it cost a lot in personal deprivations and hard work.
sincerely yours,

Honorable R. O. Leffingwell,
Assistant jecretary of the Treasury,

Washington, D. C.






Julie 439 1919.



Dear Leffingwell:

Thank you for your note of the twenty-first, enclos-

ing photostat analysis of the public debt, which is exctly what
I wanted.

Of course It will not be made public, but I needed

it somewhat for mu own information at the moment, and it is just
what 1 aesired.

Ma,y thanks.

2aithfully yours,

Honorable R. C. Leffin,gwell

sistant Secretary of the ireasI,rj,

/9 p)

July 2,, 109

Dear Leffingwell:

Enceosed is confirmation of a cable which I sent you through Ambassador Davis, in the Embassy code, and which may astonish you a bit; so
I um writing you an explanation.
After talking with the officers of the Bank of Englund and with
a very able, intelligent and thoroughly reliable newsaaper man named
Kiddey whom Norman invited to his house for dinner for the purpose,
and after talking yesterday with the Chancellor, I am convinced that
the immediate task now ahead of us which will help conditions over
here more than anything else is to get some sort of a definition of
United States, and parthe terms
ticularly of the British debt.
I shall not attem%t to reoeat converoatione in detail, but there is undoubtedly in existence here a.
latent underlying feeling that the Allies have made the great and
most vital sacrifices In the war, both of men and finance and in material damae suffered: that our sacrifices have been slight and our
nrofita imaense, and that the existence of this great debt due on demand is a sword of Damocles hanging overtheir lads.

of the debt of the Allies to the

The oremium on dollars, now increasing so rapidly, gives them a
feeling of great concern as to how they are to meet the interest payments, oarticularly this fall when they feel matters will more or

less reach a crisis, without paying so heavy penalties as to be embarrassing and huminiating, and to contemplate going into the market
to raise SI'-o-,7"^- in exchange, at present rates and under present
conditions, is reaAy a cause of great anxiety.
I saw the Chancellor yesterday under the following circumstances:
Tuesday night Governor Cokayne had a meeting with him and told him I
was here, and he sent ward to e through Governor Cokayne that he ho:ed
I would be sure and see him before leaving for 'Paris end finally made
le had
an a oointlent for 4 o'clock yesterday (Thuraday, the 24th).
chat of about an hour and a quarter, much of thetime ret y discussing
matters of mutual interest such as our drogram and theirs, taxes, reconstruction, etc., etc.
I have made no suggestions nor have I in
any 1,f.ty disclosed our views or feelings exce_t to state that Englund
and the United States must in some way preserve good relations and
work together; that themeans must be found to overcome the difficulties in the way of getting investment money from America to help proper
reconstruction work, and that now that the treaty with Germany is formulated it might be well for these discussions to take place
inzton with thoroughly resoonsible people there for the puroose.
did point out how important it was that Great Britain should be well rep-


R.O.L. - 2.
sented at the Embassy in Tashibeton when Reading's lace is filled, and
how imeortant it was that we should both be well re,resented on the ReAs to the lutter, he assured me that if the man
to whomthe eosition had been offered would acce t it we wound be thoroughly satisfied. He made no reforece to u definition of the terms of

their debt to us until about as I was leaving it cane up in response ti

my inquiry as to ehether there were any ,ending tangles between the finenuinl dceurtnents of the two governments that wore unadjusted nnd

causing difficulty. This led hia to remark that as to the debt he
thought it would be improeer for the debtor to a eroach the creditor

with proposals.

You mi4 be sure of my discretion In discuesing these mutters with
him, OT with anyone else, but T onn see the need of prompt treatment of
this matter. Possibly you will consider that I heve changed my views

because I recall stating to you that I did not think it was our duty to
approach the debtor.

In that I believe I WAS wrong.

I gather by implication that there is a here that we should
try and have some cancelation of debt nil around. It was too indefinite
for me to suegest any particulars, and it is hard to wr how such n
°elation could tane place without an actual reduction in indebtedness due
us, which is not to be contenplated, in my opinion.
I am sending this letter in the Embassy pouch. It is quite informal
and confidential, but I thought you would like to have a line on how
things arc going.
On arriving found that the Bank of England expected me to make my
office eith then whine in London, and my old friend Norman took me right
to his house where I have been staying since arrival. They have ende

no feel most at home and there Isethekeenest possible desire that in

every way relations between America and England should be strengthened.

In a sense it is pathetic.


have betrayed so little of that

sort of thing in the past and it emphasizes their neud at the moment.
The whole German gold mutter is held up until I see Hoover in

Paris, and there Is nothing to reivrt on that.

The coal strike at York, of which you noubtless see much in the
newspapers, has some quite serious aspects. The difference is over
adjustment of piece work, in which the Government Beene to have played
A rather stupid part, but the youneer mine workers have broken away
from their older leaders and are ranking rather unreasonable demands.

One serious development is the use of the strike for political
purposes, the so-called "Triple Alliance' of leber unions at a meeting nowbeing held proposing frankly that the etrike be used to force
the discontinuance of conscription and the withdrawal of troops from



The picture of the situation here, aS I gather it from only a few
daye vieit, is really distressing alongside of our situation at Home,
and naturally one's sympathies are aroused. I cannot believe, and
so far have received no evidence to Notify the belief, that any such
condition exists .Lc3 Vanderlip pictured on his return.
There is not time now to write you as fUllyan account of some of
these matters as I would like to but when I reach Paris there will
be and I will write you through the Embassy at length.

With warmeet regards to all in the Treasury, and particularly
your good self,
Faithfully yours,

Hon. R. C. Leffingwvii,
Treasury Derartment,
7ashinston, D. C.


(ileksitkiVsse Afek-



Woke s j'ireeleeeseet.._ eoese

lats. Paris,
July Ols 1919.

Dear Leffineeells

Had I a small regiment of stenographers with me and an ample &welly
of time I could write you volumes of interest about things over here and
many amusing stories and I had al ready priseered an unsatisfactory cable
which I am not sending, partly because I have reason to beAeve that
even cables in code are scrutinized and partly because no cable could be
much better than misleading.


This will be 4 :soot disjointed statement .Jf my impressions
moment, with a distinct earnine that they are liable to change as I
travel about and oick up information and gather new impressions here and

I did cable you through the Embassy at London about the debt, because I found such e very strong feeling of uneasiness, and with same
justification, that I felt you should know my impressions.
The Engsish
bunkers and business men went to know where they stand financially with
America and whether they will be exoected to add to their present difficulties in exchange by being obliged to take out large Amounts of dollar
credits for interest in addition to taking cure of meturities of loans
other than governeental, and, over it ull, with no certainty but what we

might impose severe terms of payment of the principal which would imeeril
their position. Most of the really levelheaded Jae man that I met,
like Cokeyne and Noreen in the Bank of Englund, Sir Charles Addis and
the Chancelor, Mr. Austin Chamberlain, do not exeect forgiveness of the
debt. eindersley, who'is a director of the Balk, Is the only men who
positively stated that America would vastly gela in prestige by forgiving
the debt of the kites, and he admitted that the sentiment serang from
his heart and that while it would be sentimentally e good thing for America and suld to our erestige, it would be a bud thing for Essgsend and the
Continent. Noreen frankly said, 'Pay no attention to Kindersley; his
heart rules his heed". The Chancelor, with whom I seent an hour and a
hell' at his invitation, never mentioned the subject until I was about to
leave and then confined himself to the statement that he thought that
suggestions on the subject of the debt should originate with the creditor.
In general it is fair to say that Englisheen whom you and I would likely
meet in our daily take feel that England, both rich and eoor, should
work, economize and :my their debts, but English business men say that
the government is making it hard for them by clumsy treatment of the
labor situation and perticular..y by unemployment wages, which promote
idleness. Almost without exception they say
out of her dif iculties if they esceee seriousthat England will stagger
labor troubles, and the
Chuncelor frankly said that he thought the time was shortly coming when
they would have to have a real test of strength with strikers who were

R.C.L.- 2

striking for unreasonable deeends. He referred, I believe, to the effort being mede by the "Triple Alliance" of labor unions to employ
strikes to force the government to withdraw conscription troops from
the army and discontinue conscription service, :Is well as to force the
withdrawal of all British troops from Russia, in other eords, to use

the strike weapon for political objects.

Englishmen are all concerned About American competition end the

air is filled with rumors of American bunkers opening credits and

American manufacturers making contracts abroad in merkete which
England considers her own. There is much discussion as to whether

England should incur further foreign debt in order to extend credit in
turn to purchasers of Eegland's manufactured products in foreign coun-


There is also among business man a thorough distrust of the government in its proposed war policies, which they sey are extravagant
and visionary and largely subservient to theleborine classes. Nat-

urally a letter like this centeins reports of disagreeable things.

My own impression from it all is that England, while having considerable labor troubles ahead and a tremendous curtailment at the moment
of her export trade, will nevertheless in the long run make the best
Showing of any of these Euroeeun countries, possibly berring Belgium.
I do not believe they will need much in the way of credit from us,
with the possible exception of some mis.' treeteent of cotton and a

fairly generous treatment of their debt to us.

They have immense

troubles ahead of them, the housing problem alone being most perplexing as they claim to have had a shortage of adequate workmen's dwellings
of at least 300,o4)0 before the war started, which has been increased

to 525,°"0 in the last five years, but on the whole I do not worry
about Englend.

The Continent, however, is a different story and it is quite impossible to begin to give you even such impressions as I have formed in the

four or five der, I have been in Paris, talking principally with

our own

people but to some extent with Englishmen and 4 few Frenchmen. Undoubtedly the latent impression in England, which Is only expressed by one's

closest frends, is here very strong although people voice it rather

gracefully: that the United States made vast fortunes out of the war
and very email sacrifices of men or treasure compered to Europe, and
that now in Europe's hour of real need the United States gives evidence
of an intention to abandon Europe to its fete.

This feeling is so strong that even the general exodus from the
here when the President returned created a very
bad impression. With our great wealth of resources still hardly touched,
they look et us with envy and I think that many Frenchmen, es doubtless
do others on the Continent, believe that we should forgive their debts.
special organization

T heve some ideas in my mind of a way to deal with this situation,
but um not yet ready to express them, certainly not in writing, which
always has a look of finality of opinion.

We have discussed the European situation geographically so fre-

quently that I think I shall follow the course of our former discussions.
The reel key to the political situation, I am sure is just what we

(V-/ namely, the new countries created between the Baltic and the

R.C.L.- 3

I gather in talking with Eneliahmen, with Mr. Hoover, Mr.
Stettinius and, in fact, e good :Deny capable people, that the difficulties
there are much more Aore largely political, governmental and specie'
rather than economic. Mr. Balfour suid at the luncheon yestereey that
he wee not sure whether there were 12 or 23 wars in progress in that part
of the country and the situation is so omplicuted with racial entegoniems and ambitions and with the intereley of ale aorta uf oolitical considerations that 1 shell not attempt to describe it in detail. 'The
main underlying fact is that probably by next ye,a, and to some extent
this yeer, e large section of that country will have e surplus of food
Black Sea.

products for export which could be delivered in exchenee for needed
manufectures were it not that rate antagonisms, local fighting, interrupted transportation, ceeeletely disorganized currency and benking
and a discredited credit position have to a greet extent reduced trader
I can illustrete this by some stories that Mx. Hoover told
to barter.
me of his trades. In one case he sent e cargo of miscellaneous goods -ploughs, stoves, cooking utensils, cloth, thread and needles which
coet him 3,c,On0 And which he iurchased princidlly from the army, to
the Bi4e,_ See ports and actually sent it inland with his on people and

worth of wheat wiiieh he sold in western Europe.
traded two hell' brokendown locomotives for

got in exchange $3,1itilehh0

In another instance he

still another instance he arranged a trade between the German-Austrians and the Serbs, the latter furniehing 5-,--4r"
tons of groin in exchange for e steel bridge and 80,0e,C,NOC kronen of
;leper money which was seecielly printed for the purpose and was probe
abLy of littLe value, but which immediately it wee chipped into Serbia
Those are just samples
was promptly stewed and put into circulation.
Ur. Hoover admitted
of what is going on in that part of the country.
to ma last night, in response to a series of questions, that if they
could once eet political stebility and stop fighting and nettle down to
ratting their houses in order their surplus roductiou of foodetuffe,
end, in the case of Roumania, of oil, would give them 4 good opeorThey do, however, need some eeJ- salty to develop buying ?ewer ;Abroad.
I gather in general
eitial things promptly and would need lone credit.
that Mr. Hoover has A very poor idea of the governuents of most of those

2,0,-e- eggs,

and in

countries exceet Finland which he :ewe is strong and developing very well.


Pursuing our old line of discussion, my general impression about the
Russian situation is that everyone, in a politIcel eeftee, would like to

wish it on someone else and that there is no mealy constructive definite
policy about the Russians over here that would justify believing that
Russian trade or Russian needs in the way of foodstuffs, etc., or menu-

factured goods ceued be considered at this time. 7i'hen the bolsheviste
get through with Russia both inside and out there may be nothing left of
her to do some business with, but just now it l a pretty bed picture
and will need political and other kinds of disinfection. One curious
thing about the currencies here sees to be that there was 4 good deal
of Imitation stuff put in circulation all the way around, but thet is a
lone and complicated story.
Next as to Germeny: I f nd 4 good many people expressing the opinion that Germany is getting alone pretty well in holding the population
together and under control, keeeing their civil eervioe eoing and =eking

plane for a reconstruction of industry, etc. They have an appalling
debt and neutral creditors for about two and 4 h-lf billion ',lark:: who
are moot anxious lest the reearation clauses of the Treaty will render
their debt uncollectible. There is no dissent in any quarter to the
effect that tile Gartner: is in dire need of fat t one. ne eeee-

R.C.L. - 4

I hear statelents hade that the morale and energy of the people in vastly impaired. Thellereans themoelveo admit that it has affected their
nervous systeme and their ability to work, both physically and mentally.
Some very ridiculous stories are about as to the effect of semieterveeion, but I UM inclined to the opinion that a few months of good
feeding is about all they need, but that it 'rill take e very large emount
to meet up the deficiency. The German herde of cattle have not been as
much reduced as one would imegiae, according to their last census, but
they have not enough fodder for their cattle and the production of milk
and butter fats has been tremendJusly reduced. Both some of our people
and the ikeghish as well have etuted to eel that the Germans will start
trading to the cent and that the exchange of commodities and German manu-

factured goods for foodetuffs will doubtlees help to stabilize eatters

along Germuny's eastern frontier, but Germany has had an imeenee reduction
in her ceel areas end in her actual coal production at home which effects
her manufuctureu output and, besidee that, eLe is pretty well denudee of
rue' meteriels. I should aey that as Germany will be in the hands of the
League of Nations and the Reparations Gommiseion, if those bodies come

into existence in the near future, she dill be speciuely dealt with in
the matter of erovidine food and other necessary things and it will be
most difficult to arrange credits with her on e business basis; but help
has got to be exteuded and should be very seen for eoliticei, if no
other, reaeons.

Ab to France, I must Bey the crops look eretty well in the country
that we pessed through on the way to Peril; and I can tell better still
after reaching Belgium next Monday, as I expect to re the tri , by auto.

In Paris one leek of things to eat, but the prices are tree:
mendous, and I should say that in places of corresponding character
New York a dinner ould cost not mutqatore than one-helf as much as here.
France needs food, but even more them the neer future coal, and even
more than that government economy and la sound tax system. I think most
Frenchmen hope that we will, and believe that WO should, forgive the
debt and loan them vast sums in addition, but in general the attitude of
our peop,.e here wou_d seen to be of (41 character to disabuse their minds
of that ex,ectation. A good many people toll me that ,eople hero are
not working, but T see no such air of indifference here in Purls aff one
encounters in Eagland, edthoueh I had little enenee to look about In
F2ngien4 outside of the business section in Imam. That is, however, the
general feeling here in Peris where you have rightfully said so often
that discussions of political policies, territorial ceeims, bounderies,
etc., etc., have ebsorbed public utter/Um' to the exclusion of the really
more haportent question of getting people to work. I chould say that,
considering the government's week financial policy, lack of coal, the
enormous destruction in the north, loss of credit, high prices and probably some idleneel3 or lassitude cambine in presenting
a very gloomy
ture, I do not feel nearly as pessimistic 42 this bete recleaning of pictroubles dould seam to Justify. Mew people say, and probebly
correctly, that there is u great untouched weaAh in Prance, pert of which ehould
be taken by taxation and part employed to relieve the government's
emberresseents and reduce the inflated condition of the currency and a pert
promptly directed to industrial develoement. The burden of the
the government will, I feel, give them a serious ties, but there debt of
are all
sorts of scheess being considered over here for
dealing with it, and
preeume that after one or two finance ministers have
mede attempts, failed
and resigned, ublic opinion will probably ereeare for
a severe treatment


R.C.L. - 5
of the matter and some strong man will sae it through. At any rate that
veu:d sena to be the most liesly political deveneeemat in thet connection.
In the cese of France our help is undoubtedly needed and deaerved end
must be given freely to avert a period of greet deereoeion and poverty
*anon& the poorer people. I refer to that particularly because of the

absence of a oound system of direct taxation, the indirect taxation of

course being of little relief to the poor.

I cannot say maoh about Italy and shall not eo there. They all
tell me it is A very gloomy picture. The general impression seems to
be that the pece'le are aroused on the subject of the terrntorial expenelm on the Adriatic to such an extent that economic quo tions are overOne encouraging feature of the Italien situetian is that
the people are reeorted to be going beck to work better than in other
parts of Europe. They see that they immediately graseed the problem
of recenetruction in the devastated regions with considerable success
and are far ahead of France in that respect. Those with whom I have
talked seem to feel that the Italian situation is probably the most
critical of any in lestera Europe.
Estimates ate being prepared of what Euro e needs.

I saw same
immediate need of

ftguree the Aber dey indicating that Italy figures an
This was to e considerable exteet for coal, where
about 4455n,--n,",eo.
the situation in Italy is undoubtedly most critical; even their public
service corporationerunning from hundto mouth with but a few dep.* re-

serves, and this of course Is made worse by the English coel strike and
practically no exports for the moment from Englund. The French estimate
varies greatly, but Is eemethine ere? 17r-nn,hCennhe, and same figures are
a billion dollars. These I believe are both from official sources and
think can be completely disregarded. Mr. Hoover says that $3One,erT,000
WIS cure of the European situation and I think his figure can be disregarded.
The fact in that no one cen eossibly state 4 figure,
the cese of food forinetence, can be altered by probably hundreds of millions according to the extent to ehioh political unrest and incapacity to
trade develops between eestern and western Europe and the extent to which
the neutral countries like Holland will open credits for the sale of toad
preducts, etc. 'I have rather come to the concLueion that the imeediate
pressing neoessities ofEurope, somewhat in the order reamed, coneist of
fats, that is paceeeehouse roducts, grains, cotton, copper, megar and
coal. The lust named everyone seems to agree cannot be furnished from
America without the withdrawal of shipping to such an extant as to menace
the transport of necessary food supplies, and further that we haven't the

loedins facilities dt our ports to ship coal in anything like the quanThere is, however, no doubt that es to the first five

tity rewired.

named, some steps should be tenon very promptly to get things moving and
open credits that are long enough to avoid subsequent eabarrassments when
eay day arrives. T am not yet Tenured to say that I have any ?articular
program in mind, although I am beginning to get eene Ideas that I will
either bring hone with me, or, if I ma de eyed, will eand tentatively and
with the sual reeervation of the right to change my o-inion, but there

is no doubt whatever that irnediate aid is needed, that the credits must
be fairly 'ong and that the amount required is very large. If political
conditions in eastern Eureee quiet down, the ....Jaunt will be reduced; if
they de not, they will be much larger, but these flve articles should be on

R.C.L. - 6
their way over here before very long.

T cannot help feeling that a part or the problem can be dealt with on a
business basis and a part of it must be dealt with on an eleemoeynary basis.
T am also convinced that we will do better in the long run by settling all
disputed questions and all open accounts between Great Britain and ourselves
and then tackle the job in partnership. The reueone for this 1 will explain
when I return.
Just es an indication of what is going through my mind I mead like to
ask yau to consider a few points: let, will the United States government
adoet an affirmative constructive policy toward the restoration of Europe
and its productive caeacity and will its policy justify our aesuming some
political responsibilities as to the new countries in eastern Europe ee well
as economic responsibilities for the whole of Europe, or only the latter;
2d, will our government give any direct aid out of its own treasury or will
it give only affirmative support to efforts made by our citizens to restore
trade with Europe and extend credits, or will it not even do the latter
(if our government does neither I fear some parts of Europe will starve as
has been prophesied); ,d, will our government euthorize a generous adjustmerit of our present loans so that immediate peyeents are not required for
interest and a very light burden of amortization edoeted; 4th, will our government consent to a readjustment of debt so that we may accept in payment
of at least same part of the debt of England and France some of the debt
which the other Allies now owe to them; 5th, will the United States consent
to have the finance ministers or at leest equally responsible representatives
of the four principal nations come to Washington and negotiate the adjustment of the existing debt and arrange a policy for the future, or at any

rate give it a

clear picture on the ground of their needs; 6th, would our
government join hands with the British in e reconstruction policy?
That I am driving at in asking you to consider these points is to im-

press upon you what has became quite clear to me, and that is, that our
government must take an affirmative or a negative position on some of
these questions very shortly.
Without any desire whatever to embarrass,
I want to illustrate my doubts about our own government's attitude in some
of these matters.
I Was toed by e responsible men in our alley here thee.,
subject to ratification by the French Chamber, I believe, they had concluded a trade for the 'sale of all the army pleat In France to the French
government for about 140,0,Mo,om.
The terms of the trede. so fax as I
heard thsm, impressed me as admirable, a-though I have no
knowledge of
what the property cost or is worth.
It adds 14e0,0'e,CM, however, to what

France owes us, and I presume they will give a fairly longtime obligation
4f the transaction is concluded.

Now I learn (this is most confidential) that Kr. Hare has come to
like two end e half billion doodlers of material owned by the Deeartment
which has never been sent to France. Soee of this stuff is probably food
and maybe other things which are urgently needed, but if any such sale were
made over here just now I should think it would be little short of a calemity.
These people cannot afford to buy more than their here necessities for the
present-until they develop production. 'nth this 1 em enclosing a memorandum on that subject which Mr. Hoover handed me which has had some vogue
in private circulation among government officers, and which, frankly, impressed me most favorably. This 'seeds to a little discussion of Mr.
Hoover, whom I have seen 'Lice for quite long discussions.
Last night
Europe representing the War Deeertment, with a commission to sell something


I waa at his house at dinner when we had nice quiet talk. I hoe I
He he undoubtedly done A magnificent
piece of work over here and I know of no one who could have accomplished
what ha has. His reilef organization cempriees about eee eeoele scattered all over Euroeeand he hae plunged at the job eith on energy that
is megnificent. On the other hand I e%11 see for myself, and he frankly
admits to Me, that he has taken some very long chances if one considers

*tali not do hi, an injuetice.

the money involved, but I believe it in literally a fact that he more

than anyone else eaved this part of the world from u breakdown immediately
after the ermietioo. Now the trouble eith Mr. Hoover is that he develoeo
4 3t4t0 of nind, particularly under reaistance, vhich mieht be dangerous
to the develoement of sound plans. His head is filled with a,moes of
figure and statistics, the reliability of which I am inclined to doubt.
He eereenolly etatee, and I have no doubt thoroughly beliveu wean letting

off steam se to speak, that unless the United States &tees in with seeo neenificent echene of immediate aid, political and social disaster will break
out all over Europe, bolshevism will Berea, and that a complete maw.**
of credit, banking machinery and transportation, with consequent curtailment of production will *none. He else seems to think that if we do not
market our on warelue preduction in Europe to meet thio eltuation promptly, wo will have 4 breakdown in ericen at heme that will be equally disastrous to us. On thoother hand, when I came to question him in detail
ae I aid loot night, I do not think he was able to substantiate his beliefe. I could dive you d list of statements which he nude which were
meet encearaeing aS to vdrioue parts of Europe. Furthermore, in five
minutes he took out his eencil and &lowed els that the total required of
the five urticles I have named amounted to f3,3,0,000,t00, and that I p0Sitively cannot believe and do not think it can be subetwatiated by our
own ceeerlence of his eetimates and of what Germany needed in the way of
foods:tuffs. One Gannet help but wheire his energy end courage and his
ability to get things done under nreesure. It has been simply amazing
ovcfr hors and he to entitled to a vet Amount of credit, but when it cones
to coidbleoded deAVerate Ndement of what urope needs, I think lie ex-

precsee in over etrone terms an trereesion ehich he eathere from 4 great
Mass or mieleoding statistical eaterial gathered from %tutees, 4l1ch in
many cooec are enite unreliable. And yet with it all he is themun that
has dome the trick and I have a much greater respect for his ability than
I had before learning of what he had done -ad before :ueetias him intimately.
In cenclusion let no slay that aside from any material or other advane
tag* that we may gain free. step 1i in or getting out of thio situation,
I think we at home euet recognize that IT we withdraw politically dud take
no risk* fin,Azielzaly in conneetion with the restoration or Euroee, we are
going to be thoroughly despised abroad end will do oerselves nesdIees
cy bo:t it that eome method muy be found by which those things
which wt can de will Le done at once and the things which might be most dift

floult to do under our preeent politieel condition e will at least be attotted in ;art and peneibly accompliehed in eurt. I only wioh you were
hero yeureelf.

R.C.L.- 8.

Hotel Ritz, Paris, Auaust 17, 1919.

Since the first part of this letter was written we have traveled

over the devastated regions of France, visited Brussels and Amsterdam and

returned to Iaria, a trip of absorbing interest and developing a farther
knowledge of this situation that cannot be obtained in any other way.

First, let me say as to Mr. Hare's work that Mr. :Vent has written

you tally, and I believe cabled you as well, and I sincerely trust that
it will be arranged that these sales of army material will be confined to
those things which are essential and adequate time be given for payment,
and that es much as possible a market be found where payment is easier

than it is at present in either France or Belgium.

I want to give you a brief further review of the situation as Mae
Kent and I see it, ehLah may in sone respects modify what I have already
The crops throughout all of France (except the immediate aevastated
region), Belgium and Holland are magnificent. The wheat, and to some extent,

the oats, are an course of harvesting, but a very large anion :t of this week
is being done by the women, both in France and Belgium.

You would be im-

pressed as I was at seeing the women working in the fields as long as day-

light lasted, up to 9 o'clock at night. Certainly the women of France
deserve every praise that can be given thee for their magnificent response to the need of this terrible situation.

Mr. Hoover was under the impression that Holland had a large surplus

supply of cattle. This I find is not the case. In the early part of the
war they did, but cattle are e part of the cromotation in Holland. Then
the war broke out they much increased their heap and introduced a good many
Later imported fodder could not be obtained, the herds had to be

reduced and the hogs practically all slaughtered, so that Holland is practically without hogs now and the herds only slightly above normal. During
a part of the war fodder was so deficient that animals were producing only
25 per cent. of the normal sepply of milk. They have now been restored to
condition and the herds look in magnificent shape, but they will still need
to import fodder and they 'vete not a large amount of cattle for export and
practically no bogs.
Belgium in normal times has only produced about one-third of the food
reoulrements of the nation, France slightly more than that proportion, and
nutside of Holland the food production has been
Holland somewhat more.
impaired by the war and all three countries will need to import foodstuffs:
France and Belgium fats, Holland grain and fodder. The amount of grain
required for France and Belgium cannot possibly be determined now with any
accuracy, but in general a largo amouet will be needed.

me depressing sight in all three countries is the large number of men
still in uniform. The French are discharging their men as are the Belgians,
as rapidly they claim an possible, but I doubt if they are doing it anywhere
rapidly enough. Every teen ee visited in the devasteted area was filled

R.C.L. - 9.
with soldiers, some of them working on reparation, and in one city I noticed French soldiers, German prisoners, African troops, Chinese, Japanese
and British. In general, it is my impression that there are altogether
too many men in uniform at the present time, and that while Ln uniform they
are not inclined to hard work as they would be if restored to civilian

My picture of the situation, which can only be briefly summed up here,
is about as follows: Drew a ;.,elt through the war area eide enough to cover
the whole ficad occupied by the Germans throughout the war.

Through the

center of this belt draw a line representing actual battle areas, includine
each places as Verdue, Chateau Thierry, et. Mihiel, Rheims, the whole ter-

ritory of the Somme, the Chemin des Dames district, and so on north through
Lens and into Flanders. Where resistence was strong and battles were fought
the devastation is complete. As one leaves this center line he finds the
cultivation encroaching in some cases right into the ground which has been
torn apart by shells and tmgches but already restored. The evidence of
restoration of the soil isirOst encouraging thing I saw, but there are never-

theless vast belts where the groual is so torn up thet it will take another
year or two to get it back in cultivation and the effort to work over such
land filled with shell craters six and eight feet deep is too greet for the

peasant owner and meet be undertaken by organised labor and engineering.; but

the most depressine spectacle in this area of destruction Le the condition
of cities, towns and industries. Most of the small towns are flat and the
large cities destroyed or so damaged as to be useless for a long time as
centers of population. I think we must have driven by automobile through

511 miles or the ground over which fighting. occurred, and in northern France
I saw smoke coming out of only two chimneys and two other plants in operation. They were two cement plants and two brickyards. Everything else
was dead in France, so far as we could see. A few plants were being repaired, but many of them are utterly beyond repair. We saw etidence in
many places where there had been no fighting,of a destructive character
but where. nevertheless, plants Were completely destroyed by bombs or fire
or the contents had been removed.. Sugar mills., foundries, etc., were euite
In Lens, the center of a valuable coal area, I believe not one
pound of coal is being prodeced. 1.1any of these cities and town e of from
a few thousand to 118010 inhabitants in the case ofTJleines have a small
scattered population of harky natives who have returned to repair their
homes--in the case of Rheims about 8,100the balance being the soldiers
clearing up the rubbish.

So you may consider that throughout this area of France the losses
The agricultural recovery will be fairly prompt,
but the Industrial recovery and the recovery of civil losses very slow
In Belgium the period of occupation permitted a great deal of
repair work to be done, and I was delighted to see what had been accomplished. The Belgians we saw assured us thet the industrial recovery
was now making good progress.
I should say the agricultural recovery is
well nigh complete. To complete the picture I should say that while the
industrial and civil losses in the devastated area are Shocking and almost
irrecoverable, outside or thet in both France and. Belgium there is great
evidence of prosperity. The farmers have made a great deal Of money; many
war profits have been realized, and the real problem is the actual area of
have been tremendous.

devastation and the restoration of their industries.

That Europe needs is production of goods of all kinds and as much

as possible for export. To bring this about credits must in some way be
arranged to feed the people for this winter, to give them raw materials

E.C.L.- 10

for their plants, and to get their plants in operation again.

the greatest difficulties thet has been reported to us many

times is the exchange. At present rates it is possible for the French
and Belgians to bey machinery and other requirements in Germany very
much cheaper than in America, end they are most insistent that the provision limiting the application of the proceeds of loans to purchases in
America is most burdensome and impossible to comply with.

Simply to illustrate this, the/Prime thinister, Vonsieur Delacrobt, told

me thet of the '!...50000,007 credit arranged for Belgium fq4,001,000 only
had been drawn and I think only three or Dour million actually used, that

the credit is a great expense to them and without benefit because it is

not long enough and cannot be expended outside of America.
They want a
loan of ,110,0n1,000 at once, and they have handed me the enclosed memorandum of that they would like. They say their reeuirements are covered
into september but thereafter the government alone must buy ,.. .5,100,10h a

month in the United atates and they should be in position to buy foodstuffs
in Argentine and rachinery be Germany and England.

I spoke above of the possibility of suggesting some program.
should think that this must be very sketchy and a policy rather than a
program, but my present thought is something like this:

eapitelize the interest on loans made by our government to the

Allies for a period of three to five years, preferably five.

Graduate. the amortization so thet the earlier amortization payments arc small and increase with the later payments.
7ork out some plan to furnish England with cotton on long credits,
say three yearn, and certainly two. I believe no other credit will be

needed there.

zsure that Belrium gets a credit right away of $111,011,000,
with the provision that some part of it may be spent outside of the
United States.
necuire the French le state their minieum requirements.


are all figuring now on maximum requirements. At first, it seems to me,
somewhere from !r!250,10n 0e0 to f. 511,111,110 applied carefully to things
absolutely required would give an assurance Viet would make subseeuent
busieess much easier.

Arrange some cooperation with Holland, I should say preferably
between their bankers and ours, for credits for fodder and for some credits to buy grain either in the Melted States or in the ergentine. These
need not be very long credits, as Holland's colonial exports should enable her to pay promptly.

I can say nothine of Italy, not having visited there.

8. With some reluctance and only because I know it is in your mind I
suggest still another important matter. I think we should arrange with
England and France to accept in settlement of some part of their debt the

I know the difficulty
of working out any such plan, but it will go a very long way toward restoring peace of mind, confidence in the future and the willingness to get
back to work. It will indicate a sympathetic attitude by our oountry
which will be of inestimable value, as just now the thing we are dealing
with is only in part material. es we have frequently said, the Whole
situation here is neurasthenic; they are warn out with anxiety and work;
they are worried about labor; the production of coal is so short as to be
a menace, and in a word a large part of Europe ueede more than anything
obligations now owing to them by other governments.

else to he sent to a hospital for a rest cure.

One most important item of the :?roam is to ensure that such

credits as are extended shall not be wasted on luxuries. That matter
we cannot control by restricting our exports, and it should be insisted

that these governments effect the control by an embargo on imports. I
say this with great emphasis, because I know that kn both Prance and Belgium there is extravagance beyond anything heretofLre known,by those
classes which have profited by the war. La two garages in Brussels the
man who drove us was told that they could buy at once 45 new tedillac
cars, for which they had customers. One of them had just purchased a
secondhand Cadillac worth a3,000 francs. In other 'words, this is another ease where the rich have grove richer out of the war, and that
very fact, including their extravagances, results La the poor being poor-

er, and the poor to whom I refer are the industrial classes rather than
the agricultural. Those are the people to look after and to look out
for. If, directly or indirectly,, those who / made fortunes out of the
war are permitted to buy at will, those 140 have lost money in the war
cannot get back to work.

In connection with this whole program I think our government must

assure a definite and constructive attitude in regard to the situation in
the new countries of central eastern auxope. / Eet having been there I can-

not speak except by hearsay, principally of people in London end earis, but
I am sure conditions will not be restored for a, long time unless some sort
of fraternal intervention is effected rather promptly, and it is undoubtedly a fact that they are wiiiing end ready to trust us snd probably no one
11. How, as a practical means of dealing with these matters, I have already suggested in a previous letter a conference of finance ministers at
eashington to restore the center of financeal gravity where it belongs, and

where a program can be developed to cover the whcae situation and not a
piecemeal treatment of it. If Davison makes progress with his plan I hope
It will be in general in conformity with the Above suggestions. 1 m satisfied that the amount of money which can be saent promptly Ls limited, as
we have frequently discussed, but 1 am equally satisfied taat the amount to

be furnished for foodstuffs must be furnished elouptly this fall. A larther
practical suggestion that I have had much in mind and disceseed with Dr.
Vissering is to have a meeting of the heads of the state hanks very erivately, unofficially end informelly. Cokayee, of the bank of eng1snde and
Vissering, of the Nederlandsche Bank, are both men of great ebLlity, and an
exchanee of views at such a meeting without any expectation of making a pro-

R.C.L.- 12.

gram would be of great value.

Possibly I

can arrange it before returning.

In concluding this part of my letter let me repeat that no one can
understand the situation without coming over here.
It is not as desperate
as has been represented, but it is serious and prompt action, particularly
in the matter of food, is now needed--partieularly eromptness--end Per

that result I believe oar government mast take a pretty affirmative position.
Ince the wheels are started I am sure recovery will be more prompt then anybody has been willing to forecast.
Another consideration with me is the general attitude over here toyards America.
We are not popular and unless we do something nowee are

eoine to be regarded as selfish, even inhuman, in abandoning Europe to her
LIte after the war is won.

Now, as to my trip to the aet.
People here have urged ne very
stronely to go with General Harbord to uonstantinople and Tiflis and possibly a little further.
The men in the State Department can tell yOu
all about the objects of the trip.
I have been led to do it, first to
meet their emergency, which was very urgent for they needed a practical
banker with them, and, second, to give me aone opportunity to complete the
picture of the situetion,
This Commission will have an ueexampled Oppor-

tunity to get inforretion, rald I believe it means that to miss the chance
an important benefit from my visit. ee will learn
a good deal there :.bout central eastern Europe. It will detain re until
along toward the first of Ictober, or, if a cable from the Bank makes it
seem possible, I shal/ stay a. little longer. You must not feel concerned
woild be to throw away

ebout my leaving.

I am proposing to write you again from the steamer, sup-

it over

plementing this letter and filling in the gaps after I have read
and studied it.
For your information please ask Governor bardine to let
you see a copy of my letter to rr. Tremen about the handling of the gold

matter, which I believe is in very good shape. I cabled about the possibility of a renewal of the September maturity. Daigle Fare might be able,
within the period of another renewal, to make some sales in Spain which
would oirviate the necessity of buying pesetas, which just now seems unfortunate.
Foping that this letter will

be helpful

t...nd that I mr4, be able to give

you still further help on riiy return, with best regards,

Sincerely yours,

Pen, Fussell
Assistant secretary of the Treasury,
eerie/to:ton, -. C.



werUa rpm Stem

T at

Aienst 19

Replying VW sable

Islam peseta psemost Bank a Prunes states

I. They hare speed with ?torah Treasury to :Oda up to len million
dollars in napoleons but are only willing to Alai* foram!' seente in bars

There will likely be sem Olell 41041111 less unless

SIMesed in

Sottiflg dl VW :Untied coin

). They will fusel& figures for Items ene two mma three tociorres
4. They uu$t allow ton days for arrivaa of geld in Nadrid after shipmest

Is ordered but will taNe entire *barge of shtseert stop

!ill sable flare! OW% Om London as epos ua recsivet4 stop
Assuming it would require it least equal time for Shipping from ltrusela t

Paris Iendeavor/al to penned* Aglaia to tesporarilI nermyt gold earmarked is

ioho is most rslostant to do tomAuss involvbk; shoving fatintilible

geld bead ahrt4.4 in 404e.relsbessot step
H4VO &IAA* asked Ameriemn Exyrosz i7om:.41, to furnish figures for items one

tors arid three ins1udin6 inouransoltoccsi:amloation slow to Brussel a ,ami


d oaanst upset re1217 for few 4101 10V,P

It Okipmest to arTamood hose by azi-41 Oftany insuranee oust to plowed

*OW sota.,istiee pies610 in starlips and I dotibt passibility of sbtainina
insuranee rayablo in pesstws atop

It should be understood that seek tiNs Is ro,Ared to twerliie peek sea
arrange far lotsguarding OMOk ohipmegto und I regard it 4.0 oases to *oust

von soneluding transaction In t4nes for Auvet wad September maturities unielle

S2atm would aocont geld s4rnArkod in AusferOus trussele or poovibiy

London stop

gave 4rr4spod to ass 001l1or at TrosanrY tomorrow Tokkeeday afternoon

to sso it he on etpedite 'matter


For Leffingwell from Strong


August 20th

Bank of France advises following

They are unable to

obtain accurately present railroad rates in Holland

Belgium and Spain but cost of transportation is smallest part of expense

Insurance is largest cost and rates

are so variable it is impossible to

etate accurately in advance of actual shipment
Based upon experience of previous anipmente to Spain very roughly
estimate expense of shipping ten million dollars would not exceed following

From Brussels to Paris fifty thousand francs
From Amsterdam to Paris seventy thousand francs
From Paris to Madrid parenthesis which does not include transportation

in Spain

to be arranged by Bank of Spain parenthesis one hundred and twenty five

thousand francs


They will take entire charge of shipment when order is received from

Ministry of Finance but must allow about ten days to arrive at Madrid stop
figures yet from American Express Company stop
Belgium if in case of need they can take entire

Am inquiring National Bank of

charge of

shipping amount German

marks required to Bank of ,France and probable time required and cost involved



It is ee,important that I should know promptly whether insurance is to be

secured here and payable in what currencies in case of loss

and whether shipments

are made at risk of Federal Reserve Bank and if Bank agreee or at risk of






Sent by



I:Tea:surd Delartmont, '41201 ngton

y thanks ior ;lour tbou4htfu1 messaea r,.velveu juat anZ am lqpItiod Unable
tQ writs btalprelate the Aooa winhns tone ti%a 3.erw.



Hotel Ritz, Paris,
August 21, 1919.

My deer Russell!

I wieh it were poseitae for me to write you fully, but I hevebeen driven
to death with letters, cables, calls and trying to arrange this gold mutter,
cm that pert of the time I have been obliged to work late evenings. I really
need an office force here.
My last lone letter wan 4 wry Sketchy affair containing inpresalons,

and I an constantly gaining new ones, involving no eheuee in 414 eeeerel
viewe but some change in detail.

Fur one thing, notwithstanding the aduireble aepeerance of the crops
in northern France, I understand the wheat condition to not up to previous
years, at any rate in some parte of the country, because of early drought
and later rain, and that they do not ox eat a fuel crop by any means. In
other words they must import wheat as well as meets.

Tn feet, the ;resent need for thle winter really seems to be food supineauding sugar, and, with that eatiefied, if it cen be, teem iz
tneloebteeay a very great need in France for asoistance in restoring industries which have been so terribly destroyed by the Germans. Mr. Oellier
told me today that they did not leave one whole :tugs: plant in the country.
T Owe emitted to refer-in my former letter to another matter which is

We have never reeaid Preece the emount of money which
she loaned ue when we eainee our indeeendencee and I wonder whether this

much in ny mend.

is not the time to recognize or, at any rate, credit France with a sort of

I do not know anything of the history of that
debt; what it amounts to; how it was dealt with by treaty, or whet that
amount of money would value at today, etc., etc., but at any rate it would
make an exeuce for a gift of some sort in the case of France, which would
not ply to ()there, and the sentimental effect I believe would be trenendous.
No one hes ever mentioned this to me nor have I ever mentioned it to
moral debt that we owe her.

anyone until this letter,

I prebably gave you e Shock by my cable announcing ey trip to ConstanThe arreneement for moving the gold from Belgium and Holland to
London is ell complete .n(i Mr. Kent :vas to close up the details reearding insurance in London, and there seemed no reason why I should not go, prolonging my trip possibly two or thr e weeks on that account, when your cable
came about the *seta payment which led me to abandon the idea and cable
you at once. Kent now advises that the Bunk of England representativeshave gone


R.C.L.- 2.
to both Brussels and Amsterdam to start the gold Shipments on Wednesday.

I have informed him fully about the peseta situation and between us we will
do the best we can to handle matters, even if I m obliged to bulldoze
Pelican into eccepting gold in Bruesels temporarily in place of gold he
must ship, but they do not like it because it Shows more gold held abroad
and the Bank of France statement just now is scratinized very critically.
This water will have gone over the darn by cable before 14 letter
reaches you, ao I shall not go into deteil except to enclose confirmations
of my cables elreedy sent.
The rupee mutter I m eatiefied cannot be argued out either by cable

or letter, but the picture precented to me is quite different from what T
gather you and ritrausa see as indicated in your cables.
Ever sinee the Pitmen Act was passed the Indiun government has been

selling repeee in our market, as 1 understand, considerably abeve exact geld
parity, and naturally as the price of silver advances the price of rupees
edvences r41,1 the value of gold in relation to the price of rupees is reduced.

Therefore our gold shipmente buy fewer r::.2o(r!p,


f:ee hoe

that eituation can be changed unless the Indian government is willing to
cell rupees to our importers at e rate below the cot of m::Zeing rulees
auying silver.
In other words, so long as we continue to buy goods in India those

goods become correspondingly more ex2ensiove to us, and f.11:d.f., too ee-

pensive Ladle's export trade to the United states would decrease.

Naturally WAX market is protected against shipments of gold by English
importers of jute desiring to buy rupees in our merket, leceeune of the

premiue on dollars at present rates for sterling.

If the Indian government, on the other hand, marks dorm the price which

they are willing to pay for gold in India to a point w ich we would regard 413

unreaseenuble, then the arrangenent concerning which I cabled should be discontinued.

I distinguish between the situation in India and the situation in Spain
by the fact that in India the depreciation on gold and the premium on rupees

is brought about by therdeme in silver, whereas the situation in 3,Atin is a
purely arbitrary one, the :!,,anieh government or the Bank of Spain simply reducing the price at which they will buy gold, for the sake of profit or pos-

sibly to curtail their exports.

I would regret very much if I eMburres?ed your dincuscione with Blackett

in the slightest degree, but I do think thutNome of these matters we must
recognise the tremendous difficulties and Tessure which now rent on the

British government and do our best to otrengthen them by every reasonable
means in our power.

The situation over here is a most difficult one, end possibly I am influenced by the exceedingly generous response which is made to every request
which I have made for aid in handling our business.
Now, regarding my cable about discussions with the British and French
governments on the eubject of their debt, we at home, busy as we have been,
 nevertheless do not understand the tremendous preoccupation of all the

R.C.L.- 0.

Rnglish government people with doaestic affairs, and I do not know that
free from criticism ourselves in the matter of representation abroad, whk
today we are without a minister in either Holland or Belgium, most of the
cipal parties have left the Mission orgenization in Paris, and Hoover's rei
organization which has done the lion's share of the work in saving a collaps
throughout Euroee is now pulling out.

Just between ourselves I never felt so sorry for anyone in my life as
did for Frenk Polk yesterday when I took e abort automobile ride with him and
found him quite worn out and realized, although he wo.s not complaining, that
he is overburdened, largely because he is uaerorganized.
After I had written and cabled you Stettinius returned to Paris from Lon-

don and I asked him whom he /lad seen over there and whet he had leerned. He
told me he had leaked with the Chancellor, ameng others, and that notnnly the
Chancellor but bankers with whom he talked, all of thee referred to the menace of the American debt. They feel, as I wrote you, thet it is a sort of
sword of Damocles hanging over their heeds, and you have mede e very wise and

conctrective move in taking steps which will at any rate put us ntraight in
that matter.

One thing that has Impressed me here very much, 4s well as in England, but
not so much in Belgium, in that they have no plea, no definite centralized
leadership for deolingeWith economic matters. If I were the boss of the whole
job--end thenk :leaven I em net--T would devote my energy toward persuading the

Allied governments to declare a moratorium on all political, boundary, territorial and military dizeuseioae and require the whole orgenization to get busy
at once an economic and financial problems. They are all engaged in needless
and most difficult discueeions of these boundary matters, trying to keep these
jealous, bellicose people in Eastern Europe quiet, when the government organizations should he devoting every energy towerd the restoration of production,
transportation and finance.

T cannot believe that it is our fault, but they nevertheless all look
upon us as the rich partner end seem to expect us to take e hand in ell of
their difficulties and do the major part of the financing as well.
The contrary view of the boundary question is of course that in the aboence of a League of Nations organization which is really functioning, if
the Peaee Mission organization does not deal with matters, each nation whose
interests are involved will end eeet of nezeesity look after its own inter-

eats solely.

A great deal of emphesis has been laid upon the necessity for free oredAmerica, eheaI havehee diecussiona with various people, and I suppose
it would be wise to grant a certain amount of free credits, provided the
amount is reasonably limited so as to protect us irota an undue drainkne of our
gold to the smaller neutral countries where facilities for getting credit bevel
upon additional gold reserves do not exist, like the South American countries,
Scandinavia, etc., etc.



At present rates of exchan e our markets are more exoensive to buy in than

other markets, and of ceuree you realize, as I do, thet this is really a re-

versal of the arbitrage position which gave us so much concern during the war.
But in general a reasonable amount of free credit would be most helpful
and would enable setae of these countrieo to buy in Geraany, which they badly

A.6.L.- 4.
need to Jo, and of course that would help the Germen recovery by so mut.

We must not also overlook the feet that we really have not establish
free gold market unless we are willing tee we.1 to have a free credit merke
wes told the other day the terns of the Paine, Weber n Co. loan in Be.
glum, which did not materialize. It struck me as being extortionate.
wrote Governor Herding a letter about the Belgian currency situation
which I hope you will read, but notwithstanding that curionsly stupid blunder
of which the Belgians were guilty, I cunnot help but feel that Belgium it well
ahead of France in getting on her feet again, and in saae respects is oopoiderably better off than England. In fact, my personal belief i* that a Belgian loan is probably good, barring of couree the complete breeneiown ne
Europe which some people still prophesy.

Let me say in general that conditions hare are really improving slightly
and slowly according to my best judgment, but the danger is that this iawy be
temporary and cannot be maintained after this crop and Hoover's meat supplies are exhausted and after the winter conditions of life, perticelue14
being without co el for heeting, become annoying and possibly dietreesing.
my most important recommendation to you is to GOM4 over here. I would
give anything if you were here now.
In fact, when Frank Polk and I wore discussing matters yesterdey ee eeid he htal been on the
u number of times
of cabling you urging you to come, and I was obliged to confess to him that I
had had a onbio in my mind of that bort for cane time.
&low,* for now.
If T ever get oleaned up with mail end telegrams I will
drite you a carefully prepared review and something more definite in the way
of suggeetion than was done in ay feet letter.

Rath best regards to all in the building,
Sincerely yours,

Hon. B. C. Leffingwell,
Assistant Socretery of the Tre-eury,
Washington, D. 0.


4 et

eewover, le
that is 013141AaNis.

tiptoe. Ritz, Perio,

la ceeolueion, lee

'hat in no re,elet is tlee ae

"" 4 moderatieee e' al pain.

eq bereeer aeepueeible peep.
Tly dear Russell:

Woe letter° in the neture of runUp to now I heteve,
adr, View° boon eereful to warn you
suing conmente and impree (MST
the time he° come when rehould
were not in any wiAy oonolusienik
send you aeletIline more La the ne

'ef a definite opinion.

Thic cennot be done setisfectoriTy in the limited teee I have end
without core essietanee, but I heve dictated the encloeed nemorandum eiv,
let what I believe epitomizes the more importent features of the eituation.
el this memoramdun I have not emphasized whet is possibly the eost importet of all considerations.- The prestige end influence of the United States
eoverament end of our people in Euroee todey is le great thet it muy be
enjoyed in bringing about steble politicel conditions and economic re°every reasonably promptly, provided" we are eilliee to aeeuee the leederShip and-give erompt help.

In my opinion treetien would be eiened promptly, disputes .end disoords
aould either dieeepeur or be subjected to control end the orgunizationa to
deal with finenciel and busineso rehabi/itetion would :eomptly be created
und begin to function Irf the United Statee would take the leederShip und
furnish needed essistence.

Every re:ort Teething UA here indicates that the attitude of the Sanete end poesibly grourinz peblio opinion at home leene toward withdrewine from the European situution end allowing EUreee to flounder. I on
only believe that we do not realize our power, end am unwillieg to beMove thet once we reelized it we would be unwilline to exerciee it.
-50 cannot wait to have finence miaistero, ambassedora end others
came to Weehington begging for help. We must take en affirmetive and coe-

structive attitude and invite them to eome, end we meet likewise, where

influence an be exerted, diroat it towerd furaidhiee help.

This afternoon I read the cenorendum to Mr. Polk. His principel comment was felet I had not sufficiently maphesized the poesibilities of roetoretion in Europe through the exercise of our influence beaked by financial and material uid. Objection end discord in formulating plans will

diseppaer in the few of this ettitude by us.

At his suggestion I am sending you e cable perephreeiee the memorendum and he is proposing to send cable to MIK Leasleg urging that it
be conadered by the Preeident.

Hotel Ritz, parte,
Aegust 5


Tly dear Russell:

Up to now I have bean seadina you same lettere in the nature of runnieg comments and isapreecions, ehioh I have boon onreful to warn you
were not in any way oanclusions, but the time has come when I* Should
send you something more in the nature of 4 definite opinion.

This cannot be done satisfnctorily in the limited t.rae I have aud
without more assistance, but I have dictated the enclosed nemorandum giving what I believe epitomizes the more important features of the situation.
In this memorandun I have not emphasized *hat is possibly the Lost import,44 of all considerations.The prestige and influence of the United States
government and of our people in Europe today Is to great that it may be
erOoyed in brining about stable political conditions and economic recovery reasonably promptly, provided vieare willing to aosume the leaderShip and -give prompt help.

In my opinion treatiee would be signed promptly, disputes and discords
ould either disappear or be subjected to control and the orgonizations to
opal with financial and busineso rehabilitation would ,romptly be created
und begin to function *f the United States would take the leaderShip and
furnish needed assistance.

Every re-ort resehing um hero indicates that the attitude of the Senate and possibly a growing public opinion at home leana toward withdruwLeg from the Europenn situation and allowing Euro.e to floander. I on
only believe that we do not renlize our power, and um unwilling to beblew that once we realized it we would be unwillin, to exercise it.
710 cannot
it to have finance ministero, ambassadora and others
=IMO to Waehington begging for help.
We muet take an affirmative and constructive attitude and invite them to come, and we must likewise, where
influence can be exerted, diroct it toward furninhieg help.

This afternoon I read the mmornndum to Mr. Polk.
His principal comW48 that I had not sufficiently emphasized the possibilities of reeltoration in Europe through the exercise of our influence backed by financial nnd materinl aid.
Objection and discord in formulating plans will
disnppenr in the face of thio attitude by us.


At his suggestion I am sending you a cable 2araphrasing the memorandum and he is proposing to oend a cable to MrC, Laneing urging that it
be coneidered by the President.

Of course I realize the many difficulties Which exist at home.
I am not willing now to soy as Vi'. Vunderlip did that if we do not
give aid Europe is going to oollopso, nor huvo I modified greutly my belide
frequently oxpressed to you, that there is such exaggerution in the state-

ment of figures of Teeropeon requirements.

What has not been exeggeroted,

however; is the need for prompt help, oven though it be bat a fraction of
whet is estimated .by sone recent visitors to Europe.
In conclusion, let ue say that you moy rely with complete assurance
that in no resoeot is the memorandum enclosed an exeggerutian, but it is
rather amoderotion of all points and reoreeontatione which have been

made to me by many responsible people.

In u recent letter from Jay, referring to money leaving the United
States in the hands of aeigronts, he mekes the following stotevent!
"In it conversation Which we had with mr. Mort arouse this
week he indicated that a. coneideroble :.virt of our exports oere
being financed in effect in this,pauter. He stated thot
absence of actual requests from foreign governmente for credit on
this side woe quite romarkoble in view of the fact that the
Treasury Department had =eh a large eum avoilable and that the
War Finance Corporation woe oble to be of assistance."

This indicates a eomewhat passive attitude on our part, and I believe a much more effirmotivo and eggressivo attitude is justified.
I hope this memorendum nay be of some ossistance to you.

Sincerely yours,

Hon. Russell C. Leffingvell,
Assistant Secretary of the Treasury;

Washington, T). C.



4 -EJF


August 31, 1919


3963, August 31st 1:00 a.m.

For Leffingwell from Strong. T 9 August 30.
After careful consideration and submitting to Polk
"am sending following paraphrase of memorandum mailed /
you today.

In general both political and economic situation
is so vast and complicated that one comprehensive plan
of restoration is impossible for an undertaking requiring years of hard work production and economy.

There is lack of leadership and

plan as people in authority are exhausted
and relaxed.


With the termination of hostilities and

common danger cooperation and leadership are superseded
by individual and conflicting interests greatly delaying
the completion and enforcement of treaties.

During the

President's presence a certain control was .exercised through

our influence which is gradually disappearing now that
the German treaty is formulated.

order in Silesia,Rumania,Hungary and elsewhere whtch

One result i



To Secstate Washington


discredit the principles of the treaty.

Delay by our

Senate in ratification will surely retard return of
quiet and result in either a barren league or one incapable of harmonious action with out stabilizing in-.
fluence absent.

This also delays the formation of the

committees and commissions which must be promptly organized to deal with both political and economic problems and in the absence of properly ftnctioning organizations the new nations of Eastern Europe are struggling
in doubt disorder and anxiety and appealing to us for

The gradual withdrawal of our mission and relief

-organizations will remove a needed stabilizing influence

both for political progress and in organizing food distribution and improving transport and communication.
3. Labor and,Social Conditions.

War strain and

relaxation combined with Underfeeding have left the
people neurotic and sensitive.

There is danger of too

much paternalistic government control of all activities
reducing initiative
inclination to work.

and delaying recovery with reduced
The Hopeful exception is the agri-

cultural class which has returned to hard work and pro-



To: Secstate Washington


duction tbroughout Europe hut the extravagance of those
enriched by the war combined with unwise government

finance currency expansion and like evils has seriously
increased the living cost for wage earners and those of
fixed income who must be ensured tolerable living con-

ditions this winter.
41 Financial and Monetary Conditions. Excessive
short government loans from central banks and
currency issues and with the exception of England insufficient taxes have Caused such currency depteciation
and exchange disoratlr partiaUlatiy in eastern Europe

that trade is difficult and frequently impossible but
no wholesale measures for immediate currency deflation
would be safe because of enormous readjustments entailed
unless general throughout-Continent. Some scheme of
gradual treatment af this matter must be devised to

avoid even greater trade difficulties,
Recovery is continued and satisfactory and another year will see probably all but the
most seriously destroyed areas of France restored to
cultvation. Western Europe this year will not produce




To Seestate Washington.


more than seventy five per cent of pre-war crop and

needs fertilizers.

Industry Varying greatly in the different coun-

tries the immediate necessities are labor tranquility,
greatly increased production of coal, restoration of industrial plants in e , Belgium and. southeastern Europe
and large supplies of raw material. These supplies can be
distributed over period of time and immediate shipments

I belie are munh less than some reports. indicate.
There is
ample railroad equipment in western Europe but ro aibeds
badly need imProvement. Canal transportation in northern
France slowly improving but not yet restored. Wagon roads
generally in good shape. Telephone and telegraph lines
and mail service, slow, inefficient and bad. A large port
of eastern Europe ''requires equipment and motive power and

Transportatibn and Communication.

renewal of river transportation now interrupted by political



This is the serious- aro.d pressing problem

1 -RFA


credit control to bare necessities.
Political tranquility restored in eastern producing sections to ensure exports of surplus grain.
America must allow reasonable freedom for use

of our credits in buying in cheaper markets than ours.
Restrictions upon trade with Germany imposed
by treaty must be partly modified or suspended during
period of recovery.

Inland transportation in eastern and central

Europe must be improved.

Plans should be made now for gradually progress-

ive reduction of inflated currencies.
Foreign Exchange. The recent Sharp decline in
exchange has had a depressing effect upon people and
government credit but is developing a realization of
necessity to work and produce. As United States is
now dearest buying market the importance of long credits
together with relief from immediate payments of existing
debts and restrictions upon unnecessary imports is greater
than ever.

Debt to America. My previous recommendations

on this



which can only be solved, by credits in the United States.
Holland needs fodder for cattle and six to eight months
supplies of foodstuffs for which se should have no difficulty in arranging payment. Estimates f or Italy vary from
three hundred and fifty to six hundred million dollars.
For other countries figures vary so greatly as to preclude attempting detailed estimates. Based upon a combination of opinions partly official partly from Hoover's

orgazation I should estimate that the United. States
should furnish from one billion to a billion and a half
in fats and neat grain sugar and fodder to do no more
than alleviate intense strain this winter. The German
official statement of requirements indicates a great
deficiency in fats but I believe their food. figures are
9. Foreign Trade.

I cannot see any prospect of
early resumption' of large exports from Europe and believe
following measures are essential to ensure avoiding too
great impairment of European buying power.


Imports must be restricted by direct embargo or


on this subject are renewed.

The moral effect o

early announcement 0f: arrangements for deferring interest

payments would be most helpful.
Reparation by Germany.

The theory of the treaty

iX ruthlessly applied will so retard German recovery as to
hamper rOctoVery throughout Europe.

It is essential that

the Reparations Commission should be promptly appointed
develop its organization and formulate the reparation
procedure along some line which will ensure prompt restoration of destroyed industries and defer unnecessary
exactions during the early period of restoration.

The uneasiness of neutral countries

concerning Germany's debts which are now subordinated

to reparation requirements of the treaty could be rmoved
by an understanding with neutrals which would encourage
them to throw their economic weight into the work of restoration and furnishing food.
Favorabl-e Factors.

During the summer improved

food conditions have brought considerable improvement in
the general situation principally the following:


Restoration of agricuT_tural activity and the


stability of the agricultural population who will present
.a strong resistance to the spread of Bolshevism and who

have the advantage of adjustment of price of their production to advanced cost of living.

There are numerous evidences of waning of the
Bolshevist movement


It is increasingly obvious that the efforts of
labor do not ultimately result in organized violence.

There is growing appreciation of the necessity
for financial and monetary reform.

There is growing conviction that recovery depends
upon increased production and thrift.

Unemployment and unemployment wages are gradually
decreasing having been reduced :rle half in Belgium and

being further reduced in France this month.

I believe our potion is now as follows:


we were forced into the war we brought it to a conclusion
upon the basis that governments would be established upon
principles of self determination along natural and historic
lines as formulated by our President.

In consequence new

nations have been created and new governments formed for


old nations based upon these principles by our invitation
and insistence the danger political and economic to Europe
and morally to the United States is that we shall desert

Europe and leave these new governments to their fate.

entering the war we assumed not only military but financial poli,Acal and moral obligations to Europe which
cannot be terminated by the conclusion of peace under
present conditions without prolonging disorder and suffering.

It would be an act of cowardice for which we would

be despised.

The whole situation may be summarized by

stating that our ratification of the Treaty is essential

to prompt political and economic recovery to be followed
at once by the creation of the League of Nations and
other organizations required to direct this process.


food raw materials machinery and reconstruction work must
be furnished speedily there is ample time to prepare for
the winter's strain if we recognize our responsibilities
at home.

All of EUrope is now waiting upon the United


and our attitude toward recognition of our

Our influence and prestige promptly applied

1717TE F:7711-.T.07.1 1?.:4965 TO STST,217

supported by material 613,i0ence of our attitude: such. ,7S


a generous treatment of debt.and eaily extension of
needed credit will have an immediate quieting effect and
vastly aid recovery. It would be hazardous to predict
developments next winter if food is not suz3plies0 The
margin of safety between -oresent comditions and reVolt
and disorder is narrow enough and will be further reduced
with cold weather. While my present opinion is t1).6:.t there

will not be the complete collapse and disorder which is
predicted for this winter Euro7De nevertheless faces
period of intense suffering the hardships and duration
of which depend upon the degree to which the United .States
extends or refuses aid.

If feasible the following -Trograan would probably

meet the situation.
Limit the use of any available government credit
for necessary fobd su7Dlies to centers of population of
middle Europe if required by emergency or by failure of
other 'plans.
Enlarge powers of Grain Corporation to sell on

reasonably long credit and if possible include other food


products ;particularly meat and fats.

War Finance Corporation principally to furnish
credit for raw material needed for essential industries.
Banking and investment credits directed partic-

ularly to furnishing industrial capital.
If through these sources one and a half to two

billion dollars could be furnished in the next six or
eight months it would give us all needed influence to
insist upon settlement of many pending disputes and I
believe the peril of the winter situation would_ be largely

Would greatly appreciate cable to London giving

as fall information as possible regarding situation at





October 1, 1919.

My dear Leffingwells

I am enclosing herewith check to your order for $10.,4,
to cover
my share of the room and railroad transportation
to Washington.

Sincerely yours,

Hon. Russell C. Leqinet11,
Assistant Secretary of the Treasury,
Washington, D. C.

October 8, 19_9.

My,de r Russell:

Our discussions in regard to expaneion,

ric, interect


did not, eild Lrobably oe id not, result in anythin6 in the inAure of



and the Litution hue so mny complexities that i doubt if anyone is ju tified in
aseuMin6 to huve a settled conictioh at all.
On the other huhd, I cannot escaie a feeling that there is a tremendous
rEcponsibility in this.matter now restint; u,en EGMe one;

whether it tA. the !L_ecre-

.tary of the Tre ry, or you, or the Fedor-el Recerve L'oard, or tole te.nk rein
to Le :en. Thie is one of those c sez where the adort.-cn of no ioiley uty heve
importauL and far re
en effir-Live decieion my

oint I um afri., we re not in areemeet:-

CIOne. is'as to ti s function of the Federfti Reserve .4 Lem.
tht Lee Federi.1 Reserve Sy,tem vi

Your ViC.3 seem

de_ljled for the -ur,o,e of providin the

means by which credit and currency would expand as trede demands increaEt and that

when tr,de dem_nds diminish the vciume of credit :11.: currency would

contract, without employin,z rate chanises to inf,uence ei6ner move..

believe, is contrary to accepted Gootriae in


to credit currency and price;
tmry to the exrience of th3 world in central Lnk .rot. ;
I weuld be
reretfel to feet that Ke differed auteriuliy* on such
The second point re

- t than of theory.



Lee direct_y to the first And is mor

You believe,

_ -_ter of

I uhderet,nd it, the't an iecre


.tieh of good:,.:),;11,..4,coincidnt wite _ reductien 1: Lour export tr-de,

ee relied upui to hr
down rice nd tri,t thi will Lrin nn CIL, volume of


October 8,

My,dear Russell:

Our discussloo

in regard to expanoion, .ric000 intoroA rates, etc.,

did not, and ,robably coold not, result in ,inythin,l, io the oturo of a coociL000,
and the sltuotion hao so many comolexitieo that I doubt if anyone is juotifiod in

aosumino to have a settled cooictiocoat au.
On the other hond, I osnnot escope a feolio6 thot there is a tremendous
responsibility in thio'ootter now restin; u;:on. come one;

hother it be the oecre.

tory of the Treoury, or you, or the Federol Reserve bord, or toio bonk romoin.2
to to soen.


io one of thoo c0000 where tlio adopio.on of no oolicy may have

just as important and for reochioo cooceueocoo a:, an offlro-Give decision moy
Oo two iointL I am afroid We :,re not in ag.eemeutt-

[One is 'ao to tOo function of the Foderal Resorve 2y tem. Your vies .eem .
to bo tht the lOdori Eosorve Fy.tom wo, Oo_ined for the ;,.uloo,o of ,rovidinL,
means by which credit -nd cu'rreoty would ex000d


tr.:4o domalloo increaL, aad that

when trade demoos. oiminioh the volume of credit no currency oould outomv:..toc,oloy

antroct, -i.ta-out omvloyine 1.-ite clinere, to illfluence either illovta6t.




believo, lo cootrory to accepted doctrine in re6ard to crodit, corrency ond pricao;
contrary to the experiance of the worlO. in control t oO .loctoco; 'and I wouio be
moot reorctfol to fee. toat KO differed motorioli.y'oL :oich

fund oontal matter


The second point relto,.. diroctoy to too firEA ,od is more a matter of
jo,co,00lt than of theory.

You believe, as I understand it, that an ircre

duction of goodo, pcooiLly coincidont with a reduction in our export trodo, coo

be rolled doon to bro,_ down ,rOcoo ond oft

thi. will trio

down' Olio volume of



Mr. Leffingwell


That I do not believe will .prove

credit without any etimulation ty rats oh,nge.

to .be the ce..e, et any rte permeneetly.


I am not going to write s ion E; letter with argueent on these ,Loints,

but I a


to take the liberty of sending you a personal word or two which I

know you will understand:

Don't take all, or too much of, the resi)oe-sibelity

tion your own shoulders in deteriiiiflL

is to be in the matter of rtse, nor, if you

the policy of te Treury De,ertment
ernit eeureelf 1,0 relieve


the Feder- 1 -Reeerve Board ane the Federal ReserNe Eeek of th.eir necessery eflare
in this reRceribility!
I am wrItin4; this vetil two objects in view: -- ,tne first to suf;gect,

if it cen be arranged without inconvenience, that we have a little discussion of
this matter, if i:OE, ibie with Secretary Glaes and Governor Hardin, erior to the

confereace of governors to be held on November 12th;


second, thet yeu -iere this

responsibility with others ju,t ee fully as possible by makine it a prt of the
program for discueeion 00 November 12th, in which you will yourself particiate.

I cen marshal many ,erguments in

ort of these recommendation:, whieh,


probably, are not necessary, but which are naturally inspired by my person


of us to

eu long as you are in the Treeeury no stone be


left unturned by either

the record al,erfect one.
Eincerely yours,

Honorable R. C. Leffingwell,
-Assistant Secretary of the Treesury,
Waehington, D. C.



Mr. Leffineil


Tht I do not believe -will trove

crAit without any ,timulation ty rate ch-nge.


the cc,



r.,te permanently.

not goinL. to write



letter with erbur,nt;: on these ,:ointc,


I am ,oint; to take the liberty of sanding you a personal word or to which I

know you will understand:


or too liuch of, the responsib_lity

Don't t.,ice

'11011 your own shouiaers in deterinin

va,J, the policy of tne Treasury Department

is to be in the matter of rtes, nor, if you ,


80, ,:ermit your3elf W relieve

the Federd-R.esrze Board ane.the Federal Reserve Bank; of thir ileCeSET7 share

In this responsibility
I am writing this with two objects in view: -- the first to suggeot,

if it on be arranged without inconvenience, that we have a little discussion of
this matter, if pos ibie with Secretary Glass and Governor Hardin, priur to the
conference of governors to be held on November 12th.;

second, th.,.,A you thre this

with others su t %E,5 fully as i:ossible by makin, it a prt of Che




i:rogram for discusion au Novembur 12th, in which you will yourself
1 can marshal many

tii ort of these recommendtion, which,




.1-guments in

-_re not necessary, but which are naturally inspired by ray i_erson l

desire tht


long as you are in the Treasury no stone be left

of uo to maKe Lie record a.,erfect one.
incerely your:-

Honomtle R. C. Leffingwell,

-Assistant Secretary of the Tre&sury,
Washington, D. C.


unturned by either


NOV 6 - iS19

October lei,


your note o''
try FA.nd trint,



sugostioh of BOLA, sort

to Washin6ton in the neer future rid would like to alscu&s

fiurewith you speoifiodlly aric,se
our view, togsth,n-, whiOn


hetha,r toi)

I ai. most

to di).

g2:8R. C. teffin,ckell,
:,,,cirrtY7Truty!!!"!?""aVlisry ,

D. C,

OctJber 15, 1919.

Dear Russell:

Thank you for yours of the thirteunth.

I wculd like lo he atle to 1.repare the article which
Professor Huetner asked you to prepare for him, but it really is

out of the uetio jut now, o I Alai! try and wish it on to
someone else, subject, of coure, to approvtd

the .cademy.

Ho' would you like to have Nr. jay take a try at it?
Faithfully yours,

Honortle R. C. Leffingwell,
Assistunt cret ry of the Tresury,
Whi.hin6ton, D. C.



dear Ru. sell:

In order tht you

y be somewhat informed of develoiL, I am

re receivin nuroL in,uirie, from 1,wk
ich should L.
reed fer the reneetal of lo,im
uon the
bond- of the-Fourth Liberty Loan nd ueon Victory Note, mr.
tellia, m.
V120 yeAl Liv,t we

that he 1111, reoeivd probably fiftean inuiriet, of that onuroter in the le-Et
y .


Lion it; th t rated viii be advanced to 4-/4


nu, in

some oasee, 5%.


at the





god Jimmy in uiriel from

igoinL to Liu:, ,teiy
cul.tive fevor that weel, to i.e 4re dit-4: over_

to when the F dc,r.1

,oxie check to t


untry, not otly a to the tee& oxda, but re_ w.t,Lo,
gy ftesocl_te in tho tsimk Lei! meL.t.- t there is. drowia6

lte tion.1. celrelojni;.


re e

LA-.) permit my ,elf to Le ihf,ucuced by re-

of tn-,i; oL,,r.ctsr, I thif:- thp ir.dic_tleL are Cii r-

in ge:r


ct omethin;.; will be

io.., the line

Ion, a.nd, furthermore, I think mo t of

(fur inve:Aed fLnd


4.,.3 re chcd

nd I exect will b,a rutrin_ Aofe a billion
of runnin over te V-hinten next Tued y night,

e ini

y u feel




iJctoter 16, 1919.

Dear Russell:

tun most gratAfut to iou for the lettr of apti,reci,tion
which you hs,ve written Ltut. Mr. Murray.

Wohlit he 116.5 done for you

ill he4 nim in this bunk, Wire 1 fee, confiO!nt th.,t his future

Houomlle R. C. Leffin&well,

Assistant Secretry of the frea,ury,




October 20, 1919.

Lear Russell:
Th,nk you for your note of th6.righteenth.
di:-icume the m%eting, with you by tele,hone

day, and hill


Honorable R. O. LeffIgki=,76,i,

Ausistnt Secretory of the Treasury,

Wa hinton, D.

in the course of the

.F. ccomiliodate my tri. to Washington to



I hoe to

your on con-






Nov. 3, 191 .

Subject. Rates of Discount



Nov-5- 1.19
The attached papers relate to the discussrort precedin,6



in rates of discount by the Federal Reserve Bank of New York, authorized at the
directors' meeting held on Monday, November 3, 1919.

They include, among

other papers, the statement which was proposed to the Board and which was rejected
in favor of the briefer one also attached.

Mr. Leffingwell strongly favored the

original statement, but 'agreed to the short one, as did the Federal Reserve Board,

with a slight change of language suggested by Mr. Strauss.
The history of the discussion of the rate change goes back to my first

visit to Washington on returning from Surope the last of September, and really
prior to that, to the date of an informal, personal letter which I wrote to mr.

Leffingwell from Lake George on February 6, 1919, indicating that the time had come

rr (1"/W 0 in the Reserve Bank rate policy would be absolutely necessary for
when a change
the business of the country.
It has been the writer's theory right along that during the period of

expanding Government borrowing it would be necessary for the Federal Reserve Bank
to increase the available supply of credit by large accommodation to member banks,

otherwise subscribers to the Government's loans would be unable to get accommodation
of their own banks and, conse4uent15 unable to subscribe.

This was based upon the

belief, which I believe has been general among students of the subject, that the
Government's re_uirements for loans were, and would continue to be during



part of the war, in excess of the amount of credit created by savings, which would
be available, first to pay taxes, second for Government loans, and third to finance
the enlargement of our industrial and agricultural production and transportaLion.

The necessary corollary of this theory was that when the Government's

borrowing us reduced, or even when the time arrived when the volume of its out







standing loans would be reduced, then a check should be imposed upon the employment of the facilities of the Reserve Banks by increases in discount rates.
In June and July the Government's expenditures still exceeded its

revenues and the program of somewhat expanded borrowing was still in operation.
In August, at the time of the then governors' conference and of Mr. Leffingwellts

visit to meet the members of the Liberty Loan Committee in New York, it had developed that the Government's revenues would shortly overtake its expenditures
and that the Department's program anticipated the possibility, or even the certainty,of reducing outstanding loans by $500,000,000 on the 15th of September.
proved to be the case because on that date the gross debt was
and Government bank balances increased *100,000,000.



That was the time,(or in

August), idien rates should have been advanced, but Mr. Leffingwell's program, which

had many elements of strength and merit, was in general adopted and no rate change
I certainly cannot assume that I would have held any

made by the Reserve Banks.

different opinion had I been here.

Nevertheless, this was tantamount to the re-


lease of *500,000,000 of credit to the money markets, and subseuent to that date
the loans of the ReEterve Banks have increased an additional $400,000,000 and we

have added to our reserve about *150,000,000 of gold received from Germany.
In view of these facts,

Thich gradually develoed following my first

visit to Washington on the 28th of September, I have been regularly urging upon the
Treasury Department the necessity for increasing discount rates.

This finally

bore fruit in a meeting of all governors available on short call, that is to say,
all but the governors of the Dallas and San Francisco banks, the latter represented,
however, by Mr. Perrin; in five separate visits to Washington;

and the fullest

possible discussion of the matter with the Secretary of the Treasury, Mr. Leffingwell






and the Federal Reserve Board.

And, after an exchange of views with the governors

of the Reserve Banks on October 28th, and after holding

meetings of our directors

on Wednesday, October 29th, Thursday, October 30th and Monday, November 3d , there
was finally adopted at the meeting of the directors today (Monday, November 3, 1919)
a schedule of rate changes, for announcement this afternoon, as shown in the att-Lched circular.

The statement for the press is that authorized by the Board,

after an hour's discussion.


November 3, i(J19.

Dear Russell:

am returning Profebsor's ieLter, finding

Ltrt it, will he suite imlossiLle for either Mr. Jiy or me to
prec,re the article he wishes.

11(w would it do to ,,,ek Lewis

Frc.nklin to write sush an art,icie?
Fuithfully yours,

Honorane R. C. LeffnvVll.__
Assistant FecretTP"V thrTIVINIry,
Pa,LhinLton, D. C.




November 3, 191.

Dear Mr. Morris:

am in receipt, :lid think you for your courtesy in
forla,rdin two coiAeL, of the telegracwhich I cont out through
your office On November 1st.
Very tx1.0 yourE,


r1;, Jr., Esq.,

.. ecretgry-tt: tr. Lefftureii,

Treasury Deprtment, Wc,lhington, D. C.

Deceliiher lel,

C 9-,et
Dear Russell:

You iiit reA the encloLed letter,

if not too
much trouble, hand it to Secret ry Glas at some convenient

oortunity,ae 1 4ould like to nve this imktter 1-)e1d in confidence
until I am reAy to state definitely just what my decision will to

about reoloin..
Faithfully yours,

Honor,tle R. C. Leffinwell,
Igth .Stroetr


imshin6ton, D. C.


December 19, 1919.


Dear Russell:

You will gather from my letter to Secretary glass that at least for a
considerable period I shall be eliminated from you counsels, and I cannot leave
without a word in regard to these matters of policy, concerning which we have unfortunately differed, although I do not feel so radically during the past few
The Federal Reserve Bank of New York now has a minimum rate of discount
for every kind of borrowing by member banRs with the following exceptions:
15 day advances upon certificates of indebtedness

Discounts of bankers bills for perioasup

to 90 days

Six months' agricultural paper

There can


certainly be no objection to advancing the rate of discount for bankers

bills to 4-3/4%.

All of the needed stimulation to the development of that busi-

ness can be given by our poliay in buying bills in the open market when that course
seems desirable at rates below our discount rate for such paper.

Assuming, there-

fore, that we have changed our discount rate for this paper to 4-3/4%, you will
observe that we have a uniform bank rate for all kinds of borrowing with the sole
exception of the rate for 15-day advances upon certificates of indebtedness.


last, after nearly five years of experience and experimentation, we are upon the

eve of completing the last step in making the Federal Reserve Bank a real central
bank, with a real bank rate.

In fact, in a period of five years, we will have

arrived at a position in banking at least as good, if not better than, that which
has been reached in England after 250 years or more in experience and development.


Mr. Leffilvwell


When the time comes, as I hope it will shortly, when the Treasury Department and
the Reserve System as a whole can agree upon a policy which will permit of the
establishment of this uniform rate of discount, I am convinced that we will have
in our hands an instrument for the exercise of a reasonable control over credit

expansion, and, through that,
no other method.
in my mind as

of price expansion, such as can be accomplished by

This bank rate, of the character I have described, has


objective toward which we were working ever since our bank was

Its success depends upon the development

voluntary purchases or by

in the market of

an adequate

paper) so that the Bank, by

volume of bills (as distinguished from commercial

refraining from making purchases, can exercise a primary

it could

control over the money market which

a volume of per that may be purchased, or



possibly exercise without such
purchased, at will.

the dis-

During all of our discussions of rates, and, in fact, before
cussions became so important as recently, I have lookedat this
goal of all of our efforts.

Now I

want to ask

you to consider

position as

Mr. Glass, the author of

the Act becarre Secretary of the

finally responsible for the Government's financial
seem, the very man who

produced the

position quite hostile to my

own views,

been doing the utmost that one could do







Treasury and

policy, and, strange as

Federal Reserve System


what a curious

situation has arisen, growing out of this perfectly natural ambition for

a real success.




it may
take a

notwithstanding that for five years I have

to make

this plan of



This difference of opinion is, of course, a wholly honest one,


with curious significance


has always been historically

true of the relation between Government Treasuries and

Central Banks in

war, namely that the Treasury endeavors to assert a control

time of

over the policy of


central bank mpre distinctly in the interest of the Treasury than in the interest
of the general business of the country.


is not an unreasonable, in fact in

many instances is a necessary, development because in time of war the policy of

Mr. Leffingwell



the central bank must be considered not as an official or economic policy but
a military policy and one of the agencies to win battles, rather than to develop
theoretically sound banking and financial practices, such as would control in
peace times.

That situation was thoroughly recognized, and I may say, promoted

by the New York bank during the entire period when it was necessary that the bank
should have a military policy, so to speak.

But now that the war is over, the

time has come to abandon a policy designed for military purposes in favor of one
which will better serve the interests of the country as a whole, rather than the
separate interests of the Treasury alone.

Unfortunately Mr. Glass has not agreed

with my feelings about this and one of the results, I fear, has been to drive him
to the view that there were some things which might have been done to deal with the
credit situation by other methods than by rates, and that in some way I have led
a revolt in the System, the object of which, while not openly expressed, was to
assert the dominating position of the Reserve System in controlling the policy of
the Treasury.

One of the consequences of this situation has, / fear, been to very much
shake Mr. Glass's confidence in my own judgment, and, possibly, in my own intentions.

Now I am about to be away for possibly a year and I feel altogether unwilling to
leave without an effort to discover exactly what is in his mind.

It certainly would

be unfortunate if the author of the Federal Reserve Act and one of thA men who did
as much as anybody else to make it a success should end a year's association in complete discord and with complete lack of sympathy as to what has been done.

I am

to be in Washington for one or more days next week, probably right after Christmas,
and am writing to ask if you will arrange .'.. if in your judgment it will be wise to
do so

for us to have a talk with the Secretary and see if before I leave we can-

not remove misunderstandings.

I don't want to feel that at least in his mind the

last five years' work have been thrown away, nor, indeed, now that he is about to
enter the Senate, where his influence in legislation affecting the Reserve Banks

- 4 -

Mr. Leffingwell


will be very great, that the result of this difference of views may lead to a
decision by him to attempt some changes in the Federal Reserve Act based solely
upon the experiences of the past year.

This is a matter about which I feel very strongly indeed, because if


back to the Reserve Bank, I would like to find it there just as I left
Won't you drop me a line on receipt of this, telling me frankly just the

way you feel about my suggestion?
Faithfully yours,

Honorable R. C. Leffingwell,
Assistant Secretary of the Treasury,
Washington, D. C.



F.D. 12A.3 .



Federal Reserve Bank

P/9/7Ek S


District No. 2
Correspondence Files Division



LE FAN a 41,6-1-1...


/ Ao


sIssir 5 Ee-7-ct:

STPO 4) a



771? eAkS


( Ave /L.

/7/7 - .ree # v E / 120)





January 2, 1918.



Dear Strang:

I received your good letter of the 26th and have read
and studied it a number of times.
I shall try to put it to use.

It is full of wisdom and

I cannot write now in detail

so I send you this hasty line to thank you for writing me as
you did and caxry to you my best 7ishes f


Benjamin Strong, Jr., Esq.,

4.liken, S. C.

the New Year.


WASHINGTON ... ..0%;

Janua y 9, 1916.

Dear Strong:

Referring to our talk of yesterday,
will you ask Hardy if he will come, down!

ru L-.77-771
Benjamin Strong, Jr., Esq.,
c/o Paul Y. Warburg, Esq.,
1704 Eighteenth Street, 1471.,




JanuaTy 9, 1916.

Dear Strong:


Referring to our talk of yesterday,
will you ask Hardy if he will come, down!

Very truly!

Benjamin Strong, Jr., Esq.,
eio Paul M. 7:arburg, Esq.,
1704 Eighteenth Street, N.V.,




January 6, 11V.


,71LtiNQ PLi?


Dear Strong;


-2ny thanks for your amusing letter.
to know thatiou avi.,

It is perfectly bully
gg-WisivAtne health and pleasure out of

By the way, why don't you get Clark to turn
r t
ou some
of the letter paper which I have which bears the ---newns cad of
misleading your correspondents with the Nassau Street address.
lars. Leffingwell has a plate at Tiffany's from which you can order
some note paper if you like.
Bother the rent and the wages. So lone as you pay the additional bills and expenses due to your occupation of the house you
may know that I am losing nothing by having you there.
Our house
at Lake George has no rentable value in winter time and Clark's
wages and most of the expenses run along anyway. Let us have the
pleasure of feeling that we are giving pleasure with our toy-house.
The new Secretary has taken hold very well. He was so reluctant to take the job and is so modest about his qualifications
for it and so urgent in his appeal to me to help him out as to
make it utterly impossible for me to do otherwise than to stick
to it. 2urthermore, the increasing difficulties prevent the job
from becoming dull.

Benjamin Strong, Esq.,
Lake George, N. Y.


opportunity of having a
be very much the wiser for having

February 6, 1919.

pointing because I should enjoy an

little play with you
a chance to talk things over.




Pear Strong:


111 0

I received your letter of February
very much interested to have yeurAP4Malk
and Treasury policy generally.


.9 1

z= /tax


I have no intention of selling Treasury ceKtgicates

Benj. Strong, Jr., Esq.,
Lake Ceorge,
New York.

to the Reserve Banks, except as a temporary expediendi as hereIn that connection count it to my credit that I have
retired nearly t30,000,000 (the whole issue) of one year notes
which were held by the Federal Reserve Banks and were renewable
for thirty years.

I am very glad that you are getting such good skating and enjoying it. I hope when the skating goes it will be
followed by deep snows and that you will take to skis.

Is a good book on skiing among my books:on the top shelf, I

think, of
a yellow

the right hand book case, being a book printed with
label on it.


I did send you a telephone
the other day which
large for an Assistant Secretary to pay. Notwithstanding your accursed persistence, I cannot let you pay
Clark's wages, which I should be paying just the same if you
were not there. No doubt, however, if you were not there
Clark would have less work to do and I should be glad enough
to have you make him a substantial present, if that would make
you feel easier in your mind.
was too

I do wish I could get up to see you, but it is utto be away from here. Recertly:I
took a day off on each of three occasions to make speeches to the
Investment Bankers in Atlantic City, the Massachusetts Bankers
in Boston and to the Philadelphia bankers, at such injury to my
work that I have been forced to make up my mind not to go away
again for any purpose until the summer. This is very disap-

terly impossible for me


.,144 441 rumncia1







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February 21, 1919.


Dear Mr. Jay:

1 received your letter of February 18th about the
conversion of the 47. bonds.

I think that


view of the

fact that temporary bonds will soon have to be exchanged for
definitive bonds with all coupons attached, that would be
the time to reach any negligent bond holders if Congress acts
upon the Treasury's suggestion to extend the conversion period.
Very truly yours,


New York.


e:'al reserve Bank,

R. C. Leffingwell.




March 11, 1919.

Dear Strong:

Here is inflation in Spain.

ulr yours,

Benj. Strong, Jr., Esq.,

Covernor, Federal Reserve Bank,
New York City.




April 22, 19lklte


Dear Strong:



Someone told me today that a business coltpany he knew had

been asked by a bank in New York to put in a Ohscription for its
account without


the source. I Ekol getting really worried

lest the banks take the Victory Loan, or
for their own
Caine subject.

substantial part of it,


this morning on the

I had a letterlfrom you



I am even beginning to wonder whether,

after all, you

may not feel it necessary to consider the possibility of some modification of your

action as to the

concerns Victory Notes.

that they

could borrow

fifteen day

rate, so far as it

If the banks should get it into their heads
indefinitely at a 3/41. spread, and load up

with the Notes, it would derange badly our whole



which contemplates heavy borrowing on Treasury Certificates

the Loan at the

4% rate.

I remember

you said

the possibility cif forbidding or restricting


something once about

renewals at the


day rate on the Notes.

After a good deal of
pose the action



I concluded not tot,

the Chicago bank wanted to

take, which, as I

understand it, continues the 410 rate as to Certificates, but fixes

the rate on bonds and notes at 4%. Of course, you could not make
any change so far as bonds are concerned.

Please consider this as

an informal telephone message for your personal thought only. I

tried to call you up late this afternoon, but could n
Very truly yours,
Benj. Strong, Jr., Es.,

governor, Federal Reserve Bank, New York.

r ach you.









e are two reasons why suoh excha

At of certificates ex-

or two weeks it woul.
Airy certificate program
x1 to the banks of the count
Ate a large mount of refund1.-

ch must.

isent 1,

-der to prevent money disturbance

15 that a large amount of herT 4 should be issued and I do
AWE it expeaient on account of the extremely
for the Treasury to *ell such cercash or by credit.
about Se

Ass of se

lag banking institutions this privil,
take a certificate which should be

te for certificates for which taere it




the use of vessels with a draft of 22 feet. The company has its own
storage tanks. One of the important parts to be played by this new
company will be the exporting of linseed cakes for cattle food in

[Consul 'General George H. Seldmore, Yokohama.]

Between March and August, 1918, says the Japan Chronicle, there
was unprecedented activity in export transactions, covering delivery
up to about May, 1919, of cotton yarn and cotton cloth from Japan
to India. At that time prices were also unprecedentedly high, $299
per b6..le being quoted for 40s yarn. It is estimated that these forward transactions at such high prices reached 250,000 or 260,000 bales.
There has, however, been a great decline in prices, especially since
the signing of the armistice, Deceniber quotations standing at $150
a bale for 20s, $199 for 32s, $217 for 40s, and $366 for 60s. These
prices show a decline of from $50 to $75 per bale.
Importers in India have asked Japanese exporters to make resales
on their account or to cancel orders where possible. It is said that
Japanese merchants have agreed to make resales in regard to forward
contracts for 1919, but are executing the contracts mativing before
the end of 1918, making shipments as soon as tonnage is available.

There are, however, considerable shipments which have not been
taken on arrival in India, and this has placed the merchants in serious difficulties. It is said that they have asked the Yokohama Specie

Bank to advance money on these shipments, but the bank has to meet

a great demand for funds necessary for buying raw cotton and is,
consequently, unable to meet the requirements a the merchants.
These conditions have affected many firms.

[Consul -General C. B. Hurst, Barcelona, Jan. 7, laia.]

The development of the banking operations of the Bank of Spain
and its natural connection with the requirements of Spanili industry and commerce, both domestic and foreign, has resulted in a circu-

lation of bank notes amounting to 3,316,215,325 pesetas (about

$597,000,000), which is almost the limit of notes authorized by the
royal decree of August 6, 1018. In order to avoid any inconvenience
to the bank in its operations, an authorization to increase its issue
of bank notes was necessary, pending the presentation to Cortes of
a law regulating the issues of the bank.
Accordingly, a royal decree, published on January 3, authorized
the Bank cif Spain to increase its bank note issue by 500,000,000
pesetas (about $90,000,000), or up to 4,000,000,000 pesetas, instead of
the 3,500,000,000 pesetas authorized in August. 1918', on condition

that the gold reserves of the bank are in proportion to the increase
and that the increase does not disturb the guaranty established by
previous legislation. The Bank of Spain may not reduce the gold
reserve actually held without the consent of the cabinet or acquire,
through the decreed issue, gold that is not in legal circulation without the previous authorization of the Minister of the Treasury.




[Consul John M. Savage, Sheffield, England, Dec. 12, 1918.]

The Borough of Rotherham, with a population of WOO, is only 6
miles distant from Sheffield, with which it is joined by street railway
connections, as well as by two lines of railroads. It is largely engaged in the steel industry, and several important works are situated
In order to meet manufacturing rquirements the first electric superpower sation has been erected by the Rotherham Corporation and
will be available for distributing its output early in 1919.
The war undoubtedly influenced the extensions, and the municipality in its enterprise has the support of the Government. The new
works are an extension of the former electrical department inaugurated by the corporation in 1891.
New Machinery Installed.

The first two turbo-alternators will have a capacity of 12,500 kilowatts each, or 16,800 horsepower per set. By midsummer next a

30,000 kilowatt set, representing 40,200 horsepower, will be completed.

With the existing generating machinery of the power station, the

capacity wjil then be brought to 70,500 kilowatts. This figure, it is
believed; constitutes a record for any municipality in this country.

There are special advantages in respect of railway and water connection, and an abundance of fuel is within easy reach. The arrangements are such that it is computed that fuel can be brought frOm the
pithead to the overhead bunkers in the boiler house at about 14 cents
per ton.
The installation includes 12 of the largest water-tube boilers, each

equipped with special coal-feed arrangements, and a suction ash
plant. With the class of coal now being used, it is computed that
the consumption per unit delivered on consumer's premises will be

less than 2 pounds per kilowatt, or to 11 pounds per horsepower. An
achievement of this sort is considered remarkable.
The Rotherham Electricity Department has during the past ;year
greatly extended its sphere of influence by taking over the electrical
arc ofthe Mexborough (6 miles) and Swinton (5 miles) Tramways Co.
The necessity for the new developments was in a measure due to some
15,000 horsepower being required for a new rollinc, mill plant. At
present there are applications from existing works for between 40,000
and 50,000 kilowatts. As to cost, the old and new works total approximately $5,000,000, and sanction has been obtained for the expenditure of a further $4,000,000. Cheap power for industry is the
primary object and there is every probability that the enterprise of
the Rotherham Corporation will be profitable.
[Consul Henry S. Culver, St. John, New Brunswick, Canada.]

There are wonderful possibilities ahead in the utilization of the
water power of the Province of New Brunswick, not only for muni-



June 21, 1919.

Dear Ben:

Thanks for your good letter of the 20th.
I believe I care more for your good opinion
and friendship than any other personal satisfaction which has cone to me during the period
of the war.

You will know, therefore, What

your letter means to me.


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

Charge to Treasury Department

July 9, 1919.

pan s.

For Davis from Rathbone.

Treasury 1136.

Our 1104, subdivision!), paragraph six, and 1129, paragraph

Nederlandsche Bank has cabled Federal Reserve Bank that govern-

ment of Holland makes no objection to the exportation of the gold.

Please ascertain if there is any objection on the part of the Belgian


Albert Rathbone,
Assistant Secretary of the Treasury.





Dated Lug. a, 1919.
Rec'd 2nd, 11:50 a.m.

2699, Lugust 2, 5 p.m.

For Sqgnz_from Ieffingwell.
Your T-1 received.

Treasury 1170.

Treasury is ready to discuss

funding demand loans whenever the British Government desires to take the matter up.

This the British Government

It has had neither Lmbassador nor High Commissioner

here for months.

There is nothing that the :,merican

Treasury can do about the matter.

If British bankers

are worried why don't they request their government to

I do not understand that British Government shares

any fear that there will be difficulties on account of in,

terest payments in the autumn.



2 -CGD




2:00 a.m. Aug. 15.

Ammissi on,


Received the following from Deplrtment today, Aug. 13, 9:00 p.m.
Following is for Benjamin Strong from Treasury.

It may be neces-

sary or desirable to ship gold to Spain in connection



settlement of peseta credits orened for the Treasury through New
York banks.


is making inquiry

State as to litethr Bank of


through Department of

would, if requested, be


to accept gold earmarked in Paris, London or New York with proper
allowance for shipment charge, thence to Spain.

French Government

has expressed willingness to furnish up to $10,000,000 in Napoleons
in return for German gold delivered in Paris, accepting German

on the basis of 999.4 of fineness.


Can you ascertain and cable:

Cost of shipping German gold from Belgium to Paris.

Same inquiry fromAmsterdam to Paris.
Cost of shipping Napoleons from Paris to


Cost of shipping gold from London to Madrid.
Earliest date upon 'Which Napoleons shipped from Paris to
Ladrid against Gel-Han gold shipped from Belgium or Amsterdam to

Paris can be counted on to reach radrid."


Charge to Treasury Department

July 9, 1919.


For Davis from Rathbone.

Treasury 1136.

Our 1104, subdivision I), paragraph six, and 1129, paragraph

Nederlandsche Bailk has cabled Federal Reserve Bank that govern-

ment of 7o11and makes no objection to the exportation of the gold.
Please ascertain if there is any objection on the part of the


Albert Rathbone,
Assistant Secretary of the Treasury.






Dated August 18th, 1919.
ise'd 11 a.m.. 29th.


August 18th 12 noon.

prom Leffingwell for strong, care "organ,
rarjes and Company.

Your letter July 25th received. We have
indlosted to Bleotett or fhe BrItish and to
Deneuflisa and Bloch for the French that le think
it importnat to undertake discussion Of funding
(1 ornate obligations at the earliest opportunity of
their governmente.

It is of course essential that

in these disoussions their governrante should be
authoritatively represented in Washirgton. !tusk

'bilged for your letter and the light it thrown
The truth is that
upon the whole al tustian.


our whole plan for financing Europe 't; requirements\
is suld must remeln In advance vbeyrinee) Tending

the ratifleation of the treaty.




Dated August 18, 1919.
Recid 9:30 p.m. Lug. 19.


2861, .1, 18, 12:00 noon.

For Strong care Morgan Harjes and Company from

-Ippreciate currency dificulties of Indian Government; silver rupee was originally taken coin standard
being gold sovereign or its equivalent, the Indian
Mohur, on the basis of fifteen rupees per sovereign and
.go1din Indian par money ret),:)rvo still counts on that

basis which equals thirty-two Point forty-four cents
Par rupee.

Can understand why Indian Government, not

desiring to put gold in circulation nor to buy silver
at present market price and coin it into rupees for circulation at a loss, should progressively raise rate for
rupee transfers thus permitting purchase and importation
of silver for coinage purposes without loss.

It follows

nevertheless that Indian Government, sending gold into
India against rupee transfers at present market prices
derives therefrom a very large profit which raises question


2 -CGD


whether 2uch profit derived from gold obtained in thirJ

market ohould not accrue to United State_ Govrnment
or United StateL; merchants. Thio government will not

canction an arrangement which virtually mean


taken from thin market io received in foreign market J at
a diccount from otandard of

Btch marketc.

It i.e


di2tacteful to U2 in pre ent cae ar:. when Spain placed


on Lmerican gold sent to that market.


a matte' between the government's and the general

subject has been under discussion between Rathbono and

In view this and factAhat this situation

is intimately rlated to and directly involves te-nurcz-

our agreomnt with British Treasury for sale of silvr
to India.

Do you not think embarrassment would be avoided
by your advising Reserve Bank to be guided by wishes

of Lmerican Treasury?




Checked b

TEL. D. 1

Code used





201) Washn DC Aug 19 1240P


Stronz cables he has abaneonee. Constantinople trip

Lef finzwell











Dated August 19th, 1919.

Reed 4:20 p.m. 20th.

August 19th 4 p.m.
From Leffingwell for Strang, care Morgan Harjes

and Company.

Delighted you have abandoned. Constantinople trip.
I had hoped you would be back about the first of October.

I think we can do a big job together in the leot three
months of this calendar year and perhaps clean up the
whole situation. I do not went to interfere with your
plans but the general situatio4 has radically changed
here and I really feel that you can do the biggest job
of all at home in that period.'

4 WHB



Secstate Washington

Dated August 22d, 1919.
Reed 11:10 a.m. 23d.

2923, August 22d, 7 p.m.
From Leffingwell for Strong, care Morgan Harjes
and Company.

We do understand importance of refunding
demand loans and have urged it upon British
representatives. I cannot make rogress without the
Your 04.

presence here of some one authorized upon their behalf

to discuss it.




4 -WHB

Sec state Washington

Dated August 22d, 1919.
Reed 11:10 a. m. 23d.


August 22d,

7 p. m.

From Leffingwell for Strong, care Morgan Harjes and Company.
Your 04.

_ 1
We do understand importance of refunding demand _clans

and have urged it upon British and French representatives.

I cannot make

progress without the presence here of some one authorized upon their behalf
to discuss it.







kited ieug. 2, 1919.

Bee& 12v0 pm, 23rd.

2934, Aug. 22, 1 p.m.

Prom Leffingwel for ainjumin Strong, care of LVrgvn Harges and

Cop, Axis.
Unsion's 1280.1 Jac. 10, 10p.. YourT3, L,ic.:11,o


19 12 midnight, Your 11-6.

lot. Have giver, instructions for pnymont Lt

:-AlwitIr of

thirty zillion pesetLs bills mturing September Aconds


to cover ammo 101:40oon obtained by Federul Reserve 11Ak of

fiscaa ant of the treasury.
Have gtvon dirootions for ronewal entire seenty..five

rillion.pesotas bills mturing August tmntyninth.
Third. GrezAly sporectao informAion contalvd your calos.



1 232




Prepared by


Checked by

TEL. D. 1


5bd mq Washington




This will be followed by extremely important personal telegram to govr. Please
take such steps as may be necessary for his attention today.





October 2, 1919.

Dear Ben:

I received your letter of October
1st with the enclosed dile 'lc for -10.54

to cover your share of
!oad transi)ortation


e room and rail-


which many thanks.


atronc, Jr.,
Governor, Pederal zieserve Bank,
New York.



October 13, 1919.

1)\ 471 1:3.


Dear Ben:

71 0
I hand you herewith a letter which I


J :^

1 l's

have received

from Professor Huebner, asking for an article on United
States Government Bonds for the American Academy of Political
and Social Science.



possibly find time to write

such an article, nor do I know of anyone in the Department
competent to do it who could take the time at present.

you know anyone who

could undertake

the job?

Of course,

you yourself are the right man to do it, but you should
spare the time for it.

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




October 13, 1919.

) 14


Dear Ben:

I received your letter of October 8th.

I am glad

that you arrived ahead of it and warned me of it, although
in a sense it was only a detonation of the bomb you exploded
upon your return from Europe.


I have not given up hope of

your views and mine when we stop talking economics

and get down to the consideration of concrete plans and proposals.

I am encouraged in this hope by the fact that your

letter shows you have utterly misunderstood my views and

I shall be very glad indeed to have the conference

which you suggest with Secretary Glass and Governor Harding
whenever you can arrange to be here.

As to the conference

with the Governors, that was called by Governor Harding and

my participationin it depends upon him.

More than conferences

with others, I want an opportunity to lay before you the

-2 --


Treasury's plans for the immediate future,and to ask your

October 13, 1919.

help in perfecting them and bringing them to a successful



OCT 1119i9

Dear Ben:

Sincerely yours,

I received your letter of October 8th.

I am glad

that you arrived ahead of it and warned me of it, although
in a sense it was only a
upon your


detonation of

from Europe.

the bomb you exploded

I have not given up hope of

reconciling your views and mine when we

Jr., Esq.,

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

and get

down to


stop talking


the consideration of concrete plans and pro-

I am encouraged in this hope by the fact that your

letter shows you have utterly misunderstood my views and

I shall be very glad indeed to have the conference
which you suggest with Secretary Glass and Governor Harding


you can arrange to be here.

As to the conference

with the Governors, that was called by Governor Harding and
my -participation in it depends upon him.

More than conferences

with others, I want an opportunity to lay before you the



October 16, 1919.
Dear Ben:

I received your letter of October 15th.
I think your suggestion that

Mr. Jay write

the article which Professor Huebner wants is


do not know of

anyone that could

do it better and I hope very much indeed he
will consent

to undertake the task.




fessor Huebner is pressing me for

Very truly yours,

Benjamin Strong,

Jr., Esq.,
Governor, Federal Reserve Bank,
New York.


a 2 I 1919



October 18, 1919.

Dear Ben:

I received your letter of October 16th.

About our con-

For no next Wednesday will be all right - the sooner

the better.

Secretary Glass is away today and I do not know

whether he will be available uednesday.

Probably he will.


ernor Harding tells me that he will be tied up with a Reserve
Agents' meeting and other matters and that he would prefer to
have you came down week after next.

I leave it to you.

You will find a sufficient explanation of the inquiries you
are receiving in the article published by the Wall Street Journal
on October 9th, under the headline, "Higher Discounts Will Liquidate War Loans."
As to the remedy for the situation:
are barking up the wrong tree.
until you come down.

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

You know I think you

However, we will let that rest




October 29, 1919

My dear Covernor:

V/ I am writing to advise you that the Treasury Department

will expect the Federal Reserve Bank of New York if at any time
it becomes involved, or expects to become involved, in litigation in its capacit;.i


fiscal agent of the United States, to

report the facts immediately to the Department and request instructions as to the course to be pursued.

I presume that you

have already had this in mind, but I am calling it to your particular attention because the Department wielas to be certain
thrt it is kept fully informed with respect to all such litigation from its inception, in order that all necessary steps may
be taken to protect the rights of the United States and thit
no action may be taken by inadvertence or otherwise which might
prejudice its interests.

Benjamin Strons, Jr., Esq.,
Governor, Federal Reserve Bank,
Nevi York, IT. Y.


.44- 414






Taiatourst s,


au T

;al: 6619;34 CL:

Y -T








runt cic 9,







7Ablo t:




-peZ, it


, %Wile tt









Washington, D. C.
April 16, 1920.

Addressed to Mr

Copied by

Benj. Strong.



Checked by

Mis. 73 0 (10-19)-20 .000-2-6-20-143 G

Thanks for your good telegram.
from you.


It did me good to hear

I did not know where to reach you or you would have

heard from me.

Basil Miles sent me a postcard picture of you and a
bully big dog,which stands upon my mantlepiece.
I am glad to have your words of approval.

It will probably

amuse you to know that you had scarcely left this part of the world
when, in January, I became an earnest, and, in some respects, successful
advocate of dear Money,


I had always said I would if liquidation did

not come with the turn of the year.
I cannot, tell you how much I have missed you.

The old crowd

has broken up and the problem seems to me to be a banking rather than
a Treasury problem.

I have no official status in the banking problem,

and am not willing in peace times to assume responsibility or exercise
powers which do not really belong to me.

My resignation has been

accepted to take effect upon the appointment of my successor.


you come back you will probably find me in the stodgy, but I hope
profitable, profession of the Law.




To be handled by











Copy for Letter Files





RA -.C. Leffillzwellk.AasisUnI_Secrary_e_the.arfaaury,
Washington, D. C.

Addressed to Mr


April.April.16, 1920.

Copied by


Mis. 73






Checked by

(I0-19)--20,000-2-6-20-143 G

Thanks for your good telegram.
from you.

It did me good to hear

I did not know where to reach you or you would have

heard from me.

Basil Miles sent me a postcard picture of you and a
bully big dog,which stands upon my mantlepiece.
I am glad to have your words of approval.

It will probably

amuse you to know that you bad scarcely left this part of the worlb

when, in January, I became an earnest, and, in some respects, successful
advocate of dear Money, as I had always said I would if liquidation did
not come with the turn of the year.
I cannot tell you how much I have missed you.

The old crowd

has broken up and the problem seems to me to be a banking rather than
a Treasury problem.

I have no official status in the banking problem,

and am not willing in peace times to assume responsibility or exercise
powers which do not really belong to me.

My resignation has been

accepted to take effect upon the appointment of my successor.


you come back you will probably find me in the stodgy, but 1 hope
profitable, profession of the Law.




To be handled by











Copy for Letter Files



R. C. Leffinwell, Washington, D. C.

Addressed to Mr

April 1..03 1920.

Copied by

Be1.1.j Strong.


Mis. 73


Checked by



I hope you will take care of yourself and come back to us
all well and strong,

meanwhile having

a bully time.

It will comfort you to know that I think Case
taking good care of your bank.

and Jay are

Jay I have always known and admired,

but Case I had not fully appreciated until quite recently.
Good Bye and Good Luck.

R. C. Leffingwell.





To be handled by











Copy tor Letter Files



R. C. Leffingwell, Washington, D. C.

Addressed to Mr

April 16, 1920.

Copied by

Benj. Strong.



Checked by

Mis. 73 ® (10-19)-20,000-2-6-20-143G


2 -

I hope you will take care of yourself and come back to us
all well and strong, meEnwhile having a bully time.
It will comfort you to know that I think Case
takinp, good care of your bank.

and Jay are

Jay I have always known and admired,

but Case I had not fully appreciated until quite recently.
Good Bye and Good Luck.

R. C. Leffingwell.





To be handled by












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