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

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COPY
TREASURY DEPARTMENT
Washington

March 16, 1921

My dear Governor:

In connection with our telephone conversation of yesterday, I enclose the following papers with respect to the soldiers' bonus:
(1) a copy of H. R. 14157, as introduced by Mr.
Fordney in the second session of the last Congress;
(2) a copy
of H. R. 14157, as reported by the CommitLee on Ways and Means;
(3) a c4y of the report of the Committee on Ways and Means on
H. R. 14157; (4) a copy of H. R. 14157, as reported by the Senate
Committee on Finance; (5) a copy of the report of the Senate Committee on Finance on the amended bill;
(6) a copy of the minority
report from the Senate Committee on Finance;
(7) copies of hearings before the Committee on Ways and Means of the House of Representatives on H. R. 14157; and (8) copies of hearings before the
Senate Committee on Finance.
You will find on pages 8 to 11 of the report of the
Senate Committee on Finance estimates as to the total cost of the
bonus plan, under the amended bill. These estimates Arere prepared by the Government Actuary and are conservative. They do not
take into account indirect costs. You will 17ind sn estimate of
the probable costs of the bonus in the testimony of Secretary
Houston which appears in the hearings before the Committee on
Finance.
Sincerely yours,

(Signed)

S. P. GILBERT, JR.

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

8 enclosures.-

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ASSISTANT SECRETARY OF THE TREASURY
WAS HI N GTO N

May 21, 1921.

PERSONAL AND CONFIDENTIAL.
,

LM
MAY 2 3 1921

Dear Governor Strong:

I received your letter of Ley 16, 1921, and have
read with interest the enclosed memorandum of the
proceedings of the Eighth National Foreign Trade Convention held in Cleveland on hay 4 - 7, 1921. I agree
that at least in respect to manufactured articles,
the question of production costs is the key to the
foreign trade situation.
I wonder if you noticed the newspaper reports
of the Cabinet meeting on Friday with regard to foreign
loans as related to foreign trade? One outgrowth of
the discussion is a conference in Washington on ;:edmesday, Nay 25th, between the Secretary of the Treasury
and the Secretary of Commerce and a number of leading
bankers from New York, Boston, Chicago, and Pittsburgh.
I have suggested to the Secretary that you be invited
to the conference but if that should not come about 1
should be grateful for any comments or suggestions
whiCh you may be willing to offer. For your own information; the Secretary of Commerce has been anxious to
secure a public statement from the President warning
the country against further foreign loans unless the
proceeds are to be used to pay for purchases in this
country.

Very truly yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. 1.

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ASSISTANT SECRETARY OF THE TREASURY
WASH I N GTO N

Lay 27, 1921.

Ey dear Governor:
I received your lett r of may 23,
1921, and have read wit

great interest

the enclosed copy of

letter of April

20th from Li. T. sas4e, of the Bank
of Japan.

His refe once to cheap money

and speculation i&,/as you say, particu-

larly interesting.,
Very truly yours,

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

TREASURY DEPARTMENT

Washington,
',lay 28, 1921.

It4I3ONiL AND CONFIDENTIAL.

my dear Governor:
I received and have read with great interest your letter of

Lay 23, 1921, with regard to the business situation
trade.

and

foreign

I amheartilyin sympathy with the views outlined in your let-

ter, and am glad that you had the opportunity to express them at the
House oonferenp9... Confidentially I know that both the Presi-

dent and the Secretary were much impressed and I think that you may
count on plenty of cooperation in Washington.RUch depends, however,
on the terms of the proposed public statements to be made by the

President and the eederal Reserve Board.

:Lio

my mind, there, has al-

ready been entirely too much loose talk in the newspapers and else-

Where as a result of the Wednesday conference, and I think it is
highly desirable that the ground be consolidated by rears of
one or two carefully thought-out official statements.
I should like to talk over with you sometine. the questions sug-

gested by your quotations from Bagehot's "Lombard Street".

The Views

expressed by Bagehot are doubtless sound as applied to temporary
panic conditions, and have a definite bearing on the conditions now
prevailing in the South and Southwest.

I am not quite clear, how-

ever, about the effect of high interest rates on speculation. Speculation is influenced by such a combination of forces that I have

always doubted whether, other things being equal, high money rates
alone would deter the speculator.
with the prospect

For one thing, the speculator

of speculative profits can afford to pay money

rates which would effectively stifle production.
Very truly yours,

/7)
Benjamin Strong, Esq.,
Governor, Federal. Reserve Bank,
New York, N. Y.

TREASURY DEPARTMENT

Washington,

,I.CRETARY

June 11, 1921.

CONFIDMITIAL

Dear Governor Strong:

This will acknowledge receipt of your confidential letter
of June 2, 1921, enclosing the drafts of (1)

the proposed letter

from the Federal Reserve Board to the President as to prevailing
conditions in respect to agricultural and industrial credits, and
(2) a suggested statement from the President in regard to the
White House conference with the bankers.

The Federal Reserve Board

letter has, I take it, been superseded by its public statement
of June 6th and by

the

subsequent developments and conferences in

regard to agricultural and live-stock bredi te:

I regret that it vas not possible to issue some such
statement as you suggest concerning the conference of the bankers

with the President.. The statements and speculation which have
already resulted from that conference have been rather disturbing
to the Treasury and I think may in the long run Drove to be hann-

nal

rather than helpful to foreign trade.

I am particularly dis-

turbed about the recent reports that bankers will be expected to

submit their plans for loans to foreign Governments to the Treasury for approval.

The Treasury's position in regard to foreign

- 2 -

Government loans has up to date been sumnarized in its statement
of Januar/ 24, 1920 (which appears on pages 79 to 80 of the Secretary's Annual Report for 1920), and I do not look forward to
the present Prospect of having to re. ss upon foreign Government
issues.

I think it will be good for all concerned to have the

Treasury and the State Department fully advised with respect to

all pending foreign Government loans and that this in itself
mould give either the Treasury or the State Department the opportunity to offer objection if necessary.

It would seem un-

fortunate, however, to require bankers or foreign Governments,

before offering foreign Goverment issues in this country, to
get anything like a formal approval from the Treasury or the
State Department, or even a statement that there are no objections to the offering.
Very trurly yours,

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

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TREASURY DEPARTMENT

Washington,

ASSISTANT SECRETARY

JUN 2
01921

June 15, 1921.
My dear Governor:

I received your letter of June 6, 1921, with the enclosed letter from Blackett and a set of the Economic and. Financial Qmestionnaires prepared by the League of Nations.

I have

sent the questionnaires to the State Department and shall be

glad to advise you further as soon as I get a formal expression
of the views of that Department. I understand informally from

Mr. Fletcher that the State Department will probably wish to
pay no -Ittention to the pestionnaires.

Would it not be possible to satisfy Blackett by sending to him a set of the published reports and statements of the
Treasury and the Federal Reserve Board, and perhaps some reports
of the other departments, such as the DeTartment of Commerce?

The condition of the Treasury and its program and estimates for

the immediate future have been quite fully set forth in such

papers as the SecretarT's letter of April 30th to Mr. Fordney

and his letter of June 8th to the banking institutions of the
country, and in the regular monthly public debt statements and

the daily Treasury statements for the middle and the end of each
month.

I should be glad to send you a set of these papers if

it would be of assistance.
Sincerely yours,
Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.

ASSISTANT SECRETARY OF THE TREASURY
WASH I NGTO N

June 17, 1921.
CONFIDMTIAL

My dear Governor:

1 received your confidential letter of
Tune 13, 1921, with further reference to the supers ion of foreign government loans in this c ount ry.

1, too, had been under the inpression that the original intention was only to have the State Department
and the Treasury Derartmmt advised of foreign loan

negotiations in advDnce of their conclusion, arrl I

have indicated to the Secretary that I think this is
the limit beyorrl which the Government cannot safely

go. It seems to me that Government supervision of

foreign loans to the extent of giving approval, or
even stating that the Governmant has no objections

to offer, would be most unfortunate.
Very truly yours,

cr,n lamin Strong, Esq.

Governor, Federal Reserve Bank,
New York, N.

TREASURY DEPARTMENT

Washington,

ASSISTANT SECRETARY

June 24,

l922\

My dear Governor:

In accordance with yo

return here-

with the economic and financial questionnaires prepared by

the Lelge of Nations which
of June 9.

The

werd-Seet

to me in your letter

Under SecretaryqiiIttate in returning

these questionnaires to the Treasury said:
"I think I should make it clear that
as this Government has not recognized the League
of Nations, the State Department believes that it
should not, nor should any other governmental
agency have any relations directly or indirectly
with the League of Nations".

I should say, in view

the attitude of the

State Department, that it would not be wise

Reserve Bank

fill

for

the Federal

New York, even informally, to attempt to

out the questionnaires, directly or indirectly.
Very truly yours,

.....
Assistant Secretary of the Treasury.

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

THE UNDERSECRETARY OF THE TREASURY
WASH I NGTON

July 13, 1921.
PERSONAL.

ACKNOWLEDGED
JUL 1 ri 1921
Dear Governor Strong:

'B.

I received your Latter of July 12, 1921,
with the enclosed copy of the address which the
Comptroller of the Currency proposes to deliver
at Cleveland on Alursday, July 14th, and the
copy of your latter of June 27th to the Comptroller in respect to his Atlantic City speech.
I quite sympathize with your views, as you will
see from the enclosed copy of gy memorandum of
I had already spoken
July llth to the Secretary.
to the Secretary about both speeches, but doubt
whether there is anything that can be done. At
any rate, there may be son e comfort in the idea
that if the Comptroller says these things often
enough no one will pay any attention to him.
Very truly Yours,

Benjamin Strq944j4aq.,
Governor, tederal Reserve Bank,
New York, N. Y.
1 enclosure.

:1.7

July 11, 1.:21.

TO THE MiTARYs

attach a copy of :mother spooch, which
the Comptroller of the Ourronoy iv Ashodulea to
deliver at Cleveland on Jut1.1 14th. In it he
further develops his "program for dealing with
international exchange" by establishIng an
international ozait ark an inceern.atirftal system of
s et tleriant b asep on a new int ern et i oral gold unit.
plan is utterly imnractioabl4.
It seems to Ifie CI)
us
now
prevailinr or to be antioi- under ',he
pated in the futaro, end. that th Gomptroller is
rapidly making himself ridiOulous. klitnel. the
plan is a "She'll) to drpresklt dollar and
ur'iftojal1 rai th aim) of depreoiated Eurooenz

currencies at the expense of this country, or else
it moans nothing at all. T/vre ii no need to
settlergent
dev--,lop a new internu.tional unit
The world. air, &r h RS an aooe;;Ita,le unit of this

anaraotnr, -

tsigned.) S. P

SIS

ci halo

ti ifs

ACKNOWLEDOED
1"1
THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

July 16, 1921.

PERSONAL

My dear Governor:

I received your note of July 15, 1921.

have some doubt as to whether it would be worth while
to write the article which you threaten to write to
show up the unsoundness of such 'Plans as are being

proposed by the Comptroller of the Currency, chiefly

because 1 think no one in authority takes these plans
seriously,

if you yield to the temptation, I hope

you will favor me with a copy of the article.
Very truly yours,

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

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THE UN 0 ER SECRETARY OF THE TREASURY
WASH I NGTO N

14 dear Governor:

This will serve as a tardy acknowledgment f

your kind letter of JUne 29, 1921, on my appóintirent
as under Secretary. The appointment woulck be classed,

I suppose, as "permanent", though I amlnot committed

to anything like permanence and at 7iis time can
hardly make any de finite personal/plans .

1 am deeply grateful for

yr congratulations and

good wishes, and. for your conStant friendship and
support.

I look forward wiih real pleasure to our con-

ti nue d as soc iat ion, and yhu may be sure that in the

future, as in the past,/I shall riot hesitate to call
upon you to the limit/
/
Sincerely yours,

Benjamin Strong,
Governor, Veder
New York, N. Y.

Reserve Bank,

THE UNDER SECRETARY OF THE TREASURY
WASH I NGTON

.4,009

August 10,,
p1/401-

Dear Mr. Strang:

I received your letter of August 9th regarding the arGovernor of the Bank of England,

rival of Mr. Montagu C.. Norman

and Sir Charles Addis, one of the directors of that Bank, on

the

CELTIC next Sunday or Monday.

I enc1ose herewith a
.

Collector

copy

of a

letter written to the

of the Port of New York directing the issuance of a

revenue cutter permit for your use

and that everything possibls

be done to facilitate the landing of the party and their prompt
departure from the dock.

I hope everything will go well.
Sincerely yours,

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
Federal Reserve Station P. 0.,
New York, N. Y.

1 enclosure

tiA

(11

GOVERNOR'S SEC'Y.

ZetIndll050"bt5

COPY

August 10, 1921.

Honorable George W. Aldridge,
Collector of the Port,
New York, N. Y.
My dear Mr. Collector:

Mr. Montagu n.

Norman, Governor of the Bank

of England, accompanied by Sir Charles Addis, one of
the Directors of the Bank of Sngland, will arrive at
your port on the SS. CELTIC next Smniay or Monday.

Please give instructions to expedite
the examination of their baggage.

their landing and

Honorable Benjamin Strung, Governor of the
Federal Reserve Bank of New York, wishes to secure a
revenue cutter pass to meet the Celtic at quarantine,
as the passengers referred to are visiting the country
to discuss matters of importance to the Federal Reserve
Bank and to the Bank of England, ehieh is the London
correspondent of the Federal Reserve Bank.
Please,
therefore, issue the necessary revenue cutter permit
for his use, and send it to him immediately, to 15
Nassau St., New York.
It is requested that no publicity whatever be
given to the arrival of these officials, as they wish to
make a quiet visit in this country.
I shall greatly appreciate the extension of
every courtesy to facilitate the landing of the entire
party and their prompt departure from the dock.
Sincerely yours,
(Signed)

Edward Clifford

Assistant

Secretary.

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UNDER SECRETARY OF THE TREASURY

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PROMULGATING BUREAU OF THE BUDGET CIRCULAR NO. 42, ESTABLISHING A
FEDERAL SPECIFICATIONS BOARD.

a579

1921.

Department Circular No, 265.
Chief Clerk.

319`.4

TREASURY DEPARTMENT,
Office of the Secretary,
Washington, October 17, 1921.

To Heads of Bureaus, and
Chiefs of Divisions, Secretary's Office, and
Assistant Budget Officers, Treasury Department.
The following Circular No. 42 of the Bureau of the Budget, dated
October 10, 1921, is quoted for your information and guidance:

For the purpose of coordination and economy in the procurement/
of material and services used by the Government under specifications prepared in the various branches thereof, to avoid duplication of effort,'
and for the better utilization of resources and industries, there is
hereby established a Federal Specifications Board.
It shall be the duty of the Federal Specifications Board tb compile and adopt standard specifications for materials and services, and to
bring specifications into harmony with -Lhe best commercial practice whera
ever conditions permit, bearing in mind the desirability of broadening
the field of supply.
Tae Director of the Bureau of Standards, Department of Commerce,
shall be ez officio chairman of the Board, and shall, subject to the approval of the Chief Coordinator for General Supply, seleet necessary committees, direct the time and place of meetings and the order in which
oubjects shall be considered.
Immediately upon receipt of this circular, the head of each department and establishment purchasing materials or services in accordance
with specificatione prepared in such department shall designate one representative to servo as a member of the Federal Specifications Board, and
shall designaae such assistants to such members as may be deemed necessary, notifying the Chief Coordinator for General Supply of their selection.
The Chief Coordinator for General Supply shall call the initial
meeting of the Board for purposes of organization.
The specifications that are prepared, adopted by the Board, and
approved by the Director of the Bureau of Standards saall, as far as applicable, be binding upon and govern all departments, bureaus, agencies,
and offices of the Government. In the event of disagreement on specifications, or on methods of procedure, the case will be submitted to the
Chief Coordinator for General Supply, whose decision shall be final as
to tha action taken, subject oely to appeal to the head of tha department
concerned."

GILBERT, Jr.,

Ov CDE-/t.
t2

le,

pt. tytt, tv_.'.1
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Acting Secretary.

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TH E UNDERSECRETARY OF THE TREASURY
sNi

WASH I NGTON

October 27, 1921.

Dear Governor Strong:

I have your letter of October 24, 1921, with the
attached letter of September 6th from Mr. F. A. Vanderlip to

Mr. H. E. Benedict and the copy of your letter of October 24th
to Mr. Benedict, all with reference to the proposed visit of
representatives of the Austrian Government who wish to attempt
some negetiations in connection with Austrian relief.

I agree

with you that in advance of the passage of the pending Bill to
authorize the funding of the foreign loans little can be accomplished by any such mission and it might even complicate the
legislative situation to have an Austrian mission in this country.
Mr. Benedict had Shown me Yr. Vanderlip's letter several weeks
ago and Wadsworth and I explained to him at that time that there
appeared to be little to be gained by having Austrian representatives cone to this country.

Since that time some progress has

been made with the funding bill, which has now passed the House
of Representatives though it is impossible to tell what the
probabilities are as to its passage by the Senate.
In case the Austrian representatives come to this country
it will be something of a problem to know what to do with them,
but in the circumstances I think that this problem will rest

-2chiefly with

VanderIip's representatives.

There has been

absolutely no official encouragement of the mission.

I under-

stand that in any event the visit will be a quiet one and perhaps sone thing may be accomplished if it is delayed long enough

to permit further progress with the funding legislation.

Very truly yours,
t.

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

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THE UNDER SECRETARY OF THE TREASURY
WASH I N GTON

October 29, 1921.

NOV 2- 1921

Ly dear Governor:

I enclose for your information a copy
of a letter of this date Which I have sent to

Lr. Adolph S. Ochs with respect to an editorial
which appeared in the New York Times of October
28, 1921, under the title "Treasury and Loney
Market."

Very truly yours,

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

COPY
October 29, 1921.
?EBB OX4.14

Dear Sir:

I have read with interest and amazement the editorial which
appeared in the New York Times of yesterday under

"Treasury and Money Market".

and reasoning, that I
sonally ask the

It is so confused,

the

title of

as to

both

facts

think it would be helpful if you would per-

editorial writers who deal with financial subjects

to give some further study to the

situation. It might perhaps be
the Governor of

worth while to arrange a conference with

the Fed-

eral Reserve Bank of New York, or I should personally be glad to
go over the matter with you when I next

come to

New York.

The fundamental confusion appears to lie in the idea that
the Treasury is borrowing too

cheaply,

and that if the Treasury is

able to borrow cheaply other borrowers will not
necessary

funds. As a matter

fact,

be able

to get the

the reverse is true.

The

Treasury is not increasing its aggregate borrowings, but is con-

stantly reducing them, and

basis.

its borrowings are not on an artificial

Treasury certificates are placed nowadays

on a straight

investment basis, and are well-established as the premier shortterm investment, combining safety with absolute liquidity.
certificates
idle funds.

are

particularly attractive for

the investment of

The situation is not in any way comparable, therefore,

to the offerings made

during the war period,

when the Government's

debt was mounting and great masses of Treasury

The

certificates had to

-2-

be sold at frequent

intervals

to the banks, to some extent in re-

liance on the discount facilities afforded by the Federal Reserve

Banks.

The outstanding amount of Treasury certificates is now

about 42,000,000,000, and is almost all in the hands of investors.

According

to the latest

ample, less

Federal Reserve Board

statements, for ex-

than 420,000,000 of certificates are pledged with the

Federal Reserve Banks, and only t107,000,000 are
porting member

There is a

Federal Eeserve System.

active open market for all outstanding issues of Treas-

strong and

ury

banks of the

held by the re-

certificates and notes, and the

fully justified the lower

rates quoted in the open market

rates on the new offering. The successful

sale of the current offering of Treasury certificates
ready

over three times subscribed) is, in

helpful and

(which is al-

fact, one of the

constructive developments of recent

months,

as it does a somewhat lower level of interest rates and

most

indicating
better mar-

ket conditions for both Liberty bonds and Victory notes and other
high-grade securities.
It is not true, incidentally,
the lower

rates

are due

that

to the state

stated in your editorial.

"officials explain that

of the

money market", as

I understand that

this statement was

carried in the Associated Press despatches, but, as

is frequently

the case when "officials" are quoted, it was quite without founda-

tion and probably

represented

the views of the newspaper

writer.

No official statement was made except the formal announcement of

the issue, which was

published

without

comment.

In any event,

-3-

the "money market" should not be taken to mean the Gall money
market.

The rate on

Treasury issues does not

depend upon the

call money rate, and nowadays has but little relation to the
call money rate. The call money rate is determined by rather

different factors, and is no index to the

certificate

rate.

Very truly yours,
(signed)

Adolph S. Ochs, Esq.,

0/0 The New York Times,

Nel% York, IV. Y.

SPG:SMG

S. P. Gilbert, Jr.

THE UNDER SECRETARY OF THE TREASURY,
WASHINGTON

*c\C

November 3, 1921.

My dear Governor:

I received your letter of October

31, 1921, enclosing a copy of a letter of introduction Which you have given to Mr. Eigo
Fukai, Deputy Governor of the Bank of Japan.
I shall be glad to see Mr. Fukai and to ex-

tend to him every possible courtesy during
his stay in Washington.
Very truly yours,
-

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

C,)

i
,

1-1921

THE UNDER SECRETARY OF THE TREASURY
WASHINGTON

December 5, 1921.

Looi3

My dear Governor:
If you have

copy of the add

already seen it, the enclosed

ss of Sir H. Strakosh to the Second As-

sambly Commission o f the

League of

Nations on the work

of the Financial Committee, may be of interest.

It is

taken from the Financial News (London), of September 26,
1921, and contains a good deal of sound doctrine on the
question of "stabilization of exchange".

There is also

enclosed a copy of the recommendations of the International Financi"1 Conference at Brussels

to which referance

is made in the address.
Sincerely

yours,

Benjamin

Strong, Esq.,
Governor, Federal Reserve

lank,

New 'fork, N. T.

VA ,

144,14,1474$

2 enclosures

THE UNDER SECRETARY OF THE TREASURY
WASH I NGTON

December 7,

1921.

My dear Governor:

I am sending you separately a copy of the

Secretary's

Annual Report to Congress on the Finances,

Which I think you will find of real

Report

with its

interest.

exhibits gives a pretty

The

comprehensive

account of the activities of the Treasury during the
past year, and at the same time presents the Treasury's
views on the most important financial questions now pending.

I should be glad to arrange to furnish such addi-

tional copies of the Report as you may desire for the
use of your organization.
Very truly yours,

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

THE UNDER SECRETARY OF THE TREASURY

,c)

WASH IN GTO NI

December 11, 1921.

lily dear Governor:

I received your letter of November 1, 1921, with
the enclosed memorandum from Nfr. Francis Oakey and other corres-

pondence, as to the experience and qualifications of Mr. Thomas
R. Lill, who is an applicant for a post in the Philippines. I
have been glad to bring the papers to the attention of MajorGeneral McIntyre, Chief of the Bureau of Insular Affairs, within
whose jurisdiction these matters lie.

I understand that there

are still one or two vacancies in the Philippines, and that the
Secretary of War, who would make the appointments, has the matter under consideration.

I have asked General McIntyre to let

me know if any further information is desired.
Sincerely yours,

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

antrill^,:rrt"t7"11IX)
GOVERNOR's sEc'Y.

DEC 16 1921

ACRAMAI,FDCir-H)
THE UNDER SECRETARY OF THE TREASURY DEC 19 1921
WASH IN GTON

2,0°11
Decembe01, 1921.

tisli
Dear Governor Strong:
Referring further to your letter of November 1,,

1921, and my reply of December

14, 1921, concerning Nr.

Thomas R. Lill, I enclose for your information
a copy of

a letter of December

15, 1921, addressed

to me

LcIntyre.
Sincerely yours,

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

1 enclosure

by General

GOVERNOR

DEC

Ske

1921

coPY
WAR DEPARTMENT
Bureau of Insular
Washington

Affairs
December 15, 1921.

Hon. S. P. Gilbert, Jr.,
Under Secretary of the Treasury,
U. S. Treasury Department.
Dear Mr. Secretary:
I have your letter of December 15th, with in closures, from which it appears that Mr. Thomas R. Lill
wishes to be considered for the position of Auditor in
the Philippine Islands.
Mr. Lill was formerly in the Philippine service
and is certainly well equipped for this position. Unfortmnately, however, the position has but recently been filled;
the appointee, Mr. Edward M. Fullington, is just about arI am, however, taking the liberty
riving in Manila now.
of transmitting your batter, with its inclosures, to General
Wood, who might Later find that he can utilize Mr. Lill's
services in some appropriate capacity.

Very

sincerely,

(Signed) Frank MoIntyre,

FRANK McINTYRE,
Chief of Bureau.

The Undersecretary of the Treasury

JanuLly

Dear Mr. Lase:

I have receiveu your telegram of this date in which

you suggest that the Treasuly request the otner Federal reserve
banks to make arrangements for temporary advances tc aealers
against Victory notes on the same basis as against 1 .reasury certificates, anu think well of the suggestion.

I am asking Governor

Harding for a statement of the views or the Board before :actually

making such a request of any of the other Yeueral re serve banks.
Very truly yours,

(6ignea) S.

Mr. J. n. base,
Deputy Uovernor, Federal Reserve Bank,
New iork, A. I.

Gilbert, Jr.

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON
Stj1/4

February/6,

1922.

My dear Governor:

I have your letter of February 9,

Governor Van Zandt, and shall be glad to
be of service in the Philippines.

22, about former

Whether he could

yoI know,

the Treasury has

no control Whatever over Philippine fiances, and can only make

suggestions to the Secretary of

I gather that General Wood War./if

is attempting to carry out a fairlicomprehensive program of

banking and financial reform, but/the Treasury's information
comes chiefly from the newspape

and I do not know whether the

Bureau of Insular Affairs or tie Philippine Government expect
to take on any more expert aciVisers.

Mr. Van Zandt and shall be

I have a good opinion of

ad to stir things up a little and

let you know whether there is any possibility of using him out
there.

Very truly yours,

/
//

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

THE UNDERSECRETARY OF THE TR\ACS'UICRIFA7F4-42DC3E'D

FEB 1 8 1922

WASHINGTON

February 17, 1922.

Dear Governor Strong:

I think you will be interested in the
enclosed copy of a letter dated February 15, 1922,

which I have received from General McIntyre, as
to the possibility of using forrer-Governor VanZandt in the Philippines.
Sincerely yours,

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

(COPY)

ViIR DEPARTMENT

Bureau of Insular Affairs
WiLSRINGTON

February 15, 1922.

Hon. S. P. Gilbert, Jr.,
The Undersecretary of the Treasury,
U. S. Treasury Department.
Dear Mr. Secretary:

I thank you very much for your recommendation of Mr. Van zandt.

I shall take the

matter up with the Governor General ihmediately.

While we have no call on hand for a man in the
Bank, I should think that he could be used to
advantage.-

Very sincerely,
(Signed) Frank McIntyre
Chief of Bureau.

MC:e3Z1

ifft

;41104e"r7f:S 57.--C1

0414"ClIt

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192Z
fEti 1.8

t Obe

THE UNDERSECRETARY OF THE TREASUF
WASHINGTON

R 1 5 1922

T1 q.
March 11, 1922.

My dear

Governor:
Referring further to the possibility of an ap-

pointment in the Philippine Islands for Mr. Thomas R.
Lill, I enclose for your information a copy of a letter
of January 26, 1922, which I have received

from

the Bu-

reau of Insular Affairs of the Tar Department, addressed

to that Bureau by the

office of the Governor-General at

Manila in the matter, which is self-explanatory.

Very truly

yours,

S. P. GILBERT; Jr.,
Under Secretary.

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

1 enclosure

.S141 %II

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COPY

OFFICE OF THE GOVERNOR-GENERAL
of the Phillipine Islands.

Manila,January 26, 1922.

Sir:

Referring to indorsement from your office of December
15, 1921, transmitting a letter from Honorable S. P. Gilbert,
Jr., Under Secretary of the Treasury, U. S. Treasury Department,

recommending Mr. Thomas R. Lill for appointment in the Philippine
civil service, I regret to advise that there is at present no
suitable vacancy in which the services of Mr. Lill could be
utilized.

His application has been placed on file for future

reference.

Very respectfully,
(Signed)

C. W. Franks,

Secretary to the
Governor-General.

The Chief,
Bureau of Insular Affairs,
War Department, Washington, D. C.

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

MAY 12'
May 18, 1922.

Dear Governor Strong:

For your informatioVand referring further
to our previous correspondenc
subject, I enclose a copy
addressed to me by Geners

of last February on the
a letter of May 13, 1922,

McIntyre concerning the pos-

sibility of an appoints' nt in the Philippine National

Bank for former Gover or Van Zandt.
Sincerely yours,
if/

/
/,

-a...........""......1

S. P. GILBERT,Jr.,
Under Secretary.

Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
Nev York, N. Y.
1 enclosure

COPY

WAR DEPARTMENT
Bureau of Insular Affairs

May 13, 1922.

Hon. S. P. Gilbert, Jr.,
Under Secretary of the Treasury,
Treasury Department,
Washington, D. C.
Dear Mr. Secretary:

With reference to your letter of February 13th and my
reply of February 15th, last, in the interest of Mr. Van Zandt,
I regret very much to say that in a communication just received
from the Governor General of the Philippine Islands we are informed that there is at present no vacancy in the Philippine
National Bank to which this gentleman could be appointed.

His

name, however, has been placed on the waiting list, and he will

be promptly notified in the event his services can be utilized
at any time in the future.
Very sincerely,
(Signed)

Frank McIntyre,
Chief of Bureau.

THE UNDERSECRETARY OF THE TREASURY MY 2 5 19
WASHINGTON

May 20, 1922.

PERSONAL AND CONFIDENTIAL

My dear Governor:

I have your letter of May 19, 1922, as to the possibility
of the payment of interest by the British Government on its debt to
the United States Government.

As I understand it, the British bud-

get for the current fiscal year includes an item for the payment of
interest this year in October or November, and the Treasury's esti-

mates for the fiscal year 1923 have already taken this into account,
as you will notice from the enclosed copy of the Secretary's letter
of April 14, 1922, to Senator McCumber and the exhibits thereto attached.
for

Even with this interest there is a heavy indicated deficit

1923, and I do not see that this payment in these circumstances

would have much bearing on the bonus bill.
Very truly yours,

-7

S. P. GILBERT, Jr.,
Under Secretary.

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

1 enclosure

'gg

AYPJ

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

June 14, 1922.

PERSONAL AND CONFIDENTIAL

My dear Governor:

I received your letter of June 12, 1922, with,ref-

erence to the Federal Reserve Board.

I had already,poken to
,

the Secretary about Mr.

Howard, and understand that

he recommended him to the President.

I do

no/know
/

last week
exactly

what

the outcome will be, but I think that Howarel4would be a first-rate
//

man for the place and that

his appointmen,iwould be appropriate

from every point of view.

The

Farm B

eau Federation is by all

odds the best agricultural organizat/on and
the appointment of its head would
farmers throughout

the

I should think that

e exceedingly well received by

country./ From what I can learn I gather

that he would be willing to ac ept the appointment.
Very truly yours,

S. P. GILBERT, Jr.,
Under Secretary.

Ben,lamin Strong, Esq.,

Governor, Federal
New York, N. Y.

Reserve Bank,

HE UNDERSECRETARY OF THE TREASURY
WASHINGTON

June 22, 1922.
PERSONAL.

,
lk-t,14-

Ny dear Governor:

I received your letter of Jung 19, 1922, and
have sent to the Secretary your latter of the sane date
addressed to him, as to the organization of
Department.

the

Treasury

I know that the Secretary will appreciate

your letter, and that he is receiving similar letters from
a good many people, including sore of the Congressmen who
signed the petition.

The performances of last week have,

on the whole, been helpful, and the reaction to

the

Secre-

tary's statement has been so good that I hope the propaganda
for political appointments in the Treasury will now disappear.

Very truly yours

IL,

S. P. GILBERT, Jr.,
Under Secretary.
Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.

ACkNOWI,F1)0ED
THE UNDERSECRETARY OF THE TREASURYAIN
WASHINGTON

1922

June 26, 1922.

PERSONAL
My dear Governor:

I am quite definitely committed to a speech before the Montana,Bankers Association at its annual convention whidlbegins August 16th, and have been considering what subject would be most appropriate.

I am rather inclined to make some brief, but pointed,

remarks on the subject of agricultural credits, with particular
reference first, to constructive suggestions for meeting the
actual needs of agriculture, and, second, to some of the fantastic

theories now afloat, from Edison and Ford with their "energy
currency" to General Coxey and Senator Ladd, with their "free
money" theory of financing everything from the merchant marine
to the soldiers' bonus.

I should appreciate it if you would let me

know some time at your convenience whether you think it is worth

while to launch into a discussion of this kindand whether you
have any suggestions to offer.
Very truly yours,

S. P. GILBERT, Jr.
Under Secretary.

Benajmin Strong, Esq.,
Governor, FederaReserve Bank,
New York, N. Y.

THE UNDERSECRETARY OF THE TREASURY

AUG

WASHINGTON

July 22, 1922.

Ly dear Governor:

I had intended before this to thank you for your helpful letter of June 27, 1922, about my proposed Nontana speech. I

have not yet made up mu mind to do it, but probably shall WA, a
try at it if it turns out that I can get away from Washington for
the latter part of August.

A speech on the subject suggested

would, of course, involve controversial questions, but I doubt
if it would contain very much gunpowder even though pretty plain-

spOsen.
4.

Among other things, I have a theory that the people are

notVuch aYacik

of teals

as some of their self-constituted leaders

give them credit for, and that a little straight talk now and then
is not at all out of the way.
Very truly yours,

S. P. GILBERT, Jr.,
Under secretary.

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

1922

.114

,25

1922

DV
GOYEIN0818

RECEIVED

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

JUL 31
CONFIDENTIAL.

July 27, 1922.

Ivjy clear Governor:

I have received your letter of July 26, 1922, and am
glad to have the unclosed
ings from the

statement showing

the amount of borrow-

Federal Reserve Bank of New York by weeks from

November 30, 191, to date, divided so as to show

meMber banks, loans to all New York

loans to all

City banks, and loans to so-

called Wall Street banks.
I hope that this statenent,

giving daily figures as to borrowings

together
from

with the statement

the Federal Reserve

Bank of New York, will dispose of the misunderstanding

that has

been created.
Very truly yours,
f*-

S. P. GILBERT, Jr.,
Under Secretary.

Benjamin Strong, Esq.,
cio Federal Reserve Bank,
15 Nassau Street,
New York, N. Y.

AI GUMMI

AIDS MION113ACO

c)
_

GOVERNM

- RECEIVED Irt

'JUL 29 -5323

July 27, 1922.

Dear hr. President:

In view of our conversation of the other day I am enclosing for your information copies of (1) a statement showing
borrowings from the Federal Reserve Bank of New York by weeks
from November 30, 1921, to July 19, 1922, arranged so as to show
borrowings by all member banks, with separate figures for New
York City banks and Wall Street banks, and (2) a statement showing daily borrowings from the Federal Reserve Bank of New York
from November 3, 1921, to July 24, 1922, giving only the figures
for borrowings by Wall Street banks.

These statements indicate

the downward trend in borrowings from the Federal Reserve Bank
of New York and show that there have been many days within the
last few months when there were no borrowings whatever from the
Federal Reserve Bank by the so-called Gall Street banks.

Bor-

rowings from the Federal Reserve Bank of New York are, generally
speaking, at an unusually low point, and this reduction in loans
has been a matter for much comment in financial circles.
The so-called Wall Street banks, which make loans to
stock exchange brokers, had substantially liquidated their borrowings at the Federal Reserve Bank some months ago, and their

- 2 -

liquidated condition was among the most important developments

which enabled the 2ederal Reserve Bank last month to reduce its
discount rate to 4 per cent.

There are, of course, fluctuations

from time to time in the amount of their borrowings, as appears
from the enclosed statements, but these fluctuations have been due
largely to seasonal requirements, as for example, unusual currency

demands for over holiday periods, to special movements of deposits
to and from the interior, and to temporary requirements arising
from the financing of large security issues or Treasury withdrawals.
As a matter of fact, Wall Street banks have surplus reserves on deposit with the Federal Reserve Bank almost as frequently as they
have loans at the Federal Reserve Bank.
Faithfully yours,

(Signed) A. W. Mellon
Secretary.

The President,
The qhite House.

2 enclosures.

THE UNDERSECRETARY OF THE TREASURAG 3... 1922
WASHINGTON

August 1, 1922.
CONFIDENTIAL

Ildy dear Governor:

I received your letter of July 31, 1922, with
further reference to

borrowings

from the Federal Re-

serge Bank of New York, and am glad to enclose for

your information in this connection a copy of the Sec-

retary's

letter of July 27,

do not see any

1922, to the

President.

reason why this should not remove the

misapprehension that was created as to the situation
in New York.

Very truly yours,

S. P. GILBERT, Jr.,
Secretary.

Under

Benjamin Strong, Fsq.,
Governor, Federal
New York, N. Y.

1 enclosure

Reserve Bank,

4.4

YOE'S

THE UNDERSECRETARY OF THE 'TREASURY
WASHINGTON

august 3, 1922.

CONFIDENTIAL

My dear Governor:

acknowledge with thanks the receipt of your letter of
August 2, 1922, with the attached

release from

the Cope News

Dervice, with respect to the activities of Mr. Gaston B. Means.
I had

already

attention.

received a copy of this release and it is having

Means, as you know, has a long and juicy

history.

Very truly yours,

S. P. GILBERT, Jr.,
Under Secretary.

Benjamin

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

AUG 4 - Rec'd

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

August 5, 1922.

My dear Governor:

I received your letter of August 3, 1922, with respect
to the discount rate at the Federal Reserve Bank of New York and
the investment policy of the

bank.

I am

bringing your letter to

the Secretary' s attention.

The investment ac count of the Federal Reserve Banks, part icularly the Federal Reserve Bank of New York, now seems to be
well in hand, and, properly administered, o ffers a relatively effective

means of steadying the money market and mitigating the evil influences of the large imports of gold. I think that the program which
the Federal Reserve Bank of New York is carrying out is fully understood at the Treasury, and that you have nothing to fear in so far
as the Treasury is ccmcerned.

I cannot say as much for the man

who appears to be the leading possibility for appointment as Governor
of the Federal Reserve Board in case Governor Harding should not be
reappointed.

If anything' like that should happen I think that the

Secretary and I will have to begin attending meetings of the

Federal

Reserve Board.
Very truly yours,

Benjamin Strong, Esq..,
cio Federal Reserve Bank,
15 Nassau Street,

New York, N. Y.

ia_77)
S. P. GIIBB.RT, Jr.

Under Secretary.

c.D

0fr'N

COVLfiNOirS6EtrY

.'ctivED

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

August 5, 1922.
PERSONLL.

Ey dear Governor:

I received your letter of August 4, 1922, and
thank you for sending me the enclosed gemarandum

on the general subject of inflation. This memorandum will be helpful in connection with my Lontana

speech, if I should finally decide to make it. I
do not propose in aay event to be drawn into a discussion of Treasury policy during 1919-1920.

Very truly yours,

3S. P. GlIEFRT, Jr.,

Under Secretary.

Benjamin Strong, Esq.,
c/o Federal Reserve Bank,
15 Nassau Street,
New York, N. Y.

".1_ 61/4

'VAN

-1.

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

August 10, 1922.

Dear Hr. Case:

I acknowledge with t auks the receipt of your
letter of August 9, 1922,

whereabouts of Mr. Charle

regard to the present
N. Fowler.

Very truly yours,

S. P. GILBERT, Jr.,
Under Secretary.

J. H. Case, Esq.,
Deputy Governor,
Federal Reserve Bank,
New York, N. Y.

A C7<NOWLEDGED
THE UNDERSECRETARY OF THE TREASUM 2 4 1922
WASHINGTON

S,
,August 21, 1922.

248.80NAL AND CONFIDENTIAL.

Ey dear Governor:

Did you see the item entitled "Orissinger
for Reserve Board" which appeared in the New York

Tribune for Friday, August 18th, on the financial
page.

I am afraid this will be taken as represen,

tative of financial sentiment in New York.

Very truly yours,

S. P. GILBERT, Jr.,
Under Secretary.

Benjandn Strong, Esq.,
c/o Federal Reserve Bank,
15 Nassau Street,
New York, N. Y.

38 NV
jr/Pii,f7

ja9
tia C3L1:12D.

IV:SS

ft,

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

August 25, 1922.
PERSONAL AND CONFIDENTIAL

My dear Governor:

I received your letter of August 24, 1S22,
with reference to the Federal Reserve Board.

The

matter is not yet settled and I think that the publicity of which you speak is mostly of the trial
balloon variety.
Very truly yours,

S. P.1GILBERT, Jr.,
Under Secretary.

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

c=t;
ettl,

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t
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,RY OF THE TREASURY
INGTON
..."Zerwoe-Xletioe,./

September 21, 1922.

MEWL.

Ly dear Governor:

This will introduce to you

Mr. Oscar B. Pollak,

Lbnaging Director of the 71ener Bank-Verein, and Mr.

Rudolf Hahn of the Foreign Department of the save bank,

Who called on me to-day with a note from

a friend of mine

who has spent several years in Austria.

Director Pollak

negotiate a settleof the krone liabilities of Austrian banks to American

is in this country chiefly in order to
ment

banks, and I think you will be interested not oily in what

he has to sey on this
the general

matter but also in his comnents on

situation in

.austria.

Very truly yours,

Benjamin Strong,Zsq.,
cie Federal Reserve Bank,

15 Nassau Street,
New York, N. Y.

Do D

THE UNDERSECRETARY OF THE TREASURY

P 2.9

WASH I NGTON

September 26, 1922.

PAESS21.14.

lily dear Governor:

I received your letter of

September 25, 1922, and am glad

to know about your talk with Mr. Pollak of the Wiener Bank-Verein.
I hope that hr. Pollak has gotten out of his head the idea that his
proposals
ities of
tion.

to American banks

the

Austrian banks

for

the settlement of

need

the krone liabil-

to have some sort

official sanc-

These settlements are, of course, matters for private nego-

tiation, with WhiCh the Treasury is not concerned,

this to Nr. Pollak when

he called

at the

and I

explained

Treasury, though I felt

when he left that he still harbored some illusions on
I am trying now to find out from the

Alien

the

subjeot.

Property Cus-

todian What portion of the money and property held in his custody
represents Austrian assets as distinguished

from German assets.

This may be difficult to determine, but it seem to me that it might
be helpful in this situation, particularly in working out possible
measures for the relief of Austria, to know as nearly as possible
what Austrian assets are

impounded in this country.
Very truly yours,

Benjamin Strong,Lsq.,
cio Federal Reserve
15 Nassau Street,
New York, N. Y.

Bank,

156,
S. P. GILBERT, Jr.,
Under Secretary.

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THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

October 2, 1922.

PERSONAL AND CONFIDENTIAL.

My dear

Governor:
I have your latter of September 29, 1922, with further refer-

ence to the efforts of Er. Oscar Pollak to settle the liabilities of
the Austrian banks to banks in this country.

I imagine

is soneWhat confused, but

The situation at present

that the Mixed Claims Commission,

to bear claims against snow governments, may thrOir sons liot on

the

chances of a settlement through the Depart:I:Emir` of State or the Alien

Property Custodian.

I am not myself a believer

the theory embodied

in the Treaty of Versailles, that the assets of individual citizens
of enemy governments Should be made subject to claims against the
°new governments themselves, and itt has not been the traditional
I do not know

policy of this Goverment to proleed on any such theory.
what will be done in the

exist

g situation, and that is

a question which

Mr. Pollak and others intereted should pursue through the Department of

State and the Alien

Prepert/ Custodian rather than through the Treasury.

As I understand it, moreover, the claims which Er. Pollak is endeavour'

'ing to settle are not elq.ms against the Austrian Government but claims

against Austrian banks. /The Trading-with-the-Enemy Act already provides
madhinery whereby creditors of persons whose assets are impounded in
the hands of the Alien Property Custodian may proceed against the money

or property held by

th4

Custodian in order to obtain satisfaction of

their claims.
Very
Benjamin Strong, Esq.,(
Governor, Federal Reserve Bank,
New York, Y. Y.

ruly yours,

1..

F. P. GliRT, Jr,
Under Secretary.

'1 iskti lArt.

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THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

r-4

October 17, 192.

PERSONAL AND CONFIDENTIAL

1 19 1922

My dear Governor:
I he assumed, from some of our recent

correspondence

about holdings of Government securities by the Federal
Banks, that the Federal Reserve Bank of Naw York was

a higher buying

rata on

bills

I notice from the
Federal Reserve Banks that a
holdings of

purdhased

Reserve

considering

in the open market.

statement of the

large part of

Government securities is being

condition of the

the

liquidation in

offset by purehaaes

of bills, which suggests the question as to how far this too

may be
might

artificial add that with

be advisable

to mark

changing money conditions it

up the rate.
Very truly yours,
..077

451.1
S. P. GILBDiT, Jr.,
Under Secretary.

Benjamin

Strong, Esq.,
cio Federal Reserve Bank,
lb Nassau Street,
New York, N. Y.

AU 3HT

11-4,

icaa
stx

to.t

.1-.

taw.,

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

october 20, 1922.

hy dear Governor:

received your letter of October 19, 1922, and note
with interest that you have been gradually

ing rate on bills purchased in

increasing

the open market.

your buy-

The change to

per cent I imagine came on the very day of my letter of Oct-

ober 17th, and I should think that the result would be a better
distribution of bills in the market.

I expect to be in Jashington all of next week, and am
looking forward to seeing you toward the end of the week.
Secretary will be

here

The

at least until Friday afternoon, and I

hope there will be opportunity for a long talk with him.
Very truly yours,

L-:71

S. P. GILBERT, Jr.,
Under Secretary.

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

441110

7.1g7.51.7
°

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r)c;r0PE;

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

October 23, 1922.

My dear Governor:

I have been trying to get some information as to the Austrian
property held by the Alien Property Custodian, but without much
success.

It appears that the total Austro-Hungarian property in the

hands of the Custodian amounts to about $24,600,000 (as against
about $274,600,000 of German property), but the Custodian has no
way of telling the present citizenship of the owners and is therefore unable to determine how much of the Austro-Hungarian property
belongs to citizens of Austria as at present constituted and how
much to citizens of the succession States.
Very truly yours,

S. P. GILBERT, Jr.,
Under Secretary.

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

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

'4()V/T,
CONFIDENTIAL

November 1, 1922.

NOV 3

1922

R
My dear

Governor:
I received your letter of October 27, 1922, and have bean

interested to know that the market rate for bills is now squarely

four per cant. I take

it from the reports that this is bringing

about a better distribution of the bills in

the

market.

As for

the

discount rats I think that the pressure which is being applied through
the liquidation of Federal Reserve Bank investments in Government

even

securities is proving
discount rate since it

more effective than any change in the

reduces the supply of

money

in the

market

and incidentally makes the existing discount rata more effective
than it has been in the past.

The Secretary and I both think that the best way to handle
the McAdoo speeches is to ignore them.

Reserve Board both'want

to keep

out of

The Treasury and the Federal

politics

and I can see

nothing but trouble in starting a political controversy with McAdoo

about matters upon
responsibility.

which he can now speak politically and without

There is certainly no point in starting a McAdoo-

Mellon controversy as a companion to the Harding-Heflin controversy.
In so far as the politics of the business is concerned, the
Republican National Committee has already issued a statement in
answer to

McAdoo, entitled "W.

G. McAdoo Convicts Himself of Down-

right Misrepresentation", a copy of

which is enclosed for your

-2information. The liscussion is pretty much
seems to be characteristic

political

in the air, but that

discussions.

Very truly yours,

S. P. GILBERT, Jr.,
Uhler Secretary.

Benjamin Strong, Esq.,

c/O Federal Reserve Bank,
15 Nassau Street,

New York, N. Y.

1 enclosure.

SIMINNiumnuippor

carmaiair-ar

W. G. MCADOO CONVICTS HIMSELF OF
41.
DOWNRIGHT MISREPRESENTATION
Charges Made at Butte, Montana, Regarding Deflation of Farm
Prices Given Lie by Article Which He Himself Wrote in December, 1920, Blaming Federal Reserve Board of That Time With
Ruining Farmer.
William G. McAdoo,
former Secretary of Treasury, in a recent
speech at Billings, Montana, was quoted by the
Associated Press as follows:
WASHINGTON.

"The reduction of farm credits by the present administration in cooperation with the
powerful influences of Wall Street and the
"blighting effects of President Harding's policies of deflation" have reduced the country
"from a condition of unexampled prosperity
to a state of appalling disaster."

The Associated Press report of Mr. McAdoo's
meeting states:
"Mr. McAdoo asserted that the restriction of
farm credits under the Republican administration had forced the sale of farm products and

live stock to such an extent that the value of

those products for the entire country have
been reduced from $14,000,000,000 in 1919 to
$5,700,000.000 in 1921."
It has been repeatedly shown from the

get his crop to market at the times when he
can sell advantageously, and he must have
sufficient, convenient and reasonably cteap
storage facilities for the conservation of his
crop while waiting for a favorable market.
"It is in the highest degree to the interest
of the people as a whole that the farmers
shall have these facilities and opportunities
so that speculation and greed may not thrive
on his misfortune, on the one hand, and that
the consumer may not suffer the extortion of
profiteers on the other.
"When colossal losses like those the farmers
are now sustaining overtake them, every line
of industry suffers, factories close, business
shrinks, labor is thrown out of employment,
and confidence is seriously shaken.
"We are already experiencing these unhappy
consequences.
"Of course, prices in the United States could
not be kept permanently on an inflated and artificial basis. Deflation was necessary and inevitable, but the processes of deflation are frequently more dangerous than the processes of
inflation. It is easier to 'climb a tree than
to come down. For this very reason the re-

records that the policy of deflation of farm
credits was a policy put into effect by the
Federal Reserve Board when that Board was
under the complete domination of the Democratic administration,when every member of
the board except one was a Democrat. During adjustments through which all industry and
the period when farm credits were probably business are now going must be dealt with
subjected to the mose severe defiatiot; that is, intelligently and eased in every reasonable way.
the period January to March, 1920finclusive, It is the imperative duty of those in civil authe membership of the Federal Reserve Board thority and of those who control credit to exercise their powers so as to prevent needless
was solidly Democratic.
The deflation of farm credits had been com- distress and preserve confidence.
pleted by the time the Republican adminis- "I am frank to say that I think that the
tration came into power in March, 1921. The policies thus far pursued with respect to credshrinkage in value above referred to by Mr. its have been too orastic, but whether or not

GREAT SAVINGS MADE BY
POSTAL DEPARTMENT IN

THIS ADMINISTRATION
Deficit Reduced 20,000,000 by Introduction
of Business Methods
WASHINGTON.

No department of

government is as close to the people as
Post Office department. It is the largest t

ness department within the government.
that reason its expenses have always beer..
ceedingly high. The memory of man runneth

not back to the time when there was not a
deficit in the Post Office department. Up

until the present administration took charge,
there was little or no effort made to keep this
deficit within bounds. In this regard the Post
Office department was no different from other
departments, where the incurring of deficits
was considered to be quite a routine thing.
Under this administration, the Post Office
department, in common with all other executive agencies of the government, has made
strenuous efforts to reduce its operating expenses. It is gratifying to know these efforts
have been crowned with success. The reports
of the Post Office department show the deficit
for the year ending June 30, 1922, was $21,000,000 less than the Post Office deficit for
the year ending June 30, 1921.
The public may be interested in knoN
how some of these savings were aceomplis
They were made through the introductic
business methods in government and ir
other way. The Post Office department, u
the present administration, reorganized 11"
the largest postoflices in the country, u_

conduct 65 per cent of the total postal business.
In one of these offices alone the reorganization
affected an annual saving of $300,000 with"''
impairing in the least its service.
Another saving has been accomplishe'
the decentralization of administrative v
I am right, I am sure that the situation should Everything that,can be done within a stat
now be reviewed in the light of existing condi- postal business of that state is done
tions. A more liberal policy about credits Formerly, a postmaster, whether 25 m
should be put into effect immediately. I think 2500 miles from Washington, sent all
that the reserve bank rates could be prudently qutries, complaints, etc., to
reduced, awl that member banks could be headquarters. This required the maim.
i.afely encouraged to snake loans on agricul- of a tremendous overhead at Washingto,
tural products and to business generally on having this work at state centers withou
reasonable thue to those who can give ade- increase in expense there, the Post Office
quate security, and that the whole situation partment has been able to release 740
would be beneficially affected by this procedure. ployes at Washington. This reduction in p.
"Every intelligent person sympathizes with roll, accompanied by other overhead redt
the effort to prevent speculation and the use tions, save over $1,000,000 in the last year.
of credit for purposes not beneficial to the Another business method which was introgeneral interest, but a wise discrimination duced was in the purchase of supplies. Sur,
should be exercised, and certainly the primary plies were standardized, unfavorable contra,
producer like the farmer should not be forced' were abandoned, and other innovations inauf
rated which reduced the operating expense,
to bear the brunt of the sacrifice.
"In many parts of the country, especially in the supply department over $1,000,000.
the agricultural districts, credit is almost en- this connection,- the government cancelle
tirely wanting, and in many lines of legitimate long-time contract for stamped envelopes k
business and industry great losses are being entered into a new contract which resulted in IP
sustained because of the restriction of credits. a saving upon that item alone of $6,276,000.
"The point I wish to impress is that deflaBy reorganizing and systemizing railway mail
tion has been carried so far and with such service, a saving has been accomplished in that
rapidity that we must now reconsider the sit- branch which will amount to $785,000 without
uation, snake an effort to prevent further dis- impairing in the least the quality of the service.
tress and suffering, and bring about a revival These are but few of the illustrations of how
of industry and confidence."
the Post Office department in the present administration has cut its expenses $20,000,000 a
year merely by the inauguration of business in
POSTAL EMPLOYES MAY ENJOY
LOCAL AND STATE HOLIDAYS government, an inauguration which was made
without the enactment of a single new law by
WASHINGTON.
-A sweeping order
Previous Post Office administragiving postmaeters in every town and city in Congress.
could have done the same had they been
the country authority to release postal workers tions
so disposed and possessed of the business
from their duties in case of total or partial ability
to put the changes into effect.
suspension of business in their particular communities on account of local or state holidays
has been issued by Postmaster General Work. LABOR OF ALL KINDS IN GREAT
The order is unprecedented in the history
DEMAND IN ALL SECTIONS
of the Post Office department. At present only
national holidays are observed throughout the WASHINGTON.
According to reports
postal system of the United States. In case of received at the United States Employment
state or local holblays, which sometimes run Service, there is an actual shortage of common
as high as fifteen and twenty a year, postal em- labor in practically every section of the connployes have been compelled to remain at their try, and a demand for skilled labor that equals
places of work although little or no service is the supply. In the Igew England states the
required of them. The new order eliminates labor shortage is very pronounced, as is the
the unnecessary detention of workers when shortage of farm labor in the middle Western
stores and business houses are closed for these territory. The reports show that for the
occasions and business is suspended in their month of September 31 out of 42 basic induscommunities. Thousands of postal employes tries reported an increase in the number of
are expected to be released from their duties employees and 29 of the 42 reported increase
upon various days during the year as a result in the amount of payroll as compared with
of the order.
the month of August. It is no exaggeration to
say that there is a job at good wages for every person who is willing to work. In fact,
CORRECT DEFINITION
no time since the peak of employment durMr. Cox on his return from Europe says he at
the war period has labor been at such
found the league of nations "a working force.' ing
demand
and at such high level of wages.
The home brewer would say at once that

McAdoo was an accomplished fact by March,
1921. The agricultural sections of the country
were facing bankruptcy in March, 1921. From
that month on, the situation improved.
However, the best testimony to give Mr.
:Sic.Adoo s Montana speech the lie is an article
which Mr. McAdoo himself wrote under his
own signature in December, 1920. It appeared
in the "Manufacturers Record" published at
Baltimore, Maryland, in the issue of December
23, 1920. At that time Mr. McAdoo said, under
his own signature, that the farmers "are now"
suffering collossal losses as a result of the
too drastic deflation which had been put into
effect by the Federal Reserve Board. At that
time, Mr. McAdoo said: "In many parts of the
country, especially in the agricultural districts,
credit is almost entirely wanting" and "great
losses are being sustained because of the restriction of credit."
Mr. McAdoo in this avticle said he thought
the Federal Reserve Bank rates should be reduced. They were not reduced, however, until
the Harding administration came into power.
At that time the Federal Bank discount rate
was 71/2 per cent, to which it had been raised
by the Federal Reserve Board under Democratic domination. Immediately after the
Harding administration came into power, the
first reduction in this discount rate was made
and it was steadily reduced until it reached
the present rate of 41/2 per cent. This was the
rate in December, 1919, when the Democratic
Federal Reserve Board began to increase the
rate in order to force deflation. The article
which Mr. McAdoo contributed to the "Manufacturers Record" December 23, 1920, in which
he gives the lie direct to Mr. McAdoo's speech
in Montana October 18, 1922, is as follows:
"As I see the situation, the country cannot
look with indifference upon the distressing
situation in which the farmers find themselves
because of the tremendous shrinkage in the
value of agricultural products. We cannot
excuse inaction nor dismiss the matter with a
mere observation that deflation is necessary
and that farmers must take their medicine
along with the rest of the country.
"The farm industry is basic to the life of the
nation and possesses a superior claim to consideration, not alone because its prosperity is
our best protection, but also because the
fa rmer, by the very nature of his business, is
more exposed to adverse influences and has less
protection against them than any other class.
The bulk of his crop matures at the same time
and if forced upon the market all at once
a short period he may not realize even
nst of production.
have a chance to make a fair profit he
must have a credit to carry his crop for a
reasonable time. He must have ample, eco- "Jimmie" is right; it's all a ferment.Sioux
nomical and prompt railroad transportation to City Journal.

Ok)
THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

November 4, 1922.
CONFIDENTIAL

My dear Governor:
I received your

further reference to
Reserve policy.

letter

of November 3, 1922, with

possible statements about Federal

I think you !May

there will be no statement,

safely assume now

that

official nature on this

subject, apart from the Apolitical statements that have

already been made.

Very

truly yours,

S. P. GIL ERT, Jr.;
Under Secretary.

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

-01

; rot
feEllr CV r6vi

tc:ArN.V

(z.z

;

THE UNDERSECRETARY OF THE TREASURY
WASH I NGTON

December 6, 1922,

Dear Governor Strong:

I received

your letter of November 29, 1922, concerning

the income tax returns of your physician, Dr. George D. Stewart,

and have beai glad to speak to Commissioner Blair about the matter.

The Commissioner has handed me a memorandum in the case in

which he states that it

is in process of audit, based on a

supplemental report received from the Supervising Internal Revenue
Agent at New York, N. Y.

that the tentative net result indicates

an overassessment of approximately $5,000.00, and that the certificates of overassessmant will go forward for schedule about
the 8th of this month."
I trust that this will be a satisfactory settlement of
the matter.

Sincerely

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

yours,

/NT: II 110M-94I

FEDERAL RESERVE B
OF NEW YORK

WIRE TRANSFER
DIVISION

PRIVATE WIREINCOMING
1030d c

Waehn DO 110p 13

6trong

I have your telegram of today, about Ploward, which I have passed on to the

Decretary for his information.

Gilbert
120p

FORM 41-3

60M

4-10-22

B-18685

FEDERAL RESERVE BANK OF CHICAGO
ORIGINAL

I NCOM ING

247bdb

(511-'

ffngton

enjamin Strong,

Care F R B Chicago care MO)
I understand you are plannink; to leave Chicago on friday December 15th. Could you

conveniently

return via 7,Tashington?.

Gilbert

29p

BOX

ChiAGO

'3)"3"VVE

1922 Am

I IJEC

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

PERSONLL MD CONFIDENTIAL.

January 6, 1923.

Dear Governor Strong:

I see from the Journal of Commerce of this morning that
the Treasury is now the chief devil in the Federal Reserve Board
situation.

In case you do not know this, read what Dr. Willis has

to say on the subject in his leading editorial entitled "Financial
Leaderahilr, as follows:

"What are those conditions? Certainly not the meager salary
that the places carry. The attraction of the work is found in
the capacity to be of service, and that capacity will be granted
only when our banking system is unshackled from the political
side of government and especially from the Treasury Department.
This is not because the Treasury is bad or its officials open to
criticism, but because they are political appointees who necessarily and properly have their eyes on political conditions. The
dictatorial attitude which they have assured toward our banking
system from its inception, entirely regardless of party, cannot
be endured. It must be ended if the nation expects to get able
and independent men of high quality as members of the Federal
Reserve Board, or indeed as bankers under the direction of that
Board.

These are the facts in the situation.
It is a case which
has nothing whatever to do with the old controversies of "money
trust," sectional prejudice, agricultural credit, or any of the
others that have so long furnished party or class cries calculated
to obscure the situation and to conceal the real issues at stake.
There is no issue except that of the financial headship of this
nation. We have the greatest resources in the world, and hence
the greatest financial responsibilities. We need the best ability
to bear them and to Shape our conduct along national and international lines. How can we get it?
The country calls for and demands the selection of capable
financial minds to tae charge of our banking system and to operate it in the interest of the whole community. That is the entire
issue now involved in the Federal Reserve controversy."

I cannot escape the feeling that Dr. Willis is really

2 -

complaining that he is no longer attached to the Federal Reserve
Board, and that, incidentally, he rather suspects me of having had
something to do with the severance of that connection.
Very truly yours,

5-x
S. P. GILBERT, Jr.,
Under Secretary.

Benjamin Strong, Esq.,
cio Federal Reserve Bank,
15 Nassau Street,
New York, N. Y.

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THE UNDERSECRETARY OF

WASHINGTON THgLLaliptfUltp 4

Jahua
!"1-P.4921923.'A

41actu

RESERVE

OP NEW Vat,

Dear Mr. Case:

I am enclosing my personal check pay-

able to the order of the Federal Reserve Bank
of New York in

the amount of 411.89 to

cost of the railroad and

obtained for me on

lman tickets you
15, 1923.

Many thanks

in!

Very truly yours,

45-14

J. H. Case, Esq.,
Deputy Governor,
Federal Reserve Bank,
New York, N. Y.

1 enclosure.

cover the

IMMEDIATE RELEASE.

February 2, 1923.

The Funding Commission met this afternoon to consider the final details of
the proposed plan for funding the debt of Great Britain to the United States.
Ambassador Geddes was present.
The Commission decided to make the following recommendation to the President as a basis for settlement which it is understood will be accepted by the
British Government:
SUMMARY

Principal of notes to be refunded
Interest accrued and unpaid up to December 15, 1922,
at the rate of 4 1/4%
Deduct payments made October 16, 1922, and November 15,1922,
with interest at 4 1/4% thereon to December 15, 1922 -

*4,074,818,358.44
629 836 106.99
*4,704,854,465.43
100 5262.379.69

$4,604,128,085.74
4,128 085.74

To be paid in cash
Total principal of indebtedness as of December 15, 1922, for
which British Government Bonds are to be issued to
the United States Government at par,
*4,600,000,000.00

The principal of the bonds shall be paid in annual instalments on a fixed
schedule, subject to the right of the British Government to make these payments
in three-year periods.

The amount of the first year's instalment will be

$23,000,000 and these annual instalments will increase with due regularity during
the life of the bonds until, in the 62nd year, the amount of the instalment will
be $175,000,000, the aggregate instalments being equal to the total principal of
the debt.

The British Government shall have the right to pay off additional amounts
of the principal of the bonds on any interest date upon 90 days previous notice.
Interest is to be payable upon the unpaid balances at the following rates,
on December 15 and June 15 of each year:
semi-annually, June 15, 1923 - to December 15, 1932, inclusive,
3%
"
3 1/2%
"
"
1933 - until final payment.

For the first five years one-half the interest may be deferred and added to
the principal, bonds to be issued therefor similar to those of the original issue.

Any payment of interest or of principal may be made in any United States
Government bonds issued since April 6, 1917, such bonds to be taken at par and

accrued interest.

COPY

d19

THE UNDKISECRETARY OF THE TREASURY
WASHINGTON

February 6, 1923.

PERSONAL AND CONFIDENTIAL

dear Governor:

I am enclosing for your ready reference a copy of the public state-

ment released on February 2, 1923, summarizing the plan for the funding of the
British debt to the United States.

As you will notice, this summary includes

several terms which are designed to give some flexibility to the payments and

protect the exchangesagainst undue fluctuation, including particularly the provision for paying up to one-half of the interest for the first five years in bonds,
the provision for making payment of either principal or interest in obligations

of the United States issued since April 6, 1917, and the provision for making
amortization payments in 3-year periods instead of strictly on an annual basis.

In the course of the negotiations, and particularly since the acceptance
of the plan by the British Cabinet, there has been some consideration given by
both sides to the possibility of additional provisions to protect the exchanges,

along the lines of arrangements for the deferment of payments of interest by the
British if sterling is at too great a discount, and for the acceleration of payments of principal in case the dollar goes to a discount.

I am personally con-

vinced that for our own Protection against future eventualities, as well as in the
interest of stability of the exchanges between this country and Great Britain, it
is necessary to include some such arrangements in the plan as finally adopted,

and I have suggested some general provisions along these lines for incorporation
in the agreement.

This part of the plan, however, has not yet reached the final

stage and will be more or less open to negotiation at least until the final adop-.

- 2,-

tion of the agreement by the two Governments.

I an wondering whether in the

meantime you have any specific suggestions as to what the terms of such an
arrangement should be, or any suggestion as to any better arrangements that
might be included in the agreement for the purpose of protecting the exchanges.
I hope to see you on your way up from the South and to have an opportunity then
to discuss the matter, but what I need most of all are concrete suggestions, in

the

all necessary detail, as to the terms that might actually be incorporated in
agreement.

Generally speaking, of course, these terms ought to be as simple as

possible, for at the best it is almost impossible to get people to understand
matters of this character, and any elaborate scheme would destroy itself.

Back

in 1920, as you will see from the discussion on pages 61 to 65 of the Annual Re-

port of the Secretary of the Treasury for 1920, the problem involved had some
consideration, but I doubt if the provisions there suggester2 fit the present
situation.

The most likely provision is that appearing at the end of the para-

graph which ends at the top of page 63, but that, among other things, would apply
only against the debtor, and I imagine that if any arrangement at all is to be
made the British would naturally expect to get some reciprocity.
Very truly yours,

(SiD3ed)

S. P. Gilbert, Jr.
S. P. GILBEHT, Jr.,
Under Secretary.

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

1 en C losure

Form. 1204
CLASS OF SERVICE SYMBOL

CLASS OF SERVICE

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1_appears after the check (number of

words) this is a telegram.

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wise its character is indicated by the

symbol appearing after the check.

NEWCOMB CARLTON, PRESIDENT

GEORGE W. E. ATKINS, FIRST VICE-PRESIDENT

appears after the check number of
words) this is a telegram. Otherwise its character is indicated by the
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RECEIVED AT

41AZ KD 14 GOVT

WASHINGTON DC 653P FEB 7 1923
BENJAMIN STRUNG

ON AIR AUGUSTA GA
YOUR TELEGRAM RECEIVED L. I THER MIDDLE OR END OF NEXT WEEK WILL BE
QUITE SATISFACTORY

(ilLBERT
715PM

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

February 27, 1923.

My dear Governor:

I received your letter of

the

February 26,

P23, concerning

delay in the receipt of my letter to you of February 22, 1923,

about the British debt agreement.

appear0

that

this delay was

caused by the fact that the registry divi4ion of the

Washington

Post Office was closed on the afterno0 of February 22nd and the
letter was held
that it might

over until Friday ndrning, February

o forward registered.

23rd, in

order

As to the condition of the

gum on the envelope, this is one of the unfortunate economies to
which we are sub!!ected by the Bureau of the Budget.

Very truly yours,

S. P. GILBERT, Jr.,
Under Secretary.

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

April 17, 1023.

To
J. H. Case, Fed. Ree. Bank, N. Y.

Hope Central Committee can get further liquidation of certificates this week
difficult to tell at this distance but last Federal Reserve statement makes
it look like good time for further progress.
Gilbert.

S. P. Gilbert, Jr.,
Grove l'ark Inn,
Asheville, N. C.

April 17, 1923.

Fully agree with your suggestion and advanced this idea at Philadelphia
meeting Friday.

For reasons stated my letter sent you yesterday members

felt inadvisable to sell in present market but agreed to permit you as,
if, and when wanted to lift all September maturities at par and interest.

This will accomplish same purpose and I urge upon you desirability of
accepting this offer for consummation tomorrow.
J.H.

Answer.

Case.

J. H. Case, Fed. Res. Bank, N. Y.

April 17, 1923.

Telegram received balances will not permit advance redemption September
maturities this Wednesday will consider for later this week but in
meantime cannot you try some sales in the market.

Gilbert.

WIRE TRANSFER
DIVISION

W. T. II. 1-15M-11-21

FEDERAL RESERVE BANK

OF NEW YORK(}/)

"-TELEGRAM

DECODED

COMMERCIAL WIREINCOMING
ATTENT,ON

CHECKED

J H Case

COMPANY

21:R4N3CIA.14I114 COPY

W U

Asheville N Car
Apr 19, 1923.

Federal Reserve Bak,

N. Y.

Am arranging to redeem September certificates next Tuesday and will shortly send
out general telegram to this effect

Gilbert

05286

THE UNDERSECRETARY OF THE TREASURY
WASHINGTON

April 24, 1923.

My dear Governor:
I received your letter of April 16, 1923, with
closed papers about your personal income tax.
letter of April

16th to the

ment.

I have sent your

Commissioner of internal Revenue,

with your check for the mount of the
returned to Mr. Beyer the

the en-

additional

file of papers

tax, and have

relating to the assess-

I agree with you that this sort of thing is most irritat-

ing, particularly the practice followed by the Bureau of Internal

Revenue of constantly re-examining
small income tax cases.

and

re-opening

relatively

The Secretary and the Tax Simplification

Board have been giving special attention to this phase of the

Internal Revenue work

during

the past few months and instructions

have already been given to the Commissioner that will, I hope,
simplify thesd examinations in the future and close up the cases
with less delay.

I think that the Bureau is also

making progress

in the settlement of the larger cases and that collections of
back taxes on this account will be much larger this year than
ever before.

It is now clear tbat the present fiscal year will close
without a deficit and that there will even be a substantial surplus for the year, amounting to perhaps $100,000,000.

No public

statement to this effect has yet been made but I have in mind

2 -

subject in connection with the May 15th

saying something on the

financing of the Treasury.

It is really a remarlfably good showing

for, as you know, our surplus is calculated after charging out as

ordinary

expenditures all of the debt retirements resulting from

the operations of the sinking fund, repayments by foreign governments, and other similar accounts.

A surplus of $100,000,000,

therefore, nears $100,000,000 over and above $400,000,000, or
1

thereabouts, of debt retirements already charged out as ordinary
expenditures, or, in other words, a surplus of about $500,000,000
if our budget were set up on the same basis as the British budget
for the year just closed.

This favorable result, as compared with

the rather disturbing prospects at the beginning of the year, is
due largely to much improved collections of internal revenue and
customs, and to a much smaller extent to decreased expenditures.
March tax collections, AS you have probably noticed, were about
$60,000,000 more than had been estimated and this means an increase
of prbbably $200,000,000 in income tax collections for the calendar
year, time greatly simplifying the Treasury's current financing:
I am hoping to write you separately in a day or two about
the British agreement.

It is in

rather disappointing form

from

the point of view of what we most wanted to accomplish, but in the
form submitted to the British went as far as our Commission was
willing to go.

Up to data there has been no word from the British
6

Government but I am expecting to get advice an this score almost
any moment.

-3I hope you are feeling as
a lot of health.

frisky as ever, and accumulating

Let me know if there is anything I can do at any

time.

Sincerely yours,

q5s

Benjamin Strong, Esq.,
c/6 Cragmore Sanitarium,
Colorado SprinA, Colorado.

(COPY)
August 3, 1923.
Dear Mr. Case:
I do

not

know whether you ever sent to the Federal Reserve Board

your proposed letter of June 25,

1923, on

the subject of fiscal agency ex-

penses, but not having heard from the Board I presume that you decided not
to send it.

I think that the TreaBuryls

position

in the matter is rather

clear, and since the question has _been raised I am glad to restate it for

your information. It is simply a matter of appropriations.

The Treasury

has an indefinite appropriation based on a percentage of the securities issued
which enables it to reimburse the Federal Reserve Banks for all expenses incident to new issues of securities, including Treasury notes, Treasury certifi-

cates, and Treasury savings certificates, and it has accordingly followed the
practice of reimbursing the Federal reserve banks for all expenses on these
accounts incurred in their capacity as fiscal agents of the United States. As
to the general fiscal agency work, not especially connected with new issues,
the Treasury is depending upon an annual appropriation from Congress for the
su,yort of the public debt service.

This appropriation is in a limited amount,

sufficient only to cover operations at the Treasury in Washington, and begin-

ning with the fiscal year 1922 Congress has made it perfectly clear that it
did not intend

the

Troasury-to use any of

bursement to the Federal reserve banks.

this

appropriation for making reim-

This it has done not merely by ex-

pressions in committee and on the floor but also by expressly omitting to,grant
the funds necessary to cover Federal reserve bank reimbursements.

The appro-

Act
priations for the fiscal year 1924 are already fixed, being covered by an

March 4, 1923,
of Congress passed before the expiration of the last Congress on
to
and there would, therefore, be no way of making reimbursement this year

Federal reserve banks on account of general fiscal agency expenses,

except

through a supplemental or deficiency appropriation.

To get such an appropri-

ation the Treasury would have to submit special estimates for the purpose to
the Bureau of the Budget and through that Bureau to the Committees of Congress,
at the same time being obliged to make it clear that the money would be applied
to reimburse the Federal reserve banks.

The Treasury is willing, on request

of the Federal reserve banks through the Federal Reserve Board, to attempt to
get a supplemental or deficiency appropriation for this purpose, but I should
not myself be inclined to ask for such an appropriation without such a request,
and I doubt whether anything would be gained in any event.

Congress is not

likely to be willing to grant the additional appropriation, and even if it did
the situation would not be substantially different than it is at present,
since the effect of the absorption of fiscal agency expellees by the Federal

reserve banks is to reduce by that amount the amount of franchise taxes payable to the Treasury at the end of the year.

Besides this I have the feeling

that in some Federal reserve banks at least fiscal agency operations are more

economically administered when the expenses have to be aborbed by the Federal
reserve bank than when everything is billed to the Treasury for payment.

Very truly yours,
(Signed)

S. T. Gilbert, Jr.,
Under Secretary.

THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
August 11, 1923.

Dear kr. Case:

I received your letter of August 6, 1923, with respect to
the 4 per cent Loan of 1925, which becomes redeemable on any interest
day after February 1, 1925.

It is not for me to say what shall

be done with these bonds when they become redeemable, but I feel
clear, nevertheless, that the sound policy is to call them for redemption at the earliest possible date and am glad to leave a record to
that effect in the Treasury.

Under existing conditions I believe

that the only practicable way to retire the Rational Bank Rote

circulation is to retire gradually the circulation bonds which
support that circulation, and this can be done in very large meas-

ure if the Treasury will pursue the policy of redeeming the circulation bonds in reasonable amounts and at convenient dates as soon as
they become subject to redemption.

As to the 4 per cent Loan of

1925, the case seems to-me particularly clear, for 4 per cent

much too high a rate for the Government to be paying on bonds that
enjoy full exemptions from taxation and at the same time carry the
circulation privilege.

There are only about $118,000,000. of the

bonds outstanding, and it would be perfectly feasible in one or two
operations to retire them completely, displacing them with notes
and certificates in so far as refinancing may prove to be necessary.

J. H. Case.

-2-

8/11/23.

In my judgment a similar policy should be followed in
respect to other circulation bonds, including the circulation bonds
which bear interest at a relatively low rate.

With the establishment

of the Federal Reserve System and the provisions for the issuance
of Federal Reserve notes,

it seems to me that National bank

notes no longer fit our currency system, and Congress itself, in the

provisions of the Federal Reserve Act, has expressed a rather definite intention to provide for their gradual retirement through the
retirement of the circulation bonds.

Owing to the war and the large

issues of Government securities growing out of the war, these specific
provisions of the Federal Reserve Act have not proved effective.

The intent

must, nevertheless, be recognized, and I think that the Treasury
should proceed to carry it out, as and when it becomes possible,
through the redemption of circulation bonds before maturity.

Here

and there this may mean that the Government will pay a little more
interest, but I think this is not too great a price to pay for getting
rid of the circulation bond and its attendant evils.

, Very truly yours,
(Signed)

J. H. Case, Esq.,
Acting Governor,
Federal Reserve Eank,
New York, N. Y.

S. P. Gilbert, Jr.,
Under Secretary.

ACKNOWLEDGED
THE UNDERSECRETARY OF THE TREASURY NOV °1923

R s.

WASH I NGTON

November 17, 1923.

My dear Governor:

This is really good-bye, for my resignation becomes effective to-day, and I am lea*ing directly for New York.

I cannot leave

the Treasury without recording this final word of thanks for all
your helpfulness and sunport, and exnressing my personal appreciation
of your thoughtfulness and friendship

during

these difficult years.

You

have contributed splendidly to the success of the Treasury's program,
and I want you to know

how highly

it is appreciated here.

Mr. Winston will succeed me as Under Secretary, and I know
that he can always count on you, as I have, for the utmost cooperation and sup/port.

With cordial regards and best wishes, I am

Sincerely

yours,

(17
Benjamin Strong, Esq.,
Governor, Federal Reserve Bank,
New York, N. Y.

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

FRASER